In this episode, Karl Kreder, co-founder and CTO of Quai Network, discusses the network's unique approach to scalability, privacy, and token economics in blockchain technology. The conversation covers Quai's layered merged mining implementation, dual token economics model, and its environmental impact. Karl also highlights Quai's developer grant program and marketing campaign for broader community engagement.
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Opening and background introduction
Ehan:
Welcome to WuBlockchain. To stay up to date on the latest blockchain and cryptocurrency news, follow us on YouTube and follow us on Twitter to join the discussion. Today we have Karl Kreder, Co-Founder and CTO of Quai Network, welcome to the show, Karl. Can you briefly introduce yourself and Quai Network?
Karl:
Thank you for having me. I've been in the cryptocurrency space since around 2012. I got my PhD in Engineering from the University of Texas, and then worked at ConsenSys, a major player in the Ethereum ecosystem. I later founded GridPlus and developed the Lattice1 hardware wallet. During this time, I came up with a solution for scaling Proof of Work blockchains and received funding from the National Science Foundation. I worked on this in my spare time for about two years until my co-founder and I received funding from Polychain Capital in early 2022.
Since then, I have been working full-time on the development of Quai Network. Quai is essentially a scalable proof-of-work system capable of handling over 50,000 transactions per second while maintaining a decentralized structure similar to Bitcoin. We achieve high throughput without sacrificing decentralization by using a layered merged-mining blockchain architecture.
Merged Mining on Quai Network and Its Advantages
Ehan:
Quai Network improves the efficiency of merged mining. This concept seems to have been originally proposed by Satoshi Nakamoto. Can you explain how this works and what benefits it brings to miners and the network as a whole?
Karl:
Of course, merged mining allows us to create sharded blockchain hierarchies, which is one of the core components of our expansion of the Quai Network. Merged mining is when miners participate in mining on multiple blockchains at the same time. Satoshi originally proposed this concept in the Namecoin project, which is a distributed DNS system. It has no security of its own, but relies on Bitcoin's security by referencing Namecoin blocks in Bitcoin blocks. In this case, Bitcoin does not verify Namecoin, but Namecoin relies on Bitcoin's security.
In Quai, we also use merged mining, but with a key difference: miners participating in merged mining need to run multiple Quai blockchains at the same time, and blocks are only considered valid when blocks on all chains are valid. This approach allows us to build a scalable system that is homogeneous in the eyes of users, ensuring composability, interoperability, and security. Unlike Ethereum, Quai achieves scalability within a homogeneous system without relying on L2 layer solutions with different trust assumptions.
The difference between Quai Network and other Layer-1 blockchains
Ehan:
There are already many Layer-1 solutions on the market. How is Quai Network's technical solution different from other Layer-1 blockchains, especially the currently popular TON?
Karl:
The core of Quai is scalability on a proof-of-work mechanism, and we are the first high-throughput network to implement sharding in a PoW system. If you compare Quai to TON, TON, despite being superior in decentralized systems, essentially runs on a single shard. Quai is able to run up to 255 shards, and when fully scaled, we expect to reach a throughput of 250,000 transactions per second, far exceeding other decentralized PoW systems.
On current market infrastructure and Quai’s support for dApp development
Ehan:
Some people believe that the current market infrastructure is at a stage of oversupply. What do you think? What support does Quai Network provide for dApp development?
Karl:
Our point is that not all blockspace is equal. What really matters about blockspace in a blockchain is its economic resilience and censorship resistance. Systems with these characteristics are very strong in accessibility and uptime. Take Solana as an example, it is more scalable, but it is also more centralized, resulting in frequent downtime, sometimes up to days. In contrast, PoW systems like Bitcoin have very high uptime and resilience.
Not all scalable blockchains are decentralized, censorship-resistant, and always online, and Quai aims to maintain these characteristics while providing scalability.
In terms of dApp development support, we have a $10 million developer grant program to help developers develop on Quai Network.
Overview of Quai Network’s Dual Token Economic Model
Ehan:
The economic model of Quai Network introduces two tokens: QUAI and Qi. It is not common for public chains to adopt this design. Why did you choose this structure? What are the main functions of these two tokens?
