An Unofficial Qubic Interim Whitepaper

Qubic is a decentralized cryptocurrency using a unique quorum consensus model, offering high performance, instant finality, innovative tokenomics, and smart contracts, with significant growth potential.

Qsilver · Dec 31, 2023.

Introduction

Qubic is a modern crypto using a decentralized quorum consensus model described by Nick Szabo in the pre-Bitcoin times of the last millennium. Lamport's paper on the Byzantine Generals Problem from 40 years ago was instrumental in the creation of Qubic. The first mention of Qubic appears in a 2012 Bitcointalk thread. Following that, the founder of Qubic, Come-From-Beyond (CfB), created the first purely proof-of-stake coin called NXT, which also had built-in asset support. From there, CfB made the first successful DAG implementation with IOTA. It seems the original plan was to build Qubic on top of IOTA, but luckily for us, Qubic mainnet was launched 89 weeks ago as a standalone implementation.

A lot of people just hear that CfB is the creator of Qubic, and that is good enough for them to buy some QU (the native coin of Qubic). However, this document is for those that need an objective analysis of Qubic.

Qubic's Consensus Model

Qubic is not a blockchain. It is not proof of stake. It is not a DAG. It is not even directly a proof of work consensus model. To understand Qubic, you need to basically forget about all the other crypto implementations, as it is unique in almost all aspects.

Qubic has the analogue of blocks in what it calls ticks. Unlike blocks, there is no direct linkage of one tick to another. Ticks happen within a weekly epoch and currently happen about once every 5 seconds. The tick speed is adjustable and in past epochs ran as fast as once every 0.2 seconds. Every week at noon GMT on Wednesday, a new epoch starts. This transition incurs a bit of downtime until things are ticking at normal speed. It is basically a scheduled hard fork upgrade every week. Now you are probably saying, “weekly downtime???” and yes, it is true. For now, as Qubic is under rapid development, there is about an hour of downtime every week. The community has adapted well to this, and other than some people complaining about not being able to make transactions during the downtime, the effect is minimal. Of course, it is important that eventually epoch changes can become seamless. This is planned, and there are no significant technical obstacles to achieving it.

Performance and Finality

The reason for the weekly epoch change is that not only does Qubic run without an OS on bare-metal servers, it runs entirely out of RAM. I repeat, Qubic runs entirely out of RAM of the consensus-creating nodes without the overhead of an OS. This allows for some incredible performance, and we will see other unorthodox choices in Qubic that were made for the sole purpose of maximum performance. To give a hint of what level of performance is possible, a live test achieved over 40 million transfers per second. Basically, orders of magnitude more than any other crypto. To be able to achieve such speed, it is important to have finality, and Qubic excels in that too with instant finality. There is no worry about a blockchain reorganization (there is no blockchain!), and there is no possibility of a 51% attack, as there is only a single consensus for any given tick that is possible.

There are 676 special nodes called computors. 451 of these are required to be in sync and agree on a tick for it to be valid. There is an arbitrator that makes sure the computors are behaving properly. If a quorum is not reached for whatever reason, we get an empty tick. A tick will contain transactions, which are simply data packets with assigned handlers for various types of transactions.

Transaction Model

Unorthodox alert! Qubic transactions do not have any transaction fees; they can also have 1024 bytes of extra data. However, all the transactions are pruned every epoch change. Only balance change summaries survive epoch change, and only if there is a nonzero balance.

A transaction being included in a tick only means that it was properly signed by the sender and included in the tick. It does not mean that the transaction was successful. While any actions indicated by a transaction are processed in the same tick, its inclusion in a tick does not mean it did anything. We are so used to having unconfirmed transactions, mempools, transaction fees, maybe replacing transaction fee to speed it up, confirmed transactions that mean it worked, and then to make sure it has enough confirmations and it is not reorged out of existence and possibly double spent. Normal crypto is actually quite a mess and very complex and only has a statistical finality. Even BTC, if a very large amount is transacted, you would need to wait for many hours to make sure that some large hash rate won't reorg the transaction and double spend it.

Qubic does away with all of that. A large amount of code is needed to handle all of the blockchain logic dealing with reorgs and keeping track of things, and this goes against the Qubic ethos of maximum speed. In Qubic, you broadcast a transaction you want to make and specify the future tick you want it to be included in. Anything less than 3 ticks in the future has a high chance of not being included. Most wallets have a default of 10 ticks in the future. As soon as that tick arrives, if the transaction was included, it was; and if not, it will never be. That is it! No need to worry about forks, reorgs, transaction fees, etc. Having to check if the transaction was included and actually did anything is a small price to pay for the instant finality.

Smart Contracts and Tokenomics

Currently, there are only 3 authorized smart contracts (SCs): Qx, Quottery, and Random, and only Qx is partially deployed. These are early days, and eventually, any SC will need to be fully operational before being accepted. SCs are compiled directly into the Qubic core code, which is in C++. Any language that can be linked into the C++ codebase can be an SC, but the expectation is that most of them will be written in C++. After an SC is working on testnet, it would be proposed to the computors to be accepted. If a quorum is reached (451 votes) and it gets majority approval, an SC will be accepted. Every accepted SC will then conduct an epoch-long Dutch auction for its 676 shares. The winners of the Dutch auction will have their funds burned, creating a credit account for the SC fees. Once these credits are used up, SC fees will need to be added to each SC usage, and those fees get burned. Shareholder fees exist from the first usage of the SC and will be distributed to the 676 shareholders proportionally.

