kusama_spotlight
CEX.IO Spotlight: Kusama
Jan 26, 2022

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Key information (January 20, 2022)

  • Circulating Supply — 8,470,098.06 KSM
  • Total Supply — 10,000,000 FSM
  • Sector — Smart Contract Platforms
  • Token Type — Native
  • Token Usage — Staking, Parachain Auction & Governance
  • Consensus Algorithm — proof of stake & Nominated proof of stake
  • Genesis Block Date — August 23, 2019
  • ATH — $624.15
  • ATH Date — May 18, 2021

Introduction

What is Kusama?

Kusama is a public pre-production environment network built with a similar codebase as the Polkadot network. Though Kusama and Polkadot are independent networks, Kusama is known for its wild and fast-paced governance parameters. It runs early, unreleased, and unaudited parachains, updates, and smart contracts meant to mirror those built on Polkadot.

Kusama is referred to as the “canary network” of Polkadot — referencing the canary’s used by coal miners to detect deadly levels of carbon monoxide and other toxic gases. Kusama encourages users to experiment and deploy early-stage applications and ideas. This means developers can test early versions of Polkadot projects in a live, low-stakes, realistic manner with the native KSM token.

Kusama shares many of the major design features of the Polkadot network. For instance, Kusama uses two blockchain architectures to process transactions and handle network activity. 

The main chain is called the relay chain. It’s where validators are staked and where core blockchain transactions are processed. There are also user-generated chains known as parachains. These chains have different features and allow users to customize them according to their needs. 

Kusama has succeeded in distinguishing itself as a fully decentralized and self-sufficient network that depends on its users for governance. It uses a nominated proof of stake (NPoS) consensus to secure the network and select the validator nodes.

While Kusama is dubbed a “canary network” to Polkadot, it holds a considerable amount of economic value.  Compared to Polkadot, Kusama is much faster, scalable, flexible, and cheaper for developers to deploy and test projects.

 

A brief history of the Kusama Network

The Kusama network was developed by Dr. Gavin Wood, Robert Habermeier, and Peter Czaban, who founded Parity Technologies — the same team behind Polkadot. Kusama debuted in the crypto space in 2016. 

Dr. Gavin is a world-renowned computer scientist, and programmer who co-founded Ethereum, served as its former CTO, and developed the Solidity programming language. He is also the CEO of Web3 Foundation, which funds Kusama. 

Traders who wanted early access to Kusama’s native token KSM needed to hold DOT (Polkadot’s native token) when the genesis block of Kusama was released. In July 2019, DOT holders could claim their KSM tokens by making an Ethereum transaction that allowed them to be part of Kusama’s genesis block. 

A month and a half later, Kusama launched with a proof of authority consensus mechanism. The only validators allowed to generate blocks and authorize transactions at this time were those run by Parity Technologies and the Web3 Foundation. Any other user who wanted to be a validator was only allowed to declare their intentions to validate.

On October 29, 2019, Kusama finally transitioned to the proof of stake consensus, and Web3 Foundation later held an ICO at an opening price of around $1.71/KSM.

 

Business use cases

Kusama is an experimental development environment for developers who want to expedite the proof of concept stage and launch on the Polkadot network. Therefore, startups may use this opportunity to develop on Kusama, which provides added scalability, faster iterations, advanced technology, and open governance.

The most common use cases of Kusama are:

  • Early-stage development 
  • Experimenting on new ideas
  • Startups that do not yet need bank-level security and robustness experiment on Kusama
  • Pre-production environment for Polkadot projects and updates

Kusama also allows developers to create numerous applications like 

  • Games and eSports platforms,
  • Decentralized Autonomous Organization (DAOs) – organizations represented by rules encoded as a transparent computer program. They are controlled by the organization members and not influenced by a central government.
  • NFT marketplaces – platforms used for trading NFTs – virtual items with proof of ownership and transactions bound to the blockchain.
  • Oracles which is Software used to store and distribute data to blockchain networks.
  • And social networking platforms, to mention a few.  

Kusama Network Architecture

Unlike most blockchain networks, the Kusama network is composed of three components:

  • Relay chains
  • Parachains
  • Bridges
kusama_ecosystem

Source: Kusama Guide Docs

 

Relay Chain

This is the central chain of the Kusama network. The relay chain processes a relatively small number of transactions, such as participating in the consensus process, interacting with the governing mechanism, and holding Parachain auctions. However, its main responsibility is to coordinate the system as a whole.

 

Bridge 

This is a chain designed to make Kusama compatible with external blockchains such as Bitcoin, Ethereum, or Tezos. Bridges built on Kusama or on other third-party blockchains can be centralized and trusted or decentralized and trustless. Regardless of the type, bridges will allow different blockchains to interact.

 

Parathread

Although not included as a main component of Kusama architecture, Parathreads are quite similar to Parachains. The only difference is that, while a Parachain is owned by one specific startup, Parathreads are owned by multiple companies or users who stake their Kusama tokens to acquire the Parachain. 

This mechanism allows Parachains to temporarily participate in Kusama’s security without the need to lease an entire Parachain slot. This is on a block-by-block basis.

 

Financial perspective

As mentioned above, Parachains’ multi-chain architecture is the Key to Kusama’s scalability. However, it’s crucial to note that Parachain slots are not issued freely. For a Parachain to connect to the network, startups or individuals must lease a slot on the relay chain through a permissionless auction.

