Is Internet Computer Coin a Good Investment in 2022?
What is Internet Computer Coin? And what's going on with declining Internet Computer Crypto price? Is crypto in general, and Internet Computer Coin in particular, still a good investment in 2022? The current article can only hope to scratch the surface in addressing these questions. Sign up to get access to premium content from Dfinity Community. No matter how crazy 2022 gets, we'll help you stay informed about the latest developments on the Internet Computer.
About a month ago, I predicted that a triple-black-swan event would tank crypto prices. On 2/24/2022, my speculation that ICP price would fall significantly below $17 USD in the event of an armed conflict in Ukraine proved accurate (ICP fell to $14.70 USD at 1:30 AM CST). Since then, crypto prices have partially recovered. For the next few months, however, Internet Computer Crypto price will likely continue hovering between $16 and $20 USD. At these appallingly low prices, the Internet Computer Coin is substantially undervalued. Adam Kantrowitz's value investment case for Internet Computer Crypto has never been more relevant.
The crypto market is definitely fearful right now, but fear can be an investor's best friend. "Buy fear, sell greed," as the old adage goes. Eventually and inevitably, the world will calm down. When that happens, the Internet Computer Crypto price will rise again based on the merits of its astounding capabilities. Despite a rough start to 2022, I remain firmly committed to Internet Computer Crypto and its wonderful community. The Internet Computer is an amazing technology that promises to play a substantial role in the future development of the Internet. I've gotten involved in promising NFT projects like the ICP Squad and have invested significantly in the Internet Computer's governance token, the Internet Computer Coin. I think my investment was an excellent decision that will pay off big time. Institutional investors, like Sygnum Bank, agree.
What ultimately persuaded me? The technical details.
A Technical Overview of the Internet Computer
Introduction to Internet Computer
The Internet Computer is the long-awaited backbone for Web3. It's a public blockchain that empowers online developers to eschew commercial cloud services, database servers, web servers, DNS services, firewalls, and other dependencies on Big Tech's proprietary application programming services. Thanks to Internet Computer Crypto, developers are liberated to build and deploy secure, autonomous, and tamper-proof compute units called canisters, which can accomplish nearly anything imaginable. This includes, but is not limited to: tokenized Internet services, pan-industry platforms, DeFi and smart contracts, enterprise systems, and traditional websites.
The technical details of canisters get pretty complicated, but the key takeaway is that canisters are an evolution of smart contracts that run software in a distributed, replicated way that also captures the complete history of that software's program states. Users interact with these canisters via an Internet Identity, an anonymous blockchain authentication framework that associates online activity with physical tech gear, such as a smartphone or laptop. But the crown jewel of the Internet Computer, and what makes it truly unique, is the Network Nervous System, or NNS for short.
Network Nervous System
If you hold ICP tokens (also commonly called Internet Computer Coin), you can stake them inside the NNS to create neurons. You can think of the NNS as the brain of the Internet Computer. Neurons created by staking ICP tokens, under your direction, can vote on network proposals in proportion to their respective ICP token stakes. Thus, the greater your stake, the greater your voice.
You can further amplify the impact of your neuron's vote by increasing its dissolve delay and letting it age by choosing not to dissolve it. You set a stake timeframe, ranging from six months to eight years. The interest you earn goes up pro-rata with how long you commit your ICP token inside the NNS. In this way, all modifications to the configuration and behavior of the Internet Computer (including the NNS dapp) emerge from people who have skin in the game.
Therefore, thanks to the NNS, the DFINITY Foundation didn’t just create a new type of blockchain — they made a way for the Internet Computer to naturally evolve, learn, and respond to the needs of its users and developers. Ultimately, extreme adaptability is what elevates the Internet Computer’s NNS above competitor blockchain governance approaches.
No software engineer or computer architect can predict the future, and with the NNS, they don’t have to! The Internet Computer can upgrade itself on every level to meet evolving blockchain needs via its decentralized democratic voting system. One change already underway is adding NNS-style services to individual dApps and projects, often referred to as Service Nervous Systems or SNS, bringing decentralized democratic governance to software development and maintenance. My colleague Andre has written an introductory guide to the Service Nervous System that highlights how the DFINITY Foundation plans to revolutionize software development for Web3.
Hierarchy of Network Building Blocks
Although popular in online communities, the terms "Internet Computer Coin" and "Internet Computer Crypto" are technically misnomers. These terms can give the impression that an ICP token is like ETH, BTC, or other traditional cryptocurrency coin. Then, what is Internet Computer Coin? In reality, the Internet Computer is based on a blockchain computer protocol called Internet Computer Protocol (ICP), and its governance cryptocurrency is called the ICP token. ICP tokens allow Internet Computer users to participate in network governance and power dApps by burning ICP tokens to create Cycles.
The Internet Computer network is built using a hierarchy of interlaced components. Independent data centers that host hardware nodes comprise the foundation of the network and constitute the bulk of its physical infrastructure. When connected, these nodes form subnets. These subnets are the intermediate layer of the Internet Computer Crypto network. Subnets host canister smart contracts, which are interoperable compute units that are uploaded by users and contain both code and software state, thus preserving the full history of an application's runtime. Meanwhile, the NNS is responsible for controlling, configuring, and managing the overall network.
