<h2>Introduction: DeFi as the beating heart of Web3</h2>In 2008, an anonymous computer scientist named Satoshi Nakamoto proposed a new peer-to-peer electronic cash system called Bitcoin. In the years since, Web3 has persistently found itself at the forefront of financial innovation around the globe. The contemporary blockchain landscape is primarily bent on challenging and changing traditional finance, or TradFi. While its practical applications have shown great potential, it still remains a remix of this traditional financial system — albeit one dedicated to improving the efficiency and fairness of the former’s now-outmoded paradigm.Distributed technologies represent a revolutionary reimagining of the outdated mainframe-powered financial systems of the past. However, like its TradFi predecessors, web3 remains subject to a predefined set of regulatory restrictions and goals imposed by existing institutions. In this set of articles, we will demonstrate that web3 operates within a trinity of regulatory goals, including laws focused on anti-money laundering (AML), securities and commodities regulations, and edicts that define the broad framework for market infrastructure.<span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><h2>The Trinity</h2>While some of these regulations are written in a way that is purposely complex, their essence is simple, and their intent (for the most part) is driven by noble aspirations. Despite their Gordian intricacies, these regulations serve to ensure the integrity of financial systems and protect investors, customers, and other stakeholders from fraud and abuse.<ul><li>Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) laws aim to prevent bad actors from profiting from nefarious activities. These laws are undoubtedly beneficial to society as a whole. However, there is reason to believe that, as currently designed and implemented, they are largely ineffective and inefficient.</li><li>Securities and commodities laws are designed to protect investors from scams and manipulation that are all too common when fundraising for a 'common enterprise' or trading shares of such enterprises on secondary markets. The benevolent intent behind these laws is clear. As such, it is difficult to argue against the benefits that web3 would reap if there were less fraud and deception in the space. Imagine the potential of web3's unique technology stack if developers and end users no longer had to worry about bad actors misusing it at no cost to themselves.</li><li>Market infrastructure regulation ensures that intermediaries facilitating access to financial markets and services operate in a manner that promotes market efficiency and treats all parties equally. This regulatory framework serves the greater good of capitalism, ensuring that the financial system operates in a fair and efficient manner. However, despite the intent behind these regulations, their implementation in practice has often fallen short, resulting in a track record of non-compliance and inefficiency. In many cases the root causes of reduced effectiveness of market infrastructure regulations lie in inherent lack of transparency that characterizes TradFi systems, lack of transparency that web3 has been created to ameliorate.&nbsp;</li></ul>Delivering regulatory clarity for digital assets is a challenging process that has extended over two decades. We can largely attribute the core issues to two pillars:<ul><li>One of the most pressing challenges regulators face is the categorization of digital assets. Are they commodities, securities, or do they fall under an entirely new category? Digital tokens often exhibit characteristics of one, both, or neither, creating a significant dilemma.</li><li>The problem of tailoring complex regulations to a rapidly evolving industry built upon fast paced innovation which presents a moving target for regulatory authorities. Web3 promises a leap in human progress comparable to that of the internet itself.&nbsp; The pace of innovation far outstrips the rate at which slow and sophisticated TradFi regulatory frameworks can adapt. National authorities aim to establish regulations that are robust enough to prevent misconduct and protect stakeholders, yet flexible enough to accommodate the advancements promised by this burgeoning industry. The global nature of these burgeoning technologies cannot be ring-fenced or sandboxed by any given regulatory authority, creating a tale of unstoppable force and immovable object in action. <span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"></li></ul><h2><span class="null" ariahidden="null" style="font-size:16pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Contemporary Web3 - a parody of it’s own foundational ideals</h2><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">As a result, despite its foundational ideals of democratization and decentralization, the web3 space often resembles a "glorified casino," characterized by high-stakes speculation, significant risk, and ill-prepared ‘next billion’ lured in solely by the potential for substantial reward - another 1000x gem, which more often than not will appear a delusion post factum. But, as always, when it’s clear, it’s also too late.&nbsp;Do we,a parody of its own ideals. The combination of delayed regulatory clarity, pseudonymity, and rapid advancements in decentralized finance (DeFi) and non-fungible tokens (NFTs), along with an unprecedented wave of central bank liquidity and a large amount of capital being deployed by echelons of risk hungry VCs, has created a bloated, hyper-financialized industry. This has resulted in a paradoxical situation where the industry has burned more of its supposed "next billion users" than it has elevated from poverty. Without effective regulation, the industry risks losing its potential to bring about positive change in the world.<h2><span class="null" ariahidden="null" style="font-size:16pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Embracing compromise to sustain Cyber Freedom</h2><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Web3's current state of perpetual plutocratic anarchy is unsustainable. Regulators from around the world are taking notice of the "financial wild west," and it is imperative that the industry embraces a number of necessary changes. Fighting these changes will only lead to a dystopian future where thin and unconnected enclaves of "free" cipher capital slowly fade away in a sea of centralized CBDC liquidity. It is essential to work towards a regulatory framework that balances innovation and growth while ensuring compliance and protection for all stakeholders.As industry participants, we have the responsibility to offer an alternative — a web3 done right. We must develop a tech stack that adheres to the principles of decentralization and sovereignty, while also harnessing the wealth of human knowledge found within existing regulatory statutes. Despite the many flaws of TradFi, including failed controls and often unpunished levels of corruption, it has enabled significant progress and fostered innovation through reactive regulatory measures aimed at limiting abuse and fostering innovation.The only way to preserve cyber freedom while improving the world is to build at the intersection of web3 tech and TradFi regulation. To better understand how we can accomplish this task, it is essential to have a deep understanding of the regulations themselves: their origins, their current state, and how we can adapt them in a way that supplements a more decentralized world.<h2><span class="null" ariahidden="null" style="font-size:16pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Concluding thoughts</h2><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">We conclude this introduction with the following table, initially from a remarkable piece "DeFi Beyond the Hype" by Wharton. <a target="_blank" rel="noopener noreferrer nofollow" href="https://wifpr.wharton.upenn.edu/wp-content/uploads/2021/05/DeFi-Beyond-the-Hype.pdf">[2]</a> We have taken liberty to add remedies and commentary. Here we see the opportunities and challenges of implementing a compliant middle ground between TradFi and web3. Understanding these opportunities and challenges will enable us to develop strategies and solutions that foster the growth of web3 while adhering to regulatory requirements and ensuring a more inclusive, transparent, and efficient financial future. <span class="null" ariahidden="null" style="font-size:9pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Table 1. Opportunities, Challenges of Web3 from Reg/Tech Perspective<img src="/upload/6febcb6c-e6d2-4f30-b9c8-0c5c18718689_1694178315095.jpg"><span class="null" ariahidden="null" style="font-size:11pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:normal;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;"><span class="null" ariahidden="null" style="font-size:9pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:italic;font-variant:normal;text-decoration:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Source:<a target="_blank" rel="noopener noreferrer nofollow" href="https://wifpr.wharton.upenn.edu/wp-content/uploads/2021/05/DeFi-Beyond-the-Hype.pdf"><span class="null" ariahidden="null" style="font-size:9pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:italic;font-variant:normal;text-decoration:underline;-webkit-text-decoration-skip:none;text-decoration-skip-ink:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">Defi Beyond The Hype</a><span class="null" ariahidden="null" style="font-size:9pt;font-family:Arial,sans-serif;color:#000000;background-color:transparent;font-weight:400;font-style:italic;font-variant:normal;text-decoration:underline;-webkit-text-decoration-skip:none;text-decoration-skip-ink:none;vertical-align:baseline;white-space:pre;white-space:pre-wrap;">and authors own compilationA better web3 would foster an environment where opportunities can flourish, taking advantage of the vast innovative potential that the space offers. At the same time, the industry should take responsibility for mitigating consumer challenges by prioritizing its own self-regulation. This would ensure that future iterations of web3 technologies operate in a compliant and sustainable manner.In pursuit of a balanced approach, our objective does not lie in advocating for censorship or exclusivity. Instead, we strive to identify middle ground solutions that enable the web3 community to uphold its principles while harnessing the immense potential of the web3 technological framework to bring about positive and far-reaching transformations for humanity worldwide.

In 2008, an anonymous computer scientist named Satoshi Nakamoto proposed a new peer-to-peer electronic cash system called Bitcoin. In the years since, Web3 has persistently found itself at the forefront of financial innovation around the globe. The contemporary blockchain landscape is primarily bent on challenging and changing traditional finance, or TradFi. While its practical applications have shown great potential, it still remains a remix of this traditional financial system — albeit one dedicated to improving the efficiency and fairness of the former’s now-outmoded paradigm.

