If you are already familiar with our work and, in a sense, our creative content (our Telegram channel), chances are you already know that Luntik is about the technology and people. We are friends with development teams and support projects that contribute to the development of the blockchain industry. The area of our interest includes first of all the infrastructure solutions that eliminate technical barriers and form the landscape of an open and secure digital economy.
For the past six months, like many investors and investment funds, we have been staying away from investing in ICO projects due to market panic and a sharp decline in ICO profitability.
Why are you still reading this review? There are at least two reasons: the start of a promising (at least for the cryptocurrency market) year, plus an extremely balanced project, the LTO Network, launching its ICO on January 14. What does this add up to? Let’s take a look at some facts.
- The project already has real customers from the B2B sector
- The tokenomics are carefully thought out, there are mechanisms to prevent dumping
- The solution is based on live contracts that are understandable to both people and computers
- There is a two-tier strategy for the introduction of technology across the client companies
What does LTO offer?
LTO Network is a hybrid blockchain for the automation of business processes. Thanks to an LTO-based solution, companies can interact with each other on equal terms: conduct transactions, exchange information, organize supply chains, delegate data processing to third parties, etc., without relying on trust alone. Maintaining trust in business is often redundant and expensive.
By eliminating the need to work with the human factor, with paperwork and constant verification of counterparties, companies will be able to focus on improving the efficiency, transparency and security of running the business itself.
But we are not here to make forecasts. Our review will tell you about:
- How to deliver hamsters to the zoo with the help of “live contracts”
- How to store and not store information at the same time
- Compliance with GDPR: marketing or the key to project implementation?
- How companies are already using the LTO technology
- What’s up with tokenomics and “proof of value”
- Terms of sale and the “Troll Bridge” anti-dumping mechanism
If you are familiar with other articles by Luntik, then you know we rarely write about the metrics and terms of sale of ICO. All this can be easily found in numerous materials on the project, at least here and here. We focus on the technologies, which are still mostly ignored. If you don’t care where you pour your hard-earned money, don’t worry: this is a market of profiteers and we ourselves are far from perfect. For you, there will be at least a couple of paragraphs about the customers and where we stand.
Initially, we tried to describe all the technical features of the project, but at a certain point we realized that we were trying to rewrite the already excellent technical paper.
Let’s skip the details and focus on the main features of this project:
- Live contracts.
- The way events are confirmed in live contracts: hybrid blockchain with anchoring.
- Live contracts vs. smart contracts: which one is cooler?
- How will this be used by companies? Summary of the entire LTO architecture.
It seems like there might be some confusion around the unclear connection between the notion of a “hybrid blockchain”, which is how the LTO project is presented, and some “live contracts”. For most investors who are not too savvy about the technological details, the analogy looks something like this:
There is the public blockchain Ethereum, which is what smart contracts work on. So does LTO have some kind of a “hybrid blockchain” on which “live contracts” work? So what’s the innovation? — But this is not quite it.
In reality, the main product of LTO is the live contracts themselves, because the “hybrid blockchain” (oh, those marketing buzzwords) is a combination of a private blockchain and an open public blockchain that simply serves and implements the infrastructure for contracts.
If we imagine LTO as a drunkard, then live contracts are his liver: the very essence, the main function. The other organs (the hybrid blockchain) simply help the liver to exist and to do its work. We could have used heart as the analogy, but that was too romantic for our tastes. Anyway, let’s start with those.
What is a live contract?
Since the LTO network is not a rice cooker, but a specialized architecture for solving business problems, the interaction of two, three or more companies in the network begins with the adoption of a certain scenario for further developments.
“Hey, Sergey, shall we conclude an agreement for supplying mentally deficient hamsters to our zoo?” — “Sure,” says Sergey.
The two parties determine how many hamsters need to be delivered, in what time frame, how the payment will occur and which parties will or may be involved in the work process. Thus, the parties determine the necessary data set for the initialization of a live contract:
- the workflow participants
- the initial states of the process
- the multitude of all possible actions
- the conditions for determining that actions are performed
- the assets to be handled by parties
- the final states of the process
This is enough to make sure that during the execution of the contract, all parties have a mutually agreed history of events and agreed states of the workflow. So why is this enough?
LTO defines the workflow as a sequence of related steps or processes necessary to accomplish a specific task.
Therefore, the workflow has certain rules according to which a specific action causes another, and so on. All that’s left to do is program these steps and the rules for their implementation in a machine-logical structure. For such a structure in the course of studying business modeling and process automation, the LTO team opted for the Advanced Finite State Machine, hereinafter FSM.
