Dialogue with Helium CEO: Detailed Explanation of Helium's Operating Mechanism and Current Development Status

Original Title: “In Conversation with Amir Haleem, CEO, Helium”

Author: Mattturck, FirstMark

Translation: Biscuit, Chain Catcher

In an often-criticized crypto industry for its lack of practicality, Helium stands out. A recent article in The New York Times stated, "The crypto industry may actually be useful."

Helium is a decentralized wireless network powered by cryptocurrency, currently focused on providing connectivity for IoT devices and is evolving towards 5G. The Helium network has achieved extraordinary results over the past few years, establishing a global network composed of over 670,000 hotspots deployed around the world.

However, like most "overnight success" crypto projects, Helium has been in the making for years. I had the privilege of witnessing the entire development of Helium, first investing in the company in 2013 on behalf of FirstMark (now known as the pre-seed round) and subsequently participating in several follow-on rounds. Throughout this process, Helium has spoken multiple times at FirstMark events, with CTO Sean Carey in 2014, and CEO Amir Haleem presenting in 2017 and 2018. Therefore, I am pleased to welcome Amir back to discuss the latest updates on Helium.

Matt Turck: What is Helium?

Amir Haleem: Helium is an economic system for building wireless networks. The first instance of this idea is the IoT network, where in 2013, we believed IoT was the worst problem in telecommunications. At that time, there was no solution to connect small, battery-powered, and inexpensive devices to the internet.

Thus, our long-term focus has been on solving this problem. How do we build a globally scaled IoT network? We conducted many different experiments, not every one of which was correct; it has been a very winding road.

After coming into contact with cryptocurrency, 2016 marked a high point when we realized we could empower users—whether individuals, small businesses, or large enterprises—to participate in the telecommunications industry and use crypto as an organizational method. Helium is an economic system that allows individuals to participate in a global telecommunications network.

The first instance is IoT, and then we moved into the 5G and cellular network space, where various businesses will develop, whether WiFi or fixed wireless devices, enabling people to coordinate globally to build wireless networks.

Matt Turck: Helium has a supply side and a demand side. How does it work?

Amir Haleem: Although IoT has been discussed for over a decade, it still feels like a blank slate, with no perfect solution for connecting to the internet in an IoT manner. So this is not something startups should be doing. Users won't come to use it just because IoT is built, but introducing cryptocurrency makes this approach feasible. We chose to first establish a supply side.

In our solution, the supply side is network coverage. Currently, mobile signals cover most human activity areas, and we wanted to build something similar for IoT devices, so we developed a device called a hotspot, which is a combination of a network user and a wireless access point for IoT devices, using a wireless network protocol called LoRaWAN, designed for ultra-long range, very low data rate, low power things, allowing users to send relatively simple messages, such as GPS locations. What makes Helium special is that it simplifies two things that are typically very complex for users.

Antminer looks like a shoebox full of wires, and these UIs are not designed for users. Additionally, IoT access points are also not designed for users. These are designed for telecom companies, and the user interfaces are terrible, requiring a 48-volt power supply. We managed to combine two user-unfriendly things into one user-friendly thing.

I think this is the reason for our success. Therefore, all users need to do is use their phones to get a hotspot and set it up, which is similar to the experience of buying other electronic devices. Now hotspots are spread across hundreds of countries and thousands of cities, with 3.5 million already on backorder, allowing almost anyone to participate in this network.

Matt Turck: What about the demand side of the network? What emerging use cases are there?

Amir Haleem: The demand side has always been the slower part of development; hardware is not as simple and time-efficient as software development, requiring a prototype to be built first, with each iteration taking weeks or months.

This process is very slow. Therefore, Helium determined that use cases would emerge once the network was built. From a normal business perspective, this sounds a bit crazy. However, our years of experience lead us to believe that use cases will exist and there are many, but they couldn't be deployed due to network reasons. It's like wanting to develop an iPhone app, but the only phone available is a Nokia flip phone; that idea is certainly unfeasible.

Currently, some use cases have emerged, such as controlling drones to deliver packages via commands, and connecting GPS tracking devices to mouse traps. I believe logistics and pharmaceuticals have the most obvious use cases.

Matt Turck: Please talk about how Helium actually works, including the technical aspects of proof of coverage, proof of location, and the entire consensus mechanism.

Amir Haleem: The first version of Helium's crypto framework was built in 2016 and 2017, at which point we had already considered that Ethereum's gas fees would be an issue and planned to run Helium as a Layer 2 network, where the number of transactions would be very important.
So we weren't sure how to proceed, whether some state channels would become a reality, or whether we could aggregate as many transactions as possible, similar to how many Ethereum Layer 2 solutions work today. Another idea was to fork Bitcoin, take the Bitcoin code, and run a fork.

We felt these solutions were not suitable, and ultimately decided not to run on Ethereum, which was very challenging and had unpredictable costs. We were driven to build a new network. Some core team members have backgrounds in distributed systems, having worked on iMessage backends, and we were confident we could do this well.

