The Problem With ASICs

In the context of a cryptocurrency, an ASIC (Application Specific Integrated Circuit) is a chip that is specifically designed to mine a certain cryptocurrency or a certain hashing algorithm. Recently, there have been a number of high profile ASIC miners released for cryptocurrencies previously believed to be ASIC resistant [1]. So what’s the problem with ASICs?

ASICs usually provide a significant advantage over graphics cards (GPUs) and CPU mining; so much so that once ASICs are released it is generally un-profitable to mine without one. This in itself it not entirely a bad thing. Similar issues have arisen when comparing GPU and CPU mining; it often becomes unprofitable to CPU mine a coin that has been optimised for GPU mining.

Rather, the larger issue with ASICs is that there are very few companies that step into the space as manufacturers. When you have a centralised manufacture process like this, the result is that one or two companies own nearly all the distribution rights to the hashing power for a cryptocurrency and this creates a quasi-centralised mining system.

Individuals can buy ASIC miners, but there were cases even in 2016 where Bitmain (an ASIC manufacturer) was shown to have built a secret back door into a lot of their miners, which allowed them the ability to turn off a large portion of Bitcoin miners around the world, and crash the hashrate [2]. This is why centralisation in mining should be avoided.

Our main objection to ASICS is not that they provide a significant performance increase over GPUs, but that their manufacturing process is so centralised. And this leads into the big debate: can the manufacture of ASICs be decentralized?

What would decentralised manufacture and distribution look like? We would want to get to the point where it is possible to buy an ASIC from your local computer hardware store, like you can currently with GPUs. We would want to see 10 or 20 companies competing to produce the cheapest and most available hardware built specifically for mining. Some assumed that Bitcoin hardware would diversify in this way, however ASICs for Bitcoin have been available for 5-6 years now and it’s becoming clear that the market is growing more centralised, not less, with Bitmain and Bitfury dominating.

Many have proposed the idea of leveling the playing field with a hashing algorithm like SHA-3. SHA-3 is easier to implement on hardware than SHA-256, and it would force all ASIC development companies to start from scratch, and hopefully not just Bitmain and Bitfury but every ASIC chip manufacturer [3]. However, it is unclear if this would lead to a decentralised market or if, again, the companies with the most money would come out on top.

For the above reasons, when a manufacturer releases an ASIC, the development team of a cryptocurrency must make a decision: do they fork away and deal with the issues of forking, or do they accept there may only be 2 or 3 manufacturers producing ASICs who will control the distribution for the hashing power?

Monero decided to fork away, which means they will slightly change their hashing algorithm every 6 months. ASICs are built to be a physical implementation of the hashing algorithm, so if you change the hashing algorithm just slightly, usually the manufacturers have to build a completely new machine. This costs millions of dollars in research and development, and is meant to deter ASIC manufacturers.

However, forking every 6 months carries its own risks. Firstly, every hard fork that changes your hashing algorithm creates the possibility of introducing critical bugs into your code. Secondly, the developers in this instance carry more power, as they are the ones that decide whether an algorithm is included or not. And third, the developers are vulnerable to bribery and infiltration attempts by ASIC manufacturers, who, with the correct knowledge could future proof their ASIC from upcoming forks.

The strategy of forking every 6 months, however, does not address the presence of FPGA (Field Programmable Gate Array) miners. Like ASICs, FPGAs are also specialised chips that solve certain algorithms. FPGAs, however, are highly programmable meaning any insignificant change to a hashing algorithm would not invalidate their hardware; rather, a software patch could be released to allow the FPGA to continue to mine. Although this could represent an issue, FPGAs generally offer far less performance efficiency and cost more, limiting their market saturation. Unless the market reaches full saturation with FPGAs, GPUs can often still reach a profitable level of mining, even with FPGAs present.

There are many things to consider when going down the forking model, and we think there are better models out there. We are currently exploring newly proposed ASIC resistant hashing algorithms like Argon 2, Cuckoo Cycle, and RandProg, however in the meantime Loki will maintain its ASIC resistance by forking. In the future we will reassess our options, but our aim will always be to maintain an equitable distribution of the hash rate and to be as decentralised as possible.

