Pi Whitepaper

The December 2021 Whitepaper

chapters “Token Model and Mining”
and “Roadmap” were released as an
addendum to the original 2019
!
Whitepaper, with new information on
Mainnet. The original March 2019
Whitepaper may need updates to its
content, so please refer to the latest
Pi Network communications for up-
to-date information. Both
Whitepapers are subject to change
based on data collected during the
Enclosed Network period of Mainnet.

Original March 2019

December 2021

Whitepaper:
March 2019
Original

Introduction

Preface

As the world becomes increasingly

digital, cryptocurrency is a next

natural step in the evolution of money.

Pi is the first digital currency for

everyday people, representing a

major step forward in the adoption of

cryptocurrency worldwide.

Our Mission: Build a cryptocurrency and

smart contracts platform secured and
operated by everyday people.

Our Vision: Build the world’s most

inclusive peer-to-peer ecosystem and
online experience, fueled by Pi, the world’s
most widely used cryptocurrency.

DISCLAIMER for more

advanced readers: Because
Pi’s mission is to be inclusive
as possible, we’re going to
take this opportunity to
introduce our blockchain
newbies to the rabbit hole

Introduction: Why
cryptocurrencies matter

Currently, our everyday financial

transactions rely upon a trusted third

party to maintain a record of

transactions. For example, when you

do a bank transaction, the banking

system keeps a record & guarantees

that the transaction is safe & reliable.

Likewise, when Cindy transfers $5 to

Steve using PayPal, PayPal maintains

a central record of $5 dollars debited

from Cindy’s account and $5 credited

to Steve’s. Intermediaries like banks,

PayPal, and other members of the

current economic system play an

important role in regulating the

world’s financial transactions.

However, the role of these trusted

intermediaries also has limitations:

1. Unfair value capture. These

intermediaries amass billions of

dollars in wealth creation (PayPal

market cap is ~$130B), but pass

virtually nothing onto their

customers – the everyday people

on the ground, whose money

drives a meaningful proportion of

the global economy. More and

more people are falling behind.

2. Fees. Banks and companies

charge large fees for facilitating

transactions. These fees often

disproportionately impact lower-

income populations who have the

fewest alternatives.

3. Censorship. If a particularly

trusted intermediary decides that

you should not be able to move

your money, it can place

restrictions on the movement of

your money.

4. Permissioned. The trusted

intermediary serves as a

gatekeeper who can arbitrarily

prevent anybody from being part

of the network.

5. Pseudonymous. At a time when

the issue of privacy is gaining

greater urgency, these powerful

gatekeepers can accidentally

disclose — or force you to

disclose — more financial

information about yourself than

you may want.

Bitcoin’s “peer-to-peer electronic cash

system,” launched in 2009 by an

anonymous programmer (or group)

Satoshi Nakamoto, was a watershed

moment for the freedom of money.

For the first time in history, people

could securely exchange value,

without requiring a third party or

trusted intermediary. Paying in Bitcoin

meant that people like Steve and

Cindy could pay each other directly,

bypassing institutional fees,

obstructions, and intrusions. Bitcoin

was truly a currency without

boundaries, powering and connecting

a new global economy.

Introduction To Distributed
Ledgers

Bitcoin achieved this historical feat by

using a distributed record. While the

current financial system relies on the

traditional central record of truth, the

Bitcoin record is maintained by a

distributed community of “validators,”

who access and update this public

ledger. Imagine the Bitcoin protocol

as a globally shared “Google Sheet”

that contains a record of transactions,

validated and maintained by this

distributed community.

The breakthrough of Bitcoin (and

general blockchain technology) is

that, even though the record is

maintained by a community, the

technology enables them to always

reach consensus on truthful

transactions, insuring that cheaters

cannot record false transactions or

overtake the system. This

technological advancement allows for

the removal of the centralized

intermediary, without compromising

transactional financial security.

Benefits Of Distributed Ledgers

In addition to decentralization, bitcoin,

or cryptocurrencies in general, share

a few nice properties that make

money smarter and safer, although

different cryptocurrencies may be

stronger in some properties and

weaker in others, based on different

implementations of their protocols.

Cryptocurrencies are held in

cryptographic wallets identified by a

publicly accessible address, and is

secured by a very strong privately

held password, called the private key.

This private key cryptographically

signs transactions and is virtually

impossible to create fraudulent

signatures. This provides security and

unseizability. Unlike traditional bank

accounts that can be seized by

government authorities, the

cryptocurrency in your wallet can

never be taken away by anyone

without your private key.

Cryptocurrencies are censorship-

resistant due to the decentralized

nature because anyone can submit

transactions to any computer in the

network to get recorded and

validated. Cryptocurrency

transactions are immutable because

each block of transactions represents

a cryptographic proof (a hash) of all

the previous blocks that existed

before that. Once someone sends you

money, they cannot steal back their

payment to you (i.e., no bouncing

checks in blockchain). Some of the

cryptocurrencies can even support

atomic transactions. “Smart

contracts” built atop these

cryptocurrencies do not merely rely on

law for enforcement, but directly

enforced through publicly auditable

code, which make them trustless and

can potentially get rid of middlemen

in many businesses, e.g. Escrow for

real estate.

