Whitepaper v3.0.1
Last updated May 25, 2023

Poor User Experience

Compared to the past, public awareness of blockchain technology has increased significantly worldwide. Everyone may have come across the word “Bitcoin” at least once through the media. Cryptocurrency issued based on blockchain technology is a compound word of “crypto,” meaning encryption, and “currency,” meaning money, and users can own cryptocurrency as a private asset. Paradoxically, being a self-controlled asset has resulted in a very poor user experience (UX). The user experience should focus on the user needs, but blockchain technology has placed a burden on the user as it focuses more on the technology. For example, to manage a private wallet for the safe usage and storage of cryptocurrency, users had to understand the concept of “private keys” and safely store their keys. Even creating a private wallet is difficult without basic knowledge of blockchain technology. Even though blockchain is receiving great public interest, there are obstacles to mass adoption, such as the complexity of the network due to various mainnets, high transaction fees, complex stablecoin swaps for cryptocurrency transactions, and difficult bridge usage methods. Also, the numerous dApps that appeared to provide various services on the blockchain focused on blockchain technology and developed dApps from the supplier’s point of view, neglecting user convenience. As such, the current blockchain industry can be seen as falling into a “knowledge trap.” Unlike the current dApps, where the user needs to study and understand the basic operation principle of the blockchain, future dApps should move towards a level where dApps can be used due to the curiosity of the service regardless of the understanding level of the technology.

If blockchain technology provides an intuitive and convenient user experience and service that goes beyond the technical efficiency of traditional finance and other various industries, it will accelerate the mass adoption of blockchain.

Investor-Oriented Market Formation

In the early 1990s, the World Wide Web emerged, and personal computers (PC) became prevalent, opening the Information Age. The Internet boom led to remarkable development in the Internet industry. Numerous new IT-related companies were established, and many investors invested large sums of money in “dot com” (.com) companies, believing them to be the future of technology without much understanding. This resulted in the “dot-com bubble” crisis. Similarly, in 2009, the nascent blockchain technology, known as Web3 technology, and the cryptocurrency investments issued based on this technology attracted significant attention worldwide. In addition, token sales methods via ICO (Initial Coin Offering) and IEO (Initial Exchange Offering) arose as a new and convenient means of funding, and numerous entrepreneurs came into the business. After that, the price of the cryptocurrency has risen sharply in a similar trend to the dot-com bubble, and the market has been subject to great volatility. As it is easy to find the Wunderkind case in the market, the current market is being operated around investors seeking profits through monetary investment rather than focusing on the actual value of the token and expansion of the ecosystem. Even companies or foundations leading cryptocurrency projects are also encouraging token sales by increasing the discount rate of the initially issued tokens so that greater profit is returned to the initial investors to secure as much investment as possible. However, many projects that secured huge funding in the early stages became neglectful in terms of project management and ecosystem operation and distanced themselves from product development and management for their users. There are also concerns about the leveraged market, swelling with blockchain-based DeFi platforms and futures exchanges with few actual users. The situation reached a point where actual contributors to the ecosystem who have been using token and blockchain-based dApps have been alienated.

Vague Token Economy

“Token economy” refers to defining rules for an economic system that utilizes blockchain-based tokens or coins. In this designed economic system, participants receive fair rewards for their contributions to the ecosystem, and the reward value leads to the vitalization of the token economy. Since blockchain projects are formed by participants, the reward system should be structured elaborately and transparently to develop and encourage active participation continuously. However, many blockchain projects issued and sold tokens before the product was launched, paying overwhelming compensation to early miners or investors. This resulted in a market price imbalance and a bias in the token economy. In addition, the reserve allocated to revitalize the project’s ecosystem, operation, development, etc., did not positively impact the project’s growth because the use and contents were not disclosed transparently. Other than this, the demand for blockchain base coins has been scattered as numerous dApps issued tokens and forced to use them in their services, which failed to support the growth of the ecosystem. There still are numerous mainnet and dApp tokens. Although there have been attempts to connect each ecosystem, user convenience has been significantly degraded, leading to a failure to acquire users.

Ecosystem Principles

The Finschia project begins to implement a blockchain platform for hundreds of millions of people around the world to use conveniently. To do so, building a stable and sustainable token economy is required by solving the previously mentioned problems: an investor-oriented ecosystem, vague token economy, and token usage experience inconsiderate of actual users. The Finschia aims to create a blockchain-based ecosystem for everyone to naturally experience in daily life through the following three principles.

