Public blockchains are often evaluated based on the pioneering features of their technology. Moreover, the most important aspect of a project’s success is often its economic design. A reasonable and logical model can preserve the overall security of a blockchain through economic incentives. The possibility of a 51% attack can be eliminated using game-theory concepts. In addtionm, widespread network involvement should be encouraged by ensuring fairness between participants through a profit-sharing mechanism. Only win–win outcomes can sustain the healthy growth of a blockchain ecosystem; it is not a zero-sum game.
Let’s take a closer look at two of the economic models that currently exist in the blockchain world: Proof of Work and Delegate Proof of Stake.
The Proof of Work consensus mechanism is demonstrated by Bitcoin and Ethereum, both of which involve millions of mining rigs. As the number of miners participating in a PoW network grows, challenges emerge with which each key ecosystem stakeholder – miners and developers – must deal.
PoW miners encounter the following three challenges:
1）Dilution of computing power. The potential to successfully mine a block with a single mining rig will decline as more miners join the network. In the Bitcoin network, for example, a mining rig is selected and rewarded with 12.5 Bitcoin every 10 minutes. As more participants join the network, however, the profitability of each miner declines as the potential of being selected for reward declines. The aggregated computing power of the Bitcoin network grew by 400% between October 2017 and April 2018, indicating that the return on investment of individual miners in April 2018 is roughly one-quarter of the October 2017 value.
2）Volatility of token price. The final output of a miner’s effort is a token, and the price of each token directly affects a miner’s investment return. A volatile market will have a direct impact on miners. Of the two existing PoW platforms, Bitcoin aims to stabilize volatility by decreasing the number of Bitcoin rewards by half every 210,000 blocks. Ethereum, on the other hand, issues a fixed number of tokens per block. Both approaches have had only limited success in stabilizing token prices.
3）Liquidity of mining rigs. Most PoW-based mining rigs are customized ASIC devices specifically designed for solving their particular algorithms. If they are not used for mining, such mining rigs would be worth less than the metals they are built on – they have no true value. For miners, therefore, their mining rigs depreciate at stunning speed after purchase.
Developers encounter the following two challenges:
1）Cost. DApp developers must pay high blockchain service fees, regardless of the platform that they are operating on. The usage fee for a DApp with 10,000 daily active users (DAU) can cost around RMB 2 million, which is unaffordable for individual developers and mid-sized development firms. The truth is, apps with only 10,000 DAU are usually seen as trivial, and are usually perceived as a prototype projects in the Internet industry.
2）Cost management. DApp developers purchase services through tokens, making it extremely difficult to predict a DApp’s system usage fee because of the volatility of token prices. This poses a great challenge for DApp developers.
The other main blockchain economic model is the DPOS system, made popular by the well-known platform EOS. One of the original intentions of EOS’s model was to reduce costs for DApp developers by not charging a fee for running codes. To avoid the wastage of system resources, however, EOS requires participants to stake EOS tokens for the use of resources such as CPU, RAM and hard-disk space. Such resources are limited, and their price has been affected by speculative purchasing. Currently, on the EOS platform, a DApp with 10,000 DAU needs to stake EOS tokens with a fiat value of RMB 3.5 million, far exceeding the operational budgets of regular DApp development teams.
Overall, then, significant challenges remain in the econometric design of public blockchains. In our view, the breakthrough lies in the creation of a self-sustaining and self-circulating economic system. At this stage in the blockchain world, it is difficult to create independent ecosystems for individual public chains. Only when the blockchain economy has fully merged with the real economy (e.g. by enabling the real economy to generate more revenue), will stakeholders in the real economy be willing to pay services fees for blockchain technology. Such an integrated relationship will help stimulate the growth and smooth operation of the entire ecosystem.
Ultrain’s model aims to consolidate all useable and available computing resources by building a trusted computing service similar to the concept of cloud-computing. Corporate or enterprise customers can benefit from trusted computing because it enables them to reconstruct their existing business model, significantly reduce the cost of trust in the business environment, and achieve revenue growth. The fees paid by corporate customers are allocated to all parties in the Ultrain ecosystem to ensure win–win situations for all participants and guaranteeing the continuous development of the entire ecosystem.
Thus , Ultrain’s economic design involves modelling a new economic system for the blockchain industry with the goal of completely resolving the difficulties faced by the various ecosystem stakeholders – miners, DApp developers and other community participants. We refer to Ultrain’s economic model as A Real Economy Model Based on Blockchain.
Let’s discuss the design of Ultrain’s economy from two perspectives: allocation, and mining.
A. Economic allocation:
Ultrain’s economic model addresses the process by which DApp developers pay usage fees to the Ultrain public chain, and the Ultrain network shares this income with other parties participating in the ecosystem. Revenue will be allocated as follows:
· Miners. 80% of the total revenue received by Ultrain in service fees will be distributed to the miners in the network. This high proportion is because miners own the mining rigs and therefore contribute resources for the daily operation of the network.
