Internet Computer: the Swiss army knife for cloud computing

Rising demand for decentralisation is spawning supply across many fronts. In cloud computing and data storage, decentralised physical infrastructure networks (DePIN) have emerged as the answer.

One of the bigger projects in this segment is Internet Computer (IC), built by the DFINITY Foundation and its founder, Dominic Williams. Sergey Golubenko explains this inventive ecosystem for ForkLog readers.

History

Dominic Williams is a King’s College London graduate with interests in distributed computing and the cypherpunk movement. From a young age he had a passion for building simple games in Basic, and gained wider recognition in 2010 after the release of the MMO Fight My Monster. For it, Williams developed a unique server technology for elastic scaling.

In 2013 Williams became interested in blockchain. He was inspired by the “world computer” model backed by the Ethereum community, first described in John Perry Barlow’s “Declaration of the Independence of Cyberspace”.

In October 2016 a non-profit with a research centre, the DFINITY Foundation, was registered in Zug, Switzerland to develop an “internet computer”. Its designers based it on threshold cryptography with random-number generation. The technology was named DFINITY (from decentralised infinity).

In 2018 the project raised $61m from venture funds Andreessen Horowitz and Polychain Capital, and on May 7th 2021 the IC mainnet went live. Today the DFINITY team numbers more than 270 people working across the globe.

What are Internet Computer and ICP?

Internet Computer is a layer-1 blockchain with a set of protocols that allow independent nodes to operate as one system in pursuit of a “free internet”.

IC is an ecosystem of many Web3 applications with multichain functionality and its own user-identification system. It is run by a DAO—whose mechanics it also offers as a service.

To understand the ICP protocol, start with the approach used on the traditional internet. Information and software are stored on specific computers: servers and personal devices. When you use an application, the software running on servers sends data to your device and requests a response. This traffic is governed by TCP/IP. DFINITY proposed an alternative.

ICP is a protocol that lets developers store and move data together with software in a decentralised environment instead of renting costly cloud space. Program code, therefore, has no fixed physical address and is hosted across distributed data centres.

IC aims to extend the public internet. The project could become a global compute platform on a blockchain.

How it works

IC runs on an innovative four-tier consensus mechanism:

• notarial layer provides fast-finality guarantees for network users and protects against adversarial attacks;
• blockchain layer forms a chain of confirmed transactions under the control of a Variable Random Function (VRF);
• Random Beacon layer uses the VRF to govern the selection of temporary block producers and prioritisation among subnets according to the rank of their miners;
• identity layer ensures client registration.

Together these layers provide security and resilience to known attack vectors while preserving decentralisation and enabling network scalability.

ICP resembles a pyramid with a hierarchy of building blocks. At its base are independent data centres (nodes) comprising specific hardware approved by the community and by new owners. The recommended configuration of a single AMD-based server as of May 2024 costs roughly $20,000.

At the time of publication, about 1,500 nodes are operating, more than 500 of which are engaged in subnets.

When the node network is formed and ensures decentralisation under set rules, nodes can combine into subnets. They act as mini blockchains within IC, are its primary building blocks and host a defined number of software “canisters”.

Canisters are compute units consisting of high-level code (the native language Motoko or, for example, Rust) and data. They resemble smart contracts or an operating system capable of handling files and exchanging data with nearby devices. IC provides an API to canisters so they can interact with each other, make payments, create new canisters and manage existing ones. However, unlike an OS, canisters are replicated across all nodes in a subnet.

Programs stored in canisters may include simple websites, dapps or even the entire codebase of a standalone application.

The power of the technology was shown by the recent launch of AI directly in canisters to make developers’ lives easier and improve metrics. And on April 22nd 2024 Dominic Williams demonstrated how recent improvements sped up deterministic floating-point operations tenfold, while image-classification speed rose more than threefold.

Gas for canisters is cycles.

Cycles (Cycles) are internal stablecoins that serve as compute resources in the IC network. They reflect the actual costs of running applications and using physical resources: the servers themselves, energy consumption, data storage and bandwidth. Put simply, a cycle can be thought of as the cost of executing one WebAssembly instruction.

dapp producers must top up canisters with cycles to prepay IC resources. If the balance runs out, the website stops displaying on the decentralised host until the software owner replenishes it. Thanks to the “reverse gas model” users can interact with dapps without holding tokens.

You can buy cycles with the ecosystem’s main token, ICP, by subsequently burning it. The price of each cycle is governed by the system’s governance.

Thus, the Network Nervous System (NNS), introduced by DFINITY in September 2020, governs the entire ecosystem. NNS is one of the largest DAOs; it regulates everything from economics to network architecture.

The “nervous system” is hosted on the network itself, is part of the protocol suite uniting node compute capacity and validates ICP transactions. The NNS also puts to a vote proposals on scaling the network (to adjust the number of subnets) and integrating new nodes.

Ultimately, decisions are made by ICP holders, who must lock tokens for a set period (from six months to eight years) to take part in governance and receive Neurons — NNS utility tokens — in return. Users receive rewards for voting, and voting weight is measured by the length of staking.

According to IC statistics, as of May 16th 2024 roughly 47% of ICP’s total supply is locked in neurons and, notably, more than half of those for the maximum term of eight years.

The IC team has endowed the NNS with extra functionality and offers clients the ability to organise their own DAOs. These are Service Nervous Systems (SNS). They are algorithmic DAOs that let developers hand control of their dapp to tokenised governance. Each application gets its own SNS.

According to DeFi Llama, as of May 16th 2024 the total value locked (TVL) in the SNS protocol is about $88.2m.