1) Rewards for Contributors

The Internet industry, centered on service providers, faced tumultuous times with the advent of the advertising system that allowed users to use services free of charge. The emergence of blockchain and cryptocurrency has allowed users to directly receive rewards for their contribution to the ecosystem, not only using them without payment. The Finschia creates a structure where the ecosystem and participants can grow together by rewarding those who contribute to the ecosystem and create value. The value of a blockchain network ultimately depends on how many people trust and use it. In the Finschia, the number of wallet addresses and FINSCHIA transactions and payments will be the basis of value and form the “Internet of value.”

For FINSCHIA to be widely used by general users, its usability within general services in various areas is essential, as well as usability on the blockchain platform.

Therefore, in the Finschia Ecosystem, rewards are paid to the following contributors:

• Contributors such as validators and stake delegators who continuously generate and validate blocks to maintain network stability.
• Contributors that directly or indirectly increase the value of the network by generating transactions and payments (e.g., content purchase, e-commerce, game item transaction, etc.) on Finschia, such as service developers and users.

2) A Balanced Economic System

The Finschia Ecosystem avoids unbalanced monetary expansion where the tokens are distributed before securing demand. Also, unlike other platforms, it avoids excessive token network effects by not securing a large number of reserves in advance through arbitrary manual issuance. The value of the amount raised by the project through token sales is irrelevant to the actual network value. This is because the network value at the time of funding is evaluated as collateral for the future value to be generated by the token project, regardless of the network activity or value created by the network. In other words, large-scale token distribution through funding is the same as creating an ecosystem with massive future debt. Moreover, in an early market where it is relatively difficult to measure the value of a blockchain network, subsequent investors and users would bear the risk, not the early institutional investors. Finschia establishes and advances the FINSCHIA issuance and distribution policy based on the network and the amount of FINSCHIA used (staking and payment).

Since tokens are distributed according to network activity and growth without any artificial value expansion, the value of the network increases as the ecosystem grows. The growth of the Finschia Ecosystem solely depends on the participants’ contributions. As the demand from the ecosystem and users grows, supply will expand to keep the economy balanced.

3) A Design for Everyone

In the Finschia Ecosystem, people worldwide can acquire the Finschia value and reward through contributions on the Internet without any initial capital. In the Finschia Ecosystem, everyone can easily acquire FINSCHIA as a reward by staking or making payments with FINSCHIA regardless of the nationality, capital, or time zone in their preferred service, which can then be used as a staking and payment method again. This simple yet intuitive contribution-based incentive model allows participants with different interests to naturally contribute to directly or indirectly increasing the FINSCHIA value from a macro perspective. Also, FINSCHIA serves as the key currency for dApps in the ecosystem as well as the network, providing an integrated economic system and improved user experience. Of course, currencies other than FINSCHIA can also be used for transactions (payments) in dApps for user convenience.

By supporting various payment methods for transactions, the FINSCHIA Token Economy expects to create an environment where more users can freely and directly contribute to the growth of the Finschia. This enables the FINSCHIA Token Economy to provide convenience and autonomy to participants while ultimately allowing the network to grow continuously as a whole.
To achieve the above principle, the Finschia has introduced the following three key mechanisms for issuing and distributing native tokens.

1. Issuance: Native tokens are issued transparently by the chain protocol in proportion to the activation degree of the Finschia Ecosystem.
2. Contribution assessment: The contribution of participants is justly quantified including on-chain data.
3. Distribution: Native tokens are distributed transparently to contributors according to their contributions.

Usage of FINSCHIA

FINSCHIA is the key currency of the ecosystem and can be acquired through in predetermined contribution methods. FINSCHIA acquired this way can be used for various purposes at the 1) network level or 2) service level.

01) In the Network

Participants can use FINSCHIA to pay a fee when using the Finschia or to receive additional rewards through stake delegation.

• Transaction Fee Payment
  The Finschia may charge transaction fees for the use of the network, including creating transactions (transferring coins or data within a blockchain-based network, such as remittances, reward payments, smart contract uploads, etc.). The dApp or the user pays the fee with FINSCHIA according to the mainnet or onboarded dApp policy. Only a small fee will be required for a simple transfer, but a larger fee may be incurred when a lot of computation is required for cases such as using a smart contract. Detailed fee policies may differ for each dApp.
• Stake Delegation
  Users possessing FINSCHIA can contribute to block generation and validation by staking FINSCHIA to validators of their choice. In this case, users can receive network contribution rewards. The higher the staking amount, the higher the network contribution rewards. Detailed staking policies may vary by the validator. However, the staked FINSCHIA cannot be transferred to another account. When withdrawing the stake, it could take a certain amount of time for the release to take place.

