Cryptocurrency is a “Boys’ Club.” Is This Good or Bad?

Guest post by Pauline Farris

Back in the early 2000’s, the “dot.com” bubble burst, and investors lost huge amounts. One of the interesting elements of that entire bubble was that it was an investment niche dominated by men. Women, for some reason, just didn’t take the risks involved. And while they were scoffed at for not investing, they had the last laugh.

Studies have shown that women who invest in markets—either for themselves or for organizations— are more cautious and risk-averse than men (and it should be noted that their approach tends to work well in terms of long-term income/revenue growth). We are witnessing the same phenomenon with cryptocurrencies as with the “dot.com” bubble. While anonymity is part of the attraction of investing in cryptos, there are surveys that point to a large underrepresentation of women. In fact, the latest Google Analytics result for the bitcoin gender divide, as reported in Coin Dance, is as follows:

Obviously, males “rule” this investment product. For those who remember the history of such investment gender divides, this should serve as a warning. On the other hand, there are those who predict that, over time, women will enter this investment market, for some clear reasons:

1. Cryptos are becoming more mainstream

Companies from a variety of sectors, as well as non-profits and even political campaigns, are now accepting Bitcoin payments. As early as 2014, Dell began to accept them as a legitimate source of payment. Most companies and organizations that accept payments do so through third-party services, as they facilitate the exchange between Bitcoin and fiat currencies. Among companies and organizations now accepting Bitcoin are: Steam, Save the Children, Shopify, Microsoft, Overstock, and eGifter. And this was as of the end of 2017.

2. Global Acceptance

Cryptos are moving into the global marketplace as a preferred method of international financial transactions. As companies continue to move into foreign markets, they will also begin to use cryptos and the blockchain technology that undergirds them in everything from smart contracts, to logistics, to payments. As Margaret Reid, content writer for The Word Point, a professional translation service, has pointed out: “We are seeing an increase in requests for contract translations from clients who are dealing in Bitcoin and who want to record and store those contracts in the Bitcoin blockchain. This is a growing sector of translations that is not going away.”

3. The Technology Holds Great Promise

While blockchain technology and cryptocurrencies are rather intimately tied to one another, the technology is now becoming recognized as having the potential to disrupt almost every economic sector. Because of its distributed ledgers of blocks that are immutable, there is the potential for security and fraud prevention that traditional technologies do not offer. Identities, contracts, purchases, shipments, personal records, and more can be stored in these blocks and provide permanent information and data that cannot be altered and only accessed by keycodes. The implications for government, insurance, travel, healthcare, education, and almost any business are huge. As everyone begins to recognize its potential, blockchain is becoming highly reputable. Interestingly, the cryptos that it undergirds are being pulled into reputable phenomena with it.

4. There are a Few Women Role Models

Iliana Oris Valiete is an accountant by profession. She moved into the Bitcoin market when it was fully new. Now working for Accenture on blockchain innovations, she has also made it her mission to encourage more females to move into the cryptocurrency investment market. According to Valiete, of the current ICO’s (initial coin offerings that are basically investment fundraising), about 13% are headed by females, and this represents good gender participation growth. She believes that these women will act as role models for the gender-mates, but that growth in female participation will still be rather slow.

So, Is It Good or Bad?

The debate continues on this one. And the verdict is certainly still out. Among those who are raising a red flag of alarm is Duncan Stewart, Research Director of Deloitte’s technology division in Canada. According to Stewart, just the fact that the gender divide is so large constitutes a bubble in itself. He further states that, throughout history, there is no such gender divide of this magnitude, in any stock or security, that has resulted in survival of that asset.

And yet, there are other considerations. First, when men get into an investment, they tend to share that investment potential and make recommendations to their “buddies,” usually men. And this may have factored in to the current gender divide. Couple that with the fact that the Bitcoin foundation Board of Directors is 100% male, and you have a rather “perfect storm” of male domination.

But bitcoin is still relatively new. And many certainly predict that it will become a critical currency whose use will only continue to grow, steadily and impactfully. As consumers continue to increase their use of Bitcoin to purchase legal products and services, and as it continues to be a valuable holding, women will increase their participation.

