Aiming at the payment market, with a performance of 100,000 tps, can COTI become the next Ripple?

Author: Carbon 14, Carbon Chain Value

This article was first published in June 2019

Following Ripple and Stellar, another heavyweight player has emerged in the payment sector of the cryptocurrency space. That is COTI.

01 Customize Your Alipay

Unlike electronic cash projects like Bitcoin, Beam, and Grin, COTI is a payment project, but its selling point is not its own cryptocurrency, but a complete payment system. Currency, or cash, is neutral. For example, if a seller infringes on a buyer's rights, Bitcoin typically does not take responsibility; the buyer needs to resort to a third-party institution outside of Bitcoin for arbitration. In other words, Bitcoin and other electronic cash merely serve as payment tools without a rights protection system.

So, what should a buyer do if they discover that the seller is committing fraud? Considering the high costs of litigation and the existing regulatory gaps in using digital currency for payments, an obvious idea arises: can we construct a distributed arbitration system within the system to provide protection for buyers?

COTI has achieved this. By utilizing the COTI network, businesses can create their own payment applications, thus having "their own Alipay or Taobao," and regain control over their funds and business insights in the process. In the service layer, COTI also provides a distributed arbitration system to protect buyers and sellers from fraud, misinformation, and other issues.

Currently, cryptocurrency and decentralized payment networks cannot provide such services, but it is worth noting that these services are the cornerstone of traditional payment systems like Visa, Mastercard, and PayPal, which offer refund and dispute resolution services.

COTI Pay is an example of a payment application launched on the COTI network, which can be integrated into any business interface as part of the checkout process. For merchants who do not want to create their own payment network (as this would incur some costs), but still wish to enjoy e-commerce and POS payment services, COTI Pay is a good choice.

This application can handle performance of hundreds of thousands of TPS, yet it is not controlled by any third party, meaning no giant can charge exorbitant service fees due to its monopoly. This application can significantly reduce payment costs (especially for cross-border payments), provide instant settlement, low rolling reserve requirements, and protection for both buyers and sellers.

02 Trust Scores and Privacy Protection

In a transaction-friendly system, both parties often can access important information that aids the transaction. For example, on Taobao, sellers display their store opening time, rating scores, and more to buyers.

In the COTI network, the system generates corresponding trust scores based on user behavior data. COTI's TSUA (Trust Score Update Algorithm) is designed to effectively collect user behavior data and relay the information to distributed trust scoring nodes. Subsequently, the Trustchain algorithm updates and uses the new trust scores to verify and confirm transactions at tens of thousands of TPS.

Trust scores are associated with consumers, merchants, and node accounts, and all trust scores are visible. The higher a user's trust score, the faster the confirmation time. This encourages users to be "good traders" within the system.

In addition to trust scoring, privacy protection in payments is also crucial. As payers, both parties do not want their transactions to be unnecessarily disclosed to third parties. Business often comes with secrets. In the traditional realm, people trust giants like Alipay to adequately protect their transaction privacy; in the cryptocurrency space, the pursuit of privacy coins is also relentless. (Note: Although Bitcoin is anonymous, it does not protect privacy.)

How does COTI ensure user privacy?

COTI allows each wallet or seed to generate multiple addresses. Users can assign new addresses associated with the seed, balance, and trust score for one-time use. Transaction details in COTI are transmitted directly between parties through one-time addresses. Each address is set for a given transaction and cannot be traced back to other addresses of the same seed, nor can it be traced back to any past transactions associated with another address. This means transactions cannot be traced back to specific users, as each transaction is implemented with a one-way hash function across multiple addresses.

In practical terms, COTI's privacy protection layer is reflected in several aspects:

User Privacy: When users purchase goods from merchants, they can use different addresses for each payment, preventing merchants from tracking their usage and purchasing habits.

Merchant Privacy: Merchants can generate different addresses for each payment request, which will prevent third parties from tracking their turnover and business activities.

Peer-to-Peer Privacy: Using one-time addresses makes it impossible to track previous interactions between parties.

03 Stablecoins and Native Tokens in COTI

The COTI team believes that stablecoins are the most realistic choice for mass adoption as a currency suitable for everyday mainstream use. "Due to price volatility, cryptocurrencies like Bitcoin and Ethereum are more suitable for storing value. According to current standards, if the price of a cryptocurrency drops by 20% overnight, then when you wake up, everything's price will be ⅕ higher, making conventional digital currencies highly unlikely to be used for everyday shopping."