[1] “Bitmain.”
[2] “Antbleed – Exposing the malicious backdoor on Antminer S9, T9, R4 ….”
[3] “monero-project/monero – GitHub.”
By Kee Jefferys

Why Add a 2nd Layer to Monero?

The 2nd Layer solutions proposed by Loki allow users significant functionality that cannot be provided by a Monero fork alone. Namely, Loki will incentivise a group of nodes that perform specific networking tasks and will build the basis for a new type of mixnet.

Mixnets that have the properties of Sybil attack resistance are highly resilient to large-scale network analysis. This protection is provided by market operations, which make it prohibitively expensive to own a large portion of nodes operating on the mixnet.

Operating on top of this incentivised second layer will be applications that can route traffic anonymously, called SNApps (Service Node Applications).  The first SNApp will be Loki messenger, a novel way to send messages privately in a decentralised system.

Loki Messenger is important because although most messaging systems like Telegram and WhatsApp offer end-to-end encryption, they are based on centralised servers which have proven vulnerable to censorship attacks. As Loki is entirely decentralised, the nodes operating on the network are constantly changing, making it difficult for a state level actor to blanket ban the service. Additionally the Loki foundation will run domain-fronting bridges with the aim of allowing access through even the most restrictive ISP level firewalls.

Once SNApps run on top of an incentivised service node layer, Loki will have created a system with a security model that hasn’t been seen before. This is why Loki has put a second layer on top of Monero; because we think we can do something really unique with it.

Loki Premine Report


We started Loki because we believed we had ideas that could improve the range of tools people use in their pursuit of privacy and safety online. Thankfully, it appears thousands of people see the potential in our ideas, and dozens of firms, funds and individuals have supported our project to date. With this support, I believe we can create a protocol that will help people across the globe keep their data safe. We have always intended to be as transparent and open as possible, and we wish to share the details of our set up and activities so far with the community. We will continue to publish updates when legal and commercial considerations permit.


This document was prepared to outline the funding scheme that underpins the development of the Loki project. It is to act as reviewable evidence to those auditing the project’s origins, and to provide maximum transparency to members of the cryptocurrency community seeking to understand how Loki has been distributed.


Loki as a concept was created in late 2017 by a group of Australian cryptocurrency enthusiasts. What started as a part-time passion between friends quickly evolved into something bigger, and at the beginning of 2018, the project attracted seed funding and subsequently, a talent pool.

While decentralisation is a key component of what makes cryptocurrency a useful technology, successful decentralised teams rarely form organically, and the need for extensive funding to carry this project out at a desirable speed and scale necessitated a presale and premine.

With legal advice and assistance from multiple advisors, we found a suitable structure for the project and through it, sold out of premined Loki in a presale.

I wish to stress that while the launch, private sale, and all major works so far have been carried out by our team, Loki is an open source project and will remain so. We make no claim to the ownership of the Loki concept, brand, or technology. We consider our work to be authorship only.

Legal Entity

In order to attract funding to the project, it was necessary to create a separate legal entity to ensure that the individuals and teams working on this project were protected.

This entity is an Australian public company limited by guarantee, called LAG Foundation Ltd. The company is structured so that it meets the requirements of a registered charity in Australia. The members and directors of this company do not hold shares, and no benefits or profits are distributed to its members. For reference, the constitution is based on the default constitution supplied by the ACNC, and can be read in full here.

LAG Foundation Ltd is operated under the following constitutional objectives:

(a) facilitating the development of an open source, highly secure, decentralised data transmission network that allows individuals, business and government to freely transact and communicate without the threat of malicious third party interference;

(b) ensuring the continuing development of the secure network by funding independent development projects;

(c) providing education and support to developers seeking to build apps utilising the secure network;

(d) ensuring the open source network is developed as a genuinely decentralised system, absent of any external control or influence to ensure the independence, security and longevity of the network;

(e) raising moneys to fund the activities and charitable objectives of the Foundation, including through the offering of the Loki cryptocurrency; and

(f) all other such activities as are ancillary or incidental to the above purposes.

