The Crypto ecosystem has become a go-to alternative to the traditional financial system.
At its core, the global monetary network created through decentralized finance is borderless, permissionless, and fully transparent. These foundational qualities led to the creation of many powerful use-cases, making the markets more efficient and robust. As a result, people are more drawn to operate in the decentralized environment and gain back control — as opposed to using a hierarchical system, with power concentrated at the top.
Crypto provides a level-playing field for all market participants and gives them a platform to voice their opinions through governance and voting.
But lately, the core ethos of crypto, decentralization, does not apply to many newly formed protocols. The majority of the voting rights and network hash power is concentrated in only a handful of entities.
From a general user standpoint, it seems as if the network accommodates distinct users as nodes or miners. But in reality, it is only one entity controlling thousands of nodes and computers.
To draw a parallel, let’s take social media as an example. One person can create many social media accounts and boost their status in the form of engagement. In the blockchain world, engagement represents voting power or governance. This is also called the Sybil attack.
When blockchains face Sybil attacks, it compromises the governance system and allows those superior entities to overshadow the honest nodes in the network. In the case of coin-based governance, people who have the highest stake control the network – making it less decentralized.
Major Consensus Mechanisms are also Prone to Sybil Attacks
In the blockchain world today, we mainly have two consensus mechanisms that help with block confirmation: Proof of Work (PoW) and Proof of Stake (PoS). The former solution requires computational power to solve mathematical problems. As a result, it generates new blocks for storing transactions and rewards to the entity generating the power.
In PoW systems, the voting power is derived from the contributions given in the form of hash power. If one entity possesses a thousand CPUs, they have a thousand votes to cast during governance. It doesn’t depend on any human attributes.
With respect to Proof of Stake, validation is in the form of financial stake or asset ownership. Again, there is no human identity verification, creating many vulnerabilities for the network and protocol users. As the ecosystem grows and adoption rises, the ownership structure and singular concentration of power will cause social and political problems during decision-making.
So it is paramount for decentralized protocols to use a human-centered consensus and actually provide a level playing field. These consensus mechanisms extend the functionality of PoW and PoS by ensuring no two validators or nodes should have the same identity. By doing so, the human existence protocols can achieve Sybil resistance once and for all.
Governance is Broken in Crypto
In DAOs, the voting procedures are transparent, and everything is done through decentralized tools. However, the organization representing the protocol is not completely decentralized. Most of the DAOs follow a coin-based governance system, in which the voting power is determined by the number of coins one owns.
So, if a wealthy individual holds the majority of the supply, they become the primary shareholders of the DAO, having superiority over others in terms of voting power. This misrepresentation of a protocol being decentralized causes many problems. For example, if someone in the DAO presents a proposal, then the decision to allocate resources or not depends on a few individuals carrying high voting power.
As governance becomes one-sided, DAOs tend to see a massive drop in voter participation. The large stakeholders will dictate the protocol’s future, irrespective of how the community feels.
The chart below shows the top DeFi protocols and the active voter percentage.
To understand why the governance in crypto is broken, let us take a recent real-life example. In Feb 2022, the director of Ethereum Name Service Foundation (ENS), Brantly Millegan, faced heavy backlash from the ENS and Twitter community for his perspective on Catholic faith. As he refused to take back his comments, the parent company of ENS that provides funds to operate, True Names Limited, terminated Brantly. However, it did not change that Brantly is still a major stakeholder of the ENS organization.
As the parent company isn’t tied to the ENS DAO in any way, it cannot influence the governance structure. So it came down to voting. A proposal was passed to remove Brantly as the director and core developer for ENS failed to meet the required votes. Because Brantly owned a major stake, it allowed him to outsize other retail members in the DAO.
The image below illustrates the difference in votes:
Through this example, we understood that, no matter how many people agree on the same action, the final decision still lies in the hands of a few stakeholders. This happens across several DeFi applications and blockchain networks.
It needs to change to protect the very ethos on which crypto was built.
How is Humanode’s Biometric-based Consensus Different
The majority of decentralized protocols carry out their governance proposals by associating some form of token. For Ethereum, it is ETH. For Bitcoin, it is based on computational power/hash power. But in the case of Humanode, there is no token involved.
With the help of biometric technology and liveness detection, the Humanode protocol is developing the world’s first identification layer that ensures real proof of human existence. The biometric protocol also has a set of unique features and technological solutions that make human identity unique without leaking private data.
Here are a few solutions that form Humanode’s technology stack:
The bio-authorization required for proving human existence involves many technologies outside biometrics, such as zero-knowledge proofs for liveness detection, encryption for privacy preservation, and blockchain technology. All of these combine to form crypto biometrics.
Humanode core also recognizes that consensus mechanisms evolve with time and user needs. So the protocol is consensus agnostic. If the Humanode DAO, Vortex, decides to change the consensus, it can be immediately swapped for a new one. This will be more seamless for innovators as Substrate is building such a feature in the future.
In terms of governance, the Vortex DAO follows a sophisticated tier system with human nodes, governors, and delegators as its main network participants. For a user node to become a governor, they must have a proposal accepted by the DAO members. If one wants to increase their tier and receive more governor rights, they must participate in governance for more than a year. This type of governance model allows active contributors and delegators to work together in a decentralized manner.
The functionality of Humanode’s one-human-equals-one-node consensus can be replicated for other smart contracts and dapps, thanks to its EVM compatibility. Though the transaction fee of Humanode is replaced with a cost-based system, it can still move assets between two EVM chains and decentralized applications. The way it works is that Humanode provides a protocol with two main features: ZK liveness proof and identity checks. This way, any DeFi protocol can leverage Humanode and operate with 100% decentralization.
Where Can We Use Humanode: The Applications
Humanode can help a variety of decentralized protocols and services with its biometric identification layer. Some of the most prominent use cases include:
While the growth of the NFT market is unprecedented, there are a few fundamental problems related to ownership. It is challenging to assess the value of an NFT based on the original owner. Anyone can replicate the artwork and sell it on different marketplaces. So the lack of uniqueness is diminishing the value of the NFT. In addition, one can’t say how many copies exist on the blockchain.
To overcome these technical flaws of NFTs and ensure authenticity for owners, Humanode has come up with a solution that involves the creator’s identity verification. By using something that only belongs to the creator, like a document or secret password, Humanode can permanently eliminate the copyright problem. The biometrics platform is also working on a simpler interface that can be integrated with different NFT marketplaces like OpenSea, Foundation, and Raible.
Decentralized Credit Scoring
The two parties of a loan, creditor and debtor, operate based on trust and responsibility. So both of them carry a certain amount of risk, especially in the DeFi space. Hackers exploit users by creating numerous credit applications under the same name and freezing credit checks.
Humanode aims to resolve these issues by auditing users’ identities and cross-referencing with biometric data. Of course, the data is secure and private. The Humanode API will also ensure whether the person attempting to log in is the same person who owns the account. The liveness detection test can be done using a phone or laptop camera.
Launchpads & Airdrops
Launchpads are supposed to provide a level playing field for all types of investors. But because there is no verification system for investors, it is possible that a single investor can create multiple accounts to get a bigger token allocation. This cuts down supply for other interested IDO participants. To overcome this, Humanode will use its identification layer to see if an investor has more than one IDO spot. Integrating Humanode will also not require doing KYC for launchpads.
Airdrops have become this efficient medium for newly formed protocols to broaden their token distribution. As there is a huge incentive to be gained with airdrops, we see hackers creating fake accounts and claiming a significant amount of tokens. This results in unfair token distribution. Humanode approaches this problem by creating unique human identities for each wallet. It uses liveness detection and search-and-match algorithms to filter out bot profiles.
Just like a blockchain network, a decentralized autonomous organization (DAO) can also face Sybil attacks. For a community to take action, they introduce new proposals and allow members to cast their votes. The entire decision-making process appears to be transparent. But in reality, one entity can create multiple accounts, deposit tokens in them, and make it seem like a unanimous decision.
As community members don’t go through identity verification, it becomes easier for few individuals to manipulate governance and influence the DAO. This can be fixed by using Humanode’s biometric DAO as a service. It can act as a plug-in for many DAO tools and also facilitate DAO-to-DAO communication in the near future.
The play-to-earn movement initiated a new gaming dynamic that allows players to earn a side income from playing video games. In a blockchain game metaverse, players can own various digital assets like land and avatars, which can then be sold on secondary marketplaces. As these P2E games add monetary value, the competition will be intense amongst players, and people with large capital will reap most of the rewards through bots.
Humanode aims to extend the functionality of bot detection systems of P2E games by verifying the player’s identity. So if one wants to enter the game and play for rewards, they would have to first prove their uniqueness and pass liveness detection. As a result, the game will offer a level playing field for players to get fairly compensated.
Progress Made So Far
2021 was a crucial year for Humanode. The biggest achievement was Humanode’s first testnet, Sachiel’, launch. The testnet onboarded fifty people at a time to check out the biometric enrollment process that allows it to become a human node. The testnet allows the team to conduct various experiments and understand the network capacity in terms of Sybil resistance, security, and liveness detection.
Outside of building out the foundational layer of Humanode, the team also managed to expand the Humanode ecosystem with several partnerships.
In early 2021, the team passed the proof-of-concept phase with private Alpha tests. After rigorous testing and research, they launched the public testnet with node deployment. One can download the app and run their node here. It is available on Windows, Linux, and Apple operating systems.
In 2022, we expect to see the launch of the mainnet with a fully functioning DAO. The deflationary token mechanism built using the Fath algorithm will also go live by July. We will also see many partnership announcements as we near the public launch.
Our Investment Thesis
At Gravity X Capital, we invest in game-changing ideas that solve the inefficiencies of the crypto markets. We believe that the lack of proper identification of network participants is causing “some players” to outsize others in any given network. This is counterintuitive to what decentralization means for the ecosystem.
Humanode is attempting to solve this very problem. Not only for its own protocol but also for the entire DeFi ecosystem. With substrate framework and EVM compatibility, any application or blockchain can integrate with Humanode and benefit from its crypto biometric technology.
We also recognize that, with more adoption and active participation from all corners of society, the level of malicious activity can significantly increase. There will be many instances in different market sectors where a lack of human identification will cause major problems. As DAOs are starting to emerge rapidly, governance should be done in a transparent manner, and no entity should be allowed to influence the decision-making process.
So, a protocol like Humanode will be needed to verify accounts without leaking private data and ensuring unbiased governance. In the future, we believe Humanode’s proof-of-human-existence protocol will be de-facto across the crypto landscape to make networks Sybil-resistant and free of malicious actors.