COTI (Currency of The Internet) aims to build a decentralized and scalable payments network to facilitate efficient global commerce.
Combining distributed ledger technologies with traditional payment solutions, COTI aspires to set a next-generation decentralized payment solution that is trust-driven, instant, and cost-effective. COTI sets itself apart from other payments solutions, by providing a thorough solution that consists of an innovative trust mechanism, a decentralized mediation system, a multi-currency wallet (Fiat and Crypto), and native currency exchange. The driver of the COTI ecosystem will be the COTI coin, a native digital currency.
COTI’s distributed ledger is based on a directed acyclic graph (DAG) data structure, similar to the underlying technology of IOTA network. Using the DAG, COTI will allow 10,000+ transactions per second, much more than is needed (VISA peak hours requires ~4,000 t/s).
The team, which consists of 27 full-time members, is hard working on COTI and has laid out a detailed structure for their future network. COTI is to raise ~30 M USD via a private and public coin offering. They already attracted a large and dedicated community, and successfully raised ~10M USD in their private sale.
The online payment industry is currently encompassing over 1.6 billion people worldwide with an annual transaction volume that exceeds 3.265$ Trillion.
According to recent researches, the industry is expected to show an annual CAGR of 13.5 % between 2018-2022, resulting in a total amount of $5.411 Trillion in 2022. Along with the growth in the market value, the industry is rapidly changing. New forms of commerce are springing up, and the power balance within the industry is changing.
In accordance with the spread of mobile devices like smartphones and tablets, the mobile payments volume is swiftly rising and expected to gradually capture a sizeable market share within the online payment market. The rapid growth and changes of the industry, has raised the demand for faster, easier, more scalable, and more reliable payment systems.
Despite the intense competition within the online payment industry, neither digital currencies nor traditional electronic payments, has yet introduced a comprehensive solution for the online payment industry. While traditional online payment systems (e.g. PayPal and Visa) have the ability to scale a high-volume of transactions, with fast execution time, they represent major drawbacks in terms of transaction fees.
Mainly in cross-currency and cross-border transactions. On the other hand, Digital currencies could represent an alternative, as they have the potential to facilitate payments with greater security and lower transaction fees. However, in practice, they face scaling challenges, low rates of adoption in the context of online payments, and their price is very volatile. In fact, to date, only less than 0.1% of online payments are made using digital currencies.
The following table represents the major benefits and drawbacks of traditional payment systems and digital currencies, along with COTI objectives:
The COTI ecosystem consists of four participants: end-users, nodes’ operators, mediators, and merchants. The network was designed with the goal of creating a decentralized payment network that will integrate the benefits of both, traditional payment systems and digital currencies (outlined in the above table). COTI comprises of the following components:
Instead of using a blockchain-based database, COTI’s distributed ledger is based on a directed acyclic graph (DAG), which they call the Cluster. In DAG-based networks, each transaction must validate two previous transactions in order for it to be confirmed. Hence, the transaction confirmations rate is increasing in accordance with the rising in the number of network users. COTI found the DAG ideal to achieve their objectives, as it enables them to connect transactions simultaneously and asynchronously.
The Cluster will be performed by three types of nodes:
COTI has implemented another layer of data on every user – the Trust Scores. These scores are the key mechanism by which new, unconfirmed transactions select prior transactions to validate in order to reach transaction confirmation consensus.
Determining Trust Scores: A participant’s Trust Score is initially determined by a general questionnaire and document verification. In the course of time, the Trust Scores will be automatically updated in accordance to the (1) users’ activeness (value of transactions over a set time period), (2) amount of dispute that the participant has been involved (3) number of disputes that were resolved in favor of the participant counterparty (4) and the rating that other transacting parties have assigned to the participant. The parameters outlined above are non-exhaustive.
COTI’s technical whitepaper provides further details of the mechanisms used to determine Trust Scores.]. The Trust Scores are relative values plotted on a scale of 0 to 100, with 100 being the highest possible score. They provide an indication of how participants rank relative to one another within the COTI network, as measured by their contributions to the network’s efficacy over time.
To incentivize users to gain Trust Scores and to foster a trustworthy environment, COTI designed that scores to be associated with the transaction fees: high scores are associated with low fees, while low scores are associated with comparatively high fees; as well as with merchants’ rolling reserve requirements.
The Confirmation Process: as mentioned, to be added to the Cluster, each transaction (represented by the user’s Trust Score) must validate two previous transactions that are in the range of their Trust Score. As transactions are attached to the Cluster, they collectively form Trust Chains or transactional sets characterized by similar Trust Score thresholds. The Trust Chain Consensus Algorithm ensures that trusted users (i.e. those with higher Trust Scores) are incentivized with optimized transaction confirmations, as their Trust Chains can reach the required cumulative Trust Score threshold faster. In simple words: the transactions’ confirmation time is correlated with the users’ Trust Scores.