Interoperability and universal identity

On interoperability, the ICP team has introduced its Chain Fusion technology. The blockchain provides direct compatibility with the Bitcoin and Ethereum networks, and potentially other EVMs, without cross-chain bridges. Chain Fusion is based on:

• chain-key cryptography. A type of cryptography that enables ICP smart contracts to create and sign transactions executed on other blockchains;
• direct network integration. Allows ICP to request data from other blockchains, pre-verified by their consensus.

Developers can build unified smart contracts on ICP to manage BTC custody and decide to send digital gold based on events occurring in DeFi applications on other networks.

Multichain management and custody of assets are implemented via clone tokens ckBTC and ckETH. They mirror BTC and ETH respectively but can be used more efficiently, avoiding high fees and speeding up transactions.

In addition, the ckERC20 standard is being developed to integrate even more tokens from other networks. After the success of the Bioniq platform for trading Ordinals, the ICP team is also working on expanding Bitcoin-compatibility features. By the end of 2024 the project intends to implement threshold Schnorr signatures to enable Runes and swaps of BRC-20 tokens.

On May 5th 2024 the team reported the addition of a USDC clone (ckUSDC) to the Sepolia testnet, which had been planned earlier as the start of the ckERC20 rollout.

For secure yet transparent reputation in Web3, universal identity verification is customary. The Internet Computer team has proposed its own solution.

The Internet Identity (II) service allows anonymous authentication when accessing applications. A separate identity is created for each dapp. II lets you use all registered devices or methods to log in to the same account.

Unlike most similar services, IC’s solution does not require installing and managing passwords or creating a seed phrase to recover personal information. Instead, a user can create authentication profiles via methods of choice: facial recognition, a password or a security key.

The project’s token

The ICP token has inflationary and deflationary components. The former include:

• minting new ICP to pay rewards to neuron holders for participating in NNS votes;
• minting ICP to reward node providers.

Burning ICP when converted into cycles for payments is the deflationary mechanism.

According to Messari, at mainnet launch the token count was about 469m, and distribution looked as follows:

• 24.72% — seed round. For those who invested in February 2017, totalling 3.9m Swiss francs;
• 23.9% — DFINITY Foundation. These tokens are held by or already spent by the foundation to fund research and development, operations, technology acquisitions, community-building programmes and partnerships;
• 18% — allocated to the project team of around 200 people;
• 9.5% — earmarked for early participants. These are 50 people who helped the team before the foundation was created;
• 7% — strategic investors;
• 4.96% — private investors in a pre-sale.

Per CoinMarketCap, as of May 16th 2024 ICP has a total market capitalisation of about $5.6bn, with a supply of about 518m tokens. It ranks first by capitalisation in the DePIN category.

DeSoc, GameFi and DEX

ICP attracts dapp developers thanks to low transaction costs combined with relatively cheap on-chain data storage. A clear UX also helps.

DeSoc applications are popular in the IC ecosystem as alternatives to traditional social networks. There are already more than 50, among which:

• DSCVR. A decentralised social network with support for multiple currencies and distinctive “portals” into which groups can coalesce. The user base exceeds 200,000;
• RentSpace. A property-rental platform that allows paying for housing in cryptocurrency as well as traditional money;
• Funded. A crowdfunding social platform with 100,000 users;
• OpenChat. A Web3 messenger with 80,000 users and the ability to transfer tokens;
• Dmail Network. An email analogue with all the advantages of Web3 and more than 9m users. It not only provides an address but also mints it as an NFT;
• Hot or Not. A DeSoc short-video platform with more than 55,000 users and a built-in prediction market where participants place bets by rating content.

Game and NFT platforms are also popular in the IC ecosystem: Boom DAO, dragginz, Cubetopia, Entrepot, Yumi, Origyn and others.

The largest number of applications come from service infrastructure tools. They help with EVM compatibility (Bitfinity EVM), perform AI search across IC applications (Kinic) and offer a host of other useful functions.

According to DeFi Llama, four decentralised exchanges (DEXs) are present on ICP. By total value locked, two lead: Sonic (~$19m) and ICPSwap (~$8m). The protocol’s overall TVL is about $87m.

Conclusions

In sum, IC offers the following functions and advantages to developers and users:

• build dapps without needing centralised servers or cloud services;
• a native programming language, Motoko, with support for Rust, C, C++, Java and Python;
• Web 2.0 adaptation. dapp users do not need Web3 skills, do not need to create a crypto wallet and do not even pay fees. All transaction costs fall on developers and application owners. Plus support for dozens of protocols and standards of the traditional internet: HTTP, WebSocket, DNS and others;
• a resource-management system that monitors the network’s energy consumption to uphold the blockchain’s stated eco credentials. It also enables control over compute and network use in applications;
• integration with the Bitcoin and Ethereum networks via token clones ckBTC and ckETH;
• fairly high transaction throughput;
• universal sign-in to the ecosystem via Internet Identity.

Internet Computer also has potential drawbacks:

• IC’s internals are brimming with technological functionality, making the system harder to grasp;
• offensive content. A fully free and open internet complicates holding application developers to account. If illegal or offensive content is present, removing it can be difficult, since only the creator has access;
• risk of centralisation. The hardware cost to run a node is high; not everyone can help support the network, which reduces decentralisation;
• pricing monopoly. There are no guarantees the IC team will not raise the cost of using its decentralised space in future. That could affect the economics of every application in the network.

Internet Computer is an ambitious project with positive stated aims. Former Google employees working at the DFINITY Foundation are serious competition for leading DePIN outfits such as: Filecoin, Akash Network, Golem, Arweave and Storj.

Perhaps a decentralised internet will lay the ground for truly decentralised governance and self-regulation. In effect, IC implements the DAO concept. Though the system works today, future disagreements between different factions cannot be ruled out.

Even so, IC could offer solutions to critical problems facing the technology industry, including security, scalability and the monopolisation of internet services.