• Transaction Fees

  Payment of transaction fees on Finschia

• Staking

  Earn network contribution rewards through token staking

02) In the Service

When using dApps within the Finschia Ecosystem, users earn service contribution rewards according to the internal reward policy of the dApp and the level of contribution. FINSCHIA can be used for a variety of purposes, such as B2C or C2C transactions (e.g., content purchase, e-commerce, person-to-person remittance, game item transaction, exchange for other cryptocurrencies, etc.).

• Content

  Payment for music, videos, webtoons, and fiction

• Commerce

  Payment for products/ services, discount benefits, and payback

• Social

  In-app payment systems and wire transfers between individuals

• Gaming

  In-game trading and character improvements

• Exchange

  Payment of commissions, fee discounts, and digital token trading

Ecosystem Contributors

The core contributors to the Finschia Ecosystem are network contributors, services contributors, and the foundation. Each of them is responsible for the following.

• Network contributors ensure network stability by generating and verifying blocks.
• Service contributors improve the network value by providing services utilizing the Finschia or making transactions and payments of content, game items, etc.
• The foundation is responsible for the vitalization of the Finschia Ecosystem and the stable operation of Token Economy 2.0.

01) Network Contributors

Network contributors are entities responsible for generating and verifying blocks on the Finschia. Broadly, these contributors can be divided into validators, who directly participate in network operation, and stake delegators, who indirectly participate in network contribution by staking (delegating) FINSCHIA to validators. Other than generating and verifying blocks, validators can participate in setting key policies and the direction of the chain through an on-chain decision-making system (on-chain governance). Users who possess FINSCHIA can become stake delegators by delegating their share to a validator of their choice.

02) Service Contributors

Service contributors voluntarily participate in the ecosystem and provide or use Finschia -based services. As an entity that develops mainnet-based applications and infrastructure, these contributors include dApp developers as well as open-source and infrastructure service developers who create key demand for the token economy and drive the network value. There are also users who use these services. They all keys to circulating and facilitating the use of FINSCHIA in the Finschia Ecosystem, and their growth is an important driver throughout the ecosystem.

03) The Foundation

As the implementer and operator of Token Economy 2.0, the foundation can promote and support various businesses for the stability and expansion of the ecosystem. In line with the rapidly changing blockchain ecosystem, the foundation supports continuous R&D and is in charge of mainnet technology development and maintenance for stable mainnet operation. Also, they can form investment funds to discover and nurture the listing operation and promising projects to expand FINSCHIA’s liquidity. Other than these, the foundation also runs various events and programs to activate the ecosystem.

FINSCHIA Issuance

To build a stable and sustainable token economy, a transparent and predictable issuance mechanism that is proportional to the activation level of the Finschia Ecosystem is required. To this end, in Token Economy 2.0, FINSCHIA is automatically issued according to pre-defined rules based on the inflation algorithm inherent in the chain. To further enhance the reliability and transparency of the FINSCHIA issuance policy, the existing policy, where the foundation could arbitrarily and manually issue FINSCHIA to secure the reserve, has been discarded. This is called a zero reserve policy with no pre-issuance. This has dramatically enabled the control of the supply and demand balance for FINSCHIA.

Issuance Policy

FINSCHIA can be issued within the maximum issuance limit of 1 billion based on the inflation algorithm inherent in the chain by default. If the total staking rate is less than the target rate, the inflation rate goes up. Conversely, if the total staking rate is equal to or greater than the target rate, the inflation rate goes down. The specific auto-issuance quantity is calculated by multiplying the total minted amount at the block height by the inflation rate determined by the chain at the point of block generation. The initial inflation rate starts at 15% for a stable settlement of Token Economy 2.0 and adjusts the target staking rate to be at a 5% level in the long run.

Contribution Assessment

Finschia runs a mechanism that quantifies the participants’ contribution to the Finschia Ecosystem and determines the reward accordingly. Network contribution rewards and service contribution rewards use independent mechanisms to assess contribution.

01) Network Contribution

The stability and security of a network based on Proof of Stake (PoS) are generally proportional to the ratio of the staked FINSCHIA to the total minted amount of FINSCHIA. Also, as the total staking ratio increases, the distribution speed of FINSCHIA decreases. Therefore, it reduces the rapid volatility of FINSCHIA’s value at a certain level, allowing it to maintain a stable value. For this reason, the staking amount is the key factor when assessing the network contribution to the Finschia Ecosystem.