If you don’t feel advanced enough for the topic of that kind: we’ll deal with all of this.
What is a finite state machine?
The definition of the finite state machine is familiar to most developers, but anyone regardless of profession can figure it out. The finite state machine (or in case with LTO the Advanced Deterministic Finite State Machine) can be imagined as an abstract machine that, upon receiving some data, performs certain actions and changes its state according to the rules (instructions) of the transition to the next state, if the received data meets the conditions of such a transition.
Or, simply put, it’s a gizmo that responds to data it obtains by changing its state (performing or not performing an operation), while the number of its final states is determined in advance. Hence the deterministic part. There are also non-deterministic finite state machines, but LTO is not one of those.
It’s easier to look at this image:
The scheme is vaguely reminiscent of flowcharts from computer science lessons we had at school. What, you didn’t have computer science lessons? Ok, nevermind then.
LTO’s technical paper pays a lot of attention to the finite state machine. In particular, it describes its limitations, along with the advantages that these limitations carry for end-users of live contracts.
Let’s save some time and go straight to why FSMs are good and relevant:
- their logic is easier to test because the number of different options for states, inputs, and outputs is limited by the structure itself
- for the same reason, the probability of errors and unexpected behavior of such logic is minimized
- FSMs are easier to develop, often this logic is similar to the sequential execution of actions in the real world
Now for the obvious: we bet you understood the process described on the chart immediately.
A live contract defines the workflow as a state diagram, which allows you to visualize it in a flowchart. Thus, the workflow becomes clear to both people and machines.
Live contracts, of course, do not end with the final state machine: this is only a structural piece of a big idea. Since the other benefits refer to the live contracts as a whole, let’s figure out what happens after the formation of the finite state machine.
How is a live contract technically?
After the formation of the FSM based on the data obtained at the beginning of our example from Sergey the supplier and the zoo that will host the hamsters, it is time to launch this machine, and with it the process.
And immediately we see the first obvious difference between live contracts and smart contracts: the mechanics of their work.
For each Live Contract, LTO creates a specialized private blockchain. Such a blockchain is used not as an immutable registry, but as a tool for providing participants of the process with an up-to-date countersigned history of events and shared states.
Now we have a small private blockchain consisting of two nodes: the zoo and the supplier. In the first block of the network, a business process scenario is laid out, and additional participants are defined: for example, a transport company that will directly deliver the hamsters to the site.
Depending on the scenario, two options are possible to access it:
- adding a transport company as a participant in the process, i.e. inviting another host to join the process and become part of it
- at a certain step of the workflow, the contract will be able to automatically request data from the transport company (access the database or send an HTTP call to a specific page with information about the departure)
Actions in the contract
In any case, thanks to the FSM, we have a chain of actions where, at every step, both the machine and the person understand what is required of them. The action determines which of the script participants can execute it, and, optionally, what are the restrictions on execution.
For example, confirming the transfer of hamsters to the transport company should take Sergey no more than 8 hours, otherwise, an alternative chain with the logic of conflict resolution will be launched. It’s called a chain of deviation (a fork of the main process).
Action is followed by a response. This response must be signed by a participant and confirmed by the node as a new event. The actions that have to be performed by a human participant, like signing a digital document, are manually confirmed, while system actions (intended for a machine) are performed automatically.
After completing the action, the information that the event occurred is distributed among the participants of the process. Nodes receive information about the event and independently determine the new state (step) in the workflow.
Each event within the workflow turns into another one-action block. Thus, working step-by-step and accepting new events, the nodes form a chain of actions on the blockchain.
So, we are moving along with the workflow, saving and hashing (encrypting with one-way function) our steps. What do we do after the process is over, though? Will our private blockchain with two participants be stored forever?
By definition, in a private blockchain, the data is available only to the participants of the process. But then, how can you prove that certain events did indeed take place? How can you save their history without specific details? What if you, say, decide to sue Sergey? What do you do about the confidential matter than?
We need a third party which, on the one hand, will establish the fact that the event has taken place and all participants within the private party have accepted it, but on the other hand, will not know the nature of this event. A sort of digital notary with zero knowledge.
In order to determine the immutability of information and the confirmation of the events that occurred, LTO supplemented private mini-blockchains with a global public blockchain-notary to confirm the events.
Anchoring is a technique for fixing certain information on the blockchain. Like a literal anchor, the fact of an event occurring is secured in a public blockchain. In the LTO network, each event block from a private chain is hashed, and the hash is recorded in a new block on a public blockchain. Everything is simple.
Hashing is a one-way function, it is impossible to recover data from a hash.
