What is Coti?
Coti or ‘Coin of the Internet’ is a decentralized payment protocol, and its native token is COTI. With the Coti network, any business or even government can issue their own cryptocurrencies. Combining the advantages of distributed ledger technology (DLT) with that of the traditional payment mechanism, Coti aims to become the de facto decentralized payment solution in the global commerce industry.
Its mission is to build a highly scalable global payments system. It is something that the earliest Proof of Work (PoW) cryptocurrencies like Bitcoin cannot offer, and there is a reason behind it. With an increasing number of users, the transactions involving PoW cryptocurrencies like Bitcoin become slower. Hence, these cryptocurrencies are not suitable for global payments. Transactions involving Coti, on the other hand, become even faster with an increasing user base, which makes Coti a better & efficient solution to serve global commerce as a payment mechanism.
Coti can enable a payment mechanism that is faster, trust-driven, and cheaper. Trust plays a crucial role in Coti transactions. In the Coti network, an innovative algorithm known as Trust Chain Algorithm builds a consensus among the buyer and seller. As Coti leverages directed acyclic graph technology to build its data structure, all the transactions within the Coti network are directly connected instead of being connected via blocks.
The DAG-based (Directed Acyclic Graph-based) data structure of Coti also grants it much faster transactions. Coti can process as many as 10000 transactions in a second. In terms of the number of transactions per second, Coti even beats the Visa network, which can process around 4000 transactions per second. The transactions within the Coti network go to a cluster, where every transaction receives a trust score. This score denotes the score of the sending transaction account’s score.
Based in Gibraltar, Coti was founded in May 2017 by David Assaraf. The company behind Coti is Coti Limited, and it is a for-profit company. Coti received funding from Cardano Ventures Fund in April 2021, and they invested $500K in Coti.
What Problem Does Coti Aim to Solve?
Before we start addressing the exact problem that Coti aims to solve, we must understand its potential. We know, Coti is aiming to become a major player in the online payments industry. So, let us first understand the potential market that Coti is targeting.
The global market size of the online payments industry was over $3286 billion in 2019. It will reach over $17,643 billion in 2027, growing at a rate of 27.3% between 2019 to 2027. The rising use of smartphones globally is fueling such astounding growth in the online payments market size.
To accommodate the increasing demand for online payment services, the world needs a payment mechanism that is reliable, faster, and truly scalable, which is the most crucial feature of any successful payment mechanism or system. It has always been expected that cryptocurrencies will change the payments industry for good. But cryptocurrencies haven’t proved to be successful at a scale that everyone was envisioning. Now, there are multiple reasons behind it.
To stand a chance in the competitive traditional payments industry, a crypto-based payment mechanism has to be highly scalable. It must also be user-friendly. Without these features, it is unlikely that a cryptocurrency payments mechanism will ever become a mainstream payment system.
A majority of early cryptocurrencies like Bitcoin suffer from one acute issue. With an increasing user base, these cryptocurrencies start seeing delays in the processing of transactions. It means these cryptocurrencies are not the ideal solution for global commerce as they are not scalable. Then comes the lack of trust between counterparties involved in a transaction, which often results in chargebacks, losses for the merchants, payment cancelation, among other issues. Coti network has also placed a safeguard to ensure that the merchant’s bank and the payment service provider do not suffer from any losses arising from chargebacks. Both trust score and the turnover are taken into factor to calculate the Merchant Rolling Reserve.
Currently, PayPal also has a similar mechanism to prevent the issues arising from chargebacks. But Coti’s merchant rolling reserve is among the lowest in the industry. The merchant rolling reserve is deducted in Coti’s native token COTI, and the funds remain locked with the network for a few days. The funds are released to the merchant once the merchant rolling reserve term ends. Features like this help Coti compete against the likes of PayPal.
How Does Coti Work?
To understand how Coti works, we must have an understanding of its segments. There are four main players in Coti. These are the merchant & buyer, who are the counterparties involved in a transaction. Then there are the node operators & mediators.
As we have described above, Coti uses a directed acyclic graph (DAG) instead of a blockchain-based database. Coti calls DAG a cluster, and every transaction goes to its clusters. There is something very interesting about how transactions are processed in Coti. For confirmation, every transaction in Coti has to validate two previous transactions. Are you wondering that this may slow down the transactions? Well, on the contrary, that is what makes Coti highly scalable. With an increase in the number of users, Coti transactions will keep getting faster and faster.
There are four types of nodes in Coti, which perform these clusters. They are full nodes, double-spend prevention nodes, trust score nodes, and history nodes.
Full nodes act as an entrance to the Coti network. These nodes choose the source, validate the transactions, do Proof of Work, and also attach the transactions in a cluster. All the full nodes involved in the Coti network compete along with themselves for users. They are also free to set their prices. The full nodes are also responsible for collecting and transferring the fees to the network pool.
The Double Spending Prevention Nodes (DSP):
These nodes have an up-to-date list of all the clusters and transactions, which enable the DSP node to make sure that there is no double-spending in the Coti network. Every transaction in the Coti network is under the surveillance of DSP nodes. Anyone who wishes to become a DSP node on the Coti network by depositing a large sum of Coti tokens. In return, the DSP nodes receive remuneration of sorts from the network.
Trust Score Nodes:
These nodes calculate and store both the trust scores and KYC statuses of the participants. Anyone can run a trust node. All they have to do is deposit COTI tokens for it.
The details about past clusters are saved in the history nodes. Hence, it is possible to retrieve account detail history from the history nodes.
Trust Score Mechanism
Trust score plays a crucial role in the Coti network. The trust score calculations are done by the Trust Score Nodes. A new transaction considers the trust score of the two previous transactions while validating them.
Now, the question is how the trust score is calculated? In the beginning, the trust score is calculated through a questionnaire and the KYC documents submitted by a user. Later, their trust score starts considering the valuation of their transactions, the number of disputes against them, the number of disputes that went in the favor of the counterparty, and the rating that others give to the user. The trust score is between 0 to 100, where 100 is the highest trust score, and 0 is the lowest.
There are benefits of having high scores on the Coti Network. Any user having a high trust score will have to pay comparatively lower transaction fees. On the other hand, a user with a low trust score will have to pay higher fees on transactions.
How are Transactions Processed?
We have mentioned above that any new transaction will have to validate two previous transactions. The two previous transactions that they choose to validate will have similar trust scores as themselves. After validation, the transactions join the cluster and form what we call a trustchain. Every transaction in an individual trustchain has similar trust scores.
Every user with a high trust score benefits from the low transaction fees. It is overseen by the Trust Chain Consensus Algorithm. The time it takes for a transaction to confirm also depends on the trust score. A user having a higher trust score will benefit from faster transactions. The users with low trust scores will have to wait for their transactions to go through.
In terms of speed, Coti transactions are even faster than Visa transactions. DAG-based data structure enables the Coti network to achieve 10,000 transactions per second. In comparison, cryptocurrencies with blockchain-based data structures can only accommodate up to triple digital transactