If you have been following the Encointer Project, you may have noticed that communications fell silent for a while. Unfortunately, as Encointer requires physical meetups with random people, the COVID-19 pandemic caused delays. However, we kept making progress nevertheless and now that restrictions have eased somewhat, we would like to share some big news with you about the project.
Encointer has been provisionally accepted to form a common good parachain on Kusama and are now inviting people to form the first Encointer community currency in Zurich. In this post we will discuss the benefits of Kusama for Encointer, how the project will enrich the Kusama ecosystem, and how Zurich residents can get involved in the world’s first Encointer community currency.
Recap: The Goal of Encointer
Firstly, let’s begin with a very brief recap of Encointer’s objectives. Encointer’s aim is to create a system of community currencies that can spur local economic activity. The project is particularly focused on less developed economic regions where fiat money tends to be scarce, large proportions of the local population are unbanked, and exchange rates are volatile. In such circumstances, local economic activity is suppressed by a lack of fiat money and monetary infrastructure. Citizens may have marketable skills, products, crops and crafts, but they are largely unable to exchange them because there is very little money circulating in the local economy.
Encointer is a framework for decentralized currencies designed to overcome this problem. Individuals in a given region can voluntarily come together to form a community currency. In order to ensure sufficient money supply, this currency would be issued as a universal basic income to all participants. Such currencies could spur local economic activity by providing a more convenient alternative to barter, without needing to rely on banks, governments, or charitable donations.
A Major Milestone: Kusama Parachain
Encointer recently achieved a major milestone: it has been tentatively accepted to become a common good parachain on the Kusama network. For Encointer, a big advantage of using a Kusama parachain is its pooled security.
Blockchain security is based on game theory: the more you have to lose, the greater your interest to keep the blockchain secure. This also means: the more capital a blockchain binds, the more secure it becomes. If Encointer were to launch its own blockchain, it could not bind significant capital because it doesn’t promise any returns. Thus, it would be easy to manipulate or sabotage. Kusama offers Encointer a solution to this problem. As the sister network of Polkadot, it already binds over $2bn, making it resilient to attacks. In addition, Kusama is a so-called relay chain, which means that it supports many highly customizable parachains which all benefit from the pooled security of the network.
But parachains are a scarce resource. Usually, a project would need to bond in the region of $100m to secure a slot. However, Kusama’s on-chain governance council recently signaled its support for Encointer to be granted a common good parachain slot without the need to bond capital.
While this is a hugely encouraging development, the decision is not yet final. Although the council believes that Encointer adds value to the Kusama and Polkadot ecosystems, the entire community of KSM holders will ultimately need to ratify that decision in a referendum (through a process called conviction-voting).
How Will Encointer Benefit the Kusama Ecosystem?
Now that we understand the benefits of Kusama for Encointer, let’s think about what Encointer offers the Kusama ecosystem.
A Secure, Private, Unique Identity System
Encointer solves one of Vitalik Buterin’s hard problems in cryptocurrency — how to create a “unique identity system” that can prevent Sybil attacks.
The protocol (whitepaper) requires every participant to be willing to prove their unique identity at physical key-signing events. Such events are held at regular intervals and involve randomized participants at randomized locations within a limited geographic region. This adds a strong layer of security to Encointer, ensuring that when the majority of a community is honest, a Sybil attack is impossible.
Whereas the social graph or randomized bilateral video approaches employed by alternative projects like Idena, BridghtId, Trustlines, CirlesUBI, and ProofOfHumanity may be less involved and more inclusive, they are also less secure than Encointer. Other projects that use biometric indicators to prove uniqueness (WorldCoin) are problematic for numerous reasons, as evidenced by Aadhaar in India.
In addition to its security, Encointer goes to great lengths to protect your privacy — which is even more important if you can only maintain a single unique identity.
One Person, One Vote
Kusama is governed by its token holder community. While Kusama’s governance system includes features to make sure those with less stake in the network still have a voice, in general, decisions are weighted by stake and the majority of stake can always control the network. That is, those who have more capital to bind for longer periods have more power. For many financial applications, this might be a good approach. But some applications require a more democratic form of governance, where every human has an equal say. Such applications include:
- Self-sovereign identity
- Reputation systems
- Decision-making on off-chain matters
Encointer enables a form of online democracy — on a local to global scale — that could complement Kusama’s existing governance system if the community chose to adopt it.
Inclusive Onboarding and Transaction Fees
Public blockchains usually charge fees, which prevent spamming, prioritize transactions in the case of congestion, and incentivize validators. But current blockchain fee models come with significant drawbacks:
- Onboarding new users is either centralized (faucet) or inconvenient (buying tokens on exchanges).
- Fees are likely to be unaffordable for many people due to inequality of purchasing power.
Encointer offers local currencies for local needs — as the currencies are distributed in a specific region as a basic income, fees denominated in these currencies will be automatically proportionate to purchasing power. Other parachains can offer decentralized faucets for their native tokens based on Encointer’s sybil-defense mechanism.
First Encointer Community to launch in Zurich
Kusama governance signaled its support for granting Encointer a common good slot on Kusama before Slot 20. Thus, we expect to launch our parachain within the next few weeks. Soon after launch, the first community will be bootstrapped in Zurich.
Ultimately, Encointer’s focus will be on communities in less developed regions of the world. But to get started, we decided to launch the first community in Zurich. We selected Zurich because there is a vibrant blockchain community in the city, and the Encointer Association is based there, so it serves as a good early test bed for the concept. In addition, COVID restrictions have eased to the point where people can meet outside.
Launching an Encointer community will be a slow process. The security of the protocol is based on a web of trust which can only grow organically. People have to meet physically every 41 days and the first event will involve only 12 people, the “bootstrappers”. At each subsequent event, newcomers must be a minority, so we expect it to take several months to reach hundreds of members, two years to reach thousands, and more than three years to — theoretically — include the entire population of Zurich.
The good news is that you can still participate before attending your first key-signing event. Simply get local currency from a friend or accept payment for products or services in that currency. By accepting the new currency, you are actively backing its value. The Encointer mobile app even allows you to promote your business on its marketplace, the “bazaar”.
The Zurich community will be closely monitored by the Encointer Association. Once the platform is running stably, we will rapidly onboard new communities around the world.
Calling All Zurich Residents — Join the Encointer Community
Do you live in or near Zurich and want to be a part of the Encointer community? Please subscribe here: https://encointer.org/contact/
Do you live elsewhere and would you like to initiate a local community currency? Please subscribe here: https://encointer.org/contact/