Data centers can join the Internet Computer by applying to the NNS, which votes on adding and removing nodes. This process is analogous to what the Internet Corporation for Assigned Names (ICANN) does in assigning autonomous system numbers for people who want to run BGP (Border Gateway Protocol) routers. In addition to decentralized democratic governance, the NNS also fulfills monitoring functions, looking for indications of underperformance or faulty behavior on the Internet Computer. This helps safeguard the Internet Computer's network against bad actors or abandoned infrastructure. Compromised nodes and even subnets can be removed or altered by voting on proposals as necessary.
Token Economics
The NNS is vital to the token economics, or tokenomics, of the Internet Computer. The NNS spawns new ICP tokens to reward node operators. Rewards are also distributed to staked neurons that are voting on proposals in the NNS. Whenever the NNS creates new ICP tokens to reward data centers and neurons, it’s an inflationary mechanism for the overall supply of ICP tokens. This prevents the Internet Computer from running out of ICP tokens and incentivizes participation in network infrastructure, maintenance, and governance.
Eventually, data center owners and neuron owners can utilize their ICP tokens with canisters. Canisters convert ICP tokens into Cycles that empower decentralized applications, called dApps. Whenever canisters perform computations or store data, they burn through Cycles and ultimately have to be recharged with more Cycles to continue running. That’s a deflationary mechanism for the overall supply of ICP tokens. This rations processing strain across the network and prevents an overabundance of ICP tokens that could drive down the value of Internet Computer services. Deflationary mechanisms incentivize investors via facilitating sustainable growth in ICP token value over time.
Working in tandem, inflationary and deflationary mechanisms will buoy the success of the Internet Computer. The NNS also ensures that tokenomics can change in highly adaptive ways. For example, an exciting new compounding maturity proposal could bolster ICP token value against bearish cryptocurrency markets by reworking maturity to disassociate it from specific amounts of newly minted ICP tokens. I like this proposal, and am convinced it will pass. I encourage you to read all about the details. The proposal merits further discussion.
If the compounding maturity proposal passes, over the next few years, the minting rate of new ICP tokens will drop substantially. Much disbursed maturity will instead be transferred out of neurons rather than created de novo. In effect, minting will be deferred until these neurons dissolve. By that time, the Internet Computer network and ecosystem will be more mature, with established burn rates for ICP tokens being converted into Cycles. Thus, the future market will be better suited to absorb the increase in ICP token supply.
Moreover, at present, in some jurisdictions and countries, tax authorities consider maturity to be income at reception since it corresponds to an exact number of newly minted ICP tokens. This creates an excessive pressure to frequently realize maturity as new ICP tokens to sell on the open market to pay taxes. This action is inflationary and further increases selling pressure. By removing the need to produce ICP tokens from maturity to pay taxes, there will be less forced selling on the market. Participants in the NNS will have expanded liberty to wait for favorable market conditions to sell ICP tokens.
Best of all, under the new proposal, any staked neuron will generate income in the form of staked maturity at the beginning of its dissolve delay rather than newly minted ICP. In other words, the neuron stake is paid out in exchange for staked maturity. Stake holders will not need to sell for taxes during this initial phase, so all of that new ICP maturity can be staked again to increase voting power if desired. When the time comes to cash in on accrued maturity, the amount of ICP tokens received will be variable (within boundaries) depending on market conditions rather than a completely fixed amount. Neuron holders with accrued maturity will be incentivized to produce and sell ICP tokens when prices are trending upward, and not when the market for Internet Computer Crypto is falling. Therefore, the revised tokenomics of the Internet Computer would stabilize prices.
Subnets
To fully understand the Internet Computer, it's not enough to know about the evolutionary capabilities of the NNS or its adaptive tokenomics. You need to understand the concept of subnets, which weave together to form the global network. A subnet hosts a distinct subset of software canisters on the Internet Computer network. A subnet is created by bringing together nodes drawn from different data centers and is controlled by voting neurons in the NNS. These nodes collaborate via the Internet Computer Protocol to symmetrically replicate the data and computations in the software canisters which they host.
The NNS joins nodes from separate data centers to build subnets. This enables IC protocol math to guarantee that subnets are tamper-proof and unstoppable, using Byzantine fault-tolerant technology and cryptography implemented by the DFINITY Foundation. Subnets are transparent to users and software alike. Users and canister software operators only need to know the identity of a canister to call the functions that it shares with the public.
The Internet Computer's subnet transparency is an extension of the Internet’s fundamental design principles. If an Internet user wants to connect to a software application, all that's required is an IP address and TCP port. Similarly, if an Internet Computer user wants to call a function, all that's required is the canister ID and function signature. The Internet Computer also indirectly ensures the transparency of subnets. For example, the NNS can split and merge subnets to balance network loads. Load redistributions are, of course, transparent to canisters. There is no need to sacrifice transparency for anonymity on the network.
Want to learn more? Read the Internet Computer for Geeks!
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