To get a better understanding please refer to the following simplified example. The new transaction is the bold one (67). The new transaction validates two transactions that are in the range of its trust score. In the flow of time, the transaction is being confirmed by the path of highest cumulative trust (the cumulative Trust Score is boldened and the path of highest cumulative trust is highlighted in green).
Using the DAG structure along with the Trust Chains Consensus Algorithm, the Cluster may achieve a transaction confirmation rate of 10,000 TPS – as compared to Blockchain systems that can process an average of 20 TPS. To keep things in perspective, Visa handles on average around 2,000 TPS, while its daily peak rate is around 4,000 TPS.
Mediators are simply taking responsibility if disputes arise within the network. The Mediations do not approve transactions, but rather solve disputes. They are required when one of the following scenarios occurred: Billing errors, Inadvertent transfers (when a user inadvertently sends funds to the wrong party), Unauthorized charges, Undelivered goods or services, and Non-conforming goods or services. In each of the above scenarios, if the sender and receiver of funds are unable to resolve the dispute directly, the unsatisfied party can initiate
Each dispute involves several Mediators who work independently to validate real-world information regarding the transaction disputes. The mediators are encouraged to reach similar conclusions on a dispute in the absence of being able to coordinate (similar in certain ways to Augur consensus mechanism).
After the Mediators validate the information, they then cast votes using the mediator client. Along with their votes, the mediators deposit COTI coins. The votes are then calculated and based on the majority of the votes, the system compensates the winning party and returns that party’s balance to its rightful state. The mediators that their votes are consistent with the majority of the votes, will be remunerated by the COTI network for their efforts. Mediators who chose to act maliciously, will not be subject to any sanction, but rather they will lose their deposited tokens (those tokens will be used to pay for the other mediators).
To ensure full distributed governance, COTI is taking the following steps:
(1) prevent collisions: COTI designed an algorithm that will route mediators who have the least likelihood to collude with one another; and if mediators are found to have engaged in any form of collusion, they will be severely penalized.
(2) Mediator recruitment and training. Individuals who wish to register as mediators must satisfy certain requirements before being admitted to the mediator platform. COTI will also make available online training programs that can assist candidates in acquiring the requisite knowledge for contributing to the dispute resolution process effectively.
Merchant rolling reserve: A rolling reserve is a risk management strategy to protect the payment service provider and its banks from potential loss due to chargebacks, it is commonly used in traditional payment systems (Paypal).
Rolling reserve requirements are calculated based on the merchant’s turnover and Trust Score. The rolling reserve requirements are expected to be lower than existing payments networks. Every merchant transaction will incur a rolling reserve fee, in COTI native currency, that is reserved for a number of days. When the rolling reserve term has ended, funds are released back to the merchant’s account. As mentioned earlier, the rolling reserve is used when a merchant has lost a mediated. Merchants that do not meet the rolling reserve requirements will be unable to sell goods and services within the COTI network.
COTI’s native currency will drive the networks and fuels the interactions between consumers, merchants, mediators, and node operators. The currency will serve the following functions:
To provide an easy-to-use payment solution, COTI is developing a currency exchange that provides network participants with continuous access to liquid markets in a range of digital and fiat currency pairs. Meaning that end-users will be able to transfer their holdings from one currency to another, without having to withdraw their holding from their COTI’s wallet. Moreover, it will allow the network’s participants to pay and receive funds directly in whichever currencies they wish, regardless of their counterparties’ preferred currencies.
Security: All traffic in COTI’s exchange is encrypted end-to-end using Transport Layer Security (TLS) 1.2 (utilizing SHA256 keys), and all data-at-rest is secured with AES-256 encryption. Each step in the currency exchange process is transactional, such that if any part of a step in the exchange process fails, the entire step fails.
COTI intent to provide voting rights for executing changes in COTI’s base protocol and deciding future use cases of the COTI coin.
Due to scalability challenges and relative complexity, digital currencies are rarely being used in payment use cases (compared to traditional payment systems). Thus, a primary focus of COTI’s application has been on making digital currencies as easy to acquire and use as their fiat equivalents.
Wallets: COTI’s main consumer offering is a multi-currency wallet that provides instant and easy access to the COTI payments network and supports a variety of consumer payment use cases, including peer-to-peer transactions with peers who hold COTI wallets and nearby wallet-to-wallet transactions.
COTI wallets can further be used simply as a “bank account” for the purpose of holding funds (both, digital and fiat currencies). The COTI wallet is being developed as a native mobile application and as a web application accessible via COTI’s website. Users will be able to open wallets via the COTI website and applications, as well as during the checkout procedure on COTI-powered merchants’ websites.