Time will tell. For now, Bitcoin remains a male “thing.” Whether it turns into another “dot.com” bubble or not is simply a matter of waiting and watching.

Pauline Farris speaks Portuguese, English, Spanish and Italian. She travelled the world to immerse herself in the new cultures and learn languages. Today she is proud to be a voting member of the American Translators Association and an active participant of the Leadership Council of its Portuguese Language Division.

GRAFT Major Network Update 1.4.2 (“v10”)

As previously announced, we have released network node version 1.4.2 (“v10”) for a major network update. This update will correct the emission curve by reducing block rewards by 50% starting at block 176,000, which will be reached around September 17, 2018.

The new block reward formula will be as following:

reward = (M – A) * 2^-19 * 10^-10 / 2

Where M is the maximum total supply and A is the current supply.

This correction will not change the maximum supply of GRAFT that will be ever created, it will just stretch the emission curve such that it will take longer to mine the maximum supply. All GRAFT supporters should benefit from the corrected emission formula because it will stabilize the growth of the circulating supply.

In addition, GRAFT v10 will drop the mining difficulty algorithm adjustment made in the previous (v9) major network update (LWMA+tweak) and return to a standard LWMA difficulty calculation. The adjustment was originally added in an attempt to make the difficulty drop faster after a network attack, as it was believed that such network attacks were responsible for block delays and network stalls in the turbulent days between the first (v8) and second (v9) major network updates. As it turned out, however, those issues were caused by an unrelated bug inherited from Monero and have been long-since fixed on Graft’s network (the fix did not require a fork).

In retrospect, the v9 algorithm adjustment had the unintended side effect of inducing larger swings in mining difficulty because it made difficulty drop too quickly. Over time, opportunistic miners learned to exploit those difficulty swings by mining on the graft network with huge hashrates whenever difficulty dropped to win a handful of low-difficulty blocks, then leaving the network as soon as difficulty increased again. This would, in turn, result in long block times that would then trigger another difficulty drop, thus repeating the cycle. While such difficulty shifts are unavoidable, the v9 difficulty adjustment made the swings a little worse and are being removed in this fork to help make the mining difficulty more stable.

The major network update means that each GRAFT network node must be updated to the new software version before the specified block/date. Otherwise, any node that isn’t updated will be on the wrong version of the blockchain. The source code and the Linux and Windows binaries are currently available for download. The installation instructions are unchanged.

As another reminder, a major network update means that if you are running the GRAFT network node (graftnoded daemon), you must upgrade it to the current software release as soon as possible. If you do not install the updated node before block 176,000, it will be disconnected from the mainnet after block 176,000.

Note that the users of GRAFT mobile and desktop wallets will not be affected by the upcoming major network update and don’t need to do anything—as long as they are still connected to the default proxy supernodes (if you are connected to your own supernode, however, do not forget to upgrade the underlying network node to stay on the right network).

GRAFT Development Status Update September 2018

It’s time for another dev update! It’s no secret that RTAs (real time authorizations) remain the main focus for the GRAFT development team, so let’s start from the alpha review.

RTA Alpha

We are excited to announce that RTA transaction now works end to end for the entire sale workflow – it is stable, and takes just a couple of seconds to get approval on both wallet and point of sale as expected. There is still some work to be done before we move to beta release, and there are many ways to do even more improvements. But here is the most important thing: the first instant payment on a private CryptoNote blockchain is now a reality!

The RTA alpha release contains a full set of components necessary to conduct an end-to-end point of sale transaction in real time:

  • completely redesigned full supernode, i.e. the supernode that can participate in authorization sample and approve a GRAFT transaction in real time;
  • completely redesigned wallet and point-of-sale proxy supernodes, i.e. the supernodes that provides an “entry point” to the RTA network and participate in RTA transactions;
  • mobile and desktop wallet and point of sale apps for iOS and Mac OS X redesigned for RTA.