Thus, the Helium blockchain is Layer 1, and it is a proof-of-stake network with validators responsible for transaction verification and block production. It uses a consensus protocol called HoneyBadgerBFT. BFT is a Byzantine Fault Tolerant consensus protocol, and HoneyBadger is an asynchronous version that doesn't really care about latency. We thought this was important at the time. However, as the network has grown, we are uncertain if it remains very important.

The validator group consists of about 3,500 validators, with approximately one-third of the HNT supply staked. Users must stake 10,000 HNT to become validators. Today, all these validators have staked approximately $1 billion worth of HNT. The rest of the network is called proof of coverage, serving as an incentive system. Part of the system is to create blocks and validate transactions.

In most cases, this looks like other blockchains. The key is what to do with the Helium network? For us, it is about rewarding people for building network coverage before they use it. We designed a proof of coverage scheme where hotspots transmit encrypted packets to each other via radio waves, and the network rewards those who create the most coverage.

Therefore, if a user can prove they hear hundreds of other hotspots over a wide area, they will earn more than those who cannot receive hotspots. Proof of coverage is designed this way; it works in a very detailed and complex manner, but the key point is that the farther the coverage, the better the coverage signal, the more HNT rewards.

Matt Turck: Let's talk about the tokens and how they operate within the tokenomics. There is HNT, HST, and the concept of data credits. How does all this work?

Amir Haleem: HNT is the primary token, which is the reward for hotspot owners, the income for validators, and has staking functionality. The purpose of HNT is to create data credits, which are the second token in the Helium ecosystem, akin to a stablecoin within Helium, similar to airline miles. It allows users to wirelessly transmit 24 bytes of data through the Helium network.

However, data credits cannot be traded, have no speculative value, and users cannot transfer these tokens; their only function is to be burned to pay for user traffic. This token system is heavily influenced by Kyle and the Multicoin team, providing users with predictability, as the value of data credits remains constant. Therefore, for users building network sensors, regardless of how HNT's value fluctuates, they can calculate the cost of using the network.

So users can only create data credits by burning HNT, which is called the burn-and-mint balance. The burn rate varies based on the value of HNT, while the value of data credits is fixed, and the value of HNT is volatile.

The third token, HST, is unrelated to users and is a founder reward system modeled after Zcash. Most blockchain networks pre-create all tokens and allocate a portion to the founding team and investors. We felt this model was incorrect. Providing all these tokens to the founding team to sell at any time feels a bit unfair. Zcash is a system that rewards the founding team and its investors over time, and referencing this model, HST holders will receive certain rewards. We believe this is fairer. The difference between Zcash and Helium is that HST is tradable, while Zcash's founder rewards are not, but fundamentally, there are three tokens: HST, HNT, and data credits.

Matt Turck: Incentives are key to scaling the Helium network, but as the number of devices increases and rewards decrease, how do you view the weakening of incentives when continued network expansion is needed?

Amir Haleem: That's a good question. I think people in cryptocurrency have become desensitized to normal rewards or normal investment returns. With today's value of HNT, early hotspot users have earned hundreds of thousands, even millions of dollars. I think this doesn't align with normal investment returns. Additionally, Helium hotspots consume very little power and have no actual operating costs.

Another issue is whether a 50% annual interest rate meets people's expectations. And I'm not sure if the team or the community has bridged that gap, but hotspots will become cheaper over time. I think during this COVID period, it has been a very bad time for hardware and manufacturing.

This network upgrade, called HIP 55, will significantly reduce the hardware requirements for hotspots, making it much cheaper to produce hotspot devices. All of this will change the return rate or incentive calculations. As hotspots become cheaper, users will need to reduce income and the enthusiasm and incentives to participate.

However, I believe things will stabilize, and as network usage increases, I never worry about this; some early users have already made enough money and exited the system, which is completely normal and predictable.

Matt Turck: When we talk about tokens, would you like to discuss decentralization in this aspect? You just mentioned the hardware and requirements of hotspots; Helium has decentralized the hardware business to the community, and Helium itself is not in the hardware business. Can you discuss the structure of the Helium network from a foundational perspective?

Amir Haleem: Yes. There are now about 65 different hotspot manufacturers. We initially built hotspots not to become hardware manufacturers or profit from it, and many people mistakenly believe that Helium makes money from hotspot sales. We actually do not profit from any hotspot sales, nor do we sell licenses or anything.

For us, building the first hotspot was important because it allowed us to create a good user experience. All the technology involved has been open-sourced and handed over to third parties. The hotspot ecosystem is as decentralized as possible. The company has no interaction with vendors, except to assist in resolving technical issues over time. Other parts of the ecosystem are also decentralized; for example, until recently, the company did not run node validators.

Now there are 3,500 validators, of which 3,300 are community members and others who have purchased HNT or participated in the ecosystem, unrelated to us. It is moving in the right direction. I think the challenge of decentralization in blockchain is actually the early core engineering, such as Bitcoin, which has a relatively small group with sufficient skills to participate in engineering.

From an engineering perspective, I hope to see it develop in a more decentralized manner, with more input from the community, and the company playing a negligible role in it.

