Introducing Kusama cryptocurrency
What is Kusama KSM?
If you’re not familiar with Kusama here’s the quick rundown.
Kusama was created by Dr. Gavin Wood as a way of testing polkadot under real economic conditions.
unlike a regular test net Kusama exists as its own independent cryptocurrency and this is why Kusama is often referred to as polkadot’s canary network.
coal miners would use canary birds as a way of checking if there was enough oxygen while working underground.
Kusama took flight in October 2019 as a dry run for Polkadots own mainnet launch which took place almost exactly one year ago.
Kusama and polkadot are technically projects by the web3 foundation a Swiss non-profit,
which commissions a London-based for-profit software company called parity technologies to maintain and develop both projects.
In terms of tech Kusama and polkadot are basically identical.
The two primary differences are that Kusama’s code is not audited and all non-transaction related processes are four times faster on Kusama.
Like polkadot Kusama uses a Relay Chain which is a primary blockchain that coordinates governance and communication between attached power chains.
Now you can think of Parachain as being additional blockchains that plug into the Relay Chain for security and interoperability.
The purpose of Parachains is to host smart contracts and decentralized applications for Kusama and polkadot.
Now both Kusama and polkadot’s Relay Chains can only support up to 100 Parachains each and Parachain slot auctions are how both ecosystems will decide which projects get a slot.
There are technically three types of Parachains:
- Regular Parachains
- And common good Parachains
Regular Parachain are acquired through the Parachain slot auction process.
Like regular auctions Parachain slot auctions involve bidding on a slot using money in this case KSM or dot tokens.
In contrast to regular auctions the winner of a Parachain slot auction is determined based on a snapshot that is taken,
at a random time shortly before the auction ends.
Whichever project put down the most KSM or DOT when the snapshot was taken wins the slot.
Now this is to prevent projects from bidding up the price shortly before the auction ends.
The KSM or DOT that a potential project uses to participate in a Parachain slot auction can come from their own pocket or it can be crowdfunded from their communities using something called a Parachain loan offering.
Parachain loan offerings or PLOS, work similarly to initial coin offerings or ICOS.
Basically you give your KSM or DOT to the project for them to use in the Parachain slot auction and they will give you some of their tokens in return.
The difference is that the KSM or DOT you give to these projects never actually goes to the project.
It just gets locked in the smart contract that connects the project’s Parachain to the Relay chain.
Participating in a Parachain loan offering
Once the Parachain lease period is over all the KSM or DOT you locked up is returned to you and you still get to keep
the tokens you got from the project.
In other words, you didn’t actually spend a single cent.
If you’re wondering what the catch is well the answer is time.
Participating in a Parachain loan offering means your KSM or DOT could be locked for up to two years.
This could be a problem if KSM or DOT suddenly explodes in value.
If your tokens are locked on a Parachain you won’t be able to sell them on the open market for a profit.
This is why you have to make sure the Kusama or Polkadot project you’re lending your crypto to is legit and,
is also going to give you a substantial amount of tokens in exchange for helping out with its Parachain loan auction.
If you’re wondering what happens to a Parachain after its lease period is up,
the short answer is that it gets demoted to a Parathread.
You can think of Parathreads as being pay as you go Parachain slots.
Projects that use Parathreads must pay a fee in KSM or DOT for each block they produce.
This makes Parathreads ideal choices for projects on Kusama and Polkadot that don’t necessarily,
need to be running 24 7 such as certain data oracles.
The difference between Parathreads and regular Parachain
The primary difference between Parathreads and regular Parachain is that power threads can be shared,
by multiple projects which take turns producing blocks as needed.
If a project looking to build on Kusama or polkadot serves a function that is considered to be critical,
to their ecosystems it can secure a Parachain slot without any KSM or DOT.
Now these common good Parachain fall into two categories.
System level chains and public utility chains
System level chains include Parachains for governance processes or token minting and public utility chains include Parachains for bridges to other cryptocurrencies like Ethereum and bitcoin.
While there are obviously many projects waiting to build on Kusama and Polkadot that can fall into either,
of these two categories the ones which secure a common good Parachain are decided through community governance.
During the recent Polkadot decoded event parity developer Shawn Tabrizi noted that there will be anywhere,
between 10 and 30 Parachain slots reserved for these common good Parachain.
The first common good Parachain recently launched on Kusama.
This is the shell Parachain which doesn’t do anything besides produce blocks.
It’s there just to test Kusama’s Parachain functionality.
In a few days or so the shell Parachain will be upgraded to the state mine Parachain which will make it possible to mint,
fungible and eventually non-fungible tokens or NTFS on Kusama.
Once Statemine has been up and running for a day or two with no major issues Kusama will announce,
the start of its Parachain slot auctions on its website and on twitter.
Assuming everything is running smoothly after Kusama has plugged in a handful of Parachain Polkadot,
will begin its own Parachain slot auctions.
Here’s how you can participate and what you can expect.
Kusama will be announcing its Parachain slot auctions just over a week before the first one begins.
This is to give enough time for everyone staking KSM to unstake so they can participate in the first,
Parachain slot auction.
The KSM unstaking period is seven days in case you’re wondering.
Lease Parachain slots
Parachain slots can be leased for years at a time.
On Kusama the maximum Parachain lease period is 48 weeks which is just short of one year.
This 48-week period is broken down into eight six-week slots.
This means that if you loan your KSM to a project looking to secure the full Parachain lease period you won’t,
get it back for eight slots which is 48 weeks.
By that time, we will probably be in another bear market.
Now that said some projects looking to secure a Parachain slot on Kusama might opt for the minimum lease period,
which is just one slot or six weeks.
So in this case KSM would only be locked for about a month and a half.
The most important thing to remember about Parachain slot auctions on Kusama is that your KSM,
will also be locked during the actual auction period which lasts two weeks.
Not only that but it seems the project you give your KSM to could choose to use it in upcoming auctions if they lose the first one.
In other words, there is a risk that your KSM could be locked for weeks on end without receiving any rewards and,
that’s something you’re going to have to check with each project.
Kusama’s parenting slot auctions will happen one after the other meaning there will be a new Parachain slot auction,
every two weeks.
Founder Gavin Wood noted in a recent interview that they will probably do just five Parachain slot auctions back to back to start with and will continue afterwards if Kusama remains stable.
If all goes well at least one of the Kusama projects, you loaned your KSM to will secure a Parachain slot during these auctions.