In my last article, I mentioned Helium, one of my favorite cryptocurrency projects.
This will be a more in-depth article. I assume you have some knowledge already about blockchain and the world of competing cryptocurrencies.
Helium Basics
Relative to the fast-moving world of cryptocurrencies, Helium has been around for a while. The Helium project was founded in 2013, only a few years after the launch of Bitcoin in 2009.
Helium’s token is $HNT. It’s available on the major cryptocurrency exchanges. See coingecko.com for details.
Helium maintains its own blockchain, independent of Bitcoin, Ethereum, etc.
A unique feature of Helium is “Proof of Coverage” (PoC). Instead of “Proof of Work” (PoW) like Bitcoin, where nodes compete for rewards by solving a complex math problem, nodes in the Helium network earn rewards by providing network services for the Helium network.
Since the network operations in Helium’s LoRaWAN network aren’t computationally expensive, they consume very little CPU power. Helium miners use as little as 5 W of power.
Contrast this with Bitcoin. An Antminer S19 uses 3250 W of power - about as much as a central air conditioner uses to cool your house.
Helium Rewards
Helium’s Proof of Coverage feature is unique, and is how the network distributes $HNT as rewards to miners.
As the documentation says:
PoC tries to verify, on an ongoing basis, that Hotspots are honestly representing their location and the wireless network coverage they are creating from that location.
The way the network verifies that Hotspots are honestly providing the network coverage they claim is by periodic Challenges.
There are three roles Hotspot miners may play in a Challenge:
Challenger - The Hotspot that constructs and issues the POC Challenge. Hotspots issue challenges approximately once per every 240 blocks. (See note below)
Transmitter - Sometimes called "Challengee". This Hotspot is the target of the POC challenge and is responsible for transmitting (or "beaconing") challenge packets to potentially be witnessed by geographically proximate Hotspots.
Witness - Hotspots that are geographically proximate to the Transmitter and report the existence of the challenge packet after it has been transmitted.
In simplified terms, the Challenge works like this:
The Challenger creates the Challenge packet, encrypts it1, and sends it to the Transmitter.
The Transmitter receives the Challenge packet, decrypts it, and immediately broadcasts it.
Any Hotspots in range of this broadcast become Witnesses, and add their identity to the PoC receipt that is created on the Helium Blockchain.
The Helium network awards a certain number of $HNT every epoch. These $HNT are distributed between the Challengers, Transmitters, and Witnesses.
The beauty of PoC is that it rewards Hotspots for participating in the network by providing network coverage.
Data Credits and $HNT
Value is a tricky thing in the world of cryptocurrencies. Or currencies in general.
For example, Bitcoin was designed to be secure, inflation-proof electronic cash. But like all forms of currency, it only has value because people give it value. 1 $BTC = 1 $BTC. The rest is up to the market.
This is similar to the United States dollar. The $USD is backed by “the full faith and credit of the United States”, whatever that means. The U. S. dollar has value because we all treat it as having value. Otherwise, it would just be ones and zeroes on some computers, with some printed pictures of dead presidents:
It wasn’t always like that. Before 1971, the U. S. dollar was on the gold standard. The $USD was “as good as gold”, because dollars were convertible to gold2. 1 $USD = 1/35 oz. of gold.
How does this apply to the Helium project and $HNT?
Enter the Data Credit.
A wireless network is only useful if you can send data on it. Let’s say I have an air quality monitoring application for city, with a number of sensors spread over a large area. I need those sensors to transmit their air quality readings to a server application.
If I want to use the Helium network to transmit my data, I need to pay for it.
To pay for Helium network bandwidth, I need to buy Data Credits.
The price of Data Credits is set in $USD. (1 Data Credit = $0.00001)
But - I can’t spend $USD to get Data Credits. Instead, I have to spend $HNT. Any $HNT spent to create Data Credits is “burned”, that is, taken out of circulation. Helium calls this process “Burn-and-Mint Equilibrium.”
Let’s consider the air quality monitoring example. For the installed sensors, they will transmit a certain amount of information every month. We do the math and determine that we need $150 in Data Credits to authorize our sensors this month to use the Helium network.
I can’t just pull out my credit card and buy $150 of Data Credits. Instead, I have to buy $150 of $HNT. The market price of $HNT as I’m writing is $29.59. $150 / $29.59 = 5.06928, so that’s how much $HNT I have to buy to fund my sensor’s bandwidth consumption this month.
The price of $HNT may be affected by speculation in the cryptocurrency market, but I expect it will never go to zero because the value of the token is backed by the Helium network.
$HNT is therefore similar to the $USD back in the days of the gold standard, when American Dollars were backed by precious metal. 1 $USD = 1/35 oz. of gold. Instead of being backed by gold, $HNT is backed by the bandwidth the Helium network provides.
But Wait, There’s More!
Helium announced in April 2021 that they are expanding from supporting LoRaWAN to also supporting 5G network devices. And a week ago, Helium announced its partnership with DISH to allow their 5G networks to work together.
But Helium and 5G is worth an article of its own.
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A SHA256 hash is used to digitally sign the packet involved in a Challenge. It is expected that the Challenger nodes will quickly decode the signature. This is different from Bitcoin’s Proof of Work (PoW), which presents a mathematically hard hashing problem.
Yes, gold bugs and history nerds, not exactly true since 1933 when FDR banned private ownership of gold. I’m simplifying.