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Dec 10, 2019 | 7 min read

Blockchain for Business: Decentralizing the Virtual Private Network

Pavel Kaplunou , Marketing Communications

The mass recognition of blockchain as a form of Distributed Ledger Technology has revealed copious prospects about its implementation to usher in the next phase of digital transformation. At the same time, according to TechRepublic’s recent report, DLT sits promptly in the “Through of Disillusionment” section of the Hype Cycle. The underlying technology of Distributed Ledgers – blockchain – follows close behind.

Some areas have lent themselves to blockchain adoption far easier than others. Among them: Logistics, Politics, Retail, Banking, Insurance. At the heart of the Distributed Ledger and Blockchain lie decentralization and security. Incidentally, the shaky foundation of Net Neutrality in the US and overall data privacy across the globe have spurred interest in disrupting how Communication works today. The product — the marriage between VPN and blockchain.


Standard VPN Services

Internet users who employ a VPN (virtual private network) establish a virtual connection or tunnel between devices. The device can be a computer or a server (just like a blockchain node). The VPN allows to tunnel data to and from a public network, the internet, on behalf of a virtually connected device. Consequently, this masks the data sender’s IP address and makes for fewer possibilities to intercept said data in view of encryption protocols.

VPNs were originally adopted by office workers, who needed to establish a remote virtual connection to their workplace computer, as access to internal assets was confined to the office network. Nowadays, users are able to access content they are otherwise walled off from, whether it is due to geolocation or because they do not want their private information commoditized and traded off by third parties.

Statista forecasts that the global VPN market size will be valued at 27 billion dollars in 2020.


Drawbacks and Challenges: ISP vs VPN

VPN products are, more often than not, represented by large companies occupying a large share of the market. Just like Internet Service Providers, or ISPs, they are in charge of routing user data. This means that the servers in the routing chain belong to one central entity. Imminently, the VPN still has to connect to an ISP to send the data to a public network.

In most cases, ISPs hold a monopoly over data traffic. In some countries, the law regulates the ISP to store the user data it processes. Retained data can be held on record from a period of several months to even a few years. Regulation surrounding the data retention period in the US seems to point to 12 months being the norm, though, whether that can be delayed when called upon by law enforcement remains hazy.

Given the above, ISPs will technically know the VPN a user makes use of, while the VPN itself will have access to a user’s data. At the end of the day, both a VPN provider and an ISP can still pinpoint the information back to the original sender, using the vast bandwidth of servers at their disposal. A side by side comparison reveals that both lend to the same level of trust or lack of it thereof.


How Exactly Does Decentralization Play into the Private Network Equation?

Decentralization is often referenced as the cure-all to monopolized markets, but even blockchain-based systems like cryptocurrencies are susceptible to tracking despite cryptography and overall higher privacy.

By building a peer-to-peer network of connected, but independent nodes, the network can be used to tunnel internet data on a blockchain-based decentralized private virtual network—a DVPN. The added advantage is that hashing and encryption protocols protect information significantly better than regular virtual network routing without concentrating power in the hands of one entity.

Users pay as they would with a regular VPN provider. The difference, is that payment occur not in fiat currencies, but in cryptocurrencies, or, to be more precise, tokens, built on top of cryptocurrencies. Tokens establish an open market and incentivize node runners to offer up computational bandwidth. Oh, and there are no strings attached from a central authority.

Incentivization rewards participation and the growth of the network, increases security and disincentivizes malicious behavior. Many such models exist; Probabilistic Micropayments form the core of most such models for token distribution.

Existing DVPN providers have utilized the proof-of-bandwidth model. According to its principles, payments are based on a certain bandwidth threshold, made available to route internet data packages. The more bandwidth a node can offer, the higher its chances of being rewarded.

In brief, decentralized networks work on a series of nanopayments with models that define the scope of the work done, the size of the reward and who will ultimately claim it.


Is this approach challenge-free?

Decentralized projects are often open-source ones, meaning that anyone can run a node or set up their own network. Essentially, once the developers launch the product to market, they have little control over it, apart from safekeeping the software repository and guaranteeing it remains bug-free.

The supply and demand nature of such an open market economy, or token economy, still leaves economic vulnerabilities in the system. A distributed ledger remains immutable, so long as at least 50% percent of the computing power is not concentrated in the hands of one entity. 51% attacks have happened before: blocks were changed and rewritten, though the operation hardly goes unnoticed.

Safeguards are also necessary to prevent Sybil attacks and the overall manipulation of the network’s reputation system. Because incentive protocols are based on stake-weighing, some bandwidth sellers could implement means to virtually increase their stake. For example, by showing 10 of their nodes as 100 nodes, thus increasing their stake, raising selection probability and chances of reward.


Current players

There is only a handful of players providing Decentralized Virtual Private Network services today. Search results show that companies like Substratum, Sentinel, Mysterium Network and Orchid Labs are competing as service providers in the anonymous communication space.

A closer look reveals that they rely on varying incentive models. Substratum, for one, uses a pay-per-click model, while Mysterium Network is established around an hourly bandwidth cost (and reward).

Orchid Labs recently announced an early December outing after almost one and a half years of work and an updated whitepaper. Orchid will rely on a stake-weighing mechanism with token delay procedure to reduce chances of attacks.

Sentinel seems to stray the furthest, by building a VPN app within its private content sharing ecosystem. Therefore the goal to produce a DVPN is only a fraction of the product plan.


But where is the money?

A tokenized economic environment inadvertently relies on an ICO, the initial release of coins (tokens) that will power the network. It is up to the service provider to define how many coins to sell and how many to keep. The sale creates liquidity and funds that can be used by the development team to fuel future plans, pay salaries and cover company expenses. Through increased demand and the subsequent rise in value, the token holder can potentially receive more through selling their share at a convenient price. Alternatively, they can re-invest and keep expanding their brainchild. Expansion into adjacent or similar markets, or taking over familiar ones, can be one of many development routes to take.

Given the few players in the field, today and the complexity of the work required to set up a decentralized virtual private network service, the future of private communication can definitely benefit from more competition. Ultimately, the success of any such service will highly depend on the robustness of the solution, the security of the network, as well as the census and incentive models behind it all.

10 December 2019


Pavel Kaplunou, Marketing Communications

Pavel is Smart IT's Marketing Communication Manager. He oversees content creation and is in charge of the official Smart IT blog. Contact Pavel to learn about potential media and content collaborations. [email protected]