Matt Turck: What about governance? You mentioned HIP; what is it? How does the community influence the development of Helium?

Amir Haleem: We take lessons from Bitcoin. Bitcoin has Improvement Proposals (BIPs). We have Helium Improvement Proposals (HIP), and anyone can submit a HIP. Almost all changes on the Helium network come from community proposals, not the company. In most cases, it is community-driven, with someone in the community writing the proposal and the community voting on it.

Recently, I think the network has reached a point where these HIPs must now include code; people are making very good suggestions on how to improve the network, but no one likes to actually program to implement them. Therefore, I think if you want to submit an improvement proposal, it should come with its code, and then people will ultimately vote on it, either accepting or rejecting it.

Matt Turck: How do you judge whether HNT and HST are viewed as securities by the SEC?

Amir Haleem: Frankly, we are very careful with token design and have never sold any HNT, nor have we pre-mined HNT, and have made every effort to ensure we stay within regulatory bounds.

Matt Turck: When can we expect delegated staking?

Amir Haleem: Currently, users must stake 10,000 HNT to participate as validators, which is about $250,000 at the current HNT price. There are third-party providers in the ecosystem where users can participate in staking with smaller amounts, but the downside is that users must trust the provider. So far, the ecosystem of third-party providers has been trustworthy and without negative incidents, so I temporarily recommend doing that.

Matt Turck: Can you talk about the recent vote regarding HNT tokens being inflated 1000 times?

Amir Haleem: I'm not sure if that will really happen… that was not a vote from the team. A community member proposed splitting HNT and renaming it at a thousand to one ratio. So if a user has one HNT in their wallet, after the change, they will have 1000. I think that's interesting. I do believe there is a unit bias in the crypto world, with hotspot users directly telling me they would rather earn 1000 cheap HNT than 1 HNT worth a hundred dollars.

So people psychologically like having a lot of something and imagine it will become very valuable in the future; that's where this idea comes from. Someone proposed renaming HNT, and I think that will happen later this year. Again, it is not a priority for the team to implement in the short term.

Matt Turck: Where do you see the Helium ecosystem in two years or five years?

Amir Haleem: I hope this year; we are regularly collaborating with the FreedomFi team and thinking about this, with various suggestions from the community. There are HIPs 37 and 51, as well as proposals 52 and 53. I believe that in the next two to three years, Helium will be the largest cellular network in the United States.

I have said before that companies like Verizon or T-Mobile have cellular networks equivalent to 100,000 signal towers across the entire United States, and there are already 600,000 hotspots, with another 3 million on the way. Therefore, Helium has the potential to dominate the cellular network coverage in the United States.

Matt Turck: When will Helium's 5G be realized?

Amir Haleem: I believe GigSky is the first MVNO using the Helium network; you can subscribe to GigSky to experience it. There are many discussions in the community about how to implement rewards and how to participate in 5G, and I think the direction of community discussions is very correct.

Matt Turck: As part of the departmental strategy, how does backhaul work with 5G?

Amir Haleem: Backhaul works the same way as the IoT network. We want users to bring their own backhaul, such as using Starlink as a completely viable backhaul. The network doesn't care how the backend is connected; it only cares about whether the connection is good, reliable, and stable. We are very excited to see the diversity of backhaul options. With technologies like Starlink, creating cellular networks anywhere becomes feasible, and we are having various conversations with potential partners about how it will work in the future.

Matt Turck: As Helium develops and launches 5G mobile services, what do you think is the reason internet service providers won't cut off Helium devices from their networks?

Amir Haleem: This is the question I get asked the most, and I think it is unlikely to happen. For me, there is no hassle in using a home internet connection to conduct Helium Inc. business. Overall, this is not something I really worry about.

Matt Turck: How do others in the telecom industry view Helium?

Amir Haleem: I am not in the telecom industry, but I think they are quite interested in this point. We have good relationships with some operators, such as recently collaborating with DISH, LoRa, and others. But there are still people who think Helium is a Ponzi scheme and that crypto is a joke, etc. I look forward to seeing their reactions in the coming years.

Matt Turck: What are the ways to get involved with Helium? If you are an entrepreneur looking to build a crypto project, from your perspective, what projects would be interesting? What are the different ways to work with Helium?

Amir Haleem: Crypto projects are quite broad, and we have different participation schemes for various entities on our official website. But as you mentioned, users typically participate in Helium by hosting hotspots and purchasing HNT or operating node validators to provide value to the network.

In terms of use cases, developers have many cheap and convenient toolkits available, reminding me of the iPhone. We can never predict the applications that exist on the iPhone today, and similarly, we cannot predict Helium applications. So I have always been most interested in the applications on Helium and the new products and ideas that manufacturers and entrepreneurs propose using Helium.

Matt Turck: Cool. Well, this has been an incredible journey, and in some ways, it feels like Helium is just getting started. Thank you very much for coming to speak at this event. I really enjoyed this interview; thank you.

Amir Haleem: Yes, thank you for inviting me here.