Internet Computer (DFINITY)

What is Internet Computer (ICP)?

Internet Computer is an open-source cloud computing platform that aims to solve some of the biggest problems faced by today’s Web 2.0, including security, misuse of personal data, and monopolization of internet services.

Not only that, Internet Computer claims to be able to host “all of humanity’s software logic and data in smart contracts.”

The aim is to build a network like the Internet, capable of hosting applications of absolutely any scale, from the simplest of smart contracts to massive enterprise systems.

For many casual cryptocurrency enthusiasts, ICP stands for a surprise, as it was launched to the public at a valuation that left every project apart from Bitcoin and Ethereum in the dust.

As such, ICP is often used as an example and a harsh lesson to raw investors about the dangers of “bag holding” and what insiders and early investors can do. Following its launch at the very top of the market leaderboard, ICP plummeted 98%.

However, the ambitions of Internet Computer would see it return to those staggering heights and, based on its technological claims, fly higher still.

Internet Computer, to put it simply, wants to be bigger than today’s internet.

When Was Internet Computer Launched?

Internet Computer was first announced in 2015, and it reportedly conducted several funding rounds throughout 2017/2018.

According to a breakdown by Messari, a 2017 seed round raised $3.9 million at $0.03 per token at a valuation of $16 million. These seed investors were awarded just under 25% of the ICP tokens at genesis, according to DFINITY.

In January 2018, DFINITY raised a further $20.54 million for 7% of the token allocation with a three-year monthly vesting schedule starting from May 2021. Among the participants in this round were a16z, Andreessen Horowitz, Polychain Capital, CoinFund, Multicoin Capital, and Greycroft Partners.

In May 2018, 0.80% of the initial ICP supply was airdropped to members of ICP forums, mailing lists, slack, and the community. Again, according to the same Messari article, Internet Computer's valuation was up to $1.89 billion, and the tokens airdropped were worth $35 million.

In August 2018, 110 participants invested $97 million for just under 5% of the initial supply, buying tokens at a price of $4 per ICP. Andreessen Horowitz, Multicoin Capital, and Polychain were again present at this round, alongside many other venture firms.

ICP launched to the public in May 2021, surprising many by hitting an all-time high of $750 per ICP token and rising to the fourth spot in the entire cryptocurrency market by market capitalization.

This market cap represented, albeit briefly, a project valuation in the region of $100 billion dollars. For comparison, around 15 months later, its market cap stood at $1.7 billion.

This dramatic slide has partially been attributed to insiders shifting massive amounts of ICP tokens onto cryptocurrency exchanges.

Who are the Founders of Internet Computer?

Internet Computer was built by the DFINITY Foundation, a not-for-profit organization that enjoys some of the best real estate in the world with a presence in Zurich, Tokyo, and Palo Alto.

DFINITY was founded by Dominic Williams, who currently serves as its Chief Scientist. A serial entrepreneur, Williams is also responsible for several notable inventions in the field of cryptography, including Threshold Relay and Probabilitistic Slot Consensus.

Williams is a graduate of King’s College London who was President and CTO of String Labs and Founder/CEO of Fight My Monster.

DFINITY is a scientific research organization boasting 100,000 academic citations and 200 patents.

Among the staff at DFINITY are former Google engineers Andreas Rossberg, Ben Lynn, and Johan Georg Granström, Haskell architect Paul Liu, non-interactive zero-knowledge proofs pioneer Jens Groth, AsicBoost creator Timo Hanke, and former IBM cryptography lead Jan Camenisch.

How Does Internet Computer Work?

ICP, the project’s native token, stands for Internet Computer Protocol. This protocol aggregates and combines the computing power of nodes connected to it to create a single computing platform able to support applications of any scale.

The Internet Computer separates smart contracts into chunks called “canisters,” which serve as computational units that function individually. These canisters can be interacted with by users, with the goal of providing end users with a simple, uncomplicated experience similar to today’s internet.

Moreover, the Internet Computer aims to solve the problem of centralized data storage, also addressed by projects like Filecoin. ICP does this by hosting and serving data and applications directly on-chain. Networks of data centers can launch ICP nodes, which can then be arranged into subnetworks that host software canisters.