Specifically, it measures the ratio of the staking amount of the individual contributor to the total staking amount. For example, users who staked FINSCHIA equivalent to 5% of the total staking amount will receive up to 5% of the total network contribution reward*. The staking algorithm embedded in the chain transparently and justly assesses the contribution to the network at each block generation time. The foundation determines the appropriate scope of the token issuance policy and optimizes related parameters by considering the overall activation level of the Finschia Ecosystem.

*The validators receive a commission from the stake delegator for block generation and verification.

02) Service Contribution

As transactions and payments using FINSCHIA become more active, the value of the Finschia Ecosystem increases, creating a virtuous cycle that leads to an influx of new users. As more services and users participate, the Finschia Ecosystem becomes healthier and more sustainable, resulting in a high retention rate of the existing users. Therefore, the foundation has defined on-chain indicators directly or indirectly related to transactions and payments using FINSCHIA as assessment factors to quantify the contribution to service. Direct indicators include the number and transaction amount of FINSCHIA payments. Indirect indicators include NFT transaction performance paid by means other than FINSCHIA. With prior notice, the foundation can adjust the specific indicators and the contribution evaluation method considering the overall vitality of the Finschia Ecosystem. Detailed information regarding the policy will be available in the upcoming service contribution reward policy annoucement.

Unlike the network contribution assessment processed by the chain protocol, the foundation assesses contribution to service in the following steps.

1. The foundation regularly renews the service contributor pool* and the compensation scope for the contributions.**
2. The foundation assesses the contribution to each dApp, including on-chain data during a specific period.
3. The specific contribution reward amount per dApp is determined within the available resources in the order of large contributions by users.
4. The foundation gives the determined contribution rewards to each dApp. Each dApp redistributes the reward to users according to its internal reward policy and uses part of the reward as dApp advancement funds.

* Services eligible to receive the contribution rewards. To be included in the pool, one must sign up for the program provided by the foundation and agree to the terms and conditions in advance.

** Depending on the resource liquidity of the contribution rewards and the vitality level of the Finschia Ecosystem, the number of services receiving rewards and the rewards’ scale may be limited or changed.

FINSCHIA Distribution (Contribution-Based)

In the past, many blockchain services have received large amounts of grants from the foundation for funding purposes. This practice made the blockchain project look like it was thriving by forming numerous services in the early days. However, most failed and only increased the burden on early investors. Thus, the Finschia Ecosystem introduces the “Reward for Contribution” principle. The main goal of FINSCHIA distribution is to transparently reward the contributors with FINSCHIA commensurate with their contribution, thereby ultimately establishing a virtuous cycle that promotes the vitalization of the ecosystem. For this, Token Economy 2.0 distributes FINSCHIA according to established rules based on the distribution algorithm embedded in the chain.

Distribution Policy

FINSCHIA, issued through inflation at each time of block generation, is allocated as follows at a determined rate based on the distribution algorithm embedded in the chain.

*FINSCHIA collected as transaction fees will be distributed at the same rate defined in the distribution policy.

• Network Contribution Reward (50%)
  It refers to the reward to validators and stake delegators for their contribution to improving the stability of the Finschia. Participants possessing a stake in the Finschia will be rewarded proportionally for their contribution to the network. At this time, validators will also receive a commission from stake delegators in exchange for generating and verifying blocks.
• Service Contribution Reward (30%)
  It refers to the reward to developers and users of services operated based on the Finschia Ecosystem for their direct or indirect contribution to improving the value of the Finschia Ecosystem. The foundation regularly quantifies individual service contributions through the service contribution evaluation mechanism. Based on this, it distributes rewards directly to service operators or service users. However, the allocated reward amount for service contribution can be adjusted depending on the participation and growth of the Finschia Ecosystem. If the participation rate decreases and the growth is slow, the foundation may reduce the allocated reward amount and save the remaining undistributed rewards for later. Conversely, the allocation size would increase with more participation and the sign of growth. (But this reward plan may change according to the regulations of the countries where each service provider is located.)

It refers to the reserve allocated by the foundation for the maintenance of the Finschia and the vitalization of the Finschia Ecosystem. The foundation uses the reserve to directly or indirectly operate various programs and businesses to vitalize the overall ecosystem, such as R&D, infrastructure establishment, dApp accelerating, and marketing.

Rights and Roles of the Foundation

The foundation defines the key indicators of the token economy with Finschia Governance and continuously monitors the stability of FINSCHIA issuance and distribution policies. It also plays a role in advancing the issuance and distribution policies and optimizing related parameters considering the vitality level of the Finschia Ecosystem. The foundation establishes and implements an operating policy to comply with the maximum limit of issuing FINSCHIA. For the stable operation of Finschia Ecosystem, it also adjusts the allocation ratio of rewards to be distributed to the service contributor pool and distributes the rewards transparently according to the quantified contribution rules. Aside from this, with prior notice, the foundation may also reform the token economy policy through cooperation with the validators to smoothly respond to the instability of the initial Finschia Ecosystem.