So, as soon as the hamsters arrive at the destination, a worker at the zoo registers the fact. Every hamster is safe and sound, the worker presses a button, and the next step in the workflow is completed. Thus:
- At the first level, only the participants of the process interact with each other. Together they perform the steps of the live contract, which are registered on a private blockchain.
- At the second level, the event hash (not related to the data itself) is stored on the public blockchain and is confirmed by all participants of the LTO network.
And it’s this set of private mini-blockchains and one global public blockchain LTO that’s called the “hybrid blockchain”.
In case you forgot, all this was required in order to ensure the flexible and safe operation of live contracts.
After this explanation of the functionality in general, it may seem that there is nothing special about live contracts. That’s not true. We knowingly applied the concept of “flexibility” to them, which we are now going to explain further.
Live contracts vs smart contracts: which one is cooler?
If you think that all of the above can be easily implemented on the basis of smart contracts, it is worth delving into their real possibilities.
As you know, smart contracts are actually not all that smart. In fact, a smart contract is a set of instructions, which for 90% of cases simply acts as an intermediary-validator of a transaction with the previously described logic, as people used to do. But what does a smart contract validate? — A transfer. A transfer of what? Well, a transfer of data, most often a digital asset.
Such an asset is placed under contract supervision, and then, according to its logic, the contract waits for certain conditions and verifies them. Done? Then it distributes this or that asset to whom it is necessary and in the way it is necessary. Secure, consistent, public, but absolutely not interesting for business.
Peter will send 40 ETH to Ivan 7 days after Ivan proves that he has a VANY token by sending it to a smart contract. Here you have it, the abstract functionality of smart contracts described in one sentence.
Besides, smart contracts have a number of problems with scalability, privacy, security and legal context. To confirm conditions from the outside world, smart contracts need oracles that will affect the behavior of the contract. At the same time, the logic of these oracles is impossible to reflect in a smart contract.
Mass adoption, really? Yes, we are slightly exaggerating the essence of the problem, but in reality, such functionality of smart contracts is really not enough for a business, if we want to speak the language of large companies.
Live contracts (LCs)
Unlike smart contracts, which, as we found out, are simply “locked containers of liquidity”, live contracts have no direct purpose. Everything that can be unambiguously defined as a sequence of actions and presented in the form of FSM can be carried out and confirmed by such a contract. In this, they are much closer to the traditional (paper) contract.
In addition, in a live contract you can:
- add and remove members
- deviate from the primary scenario and handle conflicts
- generate LC-based digital documents from a template
- record people’s actions
- organize subprocesses (parallel actions) in a single scenario
- leave comments for other participants in the chat format, recording their discussion on the blockchain
- update the script on the go
This is not something we just came up with: the technical paper explains it all in very simple terms!
Advantages of live contracts
Reduced implementation costs. For large organizations, the business model is already captured somewhere in the form of similar schemes (the BPM industry standard — Business Process Management, for example, in the BPMN notation), which means they will have to shift the existing processes to the new LTO-based design, instead of developing the automation from scratch.
There is an opportunity to register the actions of people on the blockchain instead of only machines. Due to this, live contracts can have real legal weight and serve as evidence of actions that have taken place. If there is a conflict between the parties that needs to be exacerbated, arbitration can occur in court using linked logs.
Keeping everything secret. LTO is built to perform processes between parties. Apart from these parties, no one needs to know about the process or even about the interaction of the parties, while some invited auditor will easily confirm any actions of the parties based on the event hashes that are stored on the public blockchain.
Compliance with the regulations of the GDPR. Due to the hybrid nature of live contracts, LTO.Network is compliant with European GDPR data protection law, adopted in July 2018. But how important is it really?
Compliance with the GDPR — a must or a marketing trick?
2018 was the year we saw a lot of hype over the issue of GDPR compliance, but is the GDPR really as terrible as it is painted? The main focus of the General Data Protection Regulation can be reduced to three basic rights that are guaranteed to all persons in the EU and the EEA (European Economic Area). Even if you yourself are not in the EEA but your business partners are, they can also demand the implementation of these rules (the penalty for non-compliance is up to € 20 million or up to 4% of the annual turnover)!
- The right to know what personal data are at the disposal of third parties and for what purpose they are used;
- The right to correct data — in case an error is detected or the data has changed;
- The right to be forgotten — that is, the right to demand the removal of personal data from companies that store and process them.
Due to their inability to comply with the GDPR, many projects that could not adapt in time have already gone down. It would seem that blockchain and GDPR are incompatible due to the unchanging nature of distributed storage, but LTO managed to come up with a realization of the right to be forgotten (the main stumbling block for blockchain).