What Makes Internet Computer Unique?

Internet Computer does a lot of things differently from other projects. A stand-out example of this is that users do not have to own any cryptocurrency to interact with Internet Computer. In fact, they may not even know that the service they’re interacting with is based on decentralized technology.

This is a key consideration, and this sort of seamless experience—or simply avoiding changing the user experience—can be crucial to obtaining mass adoption, especially when many consumers tend to be wary of all things crypto.

In fact, the Internet Computer’s smart contracts directly serve HTTP calls to users, meaning decentralized applications on the Internet Computer feel exactly like Web2 to the user.

Meanwhile, data centers are compensated for their services with ICP tokens, some of which are used to charge canisters with cycles. As canisters are used, these cycles are gradually depleted and must be replenished.

Thanks to this reverse gas model, users of the Internet Computer do not have to pay for cycles at all. For average users, this makes using and adopting the network far easier than many other blockchains, which need wallet connections and the payment of gas fees.

Internet Computer seeks to accomplish its vision of broadening the horizons of the internet via its Chain Key Technology. This is a set of protocols that include Threshold Relay for consensus, Non-Interactive Distributed Key Generation, Network Nervous System for governance, and decentralized identity.

Among the stated benefits of Chain Key technology are that it allows Internet Computer to achieve absolute finality within seconds, increases scalability by adding nodes and creating subnets, and simplifies the transaction process by using a single public key.

How is the Internet Computer Secured?

Internet Computer reaches a consensus via the use of a four-layer model based on proof-of-stake. These layers include a notary layer, a blockchain layer, a random beacon layer, and an identity layer.

Since Internet Computer is based on proof-of-stake, ICP tokens can be staked in order to let users vote on governance proposals on the network. This is part of the Network Nervous System and is referred to as “Neurons.”

Proof-of-stake, often abbreviated as PoS, is a consensus mechanism that works via incentivizing good behavior and disincentivizing bad behavior. Actors, or network participants, who behave according to the protocol are rewarded, and those that misbehave have their tokens confiscated.

Internet Computer’s consensus mechanism is Byzantine Fault Tolerant, meaning it can withstand the failure of a significant number of nodes. DFINITY published a whitepaper on Internet Computer Consensus shortly after its public launch in 2021.

What is the Use of ICP?

ICP, the native utility token of the Internet Computer, has two main functions:

• Governance. ICP holders can stake their ICP in the Network Nervous System, creating Neurons and voting on governance proposals. Stakers can earn between 11-22% APY through staking and voting on proposals.
• Gas. ICP tokens are burned and converted into cycles that developers use to pay for compensation and storage. Unlike almost all other networks, having the developers pay for running apps on networks and making them free for users is a novel approach.

Who Controls Internet Computer?

Internet Computer is controlled by token holders via staking in the Network Nervous System to create an on-chain governance system. However, many cryptocurrency enthusiasts consider Internet Computer to be centralized.

This claim has been refuted by DFINITY, for example in this Reddit interaction, but exact token distribution analysis is difficult. DFINITY’s defense of this is that their seed sale was open to the public and counted as their largest distribution of tokens, both of which are true. However, they also admitted that this seed sale (24.72% of the ICP supply) had only 370 participants.

In contrast, their airdrop to the community of 0.8% of the supply went to over 50,000 participants.

18% of the supply went to 200 team members, and the DFINITY Foundation received 23.86% of the supply. The 50 people who helped the team before the Foundation’s establishment were classed as "Early Contributors” and received 9.5% of the token supply.

Also, counting the 4.26% given to the Internet Computer Association, that suggests that a total of well over half of the ICP supply was in the hands of potential insiders around the launch date of May 10, 2021.

All in all, the token distribution data provided by DFINITY doesn’t suggest that a significant amount of ICP is in the hands of retail smallholders. Thus, the argument that the network is decentralized is a hard one to make.

Additionally, it is worth noting that venture capital firms held a significant amount of ICP’s supply at genesis.