In addition, there is a special testing environment created for RTA alpha testing – alphanet – a dedicated testnet which contains several seed nodes, a miner, proxy supernode cluster with load balancer, and blockchain explorer.

We managed to assemble a very efficient and quite large team of alpha testers – 50+ active members who are able to run both RTA supernode and iOS/Mac clients (wallet, POS). In addition, we have selected an extra “reserve” group of volunteers (also 50+) that will be able to join the testing once it’s extended to the next phases – additional clients for Android/Windows and then beta release.

People familiar with development release cycle know that alpha releases are usually unstable and may lack some features. RTA alpha was not an exception. Once the RTA functionality was released to the alphanet, we discovered issues that we could not see during regular testing. We are able to simulate the real network very well because the alphanet consists of real participants running on different networks and different hardware or hardware abstractions, rather than artificially cloned nodes and supernodes. We really appreciate the patience and positive attitude of alpha testers team!

So it’s time to learn more about the RTA transaction flow, which you will be able to experience in retail stores soon! It is very simple – a couple of clicks (literally) in the wallet app and a couple of clicks at the point of sale app: Figure 1: GRAFT RTA Workflow Between Mobile Wallet and Point-of-sale Apps

Payment Gateway for Merchants and Service Providers

As recently described in the Fees and economics update post, one of the important profiles in the ecosystem is a Merchant Service Provider (MSP). An MSP’s role is to provide and support payment network services to the merchant, ensure the uptime of the network (usually referred to as Service Level agreement or SLA), provide and manage equimpent (e.g. payment temrinals), provide reporting, etc.

To enable an MSP to do this, another type of server is needed – one that would:

  • Manage the terminal’s configuration (including wallet address)
  • Handle the MSP specific fee economics for the MSP (an MSP could choose to handle tiers of service differently or charge different fees for different transaction amounts)
  • Transaction reporting and analysis for merchants

In theory, such payment gateway can be designed and implemented by a third party such as traditional payment processor that wants to add cryptocurrency payments to their portfolio of services. However, we decided to create a “reference implementation” to enable faster adoption rate as a part of out go-to-market strategy.
Since GRAFT is a decentralized payment network, the payment gateway is multi-tenant, multi-instance, open source app, and everyone can host their own payment gateway and become a service provider on the network.

Payment Gateway is this “fifth element” that is supposed to manage the GRAFT payment apps on hardware payment terminals and GRAFT ecommerce interfaces, and link them with the GRAFT supernodes. Since it has transaction visibility, it is considered part of merchant’s ‘back office’ applications. Figure 2: GRAFT Payment Gateway, Service Provider Dashboard Figure 3: GRAFT Payment Gateway, Merchant Dashboard

* Note: With GRAFT network, the merchant can be their own MSP, but would still require the functions of a Gateway in order to manage the terminals setup, reporting, etc.

Upcoming Dev Updates

We’re moving forward with every track on the development roadmap and even pulling some of them forward. An interesting upcoming project, which is currently in design and not even announced yet, is GRAFT ColdPay Supercard. This is a smart card that combines functionality of cold wallet, which can be used with mobile or desktop host app, and payment card, which can be used for making a payment at hardware payment terminals and mobile points of sale. More details about this exciting development will be unleashed very soon. Stay tuned, happy grafting!

Changes in Transaction Fee Structure: Even More Ways to Earn with GRAFT Network

As the ideas initially set forth in original GRAFT white paper gradually come to fruition, we have to adjust some “game rules” as we get one reality check after another. One of the most important rules in payment processing is the transaction fee structure. Transaction fees are equally important for all players including merchants, buyers, full (RTA) supernode owners, proxy (gateway) supernode owners, exchange brokers, miners, and service providers. After several white paper editions and other adjustments, we propose the following fee structure to be implemented in the GRAFT ecosystem:
  • Full Supernodes RTA Fee (any RTA Tx): 0.5%

    1/8 of this fee, or 0.0625% of the total RTA Tx amount, goes to each supernode participating in the RTA authorization sample.