Finschia Governance

Finschia Governance is jointly managed by partners who can contribute substantially to the Finschia Ecosystem. Finschia believes that contributors who can share its vision and build the ecosystem from perspectives of business competitiveness and the global ecosystem are the most suitable Finschia Governance members. From the business competitiveness perspective, the contributor candidates are expected to strengthen the intrinsic competitiveness of the Finschia, build various Web3 and NFT-based dApp ecosystems, and develop a long-term platform development plan based around a stable and highly scalable growth network. From the global ecosystem perspective, the potential members of Finschia Governance are the contributors with world-class leadership, expertise in blockchain technology and investment, and the ability to expand into new markets. In other words, Finschia Governance will drive the long-term growth of Finschia with members who can ultimately contribute to achieving the mass adoption of blockchain technology.

1) Roles

Finschia Governance members are “validator nodes” that validate blocks according to the consensus algorithm and take on the following roles as validators.

• Participate in block generation:
  The validator node participates in the block generation process according to the Ostracon consensus protocol (PBFT + DPoS + VRF) of the Finschia and is responsible for stable block generation. After verifying blocks in one round (Propose > Prevote > Precommit > Commit) where blocks are generated for each new block height, votes containing the encrypted signatures of each validator’s private key are transmitted.
• Maintain security:
  The validator node is one of the core components in the chain and requires special security attention. To maintain a high level of physical security, the consensus key required for block signing and the operating key required for operation should be stored in the Key Management System (KMS) and a hardware wallet, respectively.
• Upgrade for stability and performance:
  The validator node must diligently participate in the chain upgrade process to improve the chain’s stability and performance. They should check the details, scope, and schedule of the chain upgrade through validator node communication channels (governance forum, SNS channels, etc.) and external notification channels.
• Give feedback and report:
  The validator node should share and propagate various feedback to improve the chain and develop the ecosystem. The validator node, when they identify an issue or detect a malicious activity on the chain, must immediately share it in a communication channel for validator nodes.
• Run a full node:
  The validator must run a full node to participate in the block generation process. The full node stores a copy of the entire blockchain and can independently validate transactions and blocks without relying on other nodes. And they should have the entire block information from the genesis block to the latest block.
  As this information is used to validate the blocks, the full node plays an important role in maintaining the security and integrity of the chain. Therefore, the validator node must meet the hardware requirements to run a full node, avoid network latency, and keep the uptime as high as possible.
• Participate as a validator for stake delegators:
  FINSCHIA holders can directly or indirectly participate in on-chain governance as stake delegators by delegating their tokens to a specific validator node. The validator node plays a role as a delegator, and can also self-delegate to themselves.
• Participate in governance:
  The validator node is the axis that supports the chain system and, thus, is responsible for chain operation. Therefore, they must actively vote on proposals submitted to the chain. In addition, the validator node must exercise the voting rights on behalf of the stake delegators who have delegated the FINSCHIA to them. However, they can exercise their voting rights only when the delegator does not vote themselves. The number of votes of each validator node is adjusted according to the contribution to governance and network and the amount of staked FINSCHIA.

If a validator fails to fulfill their roles and responsibilities (not participating in the minimum required consensus rounds) or misbehaves (double-signing, etc.), “slashing” may occur to the assets staked. “Slashing” refers to a penalty in which a certain percentage (0.05-1%) of the FINSCHIA staked by the validator node as collateral is burned. Repeated misbehavior may result in being jailed from the consensus process. Also, the validator nodes may be expelled from the Finschia Governance depending on the governance voting result.

2) Rewards

Finschia Governance members receive rewards at a certain rate for participating in the consensus process that validates and generates blocks while operating the validator nodes. Since the stability and integrity of the blockchain are affected by the actions performed by validator nodes, rewards are provided to encourage members operating validator nodes to perform the above roles accurately and reliably. The reward types and details are as follows:

