Loki Network is an open source project to create a completely decentralised private transaction network, which rewards users to run nodes and process data. Loki is a hybrid proof of work/proof of stake consensus system with incentives for full nodes to operate and create a secondary network for privacy services. These services can only be accessed by cryptographic keys which can be mined or purchased using Loki, the underlying currency. Loki network is built from a modified version of the Monero source code, giving all transactions a high degree of privacy.
Every day our privacy is being eroded away by the government and private corporations’ surveillance of us as citizens and users. There will be a point at which citizens and users demand their human right to privacy. Although cryptography promised anonymity and transparency in its initial development, it has delivered more traceability than ever before.
Loki does not aim to compete with Monero. Rather, it utilises proven Monero privacy features as the foundation for a network of Service Nodes that enable the second service layer. These Service Nodes use an architecture like other private internet protocols to enable private communications on the Loki network. These peer-to-peer protocols form the basis for a decentralised network that routes traffic through the internet without revealing the true IP addresses of connections. Monero uses ring signatures and stealth addresses to enable users to sign transactions while maintaining plausible deniability. Ring signatures work by constructing a ‘ring’ of possible signers to a transaction, where only one of the signers is the actual sender. Loki uses ring signatures in the same way that Monero does; to ‘cloak’ the identity of the sender of any transaction.
Similarly, stealth addresses ensure un-linkability, so the true public key of the receiver is never linked to their transactions. Every time a transaction is sent in Monero or Loki Network, a one-time stealth address is created, and the funds are sent to this address. Then the receiver of the transaction calculates a private spend key for this stealth address, thereby taking ownership of the funds without having to reveal its true public address. These stealth addresses provide transaction receiver’s protection through anonymity and are adopted as a core feature in Loki Network.
Loki’s unique network features include:
- Mixin Distribution: Ring signatures are usually composed of one true unspent output (the sender’s) and a number of unspent decoy outputs which are referred to as mixins. Mixins masquerade as unspent outputs, though they may not be. The Loki network will sample mixins based on how users spend. A third party analysing the outputs in a ring signature cannot assume that the oldest mixin is a decoy because the distribution at which the outputs were chosen reflects the chance that an ‘older’, unspent mixin would be included in the ring signature. This sampling method increases the network’s defences against a temporal association attack.
- Block Reward Equilibrium: To create balance between rewards for miners and service nodes, Loki uses a block reward equilibrium algorithm. Balance is created between miners and Service Nodes by adjusting how the block reward is allocated at regular intervals. When hashing power and difficulty is low on the network, miners will receive a higher proportion of the block reward than usual. Conversely, when the number of Service Nodes actively communicating with the network decreases below an expected amount, Service Nodes will be granted a higher portion of the block reward. This model should encourage miners to respond faster to drops in hash rate, even during periods of price volatility. As a target, miners will, on average, receive 50% and Service Nodes will receive 45% of the block reward. However, regardless of the split, there will always be a 5% stake in the block reward that will be awarded to the governance pool.
- Governance Reward: The governance block reward will go to a fixed address held by the Loki Foundation. Additionally, the governance address will have its view key published publicly so that third parties can audit incoming flows.
Services Nodes benefit from being honest participants in the network due to the significant staking requirement for participation. Service nodes can also build Service Node Applications (SNApps) to store and serve private messages reliably.
The first SNApp on the Loki network to be developed will be a decentralised, end-to-end encrypted private messaging service called Loki Messenger. End-to-end messaging applications already exist that provide a platform for users to send messages without revealing its content. However, they rely on centralised servers that can be targeted by third-party attacks. The Loki messaging system will use public-private key cryptography, where the receiving address is a Loki holder’s public key. The sender will broadcast their message, signed with the receiver’s public address, to three randomly selected Service Nodes. Each Service Node will have their own ‘message pool’ and will hold messages for up to 24 hours. Users can send messages over the Loki network using a mobile app, and messaging functionality will also be available via Loki wallet software.
Loki Messenger has two unique encryption features:
- Perfect forward secrecy: This feature disables attacks where a long-term key is exposed. A new shared encryption key is used for each message, so if one key is revealed, the entire message chain does not become compromised. If a third party wanted to break the encryption of a message chain, they would need to the obtain the key for every individual message. This makes it extremely difficult to break the encryption.
- Deniable Authentication: This is the ability for two parties to prove to each other that they are the sender of each new message. However, a third party cannot ascertain who the true sender of any message is.
Finally, Loki also proposes a hybrid model to prevent Sybil attacks, called Runes. Runes are necessary for users to access Service Node applications. Initially, Runes will only enable access to Loki Messenger, but over time will include all SNApps as more are developed on the Loki Network. Runes are used to prevent Sybil attacks on the Service Node network. Requiring each Rune to be bound to a public address provides nodes with a way to confirm ‘identity’ while still maintaining privacy.
A Rune is created and given as a reward to Rune miners. When first mined, a Rune is considered ‘unbound’, meaning that the miner can either bind it to their own public key or sell the Rune to be ‘bound’ by another user. Once a Rune is bound to a public key it cannot be transferred or ‘unbound’. Runes are valid for 20,000 blocks (approximately 30 days) from when they are mined. Runes are designed to be egalitarian, as users who cannot afford to buy Runes can access them by mining. Users who are on mobile platforms or who do not wish to mine for Runes can pay for them on the open market.
The ownership and binding of Runes occur on the Runechain, a lightweight secondary blockchain in the Loki network that is maintained specifically for Runes. The Runechain will be maintained by the Service Node network because of its relative separation from the Loki base layer. A decentralised exchange will be implemented to allow users to trade Loki for Runes. Opinion
Loki network will be built on Monero’s technical architecture. Loki’s evolution takes Monero’s protocols to the next level in terms of encryption, privacy and identity authentication without allowing third parties to interfere or survey transactions as they happen. However, I have many questions not answered by the white paper about how the network will work in principle, and just a few are listed below:
- Who would use Loki Network? What is the business model behind this peer-to-peer network?
- Where is the development roadmap for building the network and timetable for MVP beta of Loki Messenger?
- How will the platform acquire users, nodes, service nodes and rune miners?
- Why would I purchase the Loki token if the only thing I can purchase with it is a Rune? Why does this require a specialised token?
- Where are the token metrics and business use cases for the project?
- How will Loki Network incentivise SNApp development and the secondary services layer?
- How will blockchain and runechain maintenance happen on the network?
Loki’s white paper is a technical paper for developers and crypto community enthusiasts. It is well written, referenced and technically explains their architecture and protocols very well. However, every network has a business model behind it and a target core market for the services provided. For me, this is what is missing in the documentation. I would like their white paper to clearly articulate why they do what they do and what the benefits are for all network participants in using Loki network.
By CeAnn Simpson