  • Proxy Supernodes Fee (any RTA Tx): 0.1%

    1/2 of this fee, or 0.05% of the total RTA Tx amount, goes to each supernode in the proxy pair that provides connectivity into the network (wallet and POS proxy supernodes).

  • Wallet Proxy Supernode Fee (non-RTA transfer): 0.1 GRFT

    This small fee is going to be charged by the wallet proxy supernode to the mobile or desktop sender’s wallet in addition to the existing network fee (miner’s reward).

  • Exchange Broker Fee (RTA with altcoins): 0.25%

    Exchange brokers include pay-in, payout, top-up, and interchange brokers.

  • Miner Transaction Fee (RTA): variable

    Determined by the merchant service provider through the payment gateway, but not lower than 0.1 GRFT.

Figure 1: GRAFT Ecosystem Fees

If a particular RTA transaction is processed via the payment gateway, which will be the case for most hardware payment terminals, the fees are set and calculated by the MSP (merchant service provider). This occurs through the payment gateway plugin to the POS proxy supernode using the information about the pay-in and payout currencies as input, and setting a miner fee commensurate with the service level they are obligated to provide to the merchant.

Here’s a table-form summary of various fees in combination with various workflows:

1 2 3
Regular P2P Transfer RTA Tx (GRFT) RTA Tx with altcoin exchange broker (i.e. bitcoin acceptance)
a Sender’s wallet proxy Supernode Reward 0.1 GRFT * 0.05% * 0.05% *
b Full Supernode (auth sample member) Reward N/A 0.0625% ** 0.0625% **
c Exchange Broker Reward N/A N/A 0.25% **
d Miner (settlement) Reward Variable, based on Tx size in KB Configurable *** Min: 0.1 GRFT Configurable *** Min: 0.1 GRFT
e Merchant POS/Recipient Gateway Proxy Supernode Reward **** N/A 0.05% **** 0.05% ****
Total Fee Amount paid by the Tx sender (buyer in RTA) a1 + d1 0 0 *****
Total fee amount paid by the Tx recipient (merchant in RTA) 0 a2 + b2*8 + d2 + e2 a3 + b3*8 + c3 + d3 + e3
Total amount charged to the Tx sender Tx amt + a1 + d1 Tx amt Tx amt
Total funds available to the Tx recipient Tx amt Tx amt – (a2 + b2*8 + d2 + e2) Tx amt – (a3 + b3*8 + c3 + d3 + e3)
Table 1: GRAFT Transaction Fees/Rewards Structure

* wallet proxy supernode can be a proprietary server or a public cluster hosted by a service provider. You can run and use your own proprietary proxy supernode to avoid the proxy fee altogether. The supernode must have a stake in order to be able to charge the fee.

** stake is required for full supernode or exchange broker in order to participate in RTA Tx processing and receive this reward

*** set by the merchant service provider or the owner of the POS proxy supernode

**** POS proxy supernode can be a proprietary standalone server, a part of the merchant infrastructure, or a part of a payment terminal or/and ecommerce gateway maintained by the merchant service provider. POS supernode must have a stake in order to be able to receive this reward

***** does not include the altcoin network fee

You can see that the new fees have been introduced on proxy supernodes—both wallet proxy and point-of-sale/payment gateway (a1, a2, a3, e2, and e3 in Table 1). Those changes will achieve increased decentralization of the infrastructure, which means no more complaints about GRAFT wallet downtime or delays! If you don’t like the proxy supernode cluster hosted by GRAFT, there will be alternative providers ready to serve your wallet or POS. In order to receive the reward, the proxy supernode must demonstrate the unique stake wallet linked to the supernode’s public IP address. The amount of proxy stake is 250,000 GRFT.

Unlike an authorization sample supernode, the proxy supernode will still be operational even without the stake, however an unstaked proxy supernode won’t be able to charge the fee. This option is reserved for proprietary proxy supernodes, so the users with elevated privacy needs can host their own entry points to the network. Without the stake, the proxy reward will be sent to the GRAFT community donation wallet address. This way the total transaction fee, which is assembled from several components, always remains consistent regardless of the status of the proxy supernodes.