The Regulatory Trinity

Voyager Ark is a uniquely incentivized DevNet discovery campaign, designed as an opportunity for users to pass our <a target="_blank" rel="noopener noreferrer nofollow" href="https://app-devnet-v1.galactica.com/">DevNet zkKYC process</a>, and be among the first to execute transactions on the Galactica Network DevNet. In recognition of your active participation and contributions, you'll also be eligible to earn many attractive rewards, making your voyage with us even more enriching.This campaign is meant to serve as a launchpad for active participation in Galactica Network, fostering the network's ethos of privacy, compliance, and meritocracy.<h1>Ready to get started with Voyager Ark?</h1>With a few simple steps, you'll be all set to explore, learn, and earn rewards. Here's your roadmap for getting started:<ul><li>Step 1: Kick off your journey by filling out <a target="_blank" rel="noopener noreferrer nofollow" href="https://docs.google.com/forms/d/e/1FAIpQLSdaXrUvEGGh6i1sYih851tBcfQWFdm8qR8A2xHupld-B-H3BQ/viewform">this Google Form</a>. It's simple — just provide some basic information such as your Discord ID, Github profile, email address, and name. You'll also need to supply an EVM compatible wallet address inside the same form. We'll use this for your <a target="_blank" rel="noopener noreferrer nofollow" href="https://app-devnet-v1.galactica.com/">DevNet zkKYC</a> registration, and to distribute any $GNET you earn in future.</li><li>Step 2: Now it's time to get social. Post a Tweet sharing your thoughts and experiences with the Galactica DevNet platform. Don’t forget to add our campaign hashtag #GNET so that the rest of the community can follow along on your adventure.</li></ul>Upon completion, you will earn the "DevNet/TestNet Participant" role on <a target="_blank" rel="noopener noreferrer nofollow" href="https://discord.com/invite/galactica">our Discord Server</a>.This achievement opens up numerous benefits and privileges in the community and throughout the Cypher State campaign, including:<ul><li>Exclusive Community Channels: You'll gain access to exclusive channels on our Discord server where you can directly interact with our developers and other participants. These channels provide a space for meaningful discussion, feedback, and assistance related to the DevNet/TestNet.</li><li>Increased Visibility and Reputation: Your role as a "DevNet/TestNet Participant" will distinguish you within the community, contributing to your reputation and influence within Galactica Network's meritocratic ecosystem.</li><li>Influence Over Future Development: Your insights and feedback will have a direct impact on the refinement of Galactica Network's development, allowing you to influence the direction of our project.</li><li>Potential Reward Opportunities:Your active participation could make you eligible for future reward opportunities, including potential airdrops, bounty programs, and other incentivized activities.</li></ul><h2>Rewards galore!</h2>Early testers who secure their NFT will be rewarded with exclusive retroactive drops upon mainnet launch of Galactica Network and a chance to claim the coveted 'Wave 3 Citizenship.' This will be conducted through the Raffle channel on our Discord server, and will conclude at the campaign's end. The first individual selected via the raffle will receive this honor.<h2>Campaign Timeline</h2>The Voyager Ark campaign kicks off on August 11th and concludes on October 11th.<h2><a target="_blank" rel="noopener noreferrer nofollow" href="https://app-devnet-v1.galactica.com/">We’re excited for you to join us!</a></h2>Voyager Ark is more than a campaign; it's your gateway to becoming an integral part of the Galactica Network. As an innovative Layer 1 protocol built on the Cosmos SDK, Galactica Network stands at the forefront of the decentralized future. By joining us on this journey, you're actively contributing to an ecosystem that's striving to redefine traditional functionalities with blockchain-based alternatives.This is not just an invitation; it is a call to action. We encourage you to join, participate actively, and seize the opportunities that lie ahead. This is a golden opportunity for you to leave your mark on the future of digital interactions. Come aboard, embrace the Voyager Ark campaign, and seize the transformative opportunities that lie ahead with Galactica Network.

This campaign is meant to serve as a launchpad for active participation in Galactica Network, fostering the network's ethos of privacy, compliance, and meritocracy.

Voyager Ark: An incentivized DevNet discovery campaign

<h1>Introduction</h1>In the rapidly evolving world of digital finance, new concepts frequently emerge that have the potential to redefine our understanding of money and its function within society. Recently, the Bank of International Settlements (BIS) proposed such an idea, <a target="_blank" rel="noopener noreferrer nofollow" href="https://www.bis.org/publ/arpdf/ar2021e3.htm">suggesting a new mode</a>l where commercial banks' tokenized customer deposits would coexist alongside Central Bank Digital Currencies (CBDCs) on a unified ledger. By all appearances, this is a groundbreaking proposal; one with the potential to revolutionize the world financial system. However, it warrants a thorough examination before we can gauge its true merits and implications.<h1>Bearer and Non-Bearer Instrument Models</h1>In the report, BIS distinguishes between bearer and non-bearer instrument models. The bearer instrument model is akin to stable coins we're familiar with (i.e., USDT/USDC). The document states:“In the digital bearer instrument model, private money tokens represent a transferrable claim on the issuer. Their movement transfers the issuer’s liability from one holder to another. There is no need to update the issuer’s balance sheet when these tokens are transferred. It is only when a holder wishes to redeem a token for cash or a conventional deposit that off-platform balance sheets are updated. An archetypal example of a digital bearer instrument is an asset-backed stablecoin."Essentially, the value of a stable coin can diverge from the value of the underlying fiat currency due to a multitude of factors, and the KYC bracket exists outside of the issuer’s platforms. Money can change hands without the issuer (i.e., Circle for USDC) necessarily having KYC on any current set of holders.In contrast to this, we have the non-bearer instrument model. The report explains:“In the non-bearer instrument model, tokens that represent an issuer’s liability are not directly transferable to individuals who are outside the KYC boundary of the issuer. Instead, the payment process mimics the practice in the current two-tier monetary system of debiting the account of the sender and crediting the account of the receiver, together with settlement on the central bank’s balance sheet. Specifically, the payment is put into effect by reducing the sender’s token balance at their issuing institution and creating a new tokenized liability for the receiver that is issued by their institution. Meanwhile, there is a concurrent transfer of central bank money using a wholesale CBDC.”In simple terms, all settlements happen in central bank money. This ostensibly means that there is no risk other than sovereign credit risk, thus the exchange rate of such an asset will always be strictly equal to that of the underlying fiat.Projects Helvetia, Jura, Dunbar, mBridge, and Mariana are practical implementations of the aforementioned models. In the digital bearer instrument model, a transfer of the token from Alice to Bob transfers Alice’s claim on issuer 1 to Bob. Bob now holds liabilities of both issuer 1 and issuer 2 even though he is a customer of only issuer 2.<h1>Tokenization</h1><h2>Bank of International Settlements’ Proposal</h2>The crux of the BIS' proposal is the tokenization of bank deposits and their placement on the same ledger as CBDCs. The proposal argues that tokenization would be more solidly grounded if based on central bank money, which carries the trust and reliability associated (for some) with a central bank's guarantee​​. The BIS contends that compared to unstable and loosely regulated cryptocurrencies, central bank money offers a much more dependable foundation for tokenization and for moving value across blockchains​​.The concept of a 'unified ledger' in the BIS's proposal refers specifically to a model resembling a network of networks, wherein multiple ledgers — each serving a unique purpose — could coexist. These ledgers, according to the BIS, could be interconnected using APIs, and allow for potential new functions or mergers as their scopes overlap​​.While some elements of the BIS' proposal align with Galactica Network's vision, the proposal's tendency towards centralized power structures and potential infringements on privacy rights necessitates a critical examination. We argue that Web3 builders should focus on fostering balanced innovation, while prioritizing the principles of decentralization, privacy, and meritocracy to ensure a future financial infrastructure that works in favor of the common people, rather than the consolidation of power behind a few powerfully centralized entities.The rise of tokenization and its potential has been frequently recognized by traditional financial institutions and industry thought leaders. As Larry Fink, CEO of BlackRock, <a target="_blank" rel="noopener noreferrer nofollow" href="https://www.blackrock.com/corporate/investor-relations/larry-fink-annual-chairmans-letter">observed in his annual letter to investors</a>, "the tokenization of asset classes is expected to augment capital market efficiencies, streamline value chains, and optimize cost and accessibility for investors."He goes on to mention that industry forerunners like BlackRock are examining the digital assets ecosystem, with a specific focus on areas like permissioned blockchains and the tokenization of stocks and bonds. There have been numerous recent advances in TradFi, including the launch of EDX Markets, a crypto exchange backed by firms such as Citadel Securities, Fidelity Digital Assets, and Charles Schwab Corp. Meanwhile, BlackRock's plans to create a Bitcoin exchange-traded fund (ETF) helped Bitcoin reach more than a one-year high in recent weeks. Bitcoin's value increased by nearly 25%, and Ethereum rose by more than 16%.&nbsp;This perspective is assuredly shared by BIS, which emphasizes the exploration of tokenization use cases by commercial banks and private sector groups, with JPMorgan being a notable example. The BIS also proposes the idea of a “unified ledger,” which would combine tokenized forms of central bank digital currency (CBDC) with tokenized bank deposits and other tokenized claims, potentially signaling a new era in the joint development of the monetary system and the economy.<h2>In Perspective</h2>They are not alone. The World Economic Forum (WEF) and Citi have both released <a target="_blank" rel="noopener noreferrer nofollow" href="https://www3.weforum.org/docs/WEF_Digital_Assets_Distributed_Ledger_Technology_2021.pdf">reports acknowledging the potential value</a> of tokenized traditional market assets. The WEF's report suggests that almost all traditional market assets, worth an estimated $866.9 trillion, could eventually be tokenized. This projection includes various types of markets such as equity markets, debt markets, securitized products, derivatives, securities financing, and asset management/fund administration. However, it also notes that there is no agreed-upon path for market-wide adoption and that market participants are far from adopting at scale​.Likewise, a recent report from Citi states that the future of financial markets <a target="_blank" rel="noopener noreferrer nofollow" href="https://ir.citi.com/gps/MG9DEWhoYvQJVWLM9Kr3%2BZmqjoztKJcyNHr83F9Wug2pzAGHPQKfp23RAMrkNts%2FJitXoTNqufOvegUjjXh0IA%3D%3D">could be significantly influenced</a> by the tokenization of physical and financial assets, given advances in technology, market infrastructure, and regulation. It states that the potential value of tokenized assets and liabilities could amount to $24 trillion by 2030. According to the report, the tokenization of assets is still in its early stages, but rapid growth is expected, with up to 10% of global GDP potentially being on-chain by the end of this decade.<h2>Opportunities and Challenges</h2>But their way is not the only way. By applying some of the same principles of tokenization, Galactica Network offers benefits such as reduced friction and transaction costs, increased standardization and functional interoperability, improved auditability, and transparency of transactions. The following table highlights the opportunities and challenges of implementing a compliant middle ground between traditional finance (TradFi) and Web3. But to obtain these goals, we must encourage the development of platforms which bring people closer to the ideals and methodologies of Web3, rather than focus on emboldening silos of controlled power structures, as the BIS suggests.<h1></h1><img src="/upload/be7043ec-799d-48e0-b70e-74a2a5ad53db_1688493173266.jpeg"><h1>Balancing Centralization and Decentralization</h1>One critical concern with the BIS' proposal for a unified ledger is the potential centralization of power that it may entail. With tokenized customer deposits coexisting alongside CBDCs on a unified ledger, the control of financial transactions and their associated data is likely to become consolidated in the hands of a small number of centralized entities. This would have far-reaching implications for individual privacy rights and the principles of decentralization that are at the heart of Web3 technology. The report prioritizes operational efficiencies while ignoring the impairments it could yield to personal privacy. The centralized structures it advances would grant controlling entities access to a vast amount of data about individuals' financial transactions. This is an inarguable point of concern. We must not infringe on the right to financial privacy. It is a cornerstone of personal liberty and a crucial aspect of economic freedom. The BIS concept also stands to further entrench existing power structures with foreseeably disastrous effect. The proliferation of centralized control would be stifling to innovation, and is likely to further exclude those who are already marginalized from traditional financial systems. This is an abhorrent contradiction to the original vision of blockchain technology and Web3, which seeks to decentralize power, democratize finance, and — importantly — enable peer-to-peer interactions without the need for intermediaries.In contrast, the Galactica Network intends to uphold the principles of decentralization, privacy, and meritocracy. Our decentralized governance model ensures that power is distributed among the network's participants, rather than being concentrated in the hands of a few. It allows individual actors to participate in decision-making processes, fostering a more democratic and inclusive financial ecosystem. Galactica Network's approach aligns with the fundamental ethos of Web3, where platforms are designed to reduce centralized control and increase user sovereignty.To do otherwise is tantamount to the betrayal of the common man, and perpetuates the imbalances and inequities of the traditional financial system.<h1>Privacy and Compliance</h1>A unified ledger system, despite its efficiency, prompts serious questions concerning privacy and compliance. Blockchain transactions can often be traced back to their originators, particularly under the vigilant surveillance of central and commercial banks. BlackRock, one of the world's largest asset management firms, recognizes the need for oversight in the financial industry. Joseph Chalom, one of the company’s executives, <a target="_blank" rel="noopener noreferrer nofollow" href="https://www.dlnews.com/articles/markets/blackrock-exec-says-tokenisation-of-stocks-will-be-slow/">recently stated</a>, "I think it’s going to be hard for large, regulated institutions, no matter what liquidity is available, to participate [...] All I know is, we go to jail if we don’t know who we’re trading with."Galactica Network takes a different approach. By leveraging zero-knowledge cryptography, we are able to offer full compliance on-chain while keeping user privacy central to the network's design. Zero-knowledge proofs allow users to prove the validity of their transactions and interactions without revealing sensitive information. This ensures that privacy is maintained while still meeting regulatory requirements.Arthur Hayes, the co-founder of BitMEX, once <a target="_blank" rel="noopener noreferrer nofollow" href="https://blog.bitmex.com/pureevil/">referred to CBDCs as "pure evil,"</a>&nbsp; saying that these kinds of centralized mechanisms "represent a full-frontal assault on our ability to have sovereignty over honest transactions between ourselves." He noted pessimism in the centralized model, warning that it could one day be implemented in all major economies.Galactica Network's decentralized governance model and commitment to privacy and compliance stand in stark contrast to the autocratic design inherent in such centralized unified ledgers.<h1>A Call for Balanced Innovation</h1>As we navigate the path of financial innovation, it is crucial to respect the principles that have brought us to this point. While the BIS' proposal for a unified ledger system may offer certain advantages, it also carries the risk of leading the financial infrastructure in a direction that neglects the core values of Web3.Eric Hughes's Cypherpunk manifesto, written in the early days of the internet, <a target="_blank" rel="noopener noreferrer nofollow" href="https://nakamotoinstitute.org/static/docs/cypherpunk-manifesto.txt">emphasized the importance</a> of privacy as a fundamental right. The manifesto serves as a reminder that privacy is not a luxury, but a necessary component of a free and open society.In light of these considerations, we advocate for a balanced approach to financial innovation. It is essential to prioritize privacy, decentralization, and meritocracy in the design of future financial systems. Instead of pursuing autocratic goals, we should embrace permissionless innovation and empower individuals to have control over their financial lives.We echo a16z's stance on sustainable innovation, emphasizing the need to expand compliant privacy concepts. By incorporating privacy-preserving technologies and adhering to regulatory standards, we can achieve transparency and user privacy simultaneously.