Securing Distributed Ledgers

(Mining)

One of the challenges of maintaining

a distributed record of transactions is

security — specifically, how to have

an open and editable ledger while

preventing fraudulent activity. To

address this challenge, Bitcoin

introduced a novel process called

Mining (using the consensus

algorithm “Proof of Work”) to

determine who is “trusted” to make

updates to the shared record of

transactions.

You can think of the mining as a type

of economic game that forces

“Validators” to prove their merit when

trying to add transactions to the

record. To qualify, Validators must

solve a series of complex

computational puzzles. The Validator

who solves the puzzle first is

rewarded by being allowed to post

the latest block of transactions.

Posting the latest block of

transactions allows Validators to

“mine” a Block Reward – currently

12.5 bitcoin (or ~$40,000 at the time

of writing).

This process is very secure, but it

demands enormous computing power

and energy consumption as users

essentially “burn money” to solve the

computational puzzle that earns them

more Bitcoin. The burn-to-reward

ratio is so punitive that it is always in

Validators’ self-interest to post honest

transactions to the Bitcoin record.

Scroll Up

Problem

Problem: Centralization of power

and money put 1st Generation
Cryptocurrencies out of reach

In the early days of Bitcoin, when only

a few people were working to

validate transactions and mining the

first blocks, anyone could earn 50 BTC

by simply running Bitcoin mining

software on their personal computer.

As the currency began to gain in

popularity, clever miners realized that

they could earn more if they had more

than one computer working to mine.

As Bitcoin continued to increase in

value, entire companies began to

spring up to mine. These companies

developed specialized chips (“ASICs”)

and constructed huge farms of

servers using these ASIC chips to

mine Bitcoin. The emergence of these

enormous mining corporations,

known drove the Bitcoin Gold Rush,

making it very difficult for everyday

people to contribute to the network

and get rewarded. Their efforts also

began consuming increasingly large

amounts of computing energy,

contributing to mounting

environmental issues around the

world.

The ease of mining Bitcoin and the

subsequent rise of Bitcoin mining

farms quickly produced a massive

centralization of production power

and wealth in Bitcoin’s network. To

provide some context, 87% of all

Bitcoins are now owned by 1% of

their network, many of these coins

were mined virtually free in their early

days. As another example, Bitmain,

one of Bitcoin’s biggest mining

operations has earned billions in

revenue and profits.

The centralization of power in

Bitcoin’s network makes it very

difficult and expensive for the

average person. If you want to

acquire Bitcoin, your easiest options

are to:

1. Mine It Yourself. Just hook up the

specialized hardware (here’s a rig

on Amazon, if you’re interested!)

and go to town. Just know that

since you’ll be competing against

massive server farms from across

the world, consuming as much

energy as the country of

Switzerland, you won’t be able to

mine much

2. Buy Bitcoin on an exchange.

Today, you can buy Bitcoin at a

unit price of $3,500 / coin at the

time of writing (note: you can buy

the fractional amount of Bitcoin!)

Of course, you would also be

taking on substantial risk in doing

so as the price of Bitcoin is quite

volatile.

Bitcoin was the first to show how

cryptocurrency could disrupt the

current financial model, giving people

the ability to make transactions

without having a third party in the

way. The increase in freedom,

flexibility, and privacy continues to

drive the inevitable march toward

digital currencies as a new norm.

Despite its benefits, Bitcoin’s (likely

unintended) concentration of money

and power present a meaningful

barrier to mainstream adoption. As

Pi’s core team has conducted

research to try to understand why

people are reluctant to enter the

cryptocurrency space. People

consistently cited the risk of

investing/mining as a key barrier to

entry.

Scroll up

Solution

Solution: Pi - Enabling mining on

mobile phones

After identifying these key barriers to

adoption, the Pi Core Team set out to

find a way that would allow everyday

people to mine (or earn

cryptocurrency rewards for validating

transactions on a distributed record of

transactions). As a refresher, one of

the major challenges that arises with

maintaining a distributed record of

transactions is ensuring that updates

to this open record are not fraudulent.

While Bitcoin’s process for updating

its record is proven (burning energy /

money to prove trustworthiness), it is

not very user (or planet!) friendly. For

Pi, we introduced the additional

design requirement of employing a

consensus algorithm that would also

be extremely user friendly and ideally

enable mining on personal computers

and mobile phones.

In comparing existing consensus

algorithms (the process that records

transactions into a distributed ledger),

the Stellar Consensus Protocol

emerges as the leading candidate to

enable user-friendly, mobile-first

mining. Stellar Consensus

Protocol(SCP) was architected by

David Mazières a professor of

Computer Science at Stanford who

also serves as Chief Scientist at the

Stellar Development Foundation. SCP

uses a novel mechanism called

Federated Byzantine Agreements to

ensure that updates to a distributed

ledger are accurate and trustworthy.

SCP is also deployed in practice

through the Stellar blockchain that

has been operating since 2015.

A Simplified Introduction To
Consensus Algorithms

Before jumping to introducing the Pi

consensus algorithm, it helps to have

a simple explanation on what a

consensus algorithm does for a

blockchain and the types of

consensus algorithms that today’s

blockchain protocols generally use,