Another major change, which was partially proposed earlier, is the flat fee paid to the miner for RTA transaction settlements (d2, d3). The miner’s fee is traditionally calculated based on transaction record size in KB (d1). With RTAs, however, we cannot make the miner fee variable as it would make the total fee paid by the merchant inconsistent and unpredictable, which is unacceptable in most situations. Additionally, we cannot make this fee proportional to the value of the transaction (similar to the supernode fees) because miner fees are visible on the blockchain, meaning the transaction amount could be calculated from a proportional fee (although we may fix this in the future). Therefore, we made it a simple configurable flat fee, with a minimum amount of 0.1 GRFT.

The fees associated with RTA transaction with exchange brokers are the same as RTA fees (column 2) with an extra 0.25% taken by the broker (and paid also by the merchant).

Merchant Fees and Service Providers

The MSP sets a fee schedule that’s consistent with their business model and fees could be structured in tiers with options, for example:

  • Transactions below $10: 2%
  • Transactions above $10: 1%
  • Min transaction amount: $1
  • Miner: 0.1 GRFT
  • Transactions in altcoins: + 0.25%
  • Instant payouts in altcoin or fiat: + 0.25%

Below is an example of a sample $20 altcoin transaction and the associated fees given a reference Merchant Service Provider fee schedule. Figure 2: Example of GRAFT RTA Altcoin Tx Fees and Rewards with Service Provider

GRAFT Emission Correction

When you take a look at whattomine, mining GRAFT is as profitable as mining Monero. At first glance, this seems like a good situation for everyone who cares about GRAFT, especially for the miners. But let’s compare Monero and GRAFT market capitalization (the dollar price of one GRFT multiplied by the number of tokens in current circulation): $1.68 billion (Monero) vs. $3.76 million (GRAFT). There is a huge difference between these two market caps, but they have the same mining profitability (actually GRAFT is even higher).

The current GRAFT block reward (the proof-of-work fee that the miners receive when they “solve” the block and successfully add it to the blockchain) today is approximately 1,420 GRFT, so every day the GRAFT circulation grows by more than 1 million (!) GRFT. Unfortunately, many miners use the high profitability of GRAFT to immediately sell their mining rewards on exchanges, which keeps bringing the price down as the demand cannot keep up with such a rapidly growing supply. Even growing demand cannot catch up to the emission rate because the project is too young.

Although the block reward is designed to decrease with every block, the current rate by which emissions are decreasing is not significant enough to counteract the overall supply increase rate from miners dumping. It will be significantly lower in, let’s say, one or two years, but the GRAFT team and supporters (including miners) cannot wait that long. We all need the economics to stabilize in the near term in order for the project to regain its footing and bring things into balance.

It is hard to anticipate these imbalances ahead of time as we’re trail blazing in a lot of respects. The only thing we can do is react quickly and adjust things whenever we see the “go off the rails” potential.

Note that ERC20 token-based projects do not have the problem described above because they don’t have a real blockchain. Their token supply remains the same (actually, it is even reduced with every exchange transaction), so they just need to make sure their demand at least remains the same in order to constantly pump the price and the market cap.

With that said, in order to rebalance the network economics, we have decided to correct the emission by reducing the block reward by 50%, so the new block reward formula will be as following:

reward = (M – A) * 2^-19 * 10^-10 / 2

Where M is max total supply and A is current supply.

As you can see, the correction will not change the total maximum amount of GRAFT that will be ever created, it will just stretch the emission curve such that it will take longer to mine the total supply (see the existing and the new emission curves on the diagrams below).

All GRAFT supporters should benefit from the corrected emission formula because it is supposed to limit the daily increase in circulating supply, which will reduce the overall supply growth rate and stabilize the price. Long-term miners will benefit from the reduced emission for two reasons: 1) the price will go up so they will receive the same, or even better, revenue, and 2) the emission curve will be stretch, so they will get a more steady income over the extra years without the need to rely on transaction fees.