The block reward described in the whitepaper and the 15% premine is controlled by the directors of the LAG Foundation Ltd, who will vote on resolutions to authorise the usage of this premine and the ongoing block reward in accordance with the LAG Foundation Ltd’s constitution.

A number of other resolutions have been passed in relation to the premine and it’s permitted use.

Premine Metrics

  • Premine Size: 22.5 mln (15%), plus 153 normal blocks.
  • Day 0 Circulating Supply: 15,606,500
  • Distribution of Premined Tokens: Token sale (59%), Founders (17%), Advisors (5%), Seed (13%), Community/Reserve (6%)
  • 6,893,500 Loki locked up, released over 12 months.

Locked Coins

Over 7 million Loki is held in escrow for the Founder, Advisor, and Seed allocations. The Founder and Advisor allocations follow a 12 month lockup schedule, where 25% of each allocation is released every 90 days following mainnet launch. The allocations to Founders and Advisors are remuneration for services rendered to the LAG Foundation Ltd.

The Seed allocation follows a similar schedule, with a 30% initial release and 20% every 90 days until the final release of 10%.

To verify that coins are being held in escrow and not being spent, a number of time-locked transactions have been sent to the premine wallet, which release after each vesting period is reached. These time locked transactions can be viewed and verified by restoring the premine wallet from it’s view key and using the show_transfer command.

The TX IDs are as follows:

90 Day Locked TX  
180 Day Locked TX  
270 Day Locked TX  
360 Day Locked TX  

Private Sale Metrics

  • 59% of Premine sold, 13,275,000 Loki coins
  • Raise Target of $9.027m USD reached
  • Minimum contribution was $100k USD
  • Effective price per Loki coin was $0.68 USD

A private sale was conducted on the 59% of the Loki in the Token Generation Event (TGE). Over 50 separate entities took part, with our target of USD$9.027M reached. The first private sale agreement was signed on the 8th of March, 2018 and the sale was closed 18 days later on the 26th of March. Minimum contributions for allocations were $100k USD.

Sale Distribution

The mean transaction size was $173k USD, with the majority of transactions being a USD$100K allocation.

Contributions came from all corners of the globe. This chart displays the distribution of Loki across the contributor’s nation of residence.

*Composite refers to single allocations comprised of multiple countries.

Sale Conduct

Each participant in the sale privately negotiated an allocation with the directors of LAG Foundation Ltd and their authorised agents.

Each sale took place by means of an agreement between LAG Foundation Ltd and each participating entity. The agreement was executed by payment of the participant’s preferred currency. The most popular currency was Ethereum by far. However, over the course of the private sale, the value of Ethereum declined significantly in value.

To meet USD$100K allocations, earlier sales required only around 115 Ether to complete an agreement. At its lowest point, sales in Ether required 259 Ether per sale in order to complete. Shortly after sales were completed, the value of Ethereum began to climb once more.

At the time of report writing, the net value of the Private Sale contributions exceeds the $9.027m USD raise target.

Treasury Management

It is of the intention of the directors of LAG Foundation Ltd to use the funds from the sale to pursue the objectives laid out in the company’s constitution. In order to ensure that these funds guarantee at least 3 years of large-scale development funding, it is necessary to liquidate the vast majority of the Ether raised into fiat currency in order to manage exposure to the volatility of the cryptocurrency market.

The directors of LAG Foundation Ltd believe cryptocurrency to be a useful tool and asset which will become a commonplace means of transaction and a stable and secure store of value in the future. Sadly, the current volatility in the perceived value of cryptocurrencies leave holding assets primarily in cryptocurrency to be a dangerous strategy for the LAG Foundation Ltd, in the interests of ensuring that the Loki project can be securely funded for the next 3 years.

As such, the treasury of LAG Foundation Ltd will be comprised mostly of fiat currency until a suitable treasury management strategy can be devised.

Ongoing Funding

No further major sales of Loki coins are likely to take place. This begs the question, where will the Loki project receive its long-term funding from?

The Founders of this project intended to create a self-funding system so that users can be certain that no external influences drive the development funding of the Loki network in an undesirable direction. The Loki mainnet includes a 5% block reward that is issued to a wallet that LAG Foundation Ltd controls for this purpose.