Explore the Bank of International Settlements' proposal to tokenize customer deposits alongside CBDCs on a unified ledger, its potential impact on the financial system, and the Galactica Network as an alternative that prioritizes decentralization, privacy, and user sovereignty.

A Take on Recent BIS CBDC Article

<h2>Galactica Network: The Cypher State</h2><h2> Introduction</h2>The web3 space is expanding at a rapid pace despite the global economic slowdown. Builders keep on building and today we as a community are stronger than ever. The sheer abundance of technological, financial, and institutional advancements fuels our collective drive, propelling us towards a future defined by limitless possibilities.&nbsp;The same way Bitcoin has redefined the concept of monetary institution and DeFi has changed what’s attainable in the realm of finance, The Cypher State is the first brick in the wall of the Internet of Identities - the first Web3 Nation.&nbsp;Today, we stand on the precipice of history.Galactica Network stands at the forefront of innovation, introducing a tech stack that unleashes unparalleled possibilities within the realm of web3, from undercollateralized lending to reputation-centric DAOs, and far beyond. We dare to imagine a future where the concept of a Cypher State — a new socio-political paradigm built on the principles of decentralization and empowerment — becomes a reality.We are happy to announce that we are rolling out a campaign aimed at creating awareness and stimulating the first wave of adopters to come join us on our journey. There will be challenges, puzzles and rewards - exactly like you like it, anon.<h2>Benefits of the campaign</h2><img src="/upload/abdc439d-4eb5-4d97-a066-5d14d8711ac5_1685728654346.jpg">Prepare yourself for an exhilarating adventure as you join the ranks of The Cypher State campaign—an exclusive and interconnected family that embodies the vanguard of the decentralized revolution. By becoming part of this movement, you gain access to a multitude of exclusive privileges and opportunities. While some are meticulously planned ahead, many will emerge organically as our united community forges ahead on this journey.&nbsp;But remember: the earlier you are in, the easier it will be to ascend. Before we delve into the range of benefits one can acquire by participating in the campaign, we shall explain the concept of the Galactica Network Citizenship (aka GNC).&nbsp;Technically, it is a whitelist of addresses that are eligible for benefits within Galactica. The same way as Bitcoin Blockchain rewards early participation by offering exponential benefits to miners that have joined early, Galactica Network rewards social contributions. Galactica Citizens benefit from its inflation by receiving UBI, take part in block validation and participate in governance. There are few spots early on and ascending through the ranks of the Cypher State is a way to get in early.&nbsp;All in all, the Benefits include: Galactica Network Citizenship (GNC): Successful participants can earn access to the first wave of GNC passes. Holding a GNC pass grants a range of benefits, including:<ul><li>Universal Basic Income (UBI): GNC pass holders will receive Universal Basic Income payments, distributed in a quadratic manner to benefit early adopters. This allows participants to passively earn rewards based on their level of involvement and contribution to the network.</li><li>Running a Galactica Network Validator: GNC pass holders will have the privilege to run a Galactica Network Validator. This role involves validating transactions and securing the network while earning additional rewards.</li><li>Governance: GNC pass holders gain the right to actively contribute in meritocratic decision-making processes across the network, propose and vote on protocol upgrades, and shape our decentralized future.</li></ul>Early Access: Participants gain preferential access to in-development features and tools. This includes access to DevNet/Testnet phases, allowing select candidates to experience and provide feedback on the platform's advancements.Exclusives: Participants will enjoy various program-specific raffles, competitions, and exclusive incentives. These range from unique rewards to special privileges within the Galactica Network.NFTs: Participants will receive exclusive NFTs that represent their active participation in the different phases of the program. These NFTs serve as a symbol of their commitment to shaping the future of the Cypher State.By participating in The Cypher State, you not only become an advocate for the community but also play a vital role in promoting the understanding of Galactica Network's innovative tech stack and its extensive DeFi, DePol, and DeSoc capabilities. Remember, Galactica is an entire ecosystem. Your contributions will have a wide-ranging impact, spanning across various projects within the network.&nbsp;You'll have the opportunity to connect with founding teams, foster community engagement, and contribute your expertise to the development of these projects. You’ll be there early on…But above all, you can become a Citizen.&nbsp;Participants receive the benefits outlined above by completing certain tasks. The completion of these tasks will allow community members to progress through the campaign’s six different tiers. The higher an individual's tier and level of involvement, the greater the rewards and advantages they can enjoy. Tasks encompass various actions, such as following Galactica Network's official social media channels, creating content, referring friends, joining Twitter Spaces, and more. To explore the details of each tier and find comprehensive information to guide you on your journey within The Cypher State campaign, we invite you to join our community Discord.One last thing before you begin. The Cypher State campaign serves as the bootstrapping phase of Galactica Network's governance framework. Your contributions during this campaign will have a lasting impact on your influence and weight within the Cypher State governance process. The reputation you establish as part of this campaign will become a permanent fixture of your digital identity within the Galactica Network ecosystem and beyond, helping to forever shape your role in the future of decentralized decision-making.Ok, now off we go. The button that just might change your life is right here:&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://discord.gg/galactica">Join The Cypher State Discord</a>

Today we, the team behind the Galactica Network, are proud to announce the launch of The Cypher State Campaign. The Cypher State is the first Web3 Nation and today it is time to invite the first cohort of its Citizens.

Galactica Network: The Cypher State

The following document is intended to offer the first glimpse of Galactica Network’s governance system in the context of funding R&D within the ecosystem, the design of its public goods funding process, public venture funding as well as grants and other developer incentives. 

Galactica’s Academy Of Science and Governance of Ecosystem Funding

The European Digital Identity Wallet ,proposed by the European Commission, is an initiative to allow users to store and manage identity data credentials and attributes. The following article offers a summary of the initiative, as well as how Galactica Network could facilitate its implementation. 

