In this write-up, I aim to fundamentally analyse Loki Network ($LOKI), a crypto-project aiming to create a more private mixnet, combining the best elements of Tor and i2p. Via answering critical questions in sort type of analytical framework, it is aimed to holistically analyse the start-up and gain a thorough understanding of its purpose.

CONTENT

About the project

Adoption

Competition

Token Economics

Team & Community

Funding & Governance

Status & Critiques

Conclusion

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Any comments, thoughts for improvements, feedback or critiques in the analytical framework or the analysis of Loki Network are welcome.

Main sources: Website | Whitepaper v3 | Cryptoeconomics v1|Youtube

Loki’s name is a pun to being ‘low key’ via a ‘lock’ against censorship

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ABOUT THE PROJECT

Which key problem does LOKI solve?

Internet neutrality; information censorship resistance, digital anonymity, private transactions and communications.

What aspect of human nature is LOKI serving?

Most digital environments are controlled, tracked and censored by governments and nation states. Loki aims to create freedom and privacy in information, communications and transactions by building a new mixnet, solving some key challenges of Tor and i2p. Inspired by Onion Routing, Loki basically provides a more secure way to access the various levels of the internet — including the deep web, which is estimated to contain over 90% of the world wide web.

The internet divided in three levels, Loki’s mixnet offers better privacy than Tor to access the dark web.

The Lokinet protocol allows users and web-services to stay completely anonymous and encrypted on the internet, thus ensuring net neutrality and censorship resistance.

On the Lokinet, developers can create so-called service node apps (SNApps) in any web-based language. These applications are similar to ‘hidden services’ in Tor, ensuring encrypted anonymity to websites and webapps that leverage Loki’s mixnet. Loki Messenger, an end-to-end encrypted private messenger, shall be the first SNApp on the Lokinet.

More information regarding Tor vs Lokinet is provided in this interview with Simon Harman, Loki’s CEO.

A hidden-service (HS) is located inside the Tor routing network, making it near impossible to identify the user or the service. As there is no exit node linking to a server outside the anonymous cloud, the HS counters security breach B (source). SNApps are similar to this, but run on the Lokinet with incentivised network nodes.

What is the Massively Transformative Purpose (MTP) of LOKI?

“Trade and communicate in absolute freedom: private transactions, decentralized communication”.

What are some key applications of LOKI?

Lokinet (eg a blockchain-based Tor/ i2p mixnet)

“Service Nodes on the Loki network will operate a low latency onion routing protocol, forming a fully decentralised overlay network, called Lokinet” (source).

“Since the mixnet operates entirely on layer 3 in the OSI model it doesn’t stipulate application level operation” (source), so “you can push any protocol through it since its not limited to TCP/IP, its build around UDP like I2P” (source).

SNApps (Service Node apps) — apps with anonymity and privacy on Lokinet

Loki Messenger (private communications on the Lokinet protocol)

“The function of SNApps is similar to so-called hidden services in Tor which have flourished. […] SNApps allow for users to setup and host marketplaces, forums, whistle-blowing websites, social media, and most other internet applications on their own machines or servers while maintaining full-server and user-side anonymity” (source).

“Unlike most DApps, SNApps do not rely on on-chain execution or computation. All SNApps are computed client-side, and the networking is handled offchain by the Service Node network” (source).

SNApps can be build with common web-based languages, so developers do not have to learn a new programming language.

The Loki mixnet “operates entitrely on layer 3 [Network] in the OSI model” (https://t.me/LokiCommunity/83346)

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ADOPTION

Why would LOKI reach super dominance?

First mover advantage; it is the first blockchain-based mixnet protocol, and has a working main-net.

Privacy is a increasingly becoming a hot topic, hence many blockchain projects are focused on privacy functionality. As Tor is currently the most popular solution for mixnet integration, privacy-oriented crypto projects — such as the cross-chain privacy protocol of the NIX Platform — are implementing Tor as the default mixnet.

It would be logical that these projects update into Lokinet, triggering network effects and user adoption of existing projects.

How does LOKI track and increase its network effects?

Having privacy-oriented projects that now use the Tor network as the default onion routing service, also implement integration with Lokinet.

Incentivising miners; the network is secured by Proof of Work via the CryptoNight Heavy algorithm (= CPU + GPU mining).

Incentivising Service Nodes; through Proof of Service.

