- Thoughts on the Oxen Ecosystem
This is the second video in a 5-video series on Oxen, Lokinet, and Session. This video is about Oxen, the cryptocurrency that also powers Lokinet and Session.
All original content in this video is dedicated to the public domain. Third-party resources included in this video are not necessarily public domain, but they fall into one of two categories:
- They are public domain or licensed under a license which permits commercial use without attribution.
- They are copyrighted works which I have not licensed but which I believe I am using in accordance with fair use.
Sources (in order)
- S. Nakamoto. Bitcoin: A Peer-to-Peer Electronic Cash System. https://bitcoin.org/bitcoin.pdf, 2008.
- M. McSweeney. Coinbase wants to sell blockchain analysis software to the IRS and DEA a year after its Neutrino acquisition. https://www.theblockcrypto.com/post/67551/coinbase-irs-dea-analytics-neutrino, June 2020.
- R. Mitra. After the IRS and DEA, US Secret Service obtains the Coinbase Analytics license. https://www.fxstreet.com/cryptocurrencies/news/after-the-irs-and-dea-us-secret-service-obtains-the-coinbase-analytics-license-202007150445, July 2020.
- M. Wille. Coinbase just made a huge, very abstract deal with ICE. https://www.inputmag.com/culture/coinbase-just-made-a-very-abstract-deal-with-ice, September 2021.
- R. Cho. Bitcoin's Impacts on Climate and the Environment. https://news.climate.columbia.edu/2021/09/20/bitcoins-impacts-on-climate-and-the-environment/, September 2021.
- A. Hern. Waste from one bitcoin transaction 'like binning two iPhones'. https://www.theguardian.com/technology/2021/sep/17/waste-from-one-bitcoin-transaction-like-binning-two-iphones, September 2021.
- C. Harper. How China's Bans Are Changing The Bitcoin Mining Landscape. https://bitcoinmagazine.com/business/china-bans-change-bitcoin-mining, June 2021.
- A. Asghar. Bitcoin hashrate: Two mining pools control more than 50% of Bitcoin hash rate. https://www.cryptopolitan.com/bitcoin-hashrate-2-mining-pools-52-percent/, May 2020.
- J. Gogo. 65% of Global Bitcoin Hashrate Concentrated in China. https://news.bitcoin.com/65-of-global-bitcoin-hashrate-concentrated-in-china/, May 2020.
- The Monero Project. About Monero. https://www.getmonero.org/resources/about/
- WKDart. https://www.twitter.com/WKDart/status/1386187042460106754, April 2021.
- The Oxen Project. Introduction to Oxen. https://docs.oxen.io/about-the-oxen-blockchain/overview
- A. Linton. Clean crypto: Creating a sustainable future for blockchain. https://oxen.io/clean-crypto, May 2021.
- The Oxen Project. Blink: Instant Transactions. https://docs.oxen.io/about-the-oxen-blockchain/blink-instant-transactions
- The Oxen Project. Oxen Name System (ONS): The Facts. https://oxen.io/oxen-name-system-ons-the-facts, March 2020.
- The Oxen Project. Oxen Service Nodes. https://docs.oxen.io/about-the-oxen-blockchain/oxen-service-nodes
- The Oxen Project. Full service node setup guide. https://docs.oxen.io/using-the-oxen-blockchain/oxen-service-node-guides/full-service-node-setup-guide#5.2.1-pool-operator
Before we can talk about Oxen, we need to talk about the relevant cryptocurrency background.
Bitcoin, of course, also builds on previous work, but it's a good starting place for us.
Bitcoin was designed to be a decentralized form of money. It uses a publicly shared "blockchain" – a hyped-up term for what programmers call a "linked-list" – with some important properties. Here's what you need to know about Bitcoin's blockchain:
- The blockchain acts as a ledger of all transactions that have ever occurred. In fact, a transaction is only considered to have actually happened if it makes it into the blockchain.
- The blockchain can only be added to, not removed from or modified.
- Who gets to add to the blockchain next – a process called mining – is decided by a system called Proof of Work, which can be understood as a lottery where people who can waste more electricity faster get more lottery tickets.
Don't @ me.
The winner of this lottery also earns a reward in the form of newly minted bitcoins.