· Ultrain technology team. 5% of the total revenue received by Ultrain in service fees will be allocated to Ultrain’s technology team. This team is responsible for a range of technology-related tasks, such as the development, maintenance and upgrading of the network. Ultrain’s team will receive a corresponding return for their effort in the project. The reward will be in line with the development of the ecosystem, which motivates members to continue expanding and improving the network.
· Ultrain community team. 5% of the total revenue received by Ultrain in service fees will be allocated to Ultrain’s community team. The promotion of our public chain technology relies largely on the support and contribution of our community, which is structured around Hubs, with several local hub leaders responsible for operations, marketing and promotion tasks in specific locations. Ultrain will use 5% of total revenue to reward the top-performing Hub teams. Performance will be judged through a voting process executed by community members.
· DApp teams. 10% of the total revenue received by Ultrain in service fees will be allocated to DApp developers. The prosperity of a public chain is determined by the number of DApps and DAU activities operating on the chain. Ultrain’s revenue generated through public chain service fees will be shared with DApp developers each year or season. However, such profit-sharing will not be apportioned equally among all DApps but, rather, structured to act as an incentive mechanism to reward DApps for excellent performance. Again, the performance of each DApp will be judged through a voting process executed by community members.
Below, we discuss Ultrain’s design for miners’ investments and their potential returns.
Ultrain employs a main-chain and side-chain structure. The main chain is used to confirm user information, create new accounts, and transfer assets; it allows smart contracts only for systematic operational purposes and does not allow the deployment of smart contracts designated for DApp usage. Side chains are designed specifically for DApp deployment based on the needs of individual clients. A single DApp client could be fully serviced by an entire side chain, or a single side chain could simultaneously provide services for multiple DApps.
Miners provide mining rigs for both the main and side chains. To preserve the overall security of side chains, the main chains will actively and randomly move mining rigs from side chains to main chains to reduce the likelihood of malicious attacks by misbehaving miners. The minimum number of mining rigs required to form a side chain will be 40; a maximum limit of 320 rigs per miner will be implemented to ensure that all miners participating in the network obtain a minimum return on their investments.
Requirements for miners
Miners must have:
A rig that meets Ultrain’s minimum requirements: 2.1GHz, 8 cores CPU, 32GB storage, and 100MB bandwidth, staking 42,000 UGAS.
A credit rating of 100. The credit system is used as an indication of the trustworthiness of a rig. Participants can join the Ultrian network and await the formation of 252,000 blocks (which takes approximately 1 month). If no malicious behaviour is detected within this period, a credit rating of 100 will be assigned.
Like other projects in the blockchain industry, Ultrain is trying to resolve the trustworthiness of mining rigs. Bitcoin uses energy consumed as the mining cost, and the hurdle of 51% computing power, and it achieves trust for mining rigs through the application of game theory. Algorand, on the other hand, assumes that >2/3 of nodes are naturally trustworthy but does not explain the basis of this assumption.
Ultrain believes that there is no free lunch when it comes to trustworthiness and therefore will require mining participants to “pay their dues” to secure the network. In contrast to Bitcoin, however, Ultrain will not use energy resources to determine mining cost; rather, it will have two mechanisms:
Staking 42,000 UGAS and thereby losing the ability to liquidize these assets is in itself a cost.
Participants are required to obtain and maintain a credit rating of 100. Before joining the Ultrain network, miners must wait for the formation of 252,000 blocks (approximately 1 month) without any form of malicious behaviour – this is, in effect, a time cost.
Together, these two types of cost form the cost of participation for Ultrain mining rigs.
Ultrain uses a custom consensus mechanism - Random Proof of Stake. RPoS consensus is similar to the PoS mechanism, but with a random selection process. It increases the security of the network by requiring token staking to prevent a 51% attack. If a malicious attack is detected within the network, the token stakes of such participants will be seized automatically and their credit rating reduced to 0; thus, this is the cost of malicious behaviour in the network.
There are two phases of Ultrain mining, one for credit-rating establishment and the other for proving the calculation service online.
Credit establishment phase
When a new mining rig enters the Ultrain network it enters a queue of mining rigs that are hoping to receive a credit rating after waiting for the formation of 252,000 blocks (approximately 1 month). When a rig has achieved this, it may enter the next phase of providing calculation on a chain. The rigs queueing at this stage are offered no reward or incentive.