Overview of the European Digital Identity Wallet & Initiative

<h2>The foundations of Galactica Network</h2>During the development of Galactica Network, it has been crucial to consider the desirable characteristics of a blockchain when determining the substrate on which we built such an ambitious protocol. These characteristics enable us to form a foundation for hosting a meritocratic decentralized society and providing compliant-privacy on-chain.With the need for such unique features, this decision was essential to the functionality and future-proofing required by the network. We compared the most promising platforms to aid the decision-making process and weighed them for suitability using metrics specific to Galactica Network’s needs.After deep consideration, we ended up with several platforms on our shortlist, which included:<ol><li><a href="https://ethereum.org/en/" rel="noopener noreferrer" target="_blank" style="color: inherit;">Ethereum</a></li><li><a href="https://polygon.technology/" rel="noopener noreferrer" target="_blank" style="color: inherit;">Polygon</a></li><li><a href="https://v1.cosmos.network/sdk" rel="noopener noreferrer" target="_blank" style="color: inherit;">Cosmos SDK</a></li><li><a href="https://substrate.io/" rel="noopener noreferrer" target="_blank" style="color: inherit;">Substrate</a></li></ol>Our internal research and the debates that followed were suitably robust — comparing the minutiae of each platform in detail to inform our decision. Ultimately, we chose the&nbsp;Cosmos SDK&nbsp;as the base upon which to build Galactica Network for its synergy with our unique technology stack, reliable consensus mechanism, modular architecture, and EVM compatibility.To provide some context into our decision-making process, we will now dive into the many factors we considered when building Galactica Network.<h2>Filtering candidates — the shortlist</h2>The success of any protocol relies on the underlying technology that makes up its foundations. In the case of Galactica Network, and its entirely unique requirements, its foundations’ importance can not be understated. With so many platforms available on the market, it was a daunting task to filter the array of quality options available and select the one that best fitted the specific needs of the Galactica Network.To aid in this process, we compiled a shortlist of platforms that might have been capable of supporting our innovative feature set. The table below is a simplified dataset derived from several of our internal research documents. Our research spanned the key features and benefits applicable to Galactica Network for each target platform and was utilized to make the most informed decision possible.<img src="/upload/610ce12f-56f0-484e-9e0b-e91d69ab2329_1680002749835_1_v99I15HjhdMKrA3IRf1k3g.jpg">Figure 1, Summary of shortlisted candidates in the context of suitability for Galactica NetworkDenotes a field in which Galactica Network’s implementation within the framework determines its strength.** Score supported via the presence of EVMOS’ EVM modulePlease note:&nbsp;Dozens of platforms were initially considered, encompassing the entire spectrum of the crypto space. Galactica Network, with its unique compliant-privacy and reputational features, has highly specific requirements which are reflected in our suitability ratings. Our shortlist is by no means an exhaustive ranking of the general merits of these protocols.While this table gives us a good overview, in the following sections we would like to provide you with a more detailed understanding of our requirements, processes, and ultimately our decision to build upon the Cosmos SDK.<h2>What makes a good Blockchain?</h2>The first question we had to ask ourselves was, ‘What properties do we want Galactica Network to have?’ as its answer would considerably impact how we built the protocol.Firstly and most importantly, Galactica Network must be decentralized and permissionless — this is critical to our mission and the success of blockchains in general. This decentralization must remain intact in conjunction with security robust enough to withstand failures and attacks from malicious actors.Beyond these basic requirements, there were many essential metrics to consider when determining the scope of Galactica Network, some of which we will summarize here from a document penned by our engineers at the protocol’s inception.<h2>Governance</h2>Decisions should be made via community consensus, with experts’ involvement to present the pros and cons of each option. When considering the fundamental structure of any substrate we might have built upon; governance was one of our most important considerations due to the presence of zkID-centric voting that was to be available on Galactica Network.<h2>Infrastructure</h2>We require a large set of validators, geographically diverse hosting, and independent operators. It is essential to avoid centralization by not having all validators on a single cloud provider, such as AWS. Instead, we prioritize open-source, transparent, and community-driven systems.<h2>Tokenomics</h2>Wealth must be spread among many parties, with fair distribution, and limited supply.<h2>Security</h2>We prioritize security with a secure code base for the consensus algorithm, nodes, smart contract language, peer-to-peer networking, and wallets. Code will be audited and formally verified, and based on sound cryptography principles — it will also be resistant to&nbsp;Sybil, denial of service, and brute force attacks.<h2>Upgradability</h2>We require systems that allow us to evolve the technology to improve scalability, features, etc. We also prioritize being fork-resistant, preventing the network from being split by incompatible upgrades.<h2>Developers</h2>Maintaining and incentivizing a solid developer community is crucial for a successful blockchain, with a strong core team working on improvements and a broad base of developers able to deploy products. We also prioritize an ecosystem that offers various products and possibilities to use the chain for different purposes.<h2>Smart contracts</h2>Contracts should support a Turing-complete language to be expressive enough for use by all application types, be compatible with existing applications, and efficiently support zero-knowledge primitives.<h2>Scalability</h2>We need to support a high number of transactions per second, with on-chain data storage and sufficient support for complex applications.<h2>Tooling</h2>Provision of extensive documentation is needed, in addition to an informative block explorer, node interfaces, IDE integration, and educational resources.<h2>UX</h2>Galactica Network must feature fast settlement, low transaction costs, 100% uptime, and support for as many wallets as possible. We also prioritize privacy and enabling compliant, private transactions on-chain.During the development process, we considered the above characteristics and other metrics to create a list of requirements for any base layer we may decide to build on. By considering these factors, we can build a robust and secure platform that not only provides the features needed to build a true ‘CypherState’ on-chain, but also fosters innovation and drives adoption.<h2>All roads lead to Cosmos</h2>After much consideration, we chose the Cosmos SDK as the secure, scalable, and modular basis for Galactica Network. There are several reasons for this, but broadly Cosmos SDK provided the feature set most capable of supporting the reputationally-enhanced, compliant, and private transactions we wanted to make available to users.The Cosmos SDK provides an excellent system for building blockchains, offering the reliable Tendermint consensus mechanism and proven modules such as staking, governance, and banking. Additionally, the architectural framework of the Cosmos SDK makes it easy to add custom modules, allowing us to integrate compliant privacy, and the reputation features unique to our protocol.Compared to forking Ethereum or using Polygon PoS, the Cosmos SDK is more feasible for us to develop and maintain, ensuring the rapid implementation of fixes and features determined via Galactica Network’s governance processes. The Cosmos SDK also has a strong developer base and utilizes the Go programming language, which is modern and fast.The Cosmos SDK’s&nbsp;modularity,&nbsp;multi-chain model, and&nbsp;IBC protocol&nbsp;are the fundamental components that put the framework ahead of the competition in the context of building a protocol such as Galactica Network.A notable example that utilizes the SDK’s multi-chain components effectively is Galactica Network’s reputational framework. The Cosmos SDK allows us to efficiently bridge and communicate across chains, enabling scalability for our reputation system; essentially allowing us to outsource the potentially heavy computational work required for reputation calculations to specialized sub-chains.<img src="/upload/6879e6bc-528f-452d-ad3d-bb0aa650ac02_1680002809412_0_UVd2gNPc5Wa9aDoO.jpg">Figure 2, Galactica Network Mainnet and reputation sub-chain interactionsYou can learn more about our implementation of reputation on-chain by reading Galactica Network’s&nbsp;<a href="https://docsend.com/view/guajqmg9ebxaua2r" rel="noopener noreferrer" target="_blank" style="color: inherit;">Reputation Design Implementation</a>&nbsp;paper, or the simplified version available on our&nbsp;<a href="https://medium.com/galactica-network/galactica-network-reputation-design-implementation-df48d6e21793" rel="noopener noreferrer" target="_blank" style="color: inherit;">Medium blog</a>.Beyond reputation, the Cosmos SDK’s modularity enables us to take full advantage of the ‘hooks’ available via the EVMOS module, which assist us in our implementation of&nbsp;Contingent Transactions&nbsp;involving ERC20 tokens. The EVMOS module also allows us to tap into existing tools and infrastructure in the Ethereum ecosystem, and gain derived support from hardware wallets and Metamask.Finally, the flexibility inherent to the Cosmos SDK allows us to consider future features that might greatly increase interchain utility, such as allowing other protocols to leverage reputation data from Galactica Network to inform social-capital transactions on their own networks.<h2>Our conclusions</h2>Galactica Network’s unique value proposition comes from its combination of a viable reputation framework, and the ability to deliver compliant-privacy on-chain.The Cosmos SDK’s modular design enables us to create specialized chains that allow this unique combination to exist concisely and efficiently. Through IBC, we can leverage our zero-knowledge compliance and reputation features with liquidity from other chains, creating synergies to build a robust ecosystem.Overall, the Cosmos SDK proved an excellent choice for Galactica Network, providing the necessary scalability and finality properties while also meeting the requirements for building our reputation, privacy, and compliance features. All of this, in addition to endless possibilities for combination with other modules and integration with other chains.<h2>Afterword</h2>While we have been quietly developing Galactica Network, we have been cognisant of the need to become an active part of the Cosmos ecosystem, and during this time, we have gained the attention of several of the community’s most prolific natives. One of our earliest friends and supporters, Cosmos HOSS, had this to say regarding Galactica Network’s decision to build on the Cosmos SDK:“The bottom line is there needs to be a blockchain that leverages interoperability while being fully regulatory compliant for all citizens to feel safe, secure and at ease to participate in a truly decentralized economy.Galactica Network utilizing Cosmos and IBC offers that” —&nbsp;<a href="https://twitter.com/CosmosHOSS" rel="noopener noreferrer" target="_blank" style="color: inherit;">Cosmos HOSS</a>

The Cosmos SDK proved an excellent choice for Galactica Network, providing the necessary scalability and finality properties while also meeting the requirements for building our reputation, privacy, and compliance features. All of this, in addition to endless possibilities for combination with other modules and integration with other chains have facilitated the choice of using Cosmos SDK as the base to build Galactica Network on. 

Galactica Network: Why Cosmos?