Karl:
The reason we introduced dual tokens is that we believe that in a PoW system, it is impossible to build an independent and sustainable economic system relying on only one token. These two tokens are designed to meet the needs of a monetary system, specifically a store of value, a unit of account, and a medium of exchange.
The QUAI token is what we consider to be a deflationary value storage token similar to Bitcoin, with a similar issuance model. It is also EVM-compatible, and developers can build decentralized financial applications on it, so it is a programmable value storage tool.
We also introduced Qi, which we call the "Energy Dollar". Qi is unique in that its price tends to match the energy cost of producing it for miners, which makes the purchasing power of Qi relatively stable based on economic incentives. We see Qi as a stablecoin that competes with fiat currencies like the dollar or euro, but is built natively on the blockchain.
Token distribution plan and strategies to reduce VC bias
Ehan:
How are QUAI and Qi tokens distributed? The market is generally skeptical of venture-backed tokens. How does your token distribution plan try to distribute tokens as widely as possible to community users?
Karl:
QUAI tokens are primarily distributed through mining, similar to Bitcoin. However, there will also be a genesis allocation for the team and early investors in the project. We expect that over time, approximately 85% to 95% of the token supply will be mined.
As for Qi, it is designed to be a stable coin. Its price stability is achieved by being generated solely through mining, with no significant Qi genesis allocation on the market. Proof-of-work mining is not only one of the most powerful ways to achieve consensus, it is also the fairest method of token distribution in the long term.
Quai Network’s Marketing and Community Incentive Program
Ehan:
Does Quai Network currently have any marketing or community incentive programs targeting Asian users?
Karl:
We are about to launch our final testnet next Tuesday. Anyone interested can participate, become a miner, run a node, and mine with a GPU. This is a fully incentivized testnet.
We are creating a whole economic system where the tokens you hold at the end of the testnet are converted proportionally to one of the 10 million tokens on the mainnet. We offer various incentives, including price arbitrage between QUAI and Qi, building applications, or deploying NFTs. For example, if you run an NFT marketplace, any revenue earned will be converted to mainnet tokens. Similarly, if you launch an NFT project and people pay you with test tokens, that revenue will also be converted to mainnet tokens.
We also offer social initiatives such as a faucet program on Twitter where the community can earn tokens by participating in challenges. Whether you are a speculator, developer, or miner, there are many ways to get involved. Once the "Golden Age" testnet is complete, we expect to launch the mainnet before the end of the year.
Quai’s Proof of Work Scaling Research and Its Role in Sharding
Ehan:
You’ve published several research papers in the crypto space. Can you talk about these studies and how they influenced the design and vision of the Quai Network, especially around proof of work and scalability?
Karl:
This, of course, goes back to the origins of Quai Network. Rather than trying to make incremental improvements to existing crypto, we looked back at the last 10-12 years of blockchain development. We asked ourselves: How do we create a system that is economically resilient, decentralized, and able to scale to support all human commerce? This has been our mission from the beginning.
To do this, we faced several previously unsolved challenges, a key one being the proof-of-work mechanism. We published several papers on this new consensus mechanism — Proof of Minimum Entropy (PoEM).
This allows us to do proof-of-work sharding in a causally invariant way, creating efficient and secure sharding. We also innovatively propose a hierarchical merge-mined blockchain. Our paper details how this sharding hierarchy works, ensuring that state is transferred between shards in a seamless, trusted, and composable manner. The core idea is that from the user's perspective, the shards are invisible and they interact with the network as if they were interacting with a single chain.
We worked with some of the biggest names in crypto to do a proof of security for our consensus mechanism, and are currently working on a multi-chain security proof. We also submitted a paper on the concept of “work shares,” which are similar to shares in a mining pool. In our system, these work shares are part of the protocol and allow miners to receive multiple payments for their contributions, rather than just a single block reward. This smooths out miners’ income, provides a stable incentive, and reduces the need to join large mining pools even for those mining with just one or two GPUs.