Venture capital firms took part in two funding rounds for a total of almost 12% of the supply, raising just over $20 million (7% of the supply) and $97 million (4.96%). If these firms haven’t already booked their profits, they may now be participants in governance.

How Much ICP Is In Circulation?

ICP tokens are locked inside the Network Nervous System (NNS) which creates Neurons. These Neurons are used for voting. Each month, NNS checks how many votes a Neuron participated in and pays out rewards based on the proportion.

Neurons are then converted back into ICP at a frequency dictated by the user. This mechanism, while rewarding longer lock-ups, is inflationary.

Along with this reward mechanism for active participation in governance, the network also mints new ICP tokens in the form of computational rewards for managers of nodes on which the network is hosted. This mechanism is also inflationary.

ICP also has a deflationary mechanism that applies pressure the other way, however. ICP is burned to create Cycles, which act as gas on the network. That reduces the supply of ICP.

Thanks to these different mechanisms applying inflationary as well as deflationary pressure, the amount of ICP in circulation will vary at any given time. As of July 2022, there are almost 250 million ICP in circulation, although 469,213,709 ICP were minted at genesis.

How Do You Buy ICP?

Having made the splash that it did, and with such lofty technological promises, ICP is a token that excites many investors. Because of this, exchanges have been quick to jump on the bandwagon, making ICP trading available across many of the world’s leading platforms.

The majority of ICP trading tends to be against stablecoins like USDT, but fiat trading pairs are also available on fiat exchanges.

Since Internet Computer is a programmable blockchain, a fledgling decentralized finance ecosystem is available on the blockchain, including a decentralized exchange (DEX), which launched in January 2022.

This means that you can also buy ICP on-chain using its own ecosystem, on decentralized exchanges, or in peer-to-peer (P2P) transactions.

Is It Possible to Buy ICP Instantly?

ICP is one of the top blockchain projects in terms of performance, and reaching finality in seconds means that you can buy ICP almost instantly, even while using its DEXes or making on-chain P2P transactions.

Purchasing any coin on a centralized exchange (CEX) platform is instant as well. However, CEXes and many other third-party crypto services are custodial in nature, which means that you cannot directly participate in ICP staking or governance.

It’s true that some exchanges will offer staking, but this only grants you a yield. Your voting rights are being used by the exchange as their own, even though you’re the one who paid for the tokens.

How Do You Store ICP?

Like any cryptocurrency, ICP can be stored in a wallet. Given the level of interest in ICP following its booming launch, many wallet providers have assured ICP compatibility.

In general, wallets tend to be cold or hot. Cold wallets keep things offline, but hot wallets connect to the internet for greater convenience.

The Network Nervous System dApp developed by DFINITY is an example of a browser-based hot wallet, and it provides full functionality in terms of actually using and participating in the Internet Computer ecosystem.

Other wallets include the Plug Wallet, the Stoic Wallet, the Earth Wallet, and DFinance. Hardware wallets can also be used to store ICP via the use of NNS.

Internet Computer Energy Consumption

Internet Computer users have put forward environment-related proposals which, among other things, suggest that DFINITY conduct carbon footprint assessments. According to the Internet Computer website, the average power of an Internet Computer node is 700 W. Using a figure of 518 nodes and 11 boundary nodes on the mainnet, the site’s figure estimates a power usage of just over 261 joules per transaction.

As per Internet Computer, that comes to just a quarter of the cost of a single Google search, and rates as insignificant compared to transactions on the likes of Ethereum and Bitcoin.

Is ICP a Good Investment?

The Internet Computer shows significantly improved performance compared to many alternative platforms. And, if it can live up to its lofty aims and promises, it looks like a sure thing.

However, it is impossible to consider investing in ICP without considering the performance of its token at launch. The rise of its valuation almost to the very top of the cryptocurrency index preceding such a dramatic fall is a stark warning for investors to very carefully consider token distribution, ownership, and possible insider activity.

However, as prices start to approach that of its private sale and the danger of sudden profit-taking by institutions decreases, ICP could certainly look like an attractive prospect given the project’s fundamentals.