<h2>Introduction</h2>The Galactica Network Reputation Framework binds other network components, namely Reputation Root Contract and zkCertificates to create a protocol capable of expressive DeSoc primitives.It leverages Persistent Identities, which are protocol representations of humans, to quantify a multitude of users’ interactions with other users, dApps and the entirety of the ecosystem — the web3 footprint — and create a virtual correspondence to the real-world concept of reputation. dApps and other users can then use these data as inputs into their own business logic. Reputation is an immensely important social primitive — meritocratic governance, undercollateralized lending, attestations and social networks are only the tip of the iceberg of use cases it enables.This article describes the Cosmos subnet-powered implementation and also includes a brief overview of other designs that were considered but not chosen. For an elaborate investigation into the properties of these other designs an inquiring reader is kindly directed to a standalone whitepaper with the same title available in the research section on our website.Note that this is an exploratory implementation and our best shot so far, not necessarily an optimal, nor is it an exclusive solution and can be augmented with alternatives described here or those we have not considered.We warmly welcome any feedback and critique.<h2>Target Properties</h2>This document specifies an approach to measuring a user’s web3 footprint in the Galactica Network (henceforth, Galactica). It is a central component of the reputation framework as it provides specific data concerning user behavior on Galactica. EVM blockchains have no direct way to access historical transaction data from on-chain smart contracts. This makes it a difficult task to calculate the reputation based on the user’s previous behavior.A successful solution is expressive, efficient, and accurate:<ol><li>Expressive enough to provide the data needed for conceivable and reasonable reputation functions such that they can be flexible enough to be specified by users’ reputation functions (e.g. ecosystem contribution, creditworthiness, long-time loyalty);</li><li>Efficient enough in terms of storage and computation to work in a decentralized and high throughput blockchain;</li><li>Accurate enough to provide meaningful data that cannot be faked;</li><li>Requires contingency options integrated into the node to provide a blockchain-wide possibility for contingent token transfers without requiring changes to the ERC20 standard;</li><li>In the limited info stored setup, the burden of standard creation needs to be decentralized. In other words, different data feeds must be able to exist around one dApp. What to store must not be left entirely up to dApp creators;</li></ol>This article first outlines the reputation function as well as the RRC, then the approaches considered are outlined and finally the current (Sub-chains) solution is presented.<h2>Reputation function and RRC</h2>Reputation functions&nbsp;are defined by dApps and users. They can either create a custom function based on the available on-chain data or reuse such functions provided by other parties. Available inputs for reputation functions are a ZKP by the user being rated and on-chain data. The ZKP is sent to the reputation smart contract, verified for ZK validity and consistency of the Merkle roots with chain data.The&nbsp;Root reputation contract&nbsp;(RRC) is a special smart contract on the Galactica blockchain. It works as a registry for reputation requirements of contingent transactions. Every address can register a minimum score and reputation function in the form of an address to the smart contract defining the reputation function. Whenever someone wants to send funds to an address, the protocol looks up the reputation requirements in the RRC to determine if the transaction is contingent. For more information please consider the Reputation Root Contract (RRC) section in the&nbsp;<a href="https://docsend.com/view/n5nnsyraaifzpvqw" rel="noopener noreferrer" target="_blank" style="color: inherit;">Galactica Network Whitepaper</a>.<h2>Approaches Considered</h2>There are various ways to measure a user’s web3 footprint and determine their reputation. Ideally, it takes the whole transaction history into account and offers expressive reputation functions while still being efficient enough to be verified by a distributed blockchain. This is a complex task with contradictory goals (expressiveness vs efficiency).An exhaustive list can be found in Table 1 — we had to forego part of them right at the outset, as they do not possess the target properties.<img src="/upload/a94a353c-2d60-41dd-8389-c4e15fcd3040_1680002307462_1_eP1lL00-4_Qk5Ow-Kc5HgQ.jpg"><img src="/upload/f7943c25-f0b7-4d47-971e-c5a47e18ff1d_1680002335229_1_VloHY1v8VoepZSv6R6vxmA.jpg"><h2>Subchains Approach</h2>While it appears challenging to implement, as it requires node development and also every validator will have to store more than just blocks, this approach is decentralized, trustless, and easy to use for everyone. As it will become clear from the information provided further in this document, this approach furthermore addresses all of the limitations described in the previous solutions considered.<h2>Cosmos Subchains</h2>Subchain is an independent network that is connected to the mainnet. The connection usually includes a bridge and technology that allows the exchange of information between the subchain and the mainnet. In this case, the IBC protocol will be utilized, allowing synchronization between the states of EVM-compatible networks. Subchains are often used to reduce the load on a mainnet by delegating specific features to them. They receive inputs from the main network, carry out computations and send the results back.It was concluded that it is beneficial to use subchains for reputation metrics calculations. The subchain reads data from the mainnet blocks through RPC, validates block hashes, calculates reputation, then submits the calculation results back to the mainnet. The first subchain will be launched by Galactica and used to calculate the reputation metric that the governance framework will utilize to determine users’ voting power.<img src="/upload/165bfb3d-f203-48e9-b59f-c8c3a8aecca2_1680002408535_0_UVd2gNPc5Wa9aDoO.jpg">Figure 2: Galactica Mainnet and the Galactica Zones/Subchains<h2>Reputation Module</h2>The&nbsp;Reputation module&nbsp;is a typical Cosmos SDK modul and is embedded at the core of Galactica Network. The on-chain reputation calculation method utilized here allows the use of the logic present in a smart contract based on the Reputation value. This logic can be used to reach a consensus among Validators based on block production results, in addition to amending Reputation values.Each Validator calculates Reputation values independently and only validates Merkle root hashes from the data they used for calculations.The module operates in two synchronization modes:<ol><li>Sync (Historical)&nbsp;— a state in which the Reputation has not yet been calculated from historical data and the Reputation is actively indexing. In this state, the Reputation value cannot be used in other smart contracts;</li><li>Live (On-head)&nbsp;— Reputation is calculated for the head block and it is possible to use the Reputation in other smart contracts and modules.</li></ol><h2>Stages of Historical Data Synchronization</h2>During historical data indexing, a Validator performs the following actions:<ol><li>Reads the subsequent block;</li><li>Validates blockchain hashes;</li><li>For each transaction:</li></ol>a. Decodes transactions and their events;b. Carries out the formation of source data;c. Carries out data aggregation by event type or another group;d. Calculates Reputation based on aggregations calculated in the past;e. Saves the result of the Reputation calculation in a smart contract.Validators store source and aggregated data off-chain; however, they keep the Merkle root hashes of that data on-chain. To add new functions which build the source data and data aggregations, special EVM smart contracts (repositories) are provided. It makes it possible to add functions that expand the functionality of the Reputation module.Utilizing multiple intermediate steps in the indexing pipeline makes storing data off-chain possible, allowing for lower on-chain storage. The smart contract that considers the reputation value is public — anyone can observe what the reputation consists of.<h2>Live Blocks Processing</h2>Live blocks processing utilizes the same algorithm as historical processing to calculate reputation metrics in every new block. It implements EVM hooks&nbsp;PostTxProcessing&nbsp;to subscribe for incoming transactions.<h2>Contingent Transactions</h2>When the live processing module receives a transaction, a check is carried out to verify its compliance with the established reputational requirements. This includes two mechanisms:<ol><li>An address on the Galactica Network can be set up with a threshold of a minimum reputation value needed by senders to be able to send funds to this address. In case the reputation of a sender is insufficient, the transaction will fail. This will work with native asset transfers as well as with erc20, erc721, and erc1155 token standards.</li><li>A smart contract may set up reputation requirements for every public mutable method. The contract needs to have a view method, containing a dictionary of:</li></ol>a. Method id;b. Reputation metric id;c. Condition;If the executor does not meet the listed reputation requirement(s) — the transaction will fail.<h2>Calculation Process</h2>The implementation of a subchain (blockchain node) includes a special Indexer specifically for on-chain events. This Indexer can collect, store, and aggregate specific events described in a&nbsp;root on-chain contract.For example, it can store and aggregate trades from multiple DEX protocols on the mainnet. The description for such logic would resemble the following:Step 1:<ul><li>List of contract addresses of these DEXs</li><li>List of trade methods from these DEXs ABIs (a list for every DEX)</li><li>List of fields which should be stored in Indexer</li></ul>Step 2:<ul><li>Using the resulting entries and a formula compute a specific value (e.g. total volume traded, number of trades, total fees paid).</li></ul>The Reputation value, which is a result of an aggregation, will be re-calculated every block by all subchain Validators following given rules.Using the Indexer, we can calculate metrics for every address, at every block. What remains is to actually calculate the Reputation. The formula (or formulas) for calculating it are located within the&nbsp;root smart contract, and Validators of a subchain will calculate Reputation based on values obtained from the Indexer, then push those values to the mainnet using IBC.The role of subchains in this process is to avoid the overload of Indexers and only store on-chain what is required for critical calculations.<h2>Delays</h2>There is a delay between events that happen on the mainnet and those subsequently delivered to a subchain. This delay may be up to N blocks in duration (subject to further testing to estimate the exact delay), meaning that even in a subchain the Reputation is delayed, and thus, unsuitable for time-sensitive operations such as flash loans.This delay may lead to a state where certain subchains may be utilized solely by specific protocol subcategories — e.g. a dedicated subchain for lending protocols. This specialization of subchains will allow them to track the interactions of a given user among themselves without delay.For example, provide undercollateralized loans to those users who have a lot of positive activity on the mainnet (delayed info) and never failed to pay for a loan (instant data, located on a subchain). Such a hybrid Reputation metric may help lending protocols merge a user’s overall score from the mainnet, with a trustless lending rating that lives on the said subchain.<h2>GalaLend Example</h2><ol><li>Alice uses lending dApps on the Galactica Network. Some of them query her dApp-specific humanID in the smart contract to identify her uniquely. (The humanID is useful in this approach as it allows the computation of a user’s reputation when their activity is split over multiple addresses.);</li><li>The lending dApps and other Galactica services usage history is aggregated and stored by the Galactica validators. Some of them are maintaining subchains and others — the mainnet. They use this aggregated data to calculate the reputation of every humanID in line with various formulas. The result of calculation — the reputation itself stored on every change in a special smart contract in the form of a Merkle tree.</li><li>When Alice wants to present her reputation, she does it on-chain. The input is a ZKP that takes Alice’s zkKYC, her humanIDs for specific dApps, and the reputation results for these humanIDs from the smart contract mentioned in point 2. The ZKP proves Alice’s reputation score without revealing her concrete address(es), humanIDs, or intermediate ratings;</li></ol><h2>Subchain economic</h2>This will be discussed in a separate article specifically dedicated to subchain economics.

The Galactica Network Reputation Framework binds other network components, namely Reputation Root Contract and zkCertificates to create a protocol capable of expressive DeSoc primitives.

Galactica Network Reputation Design Implementation

In what follows we will give a brief overview of institutional arrangements that shape human society, argue that Sybil resistance is a prerequisite for web3 space to meaningfully mimic such arrangements on-chain, and give a deep dive into how Galactica Network’s stack enables an elaborate design space for social, economic and political institutions.

Galactica Network Institutions

With the right opsec, no privacy is sacrificed in the process of compliance. But is DeFi, as we know it, the endgame?

At the Intersection of Privacy & Compliance

Galactica Network has utilized Mr. Pauwels’ novel approach as the intellectual foundation for our development of zero-knowledge certificates. The following article defines the various concepts that make up the Guardian Node mechanism and the role of zkCertificates.