There are always exactly 676 SC shares, so there is no inflation (or deflation) at all for SC shares. For those concerned with QU inflation, SC shares might be a good way to diversify. The current core codebase allows for a maximum of 1024 SCs, but it will be a simple matter to increase this limit if needed. As the RAM in the computor nodes is increased, the overall capacity of Qubic scales up, both in terms of the number of SCs possible and the number of transactions possible. Bandwidth limits the number of balance changes per tick.

Unique Features and Unorthodox Elements

Unorthodox Alert! Funds spent in the Dutch auction do not go to any entity as the winners' funds are burned. This means that all holders of QU benefit from every SC auction as it is anti-dilutive. Ultimately, it is the SC fees that are burned that will help achieve coin supply equilibrium. Now is a good time to talk about the tokenomics.

Unorthodox Alert! The native coin of Qubic has no decimal point; the assets can specify the display convention of how many decimal places it has. SC shares are a special type of asset with Qubic as the issuer and no decimals. My theory as to why there are no decimals is that it helps performance. When in doubt about a Qubic feature, just ask if it helps performance or not. Not having to deal with floating-point numbers and just integers helps performance, so we lose the decimal point. The side effect of this is that the numbers of QU become very large, which tends to freak out many math-challenged people. If you see numbers like 1 trillion per week and 1000 trillion max supply without dividing by 100 million, you might think there are just too many QU. However, QU is the indivisible unit of Qubic, equivalent to satoshis for BTC. There are actually 2100 trillion satoshis for BTC max coin supply, and even now, after all the halvings, about 650 billion satoshis per week are being emitted. And BTC has no burning mechanism.

Many have claimed that with 1 trillion new QU being emitted every week, there will be such a selling pressure from miners that the price can never go up. If adjusted to the normal 100 million satoshis per coin, the current supply is 780,000, with 10,000 emissions per week, or a bit less than 1 per minute, and a max of 10 million. Without all the zeros, it is much less scary. A direct counterexample for the “1 trillion is too many coins” argument is DOGE, which emits 4000 trillion satoshis per week and has no burning mechanism. Yet its price is not driven down to zero. Another counterexample is that QU price has grown respectably and has had the highest inflation rate during this period. As time passes, the inflation rate will come down simply due to there being more QU against a fixed 1T per week emission. Estimates vary on when the coin supply will stabilize (auction and usage burns averaging 1T per week). Some say at 100T, others around 200T. If things go for 20 years or so and we reach the max of 1000T QU, the inflation rate will be 5.2% at the end before it transitions to 0% at the max.

Personal Insights

My estimate is that QU supply will vary between roughly 150T and 200T, depending on usage levels. It seems that as usage (demand) goes up, supply shrinks, so the price should go up, reducing demand and increasing supply. Lower prices would increase usage, demand goes up, and so forth. With a robust set of SCs and active usage, we should enter a supply/demand equilibrium range. Once this happens, there will be no net sell pressure from emissions, and any incremental demand will directly increase the price.

Probably you have noticed that I have not mentioned anything about AI until now. Even without any AI aspects, Qubic is the real deal. Groundbreaking in so many ways. Qubic is not completed yet. At the moment, there is not even an official website, only a few very small exchanges, and SCs are just coming alive. Still, a quarter-billion market cap has been achieved, as it is clear to anybody that understands the technical underpinnings of Qubic that even without the AI part, it is destined to be one of the top coins.

Decentralization and Security

One final point about decentralization. Some might claim that 676 is too small a number of nodes. However, if you look at what each computor node is, it will need to turn into a mining pool to survive the mining battles. BTC has half a dozen pools with a majority of hash rate, so arguably the 676 computors are 100x more decentralized. Only the top-performing nodes retain computor status, and only computors get 1/676 of the weekly emissions. Instead of a static 676 that obtained their spot with a one-time investment or were just allocated a spot, all 676 are competing every epoch to keep the coveted spot. Also, anybody can jump in and start competing for a computor node. This is what makes it decentralized at the weekly level. Within an epoch, the 676 nodes have control over consensus, but the arbitrator keeps them in check. I believe there is even a mechanism to replace a misbehaving arbitrator, but I have not verified that yet. Having a single entity watching over a decentralized group of 676 computors that are making the consensus seems fine, as recent performance of the computors is above 99% level. The arbitrator, over the 88 epochs, has accumulated only about 1.4T QU, which is at the 2% level, so there is no concentration of QU issue.

The rich list has a decent distribution and has almost 3000 IDs with 1 billion QU or more. It is growing every epoch by about 100 spots. Certainly, there are a few holders with a trillion or more, but the Pareto effect will always result in some whales in any crypto project. The biggest addresses only have about 25% of supply, including the four exchanges and the arbitrator. The burning of the Dutch auction funds reduces the large balances, as the large addresses tend to get most of the SC shares.

Conclusion

I hope this document is useful for understanding Qubic. It is still a high-risk project, but only because it is not technically completed yet. Qubic still has many standard things it needs to get done, like big exchange listings, websites, easy-to-use UI, etc. However, these are all things that any project can achieve, and there is no doubt that Qubic will achieve this. What Qubic has is the unique tech and tokenomics model built around an AI training infrastructure. This analysis is about what Qubic will become without the AI portion. A successful AI tech will increase the value of Qubic by at least another order of magnitude, as spending on AI training is projected to increase exponentially this decade.