Is Skycoin a Scam?

TLDR: No! Skycoin is not a scam, and here’s all the evidences why.

On Friday morning, a particularly troubling piece of news reached our laptops. We’d been found out — Tristan Greene from The Next Web had penned “Skycoin: Anatomy of a cryptocurrency scam.” After spending the better half of a decade with early Bitcoin and Ethereum developers coding nonstop, pouring resources into hardware development, and growing communities from the ground up, we’d been exposed by someone conducting a deep dive on the front page of our website. Imagine that.

Jokes aside, we must confess that we’ve relied on the legitimacy of our development team and their work for far too long. From the few pieces of his interview with our Marketing Director, Bradford Stephens, that Greene did not omit, was an admission that while the Skycoin Project itself remains one of the oldest around, our marketing efforts are only taking its first steps into the world. And with hundreds of cryptocurrencies out there with little beyond a website, we can understand how Greene regards skimming ours constitutes a “deep dive.” We are taking every measure to ensure that our public image reflects the dedication of our developers behind the scenes.

In the meantime, we would like to use this opportunity to clarify any misunderstandings purported by the article as well as prevent other newcomers from making the same mistaken assumptions. To ensure we do not misrepresent or omit pertinent details, interested readers can view Greene’s full piece here.

So, is Skycoin a scam?

“I didn’t understand why anyone would need to buy a miner for a coin that’s 100 percent pre-mined…you’re being sold a device called a miner to work with a coin that’s already been mined.”

The Skywire miner, dubbed Skyminer, does not conform to mainstream understanding. “Miner” is now popularly associated with the function of solving complex cryptopuzzles, racing against others to get the correct answer. We forget that miners are simply hardware capable of processing and verifying transactions in return for rewards.

Skycoin’s consensus method does not involve mining, therefore its hardware does not mine. Skyminer does however reward network participants for processing and verifying transactions, therefore “-miner” is fitting. Instead of solving math problems like Bitcoin miners, Skyminers are more akin to a “be-your-own-ISP” (or VPN, SMTP HTTP, FTP, etc) unit that provides the encryption power, networking capability, and storage capacity necessary for the Skywire network’s infrastructure backbone.

As for pre-mined coins, the need to remove the centralizing effects of mining is core to why Skycoin exists. We’re not fans of “decentralization” at the hands of a few mining pools. However, we do understand the hesitation that pre-mined coins can elicit. Again, Skycoin’s consensus algorithm does not require mining, therefore it is not mined. Coins are created on the genesis block with hard-coded distribution requirements to ensure alignment with user growth and protection against inflation.

Skycoin distribution is a fair and open process that will span the course of 14 years, at minimum. We’re in it for the long haul. For more information on our hard-coded time-locked distribution policy, please read “Understanding the Skycoin Supply & Distribution.”

“The highly touted “Skyminer” is, according to this press release, not just the backbone of the Skycoin network (called Skywire), but the only way to earn Skycoin aside from bounties…”

No, we did not say Skyminers are the only way to earn Skycoin, but we did mention it as one method. Running a node, whether it’s your cellphone or a Skyminer, earns you coins. Alternatively, you can also obtain Skycoin using any of the following methods:

“The only way to buy a Skyminer (which isn’t a miner, mind you) is to send the company 1 BTC.

If you’re willing to spend about $10,000 (at the time of this writing) in bitcoin to get a cobbled-together Orange-Pi cryptocurrency miner (that isn’t for mining) you should probably demand a clear and concise explanation of how this is going to make you money. The white paper(s), which we’ll get to later, does not do that.”

Greene may have answered himself when he quoted our Skyminer distribution policy.

The price will be 1 BTC for 1 unit. Purchasers will receive:

Skywire miner

A 99% refund in an amount of Skycoin equal to 1 BTC minus the hardware cost (estimated to be around $600), based on market rates at the time of purchase.

We gratefully reimburse our earliest supporters for the majority of the 1 BTC they send our way. Assuming only staunch supporters will want to become early adopters, we reimburse them in Skycoin. Should they change their minds, they can always switch back to BTC.

As for getting paid, rewards for operating a node scale with the amount of traffic forwarded — this is when the entire Skycoin Project is fully up and running. It should come as no surprise that projects are completed in phases. We outline the phases of Skycoin a few paragraphs down.