Technical Article #1: Guardians and zkCertificates

<h2>Overview</h2>Among Galactica Network’s primary value propositions is that of leveraging zkKYC for Sybil resistance thereby enabling meaningful modeling of real-world societal, financial, and political institutions on-chain. An extremely valuable byproduct of this setup is a protocol that enables regulatory-compliant privacy.<img src="/upload/b4f6d8bf-5eb0-4476-aa45-bd686fee7365_1679923290095_third article bw.jpg">Figure 1: Galactica Network overviewAs can be seen in Figure 1 above, the technological core enabling Galactica Network, aside from its foundation of EVM smart contracts, rests upon four key technological pillars;&nbsp;zkCertificates, the Reputation Root Contract, Contingent Transactions, and Guardians - each of which will be explained in this article.These are innovations distilled from relatively recent developments within the Web3 space, and as we’ll explain in the following sections, they are the keystones enabling Galactica Network.<h2>zkCertificates</h2>Zero-knowledge Certificates (zkCertificates) find their intellectual roots in Peter Pauwels’s whitepaper; “<a target="_blank" rel="noopener noreferrer nofollow" href="https://eprint.iacr.org/2021/907.pdf">zkKYC: A solution concept for KYC without knowing your customer, leveraging self-sovereign identity and zero-knowledge proofs</a>”&nbsp;in June of 2021, which introduced the idea that Zero-Knowledge cryptography could in fact be applied to the realm of KYC and AML/CTF. The whitepaper; “<a target="_blank" rel="noopener noreferrer nofollow" href="https://deliverypdf.ssrn.com/delivery.php?ID=301002120071071117064123071097101105032027023067011038006026015072078075068030102101021018111115103010043002026091111122097088098074087007053117102122002097003072091026021066069122022093069085070014010096003024025030070029010107091093006006081115069089&amp;EXT=pdf&amp;INDEX=TRUE">Decentralized Society: Finding Web3’s Soul</a>”, developed the link between soulbound tokens (SBTs), initially discussed by Vitalik Buterin by his blogpost;&nbsp;“<a target="_blank" rel="noopener noreferrer nofollow" href="https://vitalik.ca/general/2022/01/26/soulbound.html">Soulbound</a>”, and how they can enable forms of Sybil resistance and are instrumental to catalyzing deeper societal substrate across web3 protocols (i.e. enabling decentralized&nbsp;societal&nbsp;institutions). The whitepaper has rapidly become a principal work when discussing the future of Web3 governance and is a vital piece of literature underlying the creation of Galactica Network.Galactica Network’s zkCertificates are non-transferable NFTs with arbitrary metadata that come with an option of selectively disclosing said metadata through the use of zero-knowledge cryptography. zkCertificates can be implemented in a variety of ways, some vanilla, and some more exotic in nature, the lowest-hanging fruit being the aforementioned zkKYC.One of the key applications of zkCertificates is that of Galactica Network Citizenship; an SBT that once obtained grants the owner&nbsp;rights&nbsp;and&nbsp;responsibilities&nbsp;within the Galactica Network. The only condition that is needed to be eligible for Citizenship is obtaining a zkCertificate by passing Galactica Network’s Guardians process.Beyond Citizenship, zkCertificates can be utilized for a variety of other applications. zkCertificates can be implemented in nuanced applications such as zk-Diplomas, which can store detailed records of a student’s degree, scores, classes, and much more; all of which can be embedded into their Galactica Citizenship or another soulbound token and then selectively disclosed.Leaning into more advanced areas, the encrypting of medical data records and other forms of PII/PHI, voting data, government records, and citizen data (think taxes, property titles, etc.) via zkCertificates. It fits use cases such as machine learning algorithms that can&nbsp;verifiably&nbsp;be used and paid for directly on-chain without exposing the data sets used to train the models, nor the models themselves. zkCertificates are further explained in the Whitepaper, Appendix I —&nbsp;Galactica’s Zero-Knowledge KYC Design, in the&nbsp;Further Considerations&nbsp;section.<h2>Guardians</h2>The second technological pillar of the Galactica Network is its native Guardians, which exist to facilitate among other things KYC within the Galactica Network ecosystem. Users can submit their KYC requests, then these requests are sent to a set of Guardians that verify user documentation; either approving or disapproving their authenticity by cryptographically signing the user’s account.<img src="/upload/0666cb10-7700-4ee3-a39a-71bcf66a6c25_1679923712737_Guide.7-min (1).jpg">Figure 2: Initial KYC steps, incl. privacy aspectsThe Nodes handling these activities are whitelisted at the inception of the network and will include large institutions, such as exchanges and large wallets.The KYC data is stored in multiple locations:<ol><li>At the KYC centers’ back office systems, where the data is entirely off-chain;</li><li>And on users’ personal devices, (mobile, desktop, or otherwise);</li><li>In an encrypted manner on-chain available to the particular user.</li></ol>More importantly, however, is that by design KYC providers cannot associate a set of documents with the user’s on-chain account. In other words, while a KYC provider knows that it has checked the authenticity and veracity of KYC documents, (this much is known to anyone as every KYC provider runs its own Node), the link associating an account with an off-chain KYC record is encrypted. This result is achieved through applying MPC techniques and several custom SNARK libraries, which are open-source and are used extensively in the Galactica KYC SDK.<img src="/upload/1572dad4-f467-4d97-91d8-7fa015e4767d_1679923686927_Guide.7 (1)-min.jpg">Figure 3: KYC Record Creation and Verification.Documents at the KYC center and the account it belongs to are linked in such a manner that they can be decrypted through Shamir’s secret sharing scheme with at least m of n notes made available to the responsible authorities. For example, there are two notes with an account, one note with a regional enforcement agency (police department or similar), and one note with the KYC provider. There could be an account with three notes, the first two the same as in the previous example and the third with the Galactica foundation.As a final note, users’ KYC data feeds into a zkCertificate registry smart contract and zkCertificates are issued by KYC centers. As noted the KYC data is stored on the user’s device; and, after zkCertificate is created, that device can be used for ZK proof generation for selective disclosure. This is how users can interact with protocols and perform said selective disclosures to verify specific aspects of their account with the smart contract or DApp. A deeper analysis of Guardians can be found in the Whitepaper Appendix I —&nbsp;Galactica’s Zero-Knowledge KYC Design, in the&nbsp;Overview of the Technical Design&nbsp;section.Consider the example of AML proofs — quick generation of proofs that all the accounts registered under one’s name have only interacted with liquidity of KYC’ed users without revealing any other information. One can generate programmable proofs of compliance without giving up one’s privacy;<h2>Reputation Root Contract (RRC)</h2>The Reputation Root Contract (RRC) is a protocol primitive that, when fed a user-defined function that takes on-chain data as input, outputs a unique&nbsp;Reputation Score&nbsp;for every account. This contract can also take a user’s ZKP as additional input to prove statements about data hidden in zkCertificates. This ZKP is only needed as additional input if the reputation function depends on selective disclosures of personal data hidden in zkCertificates.In layman’s terms, it slices the web3 footprint of a persistent identity to generate custom user-defined (or DApp-defined) reputation scores. In this fashion, DApps (and even protocol governance itself) can be designed to reflect the&nbsp;merit&nbsp;rather than the mere number of tokens held.<img src="/upload/85e2948b-273d-40cd-ad08-b7b61e9714a7_1679923792434_Guide.7 (2)-min.jpg">Figure 4: Reputation Root ContractAn important note is that there are two distinct forms of reputation functions:<ol><li>The first type depends only on public, on-chain data, this can be calculated by everyone for anyone because it uses public data. The function works for only one address and only with the data the user has already publicly disclosed on-chain.</li><li>The second type partly depends on private data hidden in zkCertificates, it can use information hidden therein to include KYC details, education certificates, links addresses. But it can only be computed by a person for himself and needs a ZKP for on-chain verification. In other words: for reputation functions of the second type, one can not get the reputation score&nbsp;directly. Instead one has to prove their reputation score with ZKPs to keep the data private.</li></ol>Reputation is a key ingredient to Galactica Network’s value proposition. The RRC’s unique malleability affords projects the ability to cultivate a specific user base for each of their products or governance systems.<h2>Contingent Transactions</h2>With the importance and use of the RRC established, the ability to whitelist and screen users or interactions allows much greater scope for innovation in the field of user interactions; Galactica Network, and many others, denote this area as “Contingent Transactions”, and any account may utilize the output of the RRC, to create their own sophisticated rulesets when interacting with other users of Galactica Network.<img src="/upload/263b8971-28e7-4143-936c-2ed032c6f719_1679923828386_Guide.7 (3)-min.jpg">Figure 5: Example, simplified RRC interactionIn more digestible terms contingent transactions can be understood in several key ways:<ol><li>First, the output of the RRC can be used to determine whether an account is allowed to submit a transaction to another account. An example could be a KYC’ed user can interact with leveraged DEX only after proving that one is: (a) over 18 years old and (b) is not a resident of a prohibited jurisdiction.</li><li>Secondly, the inner logic of a decentralized application (DApp) can be conditioned upon the score produced by the RRC to enable specific functions, products, and more. With that in mind, scenarios where Guardians approved users are allowed to borrow at a 90% collateral ratio, while non-approved users need to post 200% collateral, become feasible.</li></ol>Contingent transactions have use cases beyond the scope of the financial interactions detailed above; they are capable of supporting extremely niche use cases creating space for more complex rules of interaction. While seemingly trivial at the outset, the significance of contingent transactions cannot be understated, especially when combined with other primitives discussed above. More details on contingent transactions can be found in the Whitepaper in the&nbsp;Contingent Transactions&nbsp;section and in Appendix II’s&nbsp;Galactica’s Reputation Framework Design&nbsp;section.As a small disclaimer for this section, Contingent Transactions are still very much WIP. The ultimate design is subject to change.The four technologies outlined in this article are both the technical basis of all mechanisms found on the Galactica Network, and the pillars upon which its institutions, derivative institutions, and ideas that guide the protocol rest. zkCertificates, the RRC, Contingent Transactions, and Guardians are the framework that will allow the teams building on Galactica Network to unlock the full potential of what the protocol has to offer.<h2>Case In Point</h2>The authors of a recent article [<a target="_blank" rel="noopener noreferrer nofollow" href="https://ramaonhealthcare.com/privacy-protecting-regulatory-solutions-using-zero-knowledge-proofs-full-paper/">1</a>] by a16z on privacy, regulation, and ZKPs note:“Reconciling the privacy needs of users and the informational and national security needs of regulators and law enforcement is both possible and necessary.” p. 2In this sense, the&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://medium.com/galactica-network">articles</a>&nbsp;released so far as well as the remainder of the&nbsp;<a target="_blank" rel="noopener noreferrer nofollow" href="https://galactica.com/research">documentation</a>&nbsp;provided, hint, among others, that there is a practical possibility to meet the needs of users and satisfy the requirements of regulators alike.For example, compliant privacy roll-ups and DApps whereby users can retain the privacy of transactions without compromising compliance. If a privacy roll-up is accessible exclusively to KYC’ed users and supports the generation of arbitrary proofs about transactions settled therein (e.g. one’s only counterparties are one’s employees and all transfers are &lt;$10,000), it manifests a full privacy solution with effective AML proofs. With that in mind our&nbsp;Guardians&nbsp;solution introduces a more nuanced, pragmatic check of deposits and withdrawals. Users’ identities can be verified and cross checked with sanction lists, or rulesets that prohibit or track specific users without locking users into specific addresses. Thus they can still use fresh wallets to improve privacy while still proving compliance. The figure that follows illustrates graphically the example above:<img src="/upload/01851a71-05c8-43cd-884b-447d1125803c_1683024436383_Guide.7 (1).jpg">﻿Figure 6:&nbsp;Compliant Privacy Interaction Example.The strength of our approach is found in its generality. Our Guardians system, reputation and selective disclosures can not only be applied to the aforementioned deposits, withdrawals and retroactive transaction proofs, but also during each on-chain transaction. This can provide&nbsp;proactive compliance, even for activities that stay inside the on-chain ecosystem.

