Net neutrality via blockchain: analyzing Loki Network’s onion routing mixnet

In this write-up, I aim to fundamentally analyse Loki Network ($LOKI), a crypto-project aiming to create a more private mixnet, combining the best elements of Tor and i2p. Via answering critical questions in sort type of analytical framework, it is aimed to holistically analyse the start-up and gain a thorough understanding of its purpose.

CONTENT

• About the project
• Adoption
• Competition
• Token Economics
• Team & Community
• Funding & Governance
• Status & Critiques
• Conclusion

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Any comments, thoughts for improvements, feedback or critiques in the analytical framework or the analysis of Loki Network are welcome.

Main sources: Website | Whitepaper v3 | Cryptoeconomics v1|Youtube

Loki’s name is a pun to being ‘low key’ via a ‘lock’ against censorship

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ABOUT THE PROJECT

Which key problem does LOKI solve? Internet neutrality; information censorship resistance, digital anonymity, private transactions and communications.

**_What aspect of human nature is LOKI serving?_**Most digital environments are controlled, tracked and censored by governments and nation states. Loki aims to create freedom and privacy in information, communications and transactions by building a new mixnet, solving some key challenges of Tor and i2p. Inspired by Onion Routing, Loki basically provides a more secure way to access the various levels of the internet — including the deep web, which is estimated to contain over 90% of the world wide web.

The internet divided in three levels, Loki’s mixnet offers better privacy than Tor to access the dark web.

The Lokinet protocol allows users and web-services to stay completely anonymous and encrypted on the internet, thus ensuring net neutrality and censorship resistance.

On the Lokinet, developers can create so-called service node apps (SNApps) in any web-based language. These applications are similar to ‘’ in Tor, ensuring encrypted anonymity to websites and webapps that leverage Loki’s mixnet. Loki Messenger, an end-to-end encrypted private messenger, shall be the first SNApp on the Lokinet.

More information regarding Tor vs Lokinet is provided in this interview with Simon Harman, Loki’s CEO.

A hidden-service (HS) is located inside the Tor routing network, making it near impossible to identify the user or the service. As there is no exit node linking to a server outside the anonymous cloud, the HS counters security breach B (). SNApps are similar to this, but run on the Lokinet with incentivised network nodes.

**What is the Massively Transformative Purpose (MTP) of LOKI?“**Trade and communicate in absolute freedom: private transactions, decentralized communication”.

_What are some key applications of LOKI?_Lokinet (eg a blockchain-based Tor/ i2p mixnet)

• “Service Nodes on the Loki network will operate a low latency onion routing protocol, forming a fully decentralised overlay network, called Lokinet” (source).
• “Since the mixnet operates entirely on layer 3 in the OSI model it doesn’t stipulate application level operation” (source), so “you can push any protocol through it since its not limited to TCP/IP, its build around UDP like I2P” (source).

SNApps (Service Node apps) — apps with anonymity and privacy on Lokinet

• Loki Messenger (private communications on the Lokinet protocol)
• “The function of SNApps is similar to so-called hidden services in Tor which have flourished. […] SNApps allow for users to setup and host marketplaces, forums, whistle-blowing websites, social media, and most other internet applications on their own machines or servers while maintaining full-server and user-side anonymity” (source).
• “Unlike most DApps, SNApps do not rely on on-chain execution or computation. All SNApps are computed client-side, and the networking is handled offchain by the Service Node network” (source).
• SNApps can be build with common web-based languages, so developers do not have to learn a new programming language.

The Loki mixnet “operates entitrely on layer 3 [Network] in the OSI model” (https://t.me/LokiCommunity/83346)

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ADOPTION

**_Why would LOKI reach super dominance?_**First mover advantage; it is the first blockchain-based mixnet protocol, and has a working main-net.

Privacy is a increasingly becoming a hot topic, hence many blockchain projects are focused on privacy functionality. As Tor is currently the most popular solution for mixnet integration, privacy-oriented crypto projects — such as the cross-chain privacy protocol of the NIX Platform — are implementing Tor as the default mixnet.

It would be logical that these projects update into Lokinet, triggering network effects and user adoption of existing projects.

How does LOKI track and increase its network effects?