The emission reduction change requires a major network update (aka “hard fork”), which will be scheduled for block 176,000 (September 17, 2018). The major network update means that each GRAFT network node must be updated to the new software version before that block/date. Otherwise, the node that wasn’t updated is going to be on the wrong version of the blockchain. The new release will be available for download on September 10, 2018.

As another reminder, a major network update means that if you are running the GRAFT network node (graftnoded daemon), you must upgrade it to the current software release as soon as possible. If you do not install the updated node before the block 176,000, it will be disconnected from the mainnet after block 176,000.

Note that the users of mobile and desktop wallets will not be affected by the upcoming major network update and don’t need to do anything—as long as they are still connected to the default proxy supernodes (if you are connected to your own supernode, however, do not forget to upgrade the underlying network node to stay on the right network).

How GRAFT is Going to Conquer the Crypto Payments World. Part 1: Blockchain and CryptoNote

Slava Gomzin, GRAFT Co-Founder

Although we have created a lot of materials explaining GRAFT (both existing features and future developments), including countless technical or semi-technical pages, marketing brochures, blog posts, and educational videos, it’s often difficult to see the whole picture while going through all of the specifics. A focus on the multiple features and their design details can obscure the view of the entire system, creating a so-called “you can’t see the forest through the trees” effect. We are getting many questions from supporting community members as well as potential customers and partners about “the big plan”: what is the ultimate goal, and how exactly are we going to achieve it? Whereas the answer to the first part of this question is quite simple and short, the answer to the second part requires some time and efforts. In this series of blog posts we will iterate through the various GRAFT features and try to explain why they are there, and how they help achieve our ultimate goal: Conquest of the crypto payments world.

Part 1: Blockchain and CryptoNote

Let’s start from the very beginning with the blockchain, or layer one of GRAFT. The blockchain is maintained by a peer-to-peer network of computers, or network nodes. We refer to these network nodes as “cryptonodes” to distinguish them from our “supernodes” (a.k.a. “masternodes” in other networks), which constitute the second layer of the GRAFT network (to be explained in a future blog post). The GRAFT blockchain is based on the CryptoNote protocol, which is the most private blockchain protocol in use as of today. In order to save time and resources, we used the luxury of the open source principle and forked the initial code of the GRAFT cryptonode from Monero — the best implementation of the CryptoNote protocol. In addition to acquiring fundamental privacy features “out of the box”, forking Monero provided a high degree of confidence in our blockchain from day one of the mainnet existence. It’s important to note that the code of GRAFT supernodes, which we create from scratch, is also open source, so essentially everything that we add on top of the previously existing features is also available for others to reuse.

Now let’s go back to the initial question and apply it to the blockchain layer: Why a brand new blockchain and why CryptoNote?

We’ll start with the new, dedicated blockchain: Yes, it would have been easy-peasy to run the GRAFT ICO on ERC20 or a similar token, as most people do these days to avoid blockchain maintenance, mainnet, mining, emission, seed nodes, etc. However, creation of the GRAFT payment network requires our own blockchain because we have to modify the cryptonodes as we develop the supernodes so they will support each other and work together. Without the ability to modify the code, we wouldn’t be able to create the network of supernodes and implement features like real time authorization or exchange brokers on top of any existing blockchain or token platform. In addition, there are features such as payout tokens, loyalty points, store credits, gift certificates, and discount coupons that are required for merchants — all of these are based on the merchant tokens platform, which cannot be built without a dedicated blockchain.