Among Galactica Network’s primary value propositions is that of leveraging zkKYC for Sybil resistance, thereby enabling meaningful modeling of real-world societal, financial, and political institutions on-chain. An extremely valuable byproduct of this setup is a protocol that enables regulatory-compliant privacy.

Galactica Network’s Key Technological Pillars

<h2>Introduction</h2>Galactica Network is first and foremost, a Cypher State.In our previous article, we explained several primitives core to the concept of a&nbsp;Cypher State. Let’s briefly recoup.The structural fabric of human society is built around norms and institutions that all have us, humans, as agents. Concepts, such as families, communities, social clubs, celebrities, governors, employees, etc. are similar in their inherent difficulty of transcription to a virtual space. This is especially true for blockchain protocols that have pseudonymity as one of core concepts, ubiquitous across virtually any L1 protocol out there. In other words, today blockchain protocols lack a primitive or a set thereof that is capable of accurately representing the nuance, complexities, and sheer dynamism of human relationships.As a result, humans cannot be meaningfully represented on-chain.While the emergence of DeFi has been a massive leap forward, without the ability to model humans, contemporary web3 space is limited to only the most trivial societal and political institutions. Modeling many concepts, such as e.g. quadratic voting remains non-trivial to say the least and in most cases requires reliance on web2 platforms.DeSoc is the term used to denote the web3 space built around souls — web3 persistent identities each characterized by their web3 footprint.<ol><li>A human in the blockchain space could be referred to as a&nbsp;Persistent Identity.</li><li>The multitude of interactions between any such identity and the rest of the protocol could then be called one’s&nbsp;Web3 footprint.\</li></ol>It is trivial to demonstrate that persistent identities can exist on the protocols with high cost of a Sybil attack. In a self-referential relationship, persistent identities themselves will increase this cost as time goes by and their web3 footprint becomes more complex.It follows that Sybil resistance (and turing complete virtual machine) of a protocol enables persistent identities and web3 footprint which are in turn the prerequisites for complex societal concepts to be meaningfully represented on-chain.We argue that historically the most notable societal primitive defining the most meaningful and rich set of a person’s rights and responsibilities is that of the Citizenship of a nation state. A protocol sufficiently feature rich to instill meaning into the concept of Protocol Citizenship can be called a Cypher State.Before proceeding to elaborate on the nature of protocol Citizenship, we would like to introduce the content map for the first set of papers released by Galactica Foundation. The following graph is simultaneously, a schedule of the content we will be releasing in this series of articles, and a mind-map of the relationships between concepts we introduce in them. We have started by introducing the conceptual framework (leftmost part) underpinning protocol Citizenship and will eventually explain how Galactica Network approaches the practical implementation of it.<img src="/upload/6844875e-cdf5-44ea-b078-2a9265ccbbba_1679922875215_second article bw.jpg">Figure 1: Galactica Network Concepts at a glance<h2>Web2: a data dystopia</h2>Explaining the relationship between citizenship, wealth and power distribution and Web2 would require a deep inquiry into the very nature of the state. Such inquiry is available in the Cypher Capital paper published by Galactica Foundation. For the purposes of this article we will resort to a bare bones summary.<ol><li>Capitalistic economies eventually degenerate into highly concentrated power and wealth structures.&nbsp;Capitalistic economies existing within the framework of representative democracies and Web2 technological stack fall short of being meritocratic in both power and wealth distribution, and fail to be inclusive in wealth distribution.</li><li>Inflation feeds those having access to capital markets while inflating away the wealth of the people.&nbsp;The traditional monetary institutions exist within the framework of Keynesian, (i.e. inflationary) paradigm. Within most of the existing nation states, inflation is a mechanism of wealth redistribution — inflating away the real purchasing power of wages, while inflating asset prices.</li><li>Data economy, the infrastructure that ties contemporary society together data monopolies of unprecedented scale and feeds off the deprivation of privacy.&nbsp;In the Information Age we see Web2 as the underlying infrastructure that, while allowing massive informational and thus capital efficiencies, it also is an architecture that enables surveillance — eroding privacy.</li></ol><h2>Web3: a financial dystopia</h2>Current ‘decentralized’ protocols governing DeFi today are indeed elite clubs of VCs and large for-profit entities as all crypto projects today solve Sybil resistance only with capital-gating mechanisms where your vote equals your stake. It leads to the centralisation of voting power, plutocracy and indifference of communities to decision making. — Victor, Co-Founder of HumanodeWeb3 is an idea and a very powerful one — use cryptography to create the brave new world of fairer institutions, societal, economic, political and monetary. Today, however, its actual implementation is largely a parody of the ideals it is built upon.<ol><li>We know that the economic and political systems are the pillars upon which mankind’s evolution rests. We have established that in their traditional ‘physical’ implementation, capitalism and representative democracies create highly concentrated power and capital structures&nbsp;<a href="https://www.the-american-interest.com/2012/02/14/centralization-and-the-capitalist-market-economy/" rel="noopener noreferrer" target="_blank" style="color: inherit;">[1]</a>, which, when formed, lock the system in a self feeding flywheel of adverse distributional effects. What about Web3? Today, it’s mostly about DeFi.</li><li>Quoting DeSoc, “…[Web3] aspires to transform societies broadly, rather than merely financial systems. […] If Web3 eschews persistent identities, their patterns of trust and cooperation, and their composable rights and permissions, we see, respectively, sybil attacks, collusion, and a limited economic realm of wholly transferable private property — all of which trends towards hyper-financialization.”&nbsp;<a href="https://papers.ssrn.com/sol3/DisplayAbstractSearch.cfm" rel="noopener noreferrer" target="_blank" style="color: inherit;">[2]</a></li><li>Today DeFi, while arguably successful in evading explicit centralization, manifests its own dystopia, and is highly capital inefficient in that&nbsp;<a href="https://time.com/6158182/vitalik-buterin-ethereum-profile/" rel="noopener noreferrer" target="_blank" style="color: inherit;">[3]</a>. Without an explicitly modeled societal layer, DeFi is a system powered by the most predatory manifestations of capitalism with rent-seeking, collusion, and other forms of power abuse that ends up being no better than traditional markets in its tendency towards the ultimate state of monopoly.</li><li>In short, in its politeconomic properties, DeFi is largely a replica of the centralized system it’s been created to overshine and eclipse — DeFi suffers the same adversities in power and wealth distribution.</li></ol><h2>The Institute of Citizenship</h2>In the end all we have now is just a derivative of equity but in a cryptographic form where one stakeholder is able to significantly influence any decision. This is not what we envisioned in public permissionless networks open to everyone. And this is certainly not the way of decentralized coordination of public goods. — Victor, Co-Founder of HumanodeWe echo Vitalik’s DeSoc [<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4105763" rel="noopener noreferrer" target="_blank" style="color: inherit;">4</a>] and argue that in order to skirt hyper-financialization, Web3 ecosystems need to strive to develop primitives enabling societal substrate of DeSoc. These primitives, however, will enable more than DeSoc — Reputation Augmented DeFi, Meritocratic UBI, DePol and other concepts we will explain in later articles. We argue that the institution that by its very nature is positioned on the intersection of all of them is that of Protocol Citizenship.Albeit Citizenship is a term without precise definition that has different interpretations both in time and across nation states, we will venture to give it a non-exhaustive definition that would suffice for the purposes of this article. Citizenship links “a person with the state” and gives people a universal identity — as a member of a nation — besides their identity based on ties of ethnicity or an ethnic self.As we will illustrate in what follows, Web3 protocols in the presence of persistent identities can be programmed to model the societal, political and economic fabric of a society. We argue that the institute of citizenship is instrumental in explicitly defining the modes of power and wealth distribution.When there are rights and responsibilities to enjoy and honor respectively, that come as a result of explicitly modeled institutions defining the distribution of power and wealth within a crypto-economic protocol, we can speak of the notion of Protocol Citizenship.As we have established above, Sybil resistance of a protocol enables complex societal concepts to be meaningfully represented on-chain. Historically, the most notable societal primitive defining a meaningful and rich set of a person’s rights and responsibilities is that of citizenship. A protocol sufficiently feature-rich to instill meaning into the concept of Protocol Citizenship can be called a Cypher State.Figure 2: Adequate Sybil resistance enabling the existence of Persistent Identities<h2>The Cypher State</h2>The next wave of crypto adoption needs a new narrative — more inclusive and less capital dependent. Money is just one side of the equation, participation of motivated individuals outside the core team of developers is what we lack today. — Victor, Co-Founder of HumanodeOwned and governed by its Citizens, Cypher State is a protocol with explicitly modeled social and political institutions.The definitions and principles that will be described in the following paragraphs will provide a firmer grasp and deeper understanding of the concept of the Cypher State and why it is the central building block of the Galactica Network.<h2>Definitions</h2><ol><li>Cypher Capital&nbsp;is the aggregate economic and political capital generated within and available to the agents of a decentralized technoeconomic ecosystem;</li><li>Cypher State&nbsp;is a decentralized technoeconomic ecosystem defined by a set of persistent identities, smart contracts, and their endowments where the distribution of Cypher Capital is governed by explicitly modeled societal, economic and political institutions;</li><li>Cypher State Citizens&nbsp;are persistent identities within the Cypher State that have contingent claims on the Cypher Capital generated therein;</li><li>Galactica Network is a&nbsp;Capitalistic Cypher State, characterized by a capitalistic economic setup and a laissez-faire representative meritocratic political framework, optional citizenship and hybrid (capitalistic/socialistic) institutional framework.</li></ol><h2>Cypher State Principles</h2><ol><li>Deterministic inflation and dilution by merit: Economic Cypher Capital&nbsp;distribution process integrated into a tiered inflation schedule where Citizen’s ultimate inflation induced wealth dilution is a function of one’s endowment (i.e. stake) and merit, as proxied by reputation;</li><li>Sublinear returns to wealth, linear to merit: Political Cypher Capital&nbsp;of a Citizen is driven by merit and endowment. It’s linear in merit and sublinear in endowment;</li><li>Merit as a form of Cypher Capital: Reputation, a slice of Citizen’s web3 footprint,&nbsp;is an evolving metric. Being an input into one’s&nbsp;Voting Power, Reputation is a form of Citizen’s Cypher Capital;</li><li>Non-alienation of public goods IP: Inflation-funded Public Goods&nbsp;with explicitly modeled generation of on-chain Intellectual Property (IP) and non-alienation of IP created as a result of developing public goods;</li><li>Explicit public/private goods transition:&nbsp;Explicit segregation of public and private goods, and explicit modeling of public/private goods transition. Citizens have a claim on the Cypher Capital generated by innovation through&nbsp;Universal Basic Income&nbsp;(UBI) or alternative distributional mechanisms;</li><li>Quadratic reputation-augmented UBI: UBI’s composition is a diversified innovation portfolio. Cypher Capital is strictly increasing in value in the long term, the more innovation is produced within the network. This innovation, however, needs to remain, at least partially, as the economic capital of its Citizens.</li><li>No compromise between compliance and privacy:&nbsp;Citizenship is optional to use the network. Zero-knowledge and MPC cryptography to shield sensitive information and choices of any Citizen. Cypher State is a superstructure built on top of nation states and using its infrastructure as the foundation for Sybil resistance.</li></ol>Sybil-resistance, which is the ability to define whether there is one human behind the web3 account, maintaining privacy, is the key technology to unlock decentralized societies and broader on chain coordination.We at Humanode have been building privacy enabled biometric Sybil-resistance to power blockchains free of whale control and give this tech to other projects following the thesis. Finally, the crypto industry is ready to realize the need for a change, and Galactica is among the first ones to step into the new game. — Victor, Co-Founder of Humanode