We have already mentioned hashing data from a private blockchain and adding the result to a public one (i.e. anchoring). A hash is simply a set of characters, and it is impossible to recover the data from it without knowing these characters. In addition, you can delete your data from the node at any time, and miniature private blockchains self-delete after a certain period of time (this is also one of the requirements of the GDPR — personal data cannot be stored forever).
So the answer is yes, the compliance with the GDPR is not just a marketing trick for LTO, but a necessary condition for attracting integrators.
| The team explains more about the GDPR in their Medium
Why is business so keen on mass adoption? Integrators, partners, and mere mortals
LTO goes against the usual ideas about startups. As one of the subsidiaries of Firm24 (existing since 2012), LegalThings B.V. has been working in the field of document processing software since 2014. In 2017, the team members, in search of ways to improve their product through trial and error, realized the need for blockchain technology. And this is important! After all, too many blockchain startups go straight from technology to product, ending up with another Bitcoin on acid.
Another integral advantage of this approach is the client base of the project. Among those who are already integrating the LTO solution, there are quite a few corporations, and even the governments of some European states — which is very good for the blockchain project launching their ICO. Here are just a few examples:
- The governments of Belgium, Denmark and Germany (supply management solutions)
- CMS, Deloitte, Merin, MSeven, OSRE (solutions for using live contracts in real estate)
- DEKRA (insurance; automatic processing of personal data in accordance with the GDPR)
- Heineken, Euronext (transaction management)
And the integration tab on the website:
It is important to note that LTO already has examples of the platform’s design. From the video below you can see that everything looks quite decent from the point of view of the average user. Ah, the technologies!
The process of creating and signing a rental agreement. Just turn off the sound, believe us, you won’t enjoy it
The solution architecture includes:
- Interface layer: this is the “face” which the user of the product can see and poke. Everything that happens on it interacts directly with the application layer.
- Application layer: this contains are all the services that are activated by events occurring on a private chain of events.
- Two layers that you already know everything about: the private mini-blockchain and the public validator blockchain.
By the way, the private blockchain is designed based on Waves, but the public blockchain had to be developed from scratch, for closer and more accurate integration of tokenomics. There were at least two reasons to do that:
- It allowed to lighten the blocks and leave only the minimum necessary functionality, increase the capacity, speed up the anchoring.
- It allowed to experiment with different models of tokenomics in order to choose the most effective system for rewarding active participants.
Tokenomics as a continuation of the project. What’s it about?
| The main document on LTO tokenomics can be found here.
The LTO token model is described in vivid detail, which you can see for yourself. And we are not the only ones noticing this.
“Good tokenomics. I would say this is the only startup where the tokenomics is attached to private blockchains.”
Mikhail Egorov, CTO of NuCypher, Technology Project Advisor
The summary of what we know about future LTO token holders:
- Integrators & Partners: they are the foundation of the network, involved in the initial development and providing staking nodes for checking transactions. They can act both independently and by delegating on behalf of clients, giving them their powers.
- Clients: users who use the network, pay transaction fees, and can also run nodes. They are divided into passive clients, who only generate transactions and use powers from outside, and active clients, who both generate transactions and keep staking nodes.
- Passive stakers: users who stake their tokens and deploy nodes for checking transactions to receive rewards in the system.
- Non-active holders: users who have tokens but do not participate in the life of the network.
Source: Tokenomics Version 1.1
The tokenomics is thought out in such a way as to support both the most active participants (integrators and active clients) and passive stakers, or ordinary investors who decided to deploy nodes and earn extra money on checking transactions or renting their staked tokens.
According to Ivan, community manager and project marketer, LTO expects about 100–200 thousand transactions in the first months of the main network’s operation, hence there is space for passive income, especially for the first stakers. For the most equitable distribution of remuneration, the team took the ideas of Waves and NEM in order to achieve a balance between decentralization and the economic attractiveness of staking.
In the coming days, the team intends to release a calculator of the profitability of staking for those who want to weigh the pros and cons.
Leased Proof of Importance — support the network and use it yourself
If you already have an idea of how the consensus algorithms work, here’s a description of the LPoI consensus from LTO in a nutshell. Once there was a mechanism such as the Leased Proof of Stake (used, for example, by NXT). It works like the regular Proof of Stake with one amendment: users can rent their tokens to a node, increasing its chances of creating a block and receiving a reward in return.