• Reward via inflation
  The Finschia is structured to issue new FINSCHIA based on complex standards such as FINSCHIA issuance volume, circulation volume, and total delegated ratio whenever the inflation system generates a block. 50% of the newly issued FINSCHIA is distributed as a validator node reward to Finschia Governance members. Each validator node belonging to the Finschia Governance is rewarded according to the delegation ratio (total amount staked to a specific validator node/total amount staked to all validator nodes). This reward is stored in the fee pool on the chain, and each validator node can withdraw the FINSCHIA amount delegated to itself from the fee pool.
• Transaction Fee
  Network fees on the Finschia are paid with FINSCHIA, and the fees are collected into the fee pool. Validator nodes belonging to the Finschia Governance can withdraw the fee rewards distributed by the delegation rate from the fee pool, excluding the stake delegator reward. The validator nodes cannot withdraw the rewards distributed to their delegators; the stake delegators must withdraw them directly.
• Commission
  FINSCHIA holders can delegate the FINSCHIA to the validator nodes belonging to the Finschia Governance to participate in chain operation, and the validator nodes receive a commission in return. The validator nodes take the commission based on the commission rate from the revenues for delegators. The commission charged for delegators varies by validator nodes and may change during operation if necessary.

Governance Process

All tasks included in the governance process of the Finschia take place on-chain. In other words, the votes of the Finschia Governance members will be recorded on the blockchain, and various proposals and decisions related to the chain will be made based on the voting results. The basic on-chain governance process is as follows.

• Step 1. Propose
  Any Finschia Governance members can propose an agenda, which may initiate the governance process.
• Step 2. Discuss
  Finschia Governance members provide opinions on the agenda and submit a written opinion.
• Step 3. Vote
  Finschia Governance members review the submitted opinions and vote on the agenda. If the upvote passes the threshold, the proposal is passed. However, if the number of strong negative votes exceeds a certain percentage, the proposal is rejected regardless of the number of positive votes. Therefore, it is necessary to reject proposals that may have a negative impact on the chain and veto (NoWithVeto) any proposal with malicious intention. Finschia Governance members can vote on behalf of stake delegators who have delegated FINSCHIA to them. If stake delegators do not vote, their votes will automatically follow the votes of the Finschia Governance members.
• Step 4. Follow up
  The foundation and the proposer are responsible for carrying out the approved agenda.

Governance Proposal Type

The on-chain governance can process the following four types of proposals: technology, economy, governance, and consensus.

01) Technology policy
This proposal includes suggestions for policy regarding technical updates of the platform, including the basic structure, new features, and software upgrades of the blockchain. Also, whether to perform a soft fork or hard fork as well as whether to apply the new blockchain structure and features can be determined.

02) Economy policy
This proposal includes suggestions for economic policy to be applied to the Finschia, including chain economic parameter factors such as the change of transaction fees and FINSCHIA inflation policy (inflation rate, target staking rate, foundation reward rate, etc.). In addition, agendas directly related to the formation of the Finschia Ecosystem, such as changing the contribution assessment method and using the reserve, may also be included.

03) Governance policy
This proposal includes suggestions for rules for governance entities and processes and responsibilities and rights of the governance body. Through this, conditions of the governance process (minimum stake, voting period, quorum, voting percentage, etc.) can be adjusted, and the parameter settings for the responsibilities and rights of the Finschia Governance may change. These requests of governance policy decision-making play an important role in the overall operation and progress of the system.

04) Consensus policy
This proposal includes suggestions for items such as the voting period, the maximum number of Finschia Governance members, validator node’s generation rights for new Finschia Governance members, slashing policy, etc. Also, with this proposal, text suggestions such as freezing malicious smart contracts—or blacklists—and chain operation can be proposed without technical changes. These requests of consensus policy decision-making play an important role in the overall operation and progress of the system.

Governance Roadmap

• Step 1. Private
  This stage comes before the establishment of the Finschia Governance. In this stage, Finshia as a single organization sets and manages the direction of the mainnet operation. The Finschia Foundation is responsible for operating the mainnet, running the validator nodes, determining the access list of the mainnet, and determining the transaction types allowed on the blockchain as well as the maintenance and update method of the network. It also sets the regulations and policies to solve issues occurring when operating the mainnet.
• Step 2. Consortium
  In the consortium stage, the Finschia Governance members operate the blockchain through on-chain voting, and each member has influence over the operation of the mainnet. At this stage, mainnet endpoints are provided only to members verified by the Finschia Foundation. Each member holds the governance decision right in proportion to the staking amount. Therefore, the direction of the chain may vary depending on the goals of Finschia Governance, which operates validator nodes. Besides this, Finschia Governance members establish the regulations and procedures for managing and updating the blockchain, resolving disputes, and adding new Finschia Governance members through the on-chain governance process.
• Step 3. Public
  In this stage, where the blockchain system is decentralized, anyone can participate in the network as a user or validator, and the mainnet endpoints are open to the public. On this permissionless blockchain, a single organization or individual can run a validator node without permission and become a candidate for Finschia Governance membership. The blockchain is operated through on-chain governance in the same way as the consortium stage. And thus, the joining of new Finschia Governance members only occurs through on-chain voting, regardless of the intention of the foundation.