This is an approach similar to other projects, such as the Zcash Founders reward, who, for the first 4 years of the network’s operation will receive a 20% block reward (some of which ends up in the hands of the Zcash Foundation), and the DASH project, who receive a 10% block reward from the network.

The Loki Foundation will continue to be funded in the long-term by this block reward. In the future, the community may decide that this reward is unnecessary or of too high or too low a proportion, in which case, a hard fork event may change the nature of this block reward split.

Technical Summary

This section will describe the process by which any third party can review and audit the wallets controlled by the Loki Foundation on the Loki blockchain to validate that the resolutions have been correctly followed. Auditors will need to have modified versions of the default wallet software in order to view some of these transactions, as the software by default is not set up to correctly view a second output in a coinbase transaction.

The first block in the Loki blockchain contains a block reward of 22,500,000 Loki. In order to view these outputs correctly, a patch is required to modify the wallet code to spot these unusual outputs, but can also be seen on the block explorer by looking at block #0.


Public Address: B5Q4XYTd11haHTeFd6mJQ4XBaaxQ9TXuNs7URbBjdLVPQT1WzB9ufzhBFAYibG8gBZsuE7VAj7dAh8W46G8EA3vDPbK1Pt

View Key: d905563f1cc0eada663d0491c78637490a07bd95f4bdb794c20ba605c8a91b00

Please understand that when looking at the premine wallet with the view key, it will show a balance ABOVE 22.5 Million. This is because a view key only allows you to see incoming  transactions. Due to the nature of transactions in Loki (inherited from Monero) most outgoing transactions send more than the desired amount, the remaining change is then sent back to the original address. The amount returned is considered an incoming transaction. The view key does not allow you to see outgoing transactions which is why the amount will look larger than it is in reality. When the funds from the premine wallet have been completely used we will post the key images of all outgoing transactions. Combined with the view key this will show the correct balance.
22.5 million is currently 15% of the total supply of Loki, however because of the inflationary tail emission scheme that has been built into the emissions curve, this percentage will diminish over time.

The network was bootstrapped and mined for approximately an hour before the code was released. The first publicly minable block was block 154. All 154 blocks were mined to a wallet controlled by the LAG Foundation Ltd. The reason the software was not immediately released upon the network’s creation was to ensure that the network was stable and that transfers were working between Foundation wallets. Though fairly inconsequential compared to the rest of the premine, the coins mined from these 154 blocks (approx 18,800 Loki) will be put to good use, as determined by the board of the Foundation in accordance with its constitution.

Every Loki block contains two outputs. One goes to the miner who constructs the block, and the other goes to the Governance wallet specified in the code. Other nodes check that this output was sent to the right place as a consensus rule. Auditors can check the Governance block reward wallet with the same patch to see incoming block rewards for 5% of the expected block reward.

Governance Wallet (BLOCK REWARD)

Public Address: LCFxT37LAogDn1jLQKf4y7aAqfi21DjovX9qyijaLYQSdrxY1U5VGcnMJMjWrD9RhjeK5Lym67wZ73uh9AujXLQ1RKmXEyL

View Key: 934f692dd8506dec9647602ce0b8f31ea92776b8a0d970d55107a7135c7b8409

For security reasons, we will not specify the exact nature of the wallet/private key management of wallets controlled by the LAG Foundation Ltd, but members of the community should know that many considerations have been made regarding the safe storage and usage of these wallets.

Once more, a reminder that the view key will only allow the user to see incoming transactions into the wallets. Key images can also be provided, but should not be considered as a trustworthy source, as no evidence of the ultimate recipient of coins can be derived from these key images.

We are keeping records of all of our transactions and collecting receipts and invoices for payments that are made and the Foundation will be subjected to an audit from a major accounting firm. The auditor will be granted access to the backend of these wallets and be given evidence to prove the validity of the destination addresses. We are in discussions with a number of highly reputable firms in order to produce a financial statement and report on the status of the Foundation’s wallets at the end of its first financial year. This report will be published on the Loki Foundation website when available.

I hope that this report has given you an idea about what we’ve been up to, and gives you a better sense of what we’re trying to build. If you have any questions, concerns, or suggestions, you can always find us on our Discord, or at [email protected]