Auctions are done in two main ways:

  • Auction Mechanism — follows the candle auction format where the exact endpoint of the auction is unknown by participants to prevent auction sniping. A verifiable random function determines when the auction ends, and at the end, the slot winner is awarded the slot.
  • Crowd Loans — on the other hand, some teams may choose to go the crowdfunding route using the inbuilt Crown Loan Mechanism in Kusama. This method allows people to contribute by agreeing to lock up their Kusama tokens until the lease ends. Teams can choose to reward contributors whichever way they want and structure their auctions how they want. 

 

Security of the Kusama Network

Kusama deploys shared security, also known as pool security. This means that all Parachains connected to the Kusama relay chain will benefit from the economic security provided by the relay Chain validators. 

What does this mean? A higher number of validators gives the network stronger decentralized properties and makes it harder to take down. 

Moreover, the amount of Kusama tokens staked also plays a crucial part in network security. The more tokens staked by honest validators and nominators, the higher the minimum amount of tokens an attacker will need to acquire a validator slot. If the number is high enough, it will be impractical (from an economic standpoint) to deploy an attack. 

 

Kusama’s governance framework

To keep the Kusama network in agreement and ensure decentralized decision-making, the Kusama relay chain deploys nominated proof of stake (NPoS). Kusama’s NPoS consensus varies from PoS by having two kinds of stakeholders; the validators and the nominators. 

There can only be 16 validators per round, and the process of validating is a lot of work. A validator runs their own node and validates data from the relay chain and parachain blocks. Validators charge a commission rate for validating transactions on the behalf of nominators, while managing their own stake. 

The secondary stakeholder is the nominator, and they stake their KSM tokens by nominating the validator. The nominator is tasked with monitoring the nominated validator’s uptime, account health, and commission rates. 

NPoS gives token holders the rights to nominate a few validators responsible for proposing new changes. KMS holders can also vote to accept or reject the proposals of others.. 

Roles in Kusama’s consensus mechanism:

  • Validators – Validate data on the Parachains and participate in consensus and voting on proposed changes. 
  • Nominators – secure the relay chain by choosing trustworthy validators. They can also delegate their tokens to validators, thus allocating their votes to them. 
  • Collators – maintain Parachains by collecting Parachain transactions from users and producing state transition proofs for validators.
  • Treasury – The treasury hold funds that come from slashing, inefficiencies from the staking system, lost deposits, and transaction fees.

Roles in Kusama’s governance:

  • The Referendum Chamber – any user who purchases Kusama tokens gets the right to propose changes and approve or reject major changes.
  • The Council – is elected by token holders, and they are responsible for proposing new changes and determining which proposed changes are worth execution.
  • The Technical Team – is composed of developers building the Kusama network. They can also propose special changes in case of a network emergency. The Council members choose this team. 

Kusama’s native token: KSM

The Kusama network has a native token known as KSM. At the moment, KSM has three main use cases on the Kusama network:

  • Staking — nominating your KSM to validators to secure the network. As a token staker, you are rewarded with tokens tied to the network’s inflation rate. The less KSM staked on the network, the greater the rewards and vice versa.
  • Bonding (parachain auctions) — KSM tokens are also used to participate in Parachain auctions for startups or individuals who want to secure a Parachain slot on the relay chain. In most cases, users are required to lock up their KSM for up to 1 year.
  • Governance — Kusama uses a PoS consensus algorithm meaning users who want to participate in voting or any governance should delegate their KSM to validators or become validators themselves.

 

KSM token distribution

During its launch, 5 million KSM tokens were issued to the users who participated in the genesis sale of Polkadot’s DOT token. The KSM tokens were issued on a 1:1 ratio through the Kusama claim process.

For instance, if you bought 100,000 DOT tokens during its genesis sale and still had them at the Kusama genesis sale, you received 100,000 KSM tokens.

The rest of the tokens are minted and distributed through an inflation technique.

 

KSM token circulation

Kusama has a total supply of 10 million tokens. However, it does not have a fixed maximum supply. Instead, the amount increases at a 10% inflation rate annually.

Moreover, the amount of staked KSM determines the amount of tokens minted (through inflation). For validators to get 100% of the freshly minted KSM, exactly 50% of all KSM tokens should be staked. Any change, over or under, alters the number of tokens minted.

On Kusama, the treasury burn is currently set to 0 (subject to a change on the runtime), meaning that no repository KSMs are burned at the moment.

 

Kusama Project

By creating a platform where Blockchain projects can experiment with their ideas and deploy mature projects, Kusama serves as a sandbox for developers looking to launch a project in Polkadot.

Some of the projects building o Kusama include:

  • Bitfrost Finance – A Defi Project
  • Karura – A Defi and Smart Contract Platform
  • Moonriver – A smart contract platform
  • Sakura – A Defi, Bridge Protocol and Smart contract project
  • Khala – A Data Privacy project
  • Shiden – A smart contract project
  • Darwinia Crab – A bridge project

For more projects, visit the KusamaProject directory here.

 

Issues and challenges on the Kusama Network

Like any other revolutionary project, there are some risks involved when developing your project on the Kusama network. For Kusama, its main purpose is to mitigate risk from the Polkadot ecosystem. To do that, it has to have a lower risk policy to allow projects more flexibility during testing. However, some of these projects might be affected by major issues that could, in turn, affect the chain’s functionality or also affect other Parachains.

But still, Kusama remains a hyper-innovative platform that is exceptional, and most of these risks are to be expected with any blockchain as well.

For more on Kusama visit:

Kusama Guide

Kusama Github

On CEX.IO, you can find multiple options to earn with KSM. You can buy, hold and trade KSM tokens without a lock period, so you can withdraw or add more funds at your own pace.

 

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