• Having privacy-oriented projects that now use the Tor network as the default onion routing service, also implement integration with Lokinet.
• Incentivising miners; the network is secured by Proof of Work via the CryptoNight Heavy algorithm (= CPU + GPU mining).
• Incentivising Service Nodes; through Proof of Service.
• From a user perspective; network effects from Loki Messenger and other SNApps, which are basically webapps running via the Lokinet protocol on the internet.

**_How does LOKI tackle the blockchain trilemma? (Decentralization / Security / Scalability)_**For LOKI, the main issue would arguably be scalability, as security is a primary focus, and decentralization is achieved by the hybrid PoW/PoS structure. Though the team is looking into a PoW mining network without central mining pools, as that can lead to centralized hashing power.

According to Whitepaper v3, Loki can solve potential scalability issues by:

• Utilizing bulletproofs, “reducing the information that nodes are required to store and relay, thereby improving scalability”.
• Not having a fixed block size. “The Loki block size scales by observing the median block size over the last 100 blocks and slowly retargets the maximum size of any new blocks accordingly.”
• Optimizing transaction size, “to ensure that the network scales efficiently so as to keep the Service Node operating costs down so that a high node count can be sustained in the long term”.
• And lastly, “ To ensure scalability and accessibility for mobile users, the proof-of-work difficulty requirement is fixed based on the Time-to-live (TTL) of the message or the path, and not based on global network activity.”

**_In what programming languages can developers build SNApps on top of the Loki mixnet?_**It is advised that programmers can hook into existing, popular development languages and frameworks, like Python, Java, Node, and C# to ensure dev-friendly ecosystem expansion. In the case of SNApps, common web based languages can be used, making it easy for developers to join the ecosystem.

According to the Lead Tech, Kee Jefferys “because SNApps are quite similar to hidden services in Tor, they are built using web based languages. Essentially anything you can host on the internet can also be hosted on Lokinet since really you just serve encrypted web content through a path to the person who made the request” (source).

**_Is LOKI interoperable with other blockchains?_**No official public information could be found to answer this question. However, existing privacy-oriented coins and projects that now use Tor as their routing service could potentially also integrate Lokinet in their technology stack. Interoperability is a big deal as it can lead to more adoption, leveraging network effects of others, so an official statement by Loki team regarding this topic would be useful to gain a better understanding.

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COMPETITION

Does LOKI have centralized and/or distributed competition?

• Mixnet: TOR / i2p / Orchid Protocol / VPN services(?)
• Private messengers: Signal / Wickr Me / Telegram / Riot / Tox / Echo
• Blockchain-based private messengers: Status.im / Adamant.im / e-Chat / Mercury Protocol (Dust) / Obsidian

**Why does LOKI have a good chance at beating those competitors?**Mixnet

• VPN services are not completely untraceable and may be expensive to use.
• Tor and i2p are not completely private as one actor can relatively easy operate a majority of the routing nodes in the onion network, enabling deanonymization.
• Orchid Protocol still needs to do their ICO as of July 2018, while LOKI’s mainnet has been live since April 2018 and service nodes are planned to go live Q4 2018.

Private Messaging

• There is very tough competition, it will be difficult to create a network effect and leverage Metcalfe’s Law for this application.
• However, , Loki Messaging is not competing to Signal, Telegram or other private messaging apps. “The idea behind the system is not that it is the best messaging system out there. On the contrary, it is for those times where you need to be absolutely certain that the message is not going to be read by anyone else and you need the absolute pinnacle of privacy”, such as confidential contracts or government intelligence.

Even though this privacy level is a niche, creating a strong brand and quick user adoption is likely key to achieving the critical mass adoption percentage of ~16%, reaching the early majority in this privacy-focused niche(see Diffusion of Innovations by Rogers).

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TOKEN ECONOMICS

**If this protocol has its own token, why does it need it?**To decentralize the service, ensuring privacy and anonymity in the mixnet.

Current systems like Tor have issues regarding centralization. As the network is based on getting traffic, it is easy and cheap for a network actor to gain a majority of the nodes in the routing process. Thus, interactions can be tracked and traced back to the user, defeating the purpose of Tor’s anonymity.