Architecture

Finschia adopts a layered structure where each layer has unique functionality, allowing flexibility and modularity in the design and development of blockchains. With this layer structure, Finschia can easily be modified or upgraded when needed without having to rebuild the entire blockchain system. It can also lead to higher performance and scalability by distributing the workload between nodes and improving the overall network efficiency. This is particularly suitable for blockchain applications that need to process a large number of transactions for mass adoption. Additionally, the layer structure is very effective against security vulnerabilities and attacks. Thus, this structure enhances the security of the Finschia and ensures chain integrity and trust.

Based on these advantages, Finschia consists of three independent layers with different roles: Ostracon (an independent consensus algorithm), WebAssembly-based virtual machine, and SDK that adds convenience to development.

Finschia is an independent, parallel, and decentralized blockchain network designed to be a horizontally scalable and interoperable platform for dApp development. The application layer built using SDK plays the role of business logic for each node and can write optimized smart contracts for the Finschia Ecosystem on WebAssembly-based virtual machines. On the other hand, the consensus layer included in Ostracon, an independent consensus algorithm, allows all nodes within the network to reach an agreement and consensus on the state and produces and stores safe and irreversible blocks. Moreover, this consensus layer has resistance to network attacks and thus is extremely essential in ensuring security and integrity. Lastly, the networking layer is responsible for communication between deployed nodes. To recapitulate, the Finschia has three independently configured layers, and each plays its own role.

Numerous projects have distributed large quantities of tokens to a small number of investors for the purpose of financing. The scale of token investments and sales achievements have also been used to assess project outcomes. However, the LINE Blockchain Network does not distribute FINSCHIA for financing; rather, the Reward dApps distribute FINSCHIA to their most active users as compensation for activities that contribute to the ecosystem. This approach to distribution creates three types of differentiated value.

Consensus Algorithm

Blockchain uses a “distributed ledger,” which consists of a connected network between individuals, and there are several network participants to record and manage the transaction information. Each blockchain adopts a consensus algorithm suitable for the purpose of efficient and smooth consensus on transaction validation and block generation among network participants. These consensus algorithms help the system to reach a consensus on the correct state, even if there is a system failure or malicious attack on the network. They play an important role in ensuring the integrity and stability of the blockchain.

A novel blockchain consensus engine called Ostracon forms the foundation of the Finschia. The Ostracon consensus engine is based on a combination of Delegated Proof of Stake (DPoS) and Tendermint-BFT, which itself is a variation of the Practical Byzantine Fault Tolerance (PBFT) algorithm.

• DPoS
  Nodes are elected as representatives based on the total staked amount to form a consensus.
• PBFT
  A consensus algorithm that has been mathematically proven to ensure the safety of the network, so long as the total number of nodes is 3f+1 or more, where f represents the number of unreliable nodes.
• Tendermint-BFT
  A modified version of PBFT used in the consensus and networking layers of the Cosmos blockchain.

Ostracon utilizes the fast block finality and fork resistance mechanisms of the Tendermint-BFT consensus mechanism. Ostracon utilizes improved versions of existing consensus algorithms and is unique to the Finschia. Ostracon provides a solid foundation for the Finschia to be used in a variety of domains such as finance, e-commerce, and gaming.

In the Tendermint consensus algorithm, a leader is elected every round among the block validators. The leader generates blocks, and validators validate the generated blocks and consensus results. In this process, a round-robin method is used where the leader is elected in a specific order. This method pre-selects the next block generator. Therefore, the validator group is able to predict the next leader in advance. Due to this, there is a concern about the potential difficulty of maintaining the stability of the blockchain in case the leader becomes the target of a Distributed Denial of Service (DDoS) Attack.

To improve these issues, Ostracon introduced a security enhancement technology called VRF (Verifiable Random Function) to select the leader randomly, which makes future selection unpredictable. By providing randomness to the on-chain, the network is protected from attackers, and security is ensured.

Ostracon’s consensus process (block generation mechanism) consists of three phases.