Now for CryptoNote: it’s not just “nice to have”, it is absolutely required in order to be competitive with traditional payment systems such as Visa network or PayPal. Ironically, Visa and PayPal provide much better privacy to their customers than most existing cryptocurrencies such as Bitcoin and Ethereum. Let me explain. When you swipe/insert your payment card at the point of sale terminal, or click the PayPal’s pay button online, there are two entities in the world that are aware of your transaction: the payment network (Visa or PayPal in our case) and the merchant. In reality, of course, there are more organisations that “know” about your transaction because the payment network is more complex. This network includes, at the very least, the issuing bank (the one that gave you the payment card), the acquiring bank (the one that approves the payment), the payment gateway (the one that routes your transaction to the right payment processor/acquiring bank) and the payment processor (which processes the payment and merchant’s payout). However, in any case, this list of organizations is limited because they are under security and privacy regulations, and they have typically implemented some decent security controls that protect your transaction records from prying eyes. Of course, everyone in this list can be hacked or give away your info to a law enforcement agency, but this is a different story (which is, by the way, another good reason to switch to cryptocurrency payments and throw away your plastic cards!). For the sake of simplicity though, let’s assume that random people cannot gain access to your data in most situations.

Finally, let’s see what happens with blockchains. The key innovation of Bitcoin (the first blockchain and cryptocurrency) was the open ledger that is accessible to every node participating in the network because your transaction must be verified to make sure you are not trying to spend your money twice. But this also means that anyone in the world can see your transactions and how much money you have in your wallet! Now, unlike plastic cards, Bitcoin wallets are, in principle, anonymous because transaction records are not directly linked to your identity. At first glance, this feature appears to compensate for the fact that your transaction records are laying there in plain sight on the blockchain for anyone to see. Well, the problem is that there are ways to link addresses to identities. Once this happens, all of your transactions magically become visible forever because the blockchain is always there and it cannot be erased!

Fortunately, there is a solution: the CryptoNote protocol, which hides the sender’s address, the recipient’s address, and the transaction amount , while still preserving the ability to validate each transaction and prevent double spending — and it’s all thanks to advanced cryptography! One day I am going to explain how it works in layman’s terms to unveil the beauty of CryptoNote and its cryptography (the same as I have done to explain RSA and Elliptic Curves cryptography in my book about Bitcoin payments). But for now, let’s just take it on faith that CryptoNote ensures a high degree of privacy for all participants. Moreover, on top of existing CryptoNote features, GRAFT adds even more privacy and hides transaction fees!

Summary of Part 1:

Why a brand new blockchain and why CryptoNote?

The dedicated blockchain allows GRAFT to create a merchant token platform. This is required for features like payout tokens and loyalty programs, and the second layer supernode network, which enables special retail features such as real time authorizations and exchange brokers.

The Cryptonote blockchain protocol provides an absolute privacy to all participants of the transaction, which is required in order to compete with existing payment platforms such as Visa or PayPal that are more private than most exciting (non-Cryptonote) cryptocurrencies.

To Be Continued — Part 2: Supernodes and RTA

Pay-in/Payout Exchange Brokers: Design and Economics

As mentioned in the original white paper, the network relies on pay-in and payout brokers to facilitate near instant payments with any fiat or cryptocurrency, and near-instant merchant payouts into any fiat or cryptocurrency. What follows is a more detailed description of how the system operates along with the fees that are present.

Pay-in broker takes a certain amount or risk accepting the cryptocurrency of payment while quickly releasing GRFT in exchange (without waiting for the cryptocurrency of choice confirmations). This risk for broker is mitigated by relatively small(er) retail transaction amounts and is subject to the authorization sample validating the transaction across originating currency network. The risk for the merchant is mitigated by a GRFT bond transaction equal to the amount of pay-in, which is generated by the broker at the beginning of transaction. The bond is put on hold by the authorization sample until the broker approves the altcoin payment to the merchant. As soon as the altcoin transaction (from buyer to the broker) is received and validated, the authorization sample approves the payment to the merchant and releases the GRFT payout (from the broker to the merchant). The broker is able to set different limits for different amounts / history and risk levels.

In exchange for this service, the pay-in broker substructs 0.25% exchange fee from the GRFT payment to the merchant, while the supernodes participating in the authorization sample charge their standard GRFT transaction fee (0.5%).

The following flow (sequence) diagram shows how bitcoin acceptance pay-in broker performs the exchange transaction and accepts bitcoin payment on behalf of merchant point of sale. The buyer can use any wallet supporting bitcoin. The merchant receives payout in GRFT.