“But upon further inspection there’s bigger problems: ‘During normal operations, the node might want to check, from time to time, how many nodes in the network are in agreement with the node’s decisions on blocks. These two related tasks are performed by a separate algorithm’ Where’s this separate algorithm?”

While he quotes only the parameters that the white paper’s author lays out prior to the actual simulation, Greene is inquiring after a specific set of rules that dictate the behavior of two node types within Obelisk — Skycoin’s consensus algorithm. In which case, details on how Obelisk works can be found here. In short, the network contains two types of nodes: Block-Making and Consensus.

A Block-Making node collects new transactions, verifies them against the UTXO of the desired sequence number, packages the compliant transactions into a new block, and broadcasts the block to the network. A Consensus node collects the blocks generated by Block-Makers, then puts them into a container (separate from the blockchain) to prepare for winner selection.

The rules are separate for each node type, but they both operate on the same data-structures.

“It’s impossible to know what kind of algorithms they’re using, and the whole white paper itself is about blockchain consensus algorithms. There’s nothing in there about replacing the internet and turning cheap computer rigs into get-rich-quick boxes, as best as we can tell.”

Abstract: “In this paper we present an Algorithm for Distributed Consensus.”

This paper is not a pitch. Skycoin’s earliest white papers are kept purely informative to help early adopters understand the viability of this project. We’ve clearly come to a point where we need to take a mainstream approach, and we’re putting in some serious marketing elbow grease in addition to hiring distributed systems engineers.

“Using existing bandwidth to power what’s essentially a hardware VPN isn’t creating a new internet, it’s just subletting your ISP bandwidth. And that’s not a sustainable business model at all.”

As is with any project, we won’t arrive at “done” because we have a domain name. The Skycoin Project will roll out in three phases:

Phase 1: Testnet

The first phase is already underway. A software-based testnet has been live since late 2017. The first Skyminer units have shipped, and the hardware-based testnet will begin by the first half of 2018. The testnet allows the team to ensure Skywire is ready for broader adoption. Operators of official Skyminers and select DIY miners will receive Skycoin for their participation in the testnet.

In this phase, the network functions as an overlay — traffic between Skywire nodes must travel over the existing Internet unless the nodes are directly connected over Ethernet or WiFi.

Phase 2: Mainnet

The second phase marks the official launch of the mainnet and the beginning of real mesh network capabilities. Skywire nodes will connect to each over WiFi and share bandwidth. Both short-range and long-range wireless antennas will become available during this phase, enabling node peering over distances up to 5km and 15km, respectively.

At this stage, the market for bandwidth will not be at self-sustaining critical mass, therefore the Skycoin Foundation will temporarily subsidize node operations. As an incentive for early adopters, a daily allotment of Skycoin will be distributed evenly among the total number of nodes in operation. As the number of nodes increases, this subsidy will naturally decline and rewards from usage will grow. Eventually, the reward structure for operating a node will result entirely from usage. If none of the nodes in a cluster have direct fiber connections, the network will depend on consumer ISPs for last mile traffic and will not perform at its highest potential. Thus, the final adoption phase focuses on ensuring that every cluster can connect to fiber.

Phase 3: Backhaul

Backhaul traditionally refers to the portion of the network that connects the network edge and the main backbone. In Skywire, backhaul refers to the connection between the wireless meshnet and a fiber connection point. Establishing Skywire backhaul connections is more involved than establishing peer-to-peer connections since it requires setting up a direct connection to fiber in a colocation data center or other network point of presence.

Because the nodes that facilitate backhaul connections aggregate traffic into the Internet backbone, they will require more upfront investment and hardware capacity than a typical node on the meshnet. Current Tier 2 network operators who own fiber connections can easily set up their own Skywire equipment to support these backhaul connections, which provides them with a method to monetize otherwise unused bandwidth.

Once backhaul connections are implemented, the meshnet no longer depends on Tier 3 ISPs (e.g. Comcast). For additional performance and redundancy, backhaul connections should be established between as many fiber locations as possible.

Phase 3 completes the implementation of the Skywire architecture, but the work by no means stops there. Upgrades to the network’s hardware will constantly be researched and developed. These upgrades will increase efficiency and performance, ensuring that the network can always meet demand.

What many may recognize as “beta” will explain why the Project relies on existing Internet. We need to ensure everything is in working order before moving onto the next stage.

TL;DR

Is Skycoin a scam? No.