Blockchain Scaling Bottlenecks and Quai’s Multi-Chain Architecture
Ehan:
In your opinion, what are the biggest bottlenecks that Layer-1 blockchains face when processing large-scale transactions? How does Quai Network’s multi-chain architecture solve these problems?
Karl:
That's a good question. I think the bottleneck is mainly computing throughput and node bandwidth. In addition, there is also a problem related to network bandwidth, that is, how many hops the data needs to propagate to cover the entire system, and the latency between nodes. This network bandwidth has nothing to do with the bandwidth of a single node, but is mainly the combined result of the transmission efficiency of the entire network.
Quai Network solves these challenges through sharding. We reduce computational requirements through independent, asynchronous chains that only need to periodically synchronize with higher-level chains. This means that each chain only needs to process transactions that affect its own state, rather than processing transactions for the entire network. This also reduces the required bandwidth, because transactions only need to be propagated within a specific shard, rather than covering the entire network.
We also have an interesting incentive mechanism called "subnets". However, our subnets are different from Avalanche's subnets. Our subnets refer to the Internet topology. In Quai, miners can choose to mine in a "slice", which includes the main chain, a regional chain, and a subchain under the regional chain. Miners propose block headers for all three chains at the same time through merged mining.
Miners are incentivized to choose shards that offer not only the highest rewards, but also the ones with the lowest latency to other nodes in the network. This encourages nodes to self-organize into topologically optimized collections, similar to "geographic subnets." These geographic subnets improve network bandwidth because participating nodes are closer together and data propagates faster. This means we can achieve higher throughput in these subnets, and as they self-organize, each shard becomes more efficient.
Finally, I would also like to mention that we use a "work share" mechanism to incentivize efficient propagation of transactions in the network. This has two main benefits: one is to incentivize the propagation of transactions, and the other is to propagate them in an aggregated manner, thereby reducing the number of messages that nodes need to process. Through work shares, we reduce bandwidth usage and transaction replication workload, which is more efficient than propagating transactions one by one.
Quai's Environmental Efficiency Strategy
Ehan:
Proof of Work is often criticized for its high energy consumption. Given that Quai Network uses merged mining, how do you address the environmental issues raised by traditional PoW systems? What measures are taken to optimize energy efficiency?
Karl:
Interestingly, within the protocol itself, we do not need additional optimizations for energy efficiency, just maximizing throughput. The problem with Bitcoin is that it uses a lot of energy but can only process relatively few transactions, making it very inefficient. And by increasing Quai's throughput to 10,000 times or more, we can significantly reduce the energy consumption of each transaction, making it potentially 10,000 times more efficient than Bitcoin.
However, I think Bitcoin has been over-criticized for its energy consumption, and actually has a very good synergy with renewable energy. In Texas, for example, more than half of our energy comes from renewable energy during the summer, in part because Texas has a large number of miners who can shut down equipment when energy production is disrupted or demand surges. This dispatchability allows Texas to maintain a high percentage of renewable energy use. I believe that Bitcoin is currently powered by about 60% renewable energy. The incentive mechanism of the Quai Network is also designed to support a similar dynamic, encouraging the use of renewable energy in a flexible and sustainable way.
Quai Network’s advantages in privacy protection and cross-chain interoperability
Ehan:
What unique advantages does Quai Network have in addressing future blockchain trends, such as privacy protection and cross-chain interoperability?
Karl:
On the privacy side, we have Qi, the “energy dollar”, which is based on a UTXO ledger and has cash-like properties. While it is not completely untraceable like Monero, in daily use, Qi can provide privacy similar to using cash.
In terms of cross-chain interoperability, Quai's shards and chains are fully composable and interoperable, and are compatible with EVM. We only added an opcode for cross-chain interaction, and users only need to know the address or contract and the amount to send, and the system will handle the sharding and routing issues.
Ehan:
Is there anything else you’d like to share with us? Does Quai Network have any upcoming plans?
Karl:
We are currently focused on building a scalable proof-of-work system. Our testnet will be launched on the 15th, with the goal of launching the mainnet before the end of the year.