Galactica Network is first and foremost, a Cypher State.

Protocol Citizenship and the Cypher State

<h2>The Bitcoin Paradigm</h2>Bitcoin is a trustless, decentralized protocol capable of settling transactions using a monetary unit with infinite divisibility, that is outside of the control of any jurisdiction, having deterministic monetary policy that makes it scarce and, ultimately, deflationary over time. Reflecting the ideas of the Austrian school in its design and challenging the Keynesian dogma of monetary interventionism, the genesis of Bitcoin has marked the beginning of one of the boldest experiments in human history — that of creating an alternative to the fiat world order.<img src="/upload/82590387-f5e4-41aa-840a-c23fb733cc56_1679922656491_IMG_20230324_155048_942.jpg">Before long, disparate people arrived at the idea that an independent transactional ecosystem has the potential to not only disintermediate the global settlement infrastructure, but ultimately disrupt the very foundations of the global political status quo. Power and capital distributions on a global scale are neatly intertwined, and both require the ability to control the monetary apparatus.In less than a decade since the genesis block, bitcoin has become the big idea, and the beating heart of financial counter culture.There has been a problem, however, that any&nbsp;contingent&nbsp;transactional logic using Bitcoin required centralized intermediaries — exchange, banking, insurance and the entire plethora of other financial institutions and instruments offered in the traditional financial system could not be replicated or utilized purely within the realm of the Bitcoin protocol. No ledger can have meaning in isolation, and so there came demand for intermediaries starting with those enabling the most essential functions of escrow and price discovery, eventually ballooning into a system of intermediaries somewhat resembling those powering the fiat-fueled global financial system.Exchanges were the trailblazers. Run on centralized servers; cryptocurrency exchanges have, in principle, contradicted the very ethos of Bitcoin, however, this has not prevented them flourishing in the decade since Bitcoin’s genesis block.And then came Ethereum, and with it the inevitable emergence of DeFi.<h2>The Ethereum Paradigm</h2><img src="/upload/255e7556-fc2b-486c-9dd8-a61d05f6b8bf_1679922683746_IMG_20230324_155048_421.jpg">Upon the integration of a Turing complete virtual machine directly into the heart of the protocol, there came Ethereum, and with it, the ability to program arbitrary transactional logic disrupting the centralized intermediaries that had been dominating the cryptocurrency space.With Ethereum, blockchain’s range of applications has transcended that of pure cash and p2p transactions. The key output of Ethereum’s immense innovation is the value chain of&nbsp;programmable&nbsp;digital money and composable open-source finance.The applications of Ethereum’s smart contracts are many and varied, however, for the purposes of this article we shall focus on the two most notable ones:a. Financial instruments: DeFi primitives: a vault, an option, a pool, a liquidity token, etc.,b. Economic and financial institutions: DeFi applications composed of the primitives and custom additional logic. Replicating and transcending the economic fabric that keeps the world turning, Ethereum’s economic and financial institutions are lending/borrowing protocols, DEX’s, yield optimizers, you name it.The ability to program custom instruments and institutions has enabled us to imagine a new global financial system: transparent and open-source, democratic and inclusive, one that would exist entirely on-chain creating alternative wealth distribution profiles and ultimately prosperity for billions of people around the world. At least that was the narrative, and without doubt, many would argue Ethereum has lived up to these lofty goals to a far greater extent than many would have expected.Today Ethereum remains the most vibrant blockchain ecosystem with arguably the most ambitious and far reaching use cases in the space, and by far the fastest pace of innovation. Other entrants into the space have mostly limited their attempts to challenging the technological design of Ethereum in an effort to capture some of its market share.Our thesis is that these efforts may simply be misguided — rather than challenging the technological foundation of Ethereum, the next wave of protocols should expand the very societal fabrique that blockchain protocols are capable of representing.<h2>The Cypher State</h2><img src="/upload/59da2fe9-979e-425b-b5e7-1cc2d312f486_1679922707280_IMG_20230324_155048_289.jpg"><h2>Societal Substrate and Sybil Resistance</h2>“Today’s societal building blocks (e.g. families, societies, social clubs, celebrities, governors, governess, employees, employers, etc) have proven to be challenging to transcribe into the virtual space (even more so for blockchains) without a primitive or a set thereof that would represent people themselves and the vast number of mutual relationships by which they are interconnected.”<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4105763" rel="noopener noreferrer" target="_blank" style="color: inherit;">[1]</a>Protocol’s Sybil resistance are mechanisms enabling direct mapping between real world persons and internet identities.Web2 applications solved the problem of Sybil resistance by collecting users’ personal data, and imposing draconian compliance standards. An obvious requirement to impose such standards is having access to users’ data (that conveniently can be monetized and as such is the critical resource of the data economy and the fuel of bigtech business models). Thus, Web2 Sybil resistance came at the expense of extreme centralization and virtual elimination of users’ privacy.Most contemporary Web3 protocols record transactions in a pseudonymous fashion; anyone with an internet connection can create an infinite number of wallets on virtually any blockchain.&nbsp;People cannot be modeled on-chain.&nbsp;Pseudonymous by design, Web3 is fundamentally unable to model non-trivial societal primitives: celebrities, families, employers, experts, diplomats and ambassadors, criminals and citizens are all meaningless on-chain as a result.We come to a very important argument, and, so, want to summarize the last two paragraphs, highlighting the core idea: Web2 has sacrificed privacy on the altar of Sybil resistance, somewhat incentivized by the rents extracted from the data economy. Web3 has done the exact opposite. In the case of Web2, the cost is digital dictatorship, censorship and adverse status quo we all know too well from our everyday experience. In the case of Web3, the cost has been the drastically reduced complexity of societal substrate that could be modeled on-chain.&nbsp;People cannot be modeled on-chain.But if such representation came into being, what would we call it and what would be the implications? In what follows we will try to demonstrate that this rabbit hole is far deeper than it initially lets on.<h2>Persistent identities and Web3 footprint</h2>First, let us introduce some important definitions:a. Following the notation established in a better article, a human in the blockchain space could be referred to as a&nbsp;Persistent Identity.b. The multitude of interactions between any such identity and the rest of the protocol could then be called one’s&nbsp;Web3 footprint.Let’s unpack the relationships between the two. In this context, ‘persistent’ means that a protocol representation of a human, the private key, corresponds to a real world person or identity and that such on-chain identities are costly to duplicate and this cost increases over time. But why would the cost increase in time? It is one’s Web3 footprint that would define this on-chain identity and naturally, this footprint increases in size and complexity as the time passes making it harder to replicate or tamper with.Is there a more intuitive way to define the Web3 footprint? Perhaps bring it closer to something familiar from the off-chain world?There is, and it’s the concept of reputation that is semantically closest in our view.Let us reiterate: the Persistent Identity is defined by its Web3 footprint — the relationships between an account, other accounts and the system itself. Through one’s Web3 footprint, users’ impact on the network can be quantified by other users, thus defining a virtual correspondence to real-world concept of reputation.Protocol’s Sybil resistance, Persistent Identities and Web3 footprint together enable non-trivial societal institutions to exist entirely on-chain — in a similar fashion to how EVM’s arbitrary transactional logic enabled the emergence of economic institutions in what’s today known as DeFi.<h2>Citizenship and the Cypher State</h2>Sybil resistance of a protocol enables complex societal concepts to be meaningfully represented on-chain. Arguably, the most important societal construct defining the most meaningful and rich set of a person’s rights and responsibilities is citizenship. A protocol sufficiently feature rich to instill meaning into the concept of on-chain citizenship can be called a Cypher State. At least this is one of the definitions.Galactica Network is first and foremost, a Cypher State.

Sybil resistance of a protocol enables complex societal concepts to be meaningfully represented on-chain. Arguably, the most important societal construct defining the most meaningful and rich set of a person’s rights and responsibilities is the citizenship. A protocol sufficiently feature rich to instill meaning into the concept of on-chain citizenship can be called a Cypher State. Galactica Network is first and foremost, a Cypher State.

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