About Dfinity

What is Dfinity

Dfinity is a not-for-profit foundation aiming to create an “Internet Computer” - a blockchain that acts as a massive and scalable computational machine to replace centralized propriety cloud servers to host web services.

Why is an Internet Computer needed?

  • In 2008: Satoshi Nakamoto introduced the Bitcoin protocol and created a method for peer-to-peer communication and transaction between individuals without centralized governance through the use of a virtual ledger stored on a blockchain.
  • However, many people think that blockchains have more potential than a ledger storing money transactions. Thus, in 2014, a group called the Ethereum Foundation released a blockchain, which is not only able to store information about money transactions but also capable of hosting programs and applications. The birth of Ethereum turned blockchains from a mere storage solution into a “virtual computer”, enabling a brand new field for decentralized applications (dApps).
  • Nonetheless, the “virtual computer” approach of Ethereum still has some performance and capacity limitations, which makes dApps not yet popular among mass users. All of the meta-apps that shape the Internet nowadays, such as Facebook, Twitter, Reddit, etc., are still hosted on centralized servers from big corporations like Amazon, Microsoft, or Google.
  • That’s why the idea of an Internet Computer was formed. The Internet Computer is a blockchain that supports programmable applications like Ethereum, but with better scalability, more powerful performance, and can serve data and transactions at web speed. This ensures complicated applications can be hosted on open-source blockchains instead of proprietary servers of big corporations.

Aim

  • Solve the problem of monopolization of web service: the idea of Web3 is to demonopolize the whole Internet, with applications running on several distributed nodes instead of centralized servers. However, while there are many decentralized protocols, most of them still heavily rely on corporate infrastructures (70% of Ethereum nodes are running on centralized servers, for example). The Internet Computer will be the solution as it consists of independent data centers worldwide instead of nodes run by big corporations’ cloud services like AWS, Azure, Google Cloud, etc.
An infographic imply that The Internet Computer can be used to build many things better
The Internet Computer can be used to build many things better. Source: dfinitycommunity.com
  • Facilitate decentralized applications: the Internet Computer Protocol is claimed to be able to serve distributed data at normal web speed, making decentralized applications more accessible to mass users.

Technology

  • Canister smart contract: the traditional smart contracts on Ethereum blockchain only contains codes, while the Internet Computer used  “canisters” - a new form of smart contract that containerizes both the program and the data about the application’s state inside a module. This method of containerization allows faster and more nimble deployment as well as maintenance.
  • Chain Key Technology: the blockchain only has one public key, significantly reducing the amount of data needed to verify transactions.
  • Network Nervous System (NNS): the governance system of the Internet Computer that manages when and how to add new nodes to the network. The NNS follows a DAO (decentralized autonomous organization) model, where decisions are made based on votes from participants - users who lock their ICP token (the utility token of Dfinity) into the system. This grants the Internet Computer the ability to automatically scale up, adding new units when required.

SWOT Analysis

Strengths

  • Faster transaction:

The “Chain Key Technology” mentioned above allows every device (even smartphones or wearable devices) to fast and easily communicate with the platform.

Moreover, the Internet Computer protocol also splits the canister’s functions into “update call” and “query call”: Update calls are functions that modify the state of a smart contract and must be processed on all nodes running that contract. “Query calls”, on the other hand, only need to be run on a single node, as they only fetch and transmit data without modifying anything. Because query calls take up 90% of the Internet Computer traffic, this separation is fundamental in speeding up the activities on the blockchain.

The Chain Key Technology, combined with the separation between query calls from update calls, tremendously improves the speed of finalizing transactions on the Internet Computer (1-2 seconds per transaction, in contrast to 15 minutes on Ethereum and 40 minutes on Bitcoin).

The Internet Computer shows outstanding speed in processing transactions. Source: Bitcoin Insider
The Internet Computer shows outstanding speed in processing transactions. Source: bitcoininsider.com
  • Scalability: Ethereum’s Proof-of-Work consensus model can only support about 30 transactions per second, which will easily lead to congestion when network traffic increases. The Internet Computer, in contrast, uses the Network Nervous System with a Proof-of-Stake consensus model that can automatically add new nodes into the network to increase capacity.
  • More cost-effective:

The Dfinity project claims that while the cost of computing tasks on a blockchain is more expensive than on centralized servers, software deployed on a decentralized infrastructure will be tamper-proof, eliminating the risk of security. Furthermore, the scalability task will also be transparent to developers, making the task of maintaining software easier.

Weaknesses

  • Need specific hardware:

The Internet Computer’s nodes must be standardized hardware, so not everyone can participate as a node operator. Especially, it has been reported that the standardized hardware must be distributed under permissions from the Dfinity team, which is not decentralized at all.

  • Untested platform:

Although claimed to be the new form of the Internet that can host mega-apps the size of Facebook, Reddit, etc.,  there are only a few applications that have been deployed on the platform. There were LinkedUp - a LinkedIn clone and CanCan - a TikTok clone, but both are still more experimental products than actually usable applications.

  • Bad tokenomic:

The market capitalization of the ICP - the utility token of the project - is not evenly distributed amongst the community. A large amount of ICP (18%) was held by team members, making it less secure for investors.

  • Low transparency toward the community:

The Dfinity team has been reported to be unsupportive and intransparent in financial issues toward the community.

Opportunities

Integration with Ethereum: the Internet Computer was not born as an Ethereum-killer, but each blockchain has its priorities and is meant to support each other. While Ethereum focuses on a decentralized system where anyone can participate without fear of being controlled, the Internet Computer is a little more “governed” network with all the standardized hardware requirements or the NNS decision-making mechanism. This downside, however, comes with the advantage of faster transactions and easier scalability, aspects that Ethereum is struggling with.

That’s why the Internet Computer is developed to be a supportive factor for the Ethereum blockchain. Specifically, the Dfinity team is developing their canisters so that Ethereum’s smart contracts can directly call into Internet Computer’s canisters, which will boost the speed of transactions for dApps without sacrificing decentralization.

Threats

  • Components fail: the project has experienced technical issues since launch.
  • Price crash: the most horrific incident of the Dfinity project that still affects its reputation nowadays is its price crash in May 2021, just right after the project’s IDO, when the ICP token dropped 95% in price in 2 months. Although this might partly result from the global crypto market correction that affects every coin at that time, the main reason is due to the team’s mismanagement in issuing the ICP token. Some even alleged that the whole project was only a scam with many buzzwords and misleading marketing.
A graph show that the ICP token’s price crash in May 2021
The ICP token’s price crash in May 2021 was a huge scandal in the crypto community. Source: coinmarketcap.com

Conclusion

Dfinity’s Internet Computer is a massive project that will greatly impact the digital world if it succeeds. However, the project is still in the middle of development, with lots of challenges ahead that would take years to tackle. Moreover, with several past evidence of lacking transparency in financial issues, a not very battle-hardened platform, low cooperation with the community, and especially the recent price crash, people should be extremely discrete before participating in the project.

References

[1] Dfinity homepage and White paper, dfinity.org, accessed March 15th, 2022.

[2] DFINITY in a Nutshell: A Non-Technical Introduction, Dfinity medium, accessed March 15th, 2022.

[3] A Technical Overview of the Internet Computerhttps, medium.com, accessed March 15th, 2022.

[4] Internet Computer VS Other Top Blockchains: Competing To Build The Future, dfinitycommunity.com, accessed March 15th, 2022.

[5] The Internet Computer Solves Web3’s Reliance on Web2, Dfinity medium, accessed March 15th, 2022.