• Step 1 – Election
  One proposer and several voters are elected from a set of candidate nodes of validators possessing FINSCHIA stakes. This is similar to a leader election in a general distributed system. However, in blockchain, it must be designed to prevent any artificial elections so that malicious interference, such as DDoS attacks, doesn’t degrade the system’s overall performance. At this stage, Ostracon utilizes a cryptographic function called VRF. The node verifies the VRF proof “a” within the block and calculates the VRF hash value “t,” or the “pseudorandom number.” Based on that value, the proposers and voters of the round are selected according to the validator’s stake possession through a simple and fast-weighted random sampling, ensuring integrity and stability.
• Step 2 – Block Generation
  The elected proposer suggests a block. Unconfirmed transactions that are not included in the blockchain are shared among nodes through P2P (peer to peer) on the network and stored in an area called mempool within each node. The elected proposer picks up the unconfirmed transactions from its own mempool, generates a proposal block, and proposes it to voters.
• Step 3 – Block Verification
  The elected voters validate the block proposed by the proposer. Each voter votes on whether the block is correct or not. Then the vote is replicated and passed to the other voters. If more than 2/3 of all voters vote for the block, the block is officially approved. On the other hand, if a quorum is not reached, the proposed block is rejected, and a new round of election or voting begins.

h  the current block height
π  VRF proof

Vision for the Finschia

The Finschia will continue to research and apply the rapidly evolving blockchain technology while constantly improving the user experience. The improved user experience will help establish an early ecosystem for global users to easily understand and experience blockchain and cryptocurrency. The public will recognize the potential benefits of blockchain technology through the increasingly secure, transparent, and scalable Finschia. And as more individuals and businesses understand the benefits and value of the blockchain, we expect a growth in blockchain technology adoption in industries and everyday life.

As blockchain technology and ecosystems evolve, interest in Web3 mass adoption is also increasing. Based on solid infrastructure technology and an initial global ecosystem, Finschia will develop into a blockchain network where various entities can freely participate in, trust in, and use it, eventually leading to the mass adoption of Web3.

Strategy to Expand Finschia Ecosystem

The Finschia establishes its ecosystem in three phases. As the phases progress, the Finschia Ecosystem will be reborn as a self-sustaining economic system with robust infrastructure technology and ecosystem.

• Phase 1. Ecosystem Expansion

  In phase 1, the Finschia establishes the ecosystem foundation based on the initial LINE Blockchain and an infrastructure that can conveniently link dApps. The such infrastructure allows more opportunities for various dApp developers to participate in the ecosystem.

  In 2019, the multi-chain (root-leaf) mainnet Bamboo was launched and laid the groundwork for the LINE Blockchain Ecosystem.

  In 2020, LINE Blockchain Ecosystem began to expand the NFT ecosystem by upgrading to Cashew (Testnet) and Daphne (Mainnet).

  In 2021, dApp Alliance was formed with the selected dApp developers and provided an interlocking SDK to secure dApps and establish a smooth development environment.

  In 2022, the launch of Ebony (Testnet) and Finschia (Mainnet) with ABCI (Application Blockchain Interface) sped up the development of dApps.

  Implementing modules that elevate scalability, development flexibility, and developer convenience provided an easier dApp onboarding experience and various ways to participate in the ecosystem.

  A non-custodial web wallet and a non-custodial mobile wallet based on the Finschia secured the user convenience.

• Phase 2. Network Vitalization

  In phase 2, the Finschia Blockchain upgrades the blockchain network and builds an ecosystem for global users. Various user-friendly dApps are provided for the unique experience of global users, securing different real-life use cases such as FINSCHIA payment and staking.

  Build a trust layer that issues rewards based on contribution to the ecosystem by establishing the Finschia Foundation and Token Economy 2.0.

  Configure the Finschia Governance to drive long-term growth and contribute to Web3 mass adoption.

  Integrate the Daphne Mainnet and Finschia Mainnet and unify the token ecosystem, including the infrastructure and NFTs.

  Improve the accessibility of Finschia technology by operating development ecosystem vitalization programs such as the dApp accelerator and Hackathon.

  Implement the IBC (Inter-Blockchain Communication) protocol for the communication between app chains (application-specific blockchains) and improve scalability and compatibility by applying solutions such as Bridge.

  Build a foundation for global mass adoption by onboarding various dApps by sector, such as global DeFi (decentralized finance) and on-chain staking services, and diversifying FINSCHIA transaction methods.

• Phase 3. Mass Adoption of Web3

  In phase 3, the Finschia transforms into a public network where anyone can directly participate and contribute to the network and implement a universal blockchain platform that connects global users.

  Expand the global NFT infrastructure to increase demand for FINSCHIA and enhance the token economy model to support dApps in a detailed and specific way

  Establish a user-oriented universal platform between chains and expand the Web3 global service by stably interlocking the token ecosystem between various blockchains and advancing technology

  Merge the Web2 ecosystem into the Web3 ecosystem by providing a platform that meets the needs of Web2 service providers and having various partners on board.