Payout broker exchanges GRFT into the payout currency of choice as requested by the merchant. The transaction is asymmetrical – meaning that the second leg of the payment is usually longer (sometimes much longer) to settle on the receiver side. To make sure that the payout broker delivers the payment with no double-spending, the broker stakes a bond with amount equal to the amount of the transaction. The staking is done by putting on hold the GRFT payment from the merchant by authorization sample. If authorization sample detects (after the grace time) that the payout funds weren’t received by the merchant, it cancels the transaction and payout broker does not receive the GRTF payment from the merchant.

In exchange for this service, the pay-out broker receives 0.25% exchange fee. In addition, the authorization sample supernodes charge their regular transaction fee (0.5%).

Same exchange brokers can (and most likely will) alternate as a pay-in and payout brokers. For example, let’s review Bitcoin Exchange Broker (EB) which wants to perform both pay-in and payout exchange operations.

The broker has a Bitcoin wallet with 0.01 BTC in it. The broker receives a payout request from a merchant to exchange 100 GRFT to 0.01 BTC (assuming the current exchange rate is 0.01 BTC = 100 GRFT). The flow of such payout transaction between the broker and the merchant is shown in the diagram below.

The broker accepts the request and sends 0.01 BTC (minus bitcoin network fee) to the merchant, while the merchant generates the 100.75 GRFT payment (100 GRFT amount + 0.25 GRFT broker fee + 0.5 GRFT authorization sample fee) to the broker and transmits it to Authorization Sample. The sample puts 100.75 GRFT transaction on hold and notifies the broker who then sends 0.01 BTC to the merchant. Upon BTC transaction settlement (10-60 mins for the sake of argument and depending on the bitcoin network fees), the 100 GRFT transaction is released and the exchange broker now has the 100 GRFT payment plus 0.25 GRFT profit.

The broker can now switch into the pay-in broker mode. As pay-in broker, the EB receives a request to exchange 0.01 bitcoin into 100 GRFT. The broker accepts this request and transfers 100 GRFT (minus fees). As soon as 0.01 BTC is received, the broker is able to become a payout broker again and now has 0.01 BTC and 0.25 GRFT profit.

Assuming (conservatively) that a single pay-in/pay-out cycle takes 1 hour, the broker can make around 12% in a single 24 hour period (without compounding), making for a lucrative business model for the Exchange Broker* (*estimation only).

Beyond Merchant Payments: DEX

The system described above can function beyond the GRAFT intended payment ecosystem and extend into a real-time decentralized exchange (DEX). Due to the fact that the untrusted exchange operations (atomic swaps) are close to real-time to the outside entity leveraging the GRAFT authorization/validation layer (the network of GRAFT supernodes), the same atomic swaps can be extended to provide real-time exchanges, such as BTC<->ETH.

GRAFT Wallets are Safe and NOT Affected by Double Counting Bug

As you probably know, most exchanges recently took offline all CryptoNote wallets (including Monero) due to Double Counting Bug. We tried to reproduce an exploit of the double counting bug with GRAFT master (current GRAFT version) to prove that GRAFT is not affected. In order to do that, we have prepared a special testing branch with the exploit: https://github.com/graft-project/GraftNetwork/tree/double-accounting-exploit, where we duplicated the “add_tx_pub_key_to_extra” call inside “construct_tx_and_get_tx_key(…)” method in cryptonote_core/cryptonote_tx_utils.cpp. The destination wallet with the bug was supposed to show the wrong (doubled) balance after the transfer from the exploited source wallet.

The destination wallet (GRAFT master, private testnet) before the test transfer shows 20 GRFT balance:

Now, we are transferring 10 GRFT from the exploited source wallet (private testnet), trying to “trick” the destination wallet:

The destination wallet after the transfer shows the correct amount (30 GRFT):

Here is the destination wallet log:

So this case is already handled in current Graft version (1.2.1), which is based on Monero v11, and the bug seems to be introduced in Monero v12, where subaddress functionality was implemented.

Therefore, current GRAFT wallets are safe for all users including exchanges.