Via the service nodes, a percentage of the tokens is locked up, reducing liquidity of the digital asset. By introducing financial incentives to lock up a significant percentage of the total token supply, it becomes increasingly expensive to own a majority stake in the network, thus making a 51% attack prohibitively expensive.

More information regarding Tor vs Lokinet is provided in this interview with Simon Harman, Loki’s CEO.

On July 20, 2018, a new economic model for the emission curve of the LOKI tokens was presented, ensuring a better balance between the amount of service nodes and the incentive for people to run these nodes in the network.

The new economic model reduces the amount of Service Nodes, to ensure long-term positive return on investment for the Service Nodes operators.

**_How does LOKI generate and capture value?_**By building a platform for privacy-centric decentralized applications (SNApps) that hook into the new mixnet — ensuring privacy, anonymity and censorship resistance. “Once a SNApp is launched, it is supposed to be unstoppable, uncensorable, and totally immune from external attacks” (source).

The Lok, the official token name of the Loki Network, is used to incentivise a decentralized network of actors running service nodes and mining operations. It is unclear whether the digital asset is also used as an utility token for services on the network. More information about the circular token economics of the Loki coin would be appreciated.

A model for circular token economics (source).

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TEAM & COMMUNITY

Why is the team credible?

• A few developers from Monero are in the team, including the third most contributor of Monero (Tom Winget), thus bringing in useful blockchain experience.
• The Lokinet Team Lead (Jeff), is a C++ developer for the i2p protocol.
• The Project Lead (Simon Harman) seems professional and intelligent in .
• The Lead Tech (Kee Jefferys) seems knowledgeable and charismatic in presentations and interviews.
• Communications are clear, providing weekly updates and prompt announcements to the community.
• In panel talks, the team seems to be friends and interact in a respectful and harmonious way to each other.

Project development-wise, a constant and active stream of updates in the Github repository can be observed. Various people are active over the different Loki projects, so it can be stated that a community of programmers is working on this open-source project.

**_How is the community engagement?_**Loki regularity publishes updates from developments or upcoming events. However, there seems to be no real community decision making or democratic governance. The service nodes are part of the governance process, but the regular user is not. On the various social media platforms that Loki uses, there seems to be an active community.

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FUNDING & GOVERNANCE MODEL

**_How and when was Loki funded?_**In March 2018 a private ICO that sold 15% of the total token supply raised $9 million USD. According to IcoDrops, the ICO Token Price for these early private investors was 1 LOKI = 0.68 USD.

**_Are the technology and governance model both decentralized?(Architectural, Political, and Logical decentralization)_**Chapter 9 in the whitepaper is dedicated to governance:

“The Loki governance system is designed to resolve potential issues by providing a structured environment for discourse and representation, and also to source funding for the development of Loki without reliance on external influence or altruism”.

“Governance structures should create the means to internally fund new projects which improve upon the Loki ecosystem. Internally funding projects can prevent the formation of special interest groups that do not necessarily have motives that are in line with the users, miners, or Service Nodes.”

Technology / Architectural decentralization

• Open-source.
• Combining mining and service nodes for more decentralization.
• The CryptoNight Heavy algorithm maintains ASIC resistance against CryptoNight ASIC miners.
• The team is thinking about eliminating or rethinking the need for central mining pools to ensure decentralized hashing power in the network.

Governance / Political decentralization

• “[For] every Loki block, 5% of the reward is allocated for the purpose of network governance. This provides a steady flow of Loki that will be distributed amongst community projects, software developers, and integration teams. Of this 5% block reward, 3.75% is controlled by the Loki Foundation and 1.25% is controlled by the Service Nodes through the Loki Funding System”.
• The Loki Foundation overviews the project and “is made from a diverse group of individuals who represent the Loki Project [… and] is subject to both its own governing constitution and the laws of Australia”. This could prove to be a limiting factor in the range of decisions the Foundation can make”.

• 
  

  “The Loki Funding System allows for a portion of the block reward tobe acted on purely by a vote from the Service Nodes. Service Nodes represent entities from all over the world and are not beholden to input from the Loki Project Team or Foundation, this allows them to reach a new level of autonomy in the decisions they can make. Service Nodes are the most staked participants in the network and they are financially incentivised to make decisions that grow the value of Loki.”