Proving calculation phase
Mining on main chain
The main chain is constructed to service the side chains (those parts of the network providing computing services to clients). Thus, the main chain will charge 2% of the total fee. The scheduling of mining rigs in side chains, transfers between accounts, the creation of accounts, and other functions will all require UGAS when executed. All UGAS will be directed into an aggregated account and subsequently allocated, pro-rata, to individual mining rigs, depending on the time each rig stays online on Ultrain’s network. Hours will be added when the rig is continuously online and subtracted if the rig goes offline.
Mining on side chains
If DApp developers purchase new computing services but no calculating power is available in the network, Ultrain will assign and select rigs from the main chain to form new side chains and provide additional calculation services.
Such assignments and selections will be executed through smart contracts via a fully automatic process involving the following steps:
Rigs with high credit scores will have a higher likelihood of selection on the side chain. The minimum credit score for selection as a side-chain rig is 100.
The minimum number of rigs required to form a side chain is 40 rigs. If the side chain is yet to fulfill this requirement, new qualified rigs will be automatically assigned to this side chain.
When multiple side chains require more rigs, qualified rigs will be assigned with equal distribution among side chains, until specific side chains reach the maximum number of allowable rigs.
Side chains will employ RPoS consensus, with nodes generated at a rate of 1 block every 10 seconds. Such nodes will be rewarded with 1 UGAS; the mining rigs selected for the side-chain computation will not be assigned back to the main chain and will continue providing service on the side chain.
DApp service purchase
Ultrain provides two methods of fee calculation for enterprises.
- Customized specific side chain. A side chain may be dedicated to service a single client, depending on their specific requirements. The following criteria will help clients evaluate their true needs:
· TPS requirement: a single Ultrain side chain is capable of providing services with 1,000 TPS. Enterprises can evaluate their needs based on DApp metrics such as daily active users; they may choose to employ a single or several side chains, depending on their usage.
· Security requirement: side chains are formed by a number of rigs; the more mining rigs operating in a given side chain, the more secure the environment. A minimum requirement of 40 rigs applies, and 80 rigs are the recommended configuration
· Usage requirement: This is the estimated amount of time an enterprise will need to operate its DApp on Ultrain’s chain. A minimum requirement time of 1 month applies.
- Randomly customizable side chain. Enterprise clients can purchase portions of aggregated computing power when deploying their DApps on the chain, and they can share single side chains with other clients. Publicly shared chains, will be composed of 320 rigs. The CPU, storage and hard-disk resources are aggregated into a package that is divided into 1,000 portions that can be purchased. Each portion of such packages is capable of supporting 2,000 transactions per day.
Enterprise clients can estimate the service fee and stake the corresponding amount of UGAS tokens in a smart contract operating on the main chain. The service can start as soon as the prerequisite computing power has been assigned from the main chain to side chain.
The amount of tokens staked by an enterprise will be used to generate blocks every 10 seconds, rewarding the node that generated the latest block with 1.25 UGAS.
For example, if an enterprise client was to construct a single side chain specifically for its own disposal, the amount of UGAS required to be staked on the network would be calculated at 1.25*(606024*365)/10 = 3,942,000 UGAS for one year, since 1 UGAS is allocated every 10 seconds to the rig that completes the latest block and simultaneously generate 0.25 UGAS to Ultrian's system account for future allocation to DApp, community or technical team.
C． Summary of the advantages of Ultrain’s economic model:
The model fundamentally resolves the key issues and concerns of DApp developers and miners, as follows:
1） Dilution of computing power. All mining rigs participating in the Ultrain network can achieve a specific range of return on their investment in the network because an upper limit exists on the number of rigs in any given side chain. Computing power will diminish, but only to a certain point.
2） Volatility of token price. The tokens DApp developers use to pay Ultrain for its service will be staked and locked on the main chain and then redistributed back to miners at a consistent rate. This mechanism will maintain token price stability.
3） Liquidity of mining rigs. Most mining rigs operating on the network will likely be low-end devices commonly found on the market. If miners no longer want to mine they can easily trade their rigs in the second-hand market.
For DApp developers:
1） High cost. Ultrain provides DApp developers with a package deal that allows portions of the aggregated resources such as CPU, storage, hard-disk space and bandwidth to be used based on the client’s needs. This package deal would only cost RMB 30,000 per year, which is more reasonable and affordable compared with competitors that charge millions.
2） Cost management. By using the staking mechanism, DApp developers can be sure that the rate of service will be consistent over a given period because the staked tokens are locked in. This significantly reduces cost volatility.
In conclusion, Ultrain’s economic model is built on the idea of serving the real economy and is therefore both practical and reasonable, as well as capable of continuous expansion as more computing power is added to the network. Its smoothly designed economic system would guarantee the interest of early participants and help ensure the healthy development of the entire ecosystem.
This write-up constitutes our initial vision of the Ultrain economic model. We know there is room for improvement and hope that the community will participate in the improvement process through Reddit, Telegram and WeChat groups.