There is only one “but”: 3 nodes control more than 75% of the NXT network. Centralization in all its glory. To avoid this scenario, LTO decided to use the Leased Proof of Importance. The main difference is that not only the number of tokens is taken into account, but also the number of node transactions (its activity or “importance”). For example, if a staker has 10% of all tokens, and he performs 10% of all network operations, his chances of performing validation will be above 10% (due to the so-called raffle factor). Spam transactions (empty transactions to increase the “importance” of the nodes) are unprofitable, according to the LTO team. However, despite the unprofitability, the mechanisms of protection and punishment of nodes are still not described in the technical document.
Tokensale and the antidumping Trollbridge
LTO uses the model of proportional distribution of tokens on the ICO: the funds are collected during the entire crowdsale, and at the end of the tokens are automatically distributed to investors in proportion to their investments. Moreover, if the hardcap is exceeded, the funds on top of the hardcap are also proportionally returned to the ETH. If not all tokens are sold, the remaining ones will be burned.
- Crowdsale goal: $2.175 million.
- Duration: January 14 (11 am UTC) — January 16 (11 am UTC)
- Number of tokens: 500 million LTO (total), of which 72.5 million LTO are for private sale and crowdsale each
- Hardcap: $5.2 million (no personal cap)
- Cost of 1 LTO: $0.03
At the moment, the project has already sold allocations worth $ 1.4 million (85% in fiat and 15% in various cryptocurrencies). According to the team, there are large integrators among private investors.
What about the trolls?
Last year, many projects were guilty of selling their tokens to venture funds and large investors in private and seed rounds with bonuses of 50–60%, and in some cases their tokens were already unblocked by the time the project went public. What did that lead to? The very moment the trading started, private investors started joyfully unloading trucks of tokens upon ordinary buyers. So, the charts of tokens hit the ground for weeks and never got up. The reasons? Bonuses of 50% of tokens combined with the price of ETH being $ 400–700 and the absence of locks made the retention of tokens absolutely pointless for investors. Fixing their 200–300% profit, speculators happily poured tokens to other speculators. That’s how we roll.
In order to protect public-sale investors, LTO developed the Troll Bridge system. Its goal is simple: to encourage long-term investors and avoid dumping.
Now how does it work?
The project tokens are released 1:1 on two platforms: the main network, or mainnet (not traded) and in the Ethereum network based on ERC-20, thus:
- the seed round: the distribution of tokens of the mainnet with a bonus of up to 40%
- the private round: the distribution of tokens of the mainnet with a bonus of up to 30%
- the public sale: ERC-20 tradable tokens
To prevent private investors from fleeing the ship too early, a commission is set to exchange tokens from mainnet to ERC-20, which will gradually decrease and reach almost zero only after 6 months (all this is automatic)
So, if an investor suddenly decides to sell his tokens mere days after the completion of the crowdsale, he will have to lose up to 55% of the tokens. Moreover, the tokens lost by a dishonest investor will be burned.
The project does not promise to blow your mind and build business 3–4–5.0, does not base its marketing on empty rhetorics, does not accelerate its blockchain to gazillions of TPS. LTO simply provides working tools for automating business processes, reduces costs, meets the requirements of European GDPR, and provides businesses with an additional layer of reliability and security thanks to the blockchain technology.
In addition to all the above, some other advantages are worth a mention:
- the implementation strategy that allows companies to use the product on the basis of existing centralized solutions (first on the basis of anchoring), subsequently switching to full decentralization and a complete solution from LTO.
- the degree of readiness of the product and its infrastructure. The team promises to announce major integrators after the end of the sale.
In the Jobs to be Done approach for product designers, there is the concept of “people hire products to get jobs done”, i.e. the idea that a person does not just buy a product, but kinda “hires” it to perform a specific task. A business, much like a person, does not purchase hyped-up start-ups in a pretty wrapper: a business purchases resources and tools to do its damn job.
While analyzing the project, our team saw the necessary incentives for further growth and product development. LTO carries the value and solution for the headache medium and large businesses have with the organization of internal and interorganizational activities.
Of course, we have some wishes for the marketing, as well as comments about working on the business message, the positioning and marketing strategies, but this is not directly related to the subject of our review. We will share our recommendations directly with the team.
We hope you enjoyed the review. If you want to receive the most up-to-date content and blocky analytics, subscribe to Luntik Reports! We analyze technologies and help you invest wisely. 🏄
Disclaimer! Buying tokens does not make you a shareholder of the company, and the profit from such investments is not guaranteed by anyone or anything. This material expresses the subjective opinion of the Luntik team. Stay aware, study all the information independently, and keep a cool head.