Debit cards: COTI is offering users access to debit cards that link directly to COTI wallets. The rationale for offering these cards is that they will enable users to effect payments from their COTI wallets when dealing with merchants that have not yet integrated with COTI.
COTI users will be able to specify their preferred currency each time they create a virtual debit card. When a purchase is made using a card linked to a currency that does not match the payment currency, COTI’s exchange will automatically convert the required amount of the card linked currency to the purchase currency.
COTI is developing a suite of merchant tools and services that make COTI a compelling proposition for merchants, as an addition to, or as a replacement for, their existing payment systems.
To address the volume of disputes occurring in the network at any given time, COTI is developing an application that will allow mediators to accept invitations to receive and review caseload data, to place wagers, and, in the event of successfully contributing to a mediated outcome, to receive payouts in COTI.
Initially, ERC-20 tokens will be issued for the purpose of providing an official record of tokens sold. Following the launch of the COTI main net, the ERC-20 tokens will be converted into tokens issued on the COTI network’s transaction ledger. The ERC-20 tokens are expected to be listed on at least one major exchange no later than the end of September 2018.
Token allocation
The total supply of COTI tokens during the formative stages of the network will be limited to 2,000,000,000 COTI. These tokens will be allocated in accordance with the table below:
Tokens supply: Due to the Directed Acyclic Graph (DAG) structure and the decentralized nature of the COTI network, it will not be possible for additional COTI tokens to be created following the genesis transaction. Therefore, an additional 2,000,000,000 COTI will be created and locked in reserve, so the maximum supply of the token will be 4,000,000,000 COTI. These tokens won’t be released before the COTI’s Main net launch, and they will be subject to harsh restrictions.
According to the team, COTI may occasionally initiate additional token sales from the reserve.
COTI has established significant alliances with strategic partners: a partnership with Bancor, that will allow COTI to activate ERC20 tokens in the Bancor Network, and thus, to provide continuous liquidity between COTI coin and various ERC20 tokens; A Technology Partnership with MicroMoney in order to Enhance their Financial Services; And a financial partnership with Processing.com, which according to COTI’s CEO, will streamline their go-to-market strategy.
Comprehensive Decentralized Payment Solution: COTI was developed exclusively to satisfy daily consumer payments use case, and it indeed, provides a thorough solution that addresses properly the market need and solves concurrently the major concerns of consumers and merchants. Aside from the “regular” benefits in terms of scalability, decentralization, security, and low fees, COTI also provides an additional trust layer, hedging services (to address the volatility), and an integration with a native wallet and native currency exchange that provides a convenient easy-to-use solution.
Project potential: The project’s targeted market is the online payment industry. A huge and growing market. We believe that the advantages of the future COTI payment network are beneficial enough for it to successfully penetrate as a legitimate payment service provider and therefore, to capture a sizeable market share. COTI addresses tangible market needs that neither of the current payment systems has addressed, and thus, despite the intense competition, the project potential seems high.
Early-stage: COTI is still in its early stages. Though an Alpha Net will be launched soon after the Tokens Sale, for the network to achieve full scalability and usability, wide adoption of merchants, market makers (for the hedging services), and mediators should be achieved. Such adoption will not occur before the COTI’s Main Net launch, during Q2 2019 (more than a year from the time of writing).
Team & Advisory board: The COTI team and advisors are comprised of individuals with extensive experience in the payments, cryptography, and financial services domains. Score 8.5
Stage of the project: Relatively early. Although an Alpha Net will be launched soon after the token sale, the Test Net will be launched during Q4 2018, and the Main Net only during Q2 2019. Score 7.5
Project potential: COTI aspires to evolve into a widely-adopted payment service provider. Considering their innovative mechanisms along with its comprehensive solution, we believe that they indeed have the potential to achieve some of their objectives. Score 8.5
Community and Media: ~20,600 Telegram members, ~11,900 Twitter followers, 6,000 Facebook Followers. Score 8.5
Token use: COTI coin will be used for the network fees as well as to incentivize network participants to contribute to the network. It’s important to note that COTI’s success doesn’t depend on COTI native currency being widely adopted. Score 9
ICO: Hard Cap – ~30 M USD with 10 M USD already raised via the private sale. The bonuses during the private and pre-ICO rounds are reasonable. Half of the tokens sold during these rounds are subject to a lock-up mechanism. Score 8
Whitepaper: Very detailed whitepaper. Clearly represent the need, the problem, and the solution. The white paper also provides very detailed numeric examples. Aside from the White Paper, COTI also published a detailed technical White Paper and Token Economy Summary paper. Score 9.5
Backend and Technology: The Cluster, multi-currency wallet, currency Exchange, innovative trust score engine as well as mediation system. Score 9
This post was first published on: Apr 10, 2018
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