• Every two months (43,000 blocks), proposals for new decisions can be submitted. A service node can vote on these proposals, based on the provided information. A non-trivial amount of Loki is burned for every proposal, ensuring a decent signal-to-noise ratio. “Proposals are only passed when the result of the yes votes minus the no votes is equal to 15% of the node count on the Service Node network” (source).

System / Logical decentralization

• There is only one Lokinet system being build right now, so it is centralized. Logical centralization, according to Vitalik Buterin, is a key characteristic for a blockchain projects. Since it is open-source and can be forked, the system could be potentially expanded with several versions with interoperability among them, increasing the logical decentralization.

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STATUS & CRITIQUES

**_What is the current status of LOKI?_**Main-net is live, both mobile and laptop wallets are released, community and interest is growing. Active development of the Lokinet has started in May 2018.

“Lokinet is still quite a while away, and as always we will keep everyone updated on our progress. Additionally, if you’re a developer or a keen code monkey, please reach out to us or start contributing by making a pull request, issue etc. We have bounties set aside for open source development” (source).

According to the Lead Teach, the current token supply is 29m including both locked and unlocked coins. The total maximum cap was 150m, but is closer to 110m after the updated emission curve changed (excluding tail emission) (source).

Regarding the short term future for Loki, Q4 2018 should see the release of Service Nodes, and Q1 2019 the launch of Loki Messenger.

Critiques / flaws / disadvantages?

• It may be difficult to get mass adoption for Loki Messenger and other SNApps, but due to the encrypted anonymous layer of Lokinet and the ease of development in web-based languages, Loki can capture the privacy-oriented niche.
• The team seems professional, but it looks like they are all in their 20s, maybe early 30s. Perhaps some more experienced and seasoned people could be added to the core team, adding valuable skills, networking and relationships.
• There are no metadeterministic operations / semantics for on-chain forking without disturbing the underlaying system, like Bismuth. In other words, a hard-fork generates a new blockchain.
• Not yet a permanent solution for ASIC resistance, but this might not be a big challenge for centralization and network integrity. According to the CEO, to achieve network decentralization.
• No official statement regarding interoperability with other blockchains.
• There are no audits to verify the integrity and security of the LOKI wallets.
• The cryptoeconomics paper is focusing on the balance of incentivising network nodes and miners. No information about the circular token economics of the ecosystem could be found yet, eg does the Loki digital asset also serve as an utility token?
• The Loki Foundation and Loki Funding Systems seem like a decent governance model. The individuals in the foundation’s board in combination with the decentralized service nodes have a major role in the decision-making process of the project. It would be nice to see a way for users or regular token holders of the Loki Network to have some type of voting power too, making the governance more democratic.

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CONCLUSION

Via an analytical framework, answering questions in various categories, the crypto-startup Loki Network has been fundamentally analysed. Overall, it seems like a solid project; it has a strong vision, first-mover advantage in the blockchain mixnet space, and an enthusiastic team that seems to be delivering and communicating. Since common web-based programming languages can be used to build SNApps, it is easy for developers to get involved.

Some critiques and flaws do exist. The Loki token it is used as an incentive mechanism, but it is unclear whether it also serves as an utility token in the ecosystem. More information about these circular token economics would be appreciated. Additionally, there is a serious challenge to receive mass adoption for yet another private messenger due to much competition. Lastly, there are no official statements whether the Loki protocol will be interoperable with other blockchains.

The analytical framework is still a work in process, so if you have suggestions for different questions or aspects to analyse blockchain projects, let me know!

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Token of appreciation: If you find the insights in this article useful and want to support my work, please consider a donation on this article’s LOKI address.

Disclaimer: This piece was written to apply my fundamental analysis framework on an interesting project that has caught my attention. I am not incentivized to put my time and brain juice into this write-up, other than being a smallscale investor / token holder of this project and the intrinsic motivation to learn more about promising blockchain technology.

ABOUT THE AUTHOR

Menno van Ginkel has been studying innovation and exponential technologies since the early 2010s. He is now focused on decentralized networks, blockchain technology and sustainable food.

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Thank you for reading this! Have I forgotten certain information or developments? Or do you have identified flaws or bias in my story and reasoning? Please let me know, I’m open for discussion, feedback and critique.