From a user perspective; network effects from Loki Messenger and other SNApps, which are basically webapps running via the Lokinet protocol on the internet.

How does LOKI tackle the blockchain trilemma?

(Decentralization / Security / Scalability)

For LOKI, the main issue would arguably be scalability, as security is a primary focus, and decentralization is achieved by the hybrid PoW/PoS structure. Though the team is looking into a PoW mining network without central mining pools, as that can lead to centralized hashing power.

According to Whitepaper v3, Loki can solve potential scalability issues by:

Utilizing bulletproofs, “reducing the information that nodes are required to store and relay, thereby improving scalability”.

Not having a fixed block size. “The Loki block size scales by observing the median block size over the last 100 blocks and slowly retargets the maximum size of any new blocks accordingly.”

Optimizing transaction size, “to ensure that the network scales efficiently so as to keep the Service Node operating costs down so that a high node count can be sustained in the long term”.

And lastly, “ To ensure scalability and accessibility for mobile users, the proof-of-work difficulty requirement is fixed based on the Time-to-live (TTL) of the message or the path, and not based on global network activity.”

In what programming languages can developers build SNApps on top of the Loki mixnet?

It is advised that programmers can hook into existing, popular development languages and frameworks, like Python, Java, Node, and C# to ensure dev-friendly ecosystem expansion. In the case of SNApps, common web based languages can be used, making it easy for developers to join the ecosystem.

According to the Lead Tech, Kee Jefferys “because SNApps are quite similar to hidden services in Tor, they are built using web based languages. Essentially anything you can host on the internet can also be hosted on Lokinet since really you just serve encrypted web content through a path to the person who made the request” (source).

Is LOKI interoperable with other blockchains?

No official public information could be found to answer this question. However, existing privacy-oriented coins and projects that now use Tor as their routing service could potentially also integrate Lokinet in their technology stack. Interoperability is a big deal as it can lead to more adoption, leveraging network effects of others, so an official statement by Loki team regarding this topic would be useful to gain a better understanding.

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COMPETITION

Does LOKI have centralized and/or distributed competition?

Mixnet: TOR / i2p / Orchid Protocol / VPN services(?)

Private messengers: Signal / Wickr Me / Telegram / Riot / Tox / Echo

Blockchain-based private messengers: Status.im / Adamant.im / e-Chat / Mercury Protocol (Dust) / Obsidian

Why does LOKI have a good chance at beating those competitors?

Mixnet

VPN services are not completely untraceable and may be expensive to use.

Tor and i2p are not completely private as one actor can relatively easy operate a majority of the routing nodes in the onion network, enabling deanonymization.

Orchid Protocol still needs to do their ICO as of July 2018, while LOKI’s mainnet has been live since April 2018 and service nodes are planned to go live Q4 2018.

Private Messaging

There is very tough competition, it will be difficult to create a network effect and leverage Metcalfe’s Law for this application.

However, according to the CEO, Loki Messaging is not competing to Signal, Telegram or other private messaging apps. “The idea behind the system is not that it is the best messaging system out there. On the contrary, it is for those times where you need to be absolutely certain that the message is not going to be read by anyone else and you need the absolute pinnacle of privacy”, such as confidential contracts or government intelligence.

Even though this privacy level is a niche, creating a strong brand and quick user adoption is likely key to achieving the critical mass adoption percentage of ~16%, reaching the early majority in this privacy-focused niche(see Diffusion of Innovations by Rogers).

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TOKEN ECONOMICS

If this protocol has its own token, why does it need it?

To decentralize the service, ensuring privacy and anonymity in the mixnet.

Current systems like Tor have issues regarding centralization. As the network is based on getting traffic, it is easy and cheap for a network actor to gain a majority of the nodes in the routing process. Thus, interactions can be tracked and traced back to the user, defeating the purpose of Tor’s anonymity.

Via the service nodes, a percentage of the tokens is locked up, reducing liquidity of the digital asset. By introducing financial incentives to lock up a significant percentage of the total token supply, it becomes increasingly expensive to own a majority stake in the network, thus making a 51% attack prohibitively expensive.

More information regarding Tor vs Lokinet is provided in this interview with Simon Harman, Loki’s CEO.

On July 20, 2018, a new economic model for the emission curve of the LOKI tokens was presented, ensuring a better balance between the amount of service nodes and the incentive for people to run these nodes in the network.