Now, Facebook, JPMorgan, and Rakuten have begun to adopt blockchain technology to issue their own stablecoins. The stablecoin market is becoming a battleground for giants, and its importance is self-evident.

COTI supports stablecoins backed by fiat and crypto assets, and the types of stablecoins can be customized according to user requirements. For example, users can issue their own stablecoins by collateralizing crypto assets based on smart contracts. A decentralized council will oversee the compliance of stablecoins and ensure absolute transparency of the collateralized assets.

COTI-X is an exchange built into COTI, making it easy to issue and exchange stablecoins through it. COTI also provides the infrastructure and necessary features tailored for stablecoins, which offers many advantages over issuing stable tokens on other third-party platforms like Ethereum, including extremely high scalability, near-zero fees, and privacy features.

If COTI believes that stablecoins will become the primary payment tool in the future, what role will its own native token, COTI Dime, play? What is its appreciation logic? (For Bitcoin, Beam, and Grin, the larger the user base engaging in transactions, the higher the coin price.)

First, node operators and arbitrators in the system are required to hold COTI's native token, which is mandatory, binding the interests of node operators, arbitrators, and the entire network together.

Second, in return, node operators and arbitrators can receive corresponding rewards for their hard work, but they do not want to receive hundreds of different cryptocurrencies as payment, nor do they want to evaluate the prospects of these cryptocurrencies. Therefore, a unified token that reflects the network itself is needed for users to pay fees to node operators and arbitrators.

Finally, the COTI native token serves a role similar to that of ETH in the Ethereum network. Developers need the native token to pay the corresponding gas fees. Here, the native token acts as a means to collect and distribute fees within the network.

Thus, although in the design of the COTI team, the COTI token itself does not serve as a tool for everyday payments, its value will increase with the growing number of users in the entire network.

04 High Performance and Scalability

Currently, COTI's most direct competitors are Ripple and Stellar. Stellar and Ripple are established projects in the industry that aim to create an almost instant transfer environment to serve the unbanked population globally. However, the COTI team believes that the infrastructure of these projects belongs to the previous blockchain era, and they cannot serve their users well when the user base expands to a certain extent.

COTI has high scalability. Based on the DAG consensus protocol of the Trustchain, COTI can process tens of thousands of transactions per second. Notably, projects like IOTA also use DAG to solve performance issues, but ultimately had to introduce a central point to control the ledger due to ledger chaos, sacrificing decentralization for performance.

COTI solves this problem with Clusterstamp, which allows nodes not to maintain a complete historical record of transactions (like Bitcoin and Ethereum), as this could make storage size very large and unmanageable. With Clusterstamp, old transactions are sent to historical nodes at regular intervals, and only the latest transactions are maintained by the entire network.

Historical nodes can retrieve the complete account history of network users, and anyone can operate historical nodes if they meet minimum requirements. In this way, there will never be a central point controlled solely by COTI.

It is worth noting that anyone can operate historical nodes as long as they are highly trusted users and have been running full nodes for a long time. Running nodes in the COTI network is not limited to COTI or a small group of operators, which sharply contrasts with HashGraph and IOTA, which restrict who can run nodes.

Thus, COTI ensures its scalability while achieving decentralization. This gives COTI an advantage in the next competitive step of payment projects.

05 Team and Promotion

COTI has a very strong team, which is one of the reasons this project has garnered attention.

Its core team consists of over 30 members, who have previously worked at IBM (former research director), Ripple (former CRO), Blackrock (former CIO), and Investec Bank (former CEO). The team even includes cryptography experts from Israel's elite army intelligence unit, and its CTO, Nir Haloani, holds a PhD in mathematics from a top research institute in Israel. (This may be one of the top teams in Israel.)

For a project competing in the payment sector, the importance of operations and promotion is on par with technology and performance. A top-notch team is one of the factors for success, but promotional strategies are also key to success.

Incentives and reserve pools form part of COTI's business strategy. The incentive program is tailored for partners, node operators, merchants, and users to encourage them to adopt this payment system early on. To ensure the fairness of the incentive program, the distribution will not be executed by the team but will be supervised by one of the Big Four auditing firms, Ernst & Young.

The application of blockchain in finance is attracting widespread attention, whether in the competition in the stablecoin field or in the payment sector, which will have a huge impact on the field. COTI still has a long way to go.