There are some obvious consequences of this system:
First, since all transactions are public, privacy with Bitcoin is essentially nonexistent. You do use random-looking numbers rather than your real name, but the entire history of your money can be tracked by anyone who learns this number, such as anyone with whom you exchange money, or cryptocurrency exchanges like Coinbase which require government-issued identification to use and work with the US government to analyze the blockchain.
The second important consequence is that proof of work becomes extremely centralized and environmentally destructive. People's ability to waste electricity fast (and thus get more lottery tickets) is proportional to their wealth, so the people with more money are more likely to win the rewards and gain more wealth with which to waste even more electricity faster. They join together into big, centralized mining pools to waste even more electricity even faster and outcompete the smaller, less centralized players.
It should be self-evident that this race to waste electricity as fast as possible... wastes a lot of electricity. We're talking more electricity use than some countries like Argentina. We're talking more electricity use than tech giants Google, Apple, Facebook, and Microsoft combined. Even the 39% of this electricity that comes from renewable sources is problematic. Most of it comes from hydropower, which carries its own issues, and, of course, using electricity like this produces a lot of heat.
In addition to the pure electricity waste, mining creates a ton of electronic hardware waste. In their goal of outcompeting other miners in the waste-electricity-fast game, Bitcoin miners produce or buy specialized hardware exclusively for the purpose of mining Bitcoin. New hardware so far outperforms the previous hardware that the old hardware is not even cost-effective to run anymore. But since this hardware is specifically tailored for the purpose of mining Bitcoin and no other purpose, when it's no longer useful for mining Bitcoin, it just goes to waste. A recent study estimated that the amount of e-waste produced by Bitcoin mining in a year is comparable to the amount produced by the Netherlands, and when you average based on the number of transactions that occur, the e-waste produced in processing a single Bitcoin transaction is the equivalent of throwing away 2 iPhone 12 minis.
Bitcoin mining also naturally centralizes geopolitically. Say you're a miner. Wasting as much electricity as possible is expensive, and you want to cut down on costs. Where is electricity the cheapest? That's where you want to set up shop. Just like everyone else.
China banned Bitcoin mining last year, but prior to this change, China was THE place to go for Bitcoin miners. In May 2020, just two Chinese mining organizations, F2Pool and Bitmain, reportedly accounted for over half of the "lottery tickets". Other reports around the same time estimated that China accounted for 65% of global Bitcoin mining.
So let's review the key problems with Bitcoin:
- It's not very private.
- It's wildly harmful to the environment.
- It's very centralized, and it fundamentally perpetuates wealth inequality.
Mind you, there are a lot of other problems with Bitcoin as well, such as limited transaction volume which severely curbs its usefulness, neverending blockchain bloat which further contributes to centralization, and its strongly right-wing libertarian and anarcho-capitalist communities, but those aren't the issues I want to focus on here.
This leads us to Monero. Monero is a cryptocurrency based on the CryptoNote protocol, which is designed to solve the privacy issues with Bitcoin. Monero has three main tools to keep transactions private:
- Ring signatures obfuscate the sender of a transaction by mixing an instance of money they are allowed to spend with some other instances of money. The sender proves that they have the right to spend the money they're spending, but an observer of the transaction should not know which instance of money is being spent.
- Ring confidential transactions (or RingCT) obfuscate the values being transacted. Observers can verify that the input values and output values sum to the same amount, but they don't know any of the actual values or their sum.
- Stealth addresses obfuscate the receiver of the transaction. Basically, rather than publish a single address where people can him money, Bob publishes a formula for creating new addresses that he will know, but other people will not know represent him. When Alice follows this formula to create a new, unique address for Bob and sends money to that address, Bob can see that it's meant for him and spend the money sent to that address, but no one else should be able to associate it with any other address that has been used to send Bob money.
Monero also uses a different proof-of-work scheme than Bitcoin, which is intended to prevent people from making specialized hardware for mining Monero like they did with Bitcoin. The goal is to prevent Monero from centralizing to the degree that Bitcoin did. However, Monero still uses a proof-of-work scheme, which is wasteful by design and fundamentally rewards the rich and powerful with more money and power.
1.1.3. Proof of Stake
There are alternatives to the wasteful proof-of-work system. Most notable among them is one called "proof of stake". Let's look back at how proof-of-work functions.
People with money can pay for hardware and electricity to produce large amounts of waste. They are rewarded for this waste with more money. If I may borrow an analogy from Twitter user @WKDart, proof of work is like running a pollution machine which makes its owner money. "It doesn't make anything, it just. Pollutes. And makes money."
Proof-of-stake is an alternative system where people with money… are rewarded with more money. That's how it works. "Staking" is kind of like putting your money into a certificate of deposit. You're not allowed to use it for a bit, but then you're rewarded with interest for doing it.
Proof-of-stake is also an imperfect system. The rich continue to get richer, and it really doesn't do anything to prevent the same centralization as in proof-of-work. BUT HEY, AT LEAST IT GETS RID OF THE POLLUTION MACHINES!
1.2.1. Oxen as a Cryptocurrency
This brings us to Oxen. Oxen (formerly Loki) is a CryptoNote coin, based on Monero, and it inherits transaction privacy features from Monero. Oxen started out using a mixture of proof-of-work and proof-of-stake, but it has since moved entirely to proof-of-stake.
So looking at the key problems we identified earlier with Bitcoin:
- It's not very private.
- It's wildly harmful to the environment.
- It's very centralized, and it fundamentally perpetuates wealth inequality.
Oxen solves 2 of these 3 problems:
- It is private.
- It's not wildly harmful to the environment, but
- It still risks being very centralized, and it fundamentally perpetuates wealth inequality.
Oxen also has a system called Blink which enables transactions to be preapproved, making them effectively instant. This addresses a major usability issue in other cryptocurrencies which can take hours or even days to process transactions.
1.2.2. Oxen Name System
One of the big problems in cryptography is public key distribution and trust. Let me explain briefly.
If Alice and Bob want to talk to each other securely, they need to exchange keys. Each has a private key, which is secret and not shared with anyone, and a public key, which is shared with the other party. If Alice has Bob's public key, she can encrypt messages such that only Bob can read them, and she can verify that a given message sent to her from Bob is authentic. In the case of a cryptocurrency, if Alice has Bob's public key, she can send money to him.
But what happens if Alice has the wrong key for Bob? If Mallory goes to Alice claiming to be Bob, and to Bob, claiming to be Alice, she can do what's called a person-in-the-middle attack. This allows Mallory to read the "private" messages sent back and forth, and even modify them if she wants. In the context of a cryptocurrency, if Alice can be convinced that an address belonging to Mallory actually represents Bob, when she tries to send money to Bob, it will go to Mallory instead!
Thus, it's very important to ensure that Alice knows what Bob's public key is. Aside from meeting up in-person to compare, this is a very difficult problem which has no clear solution.
Oxen's method of dealing with this problem is called the Oxen Name System (or ONS, also sometimes called the Oxen Name Service). Since the blockchain is public, Bob can publish a mapping of his username to his public key. Since the blockchain can only be added to, not modified or redacted, if someone tries to subsequently register the same username, it will be seen that Bob has already registered the username, and the new attempt will be rejected. Thus, when Alice decides to send money to the username "bob", she can be sure that she's actually sending the money to the right place.
Registering an address doesn't come for free. To do so, users have to burn around 5-10 US dollars' worth of $OXEN. For Oxen wallets, this is a one-time fee.
ONS is also used for Lokinet and Session, but we'll talk about those later.
1.2.3. Oxen Service Nodes
In addition to staking and adding to the blockchain, participants in the Oxen network run servers, called Oxen Service Nodes, which provide infrastructure for other applications: namely, Lokinet and Session, which will be discussed in the next 2 videos. These applications are decentralized, provided the Oxen Service Node network is sufficiently decentralized.
Running a service node is expensive. In addition to the cost of operating the server itself, you have to have at least 3,750 $OXEN just lying around, not in use. You don't have to spend this money, and in fact, the proof-of-stake system rewards you for having it, but you do have to have that much. (It actually requires 15,000 $OXEN total to run a service node, but you can split that cost with people who want to stake without running a node.) This is intended to protect against something called a Sybil attack, which I'll talk about in the next video.
To recap: Oxen is a cryptocurrency which addresses the privacy and environmental issues of Bitcoin while also providing infrastructure for decentralized applications.
In the next two videos, we'll look at the two decentralized applications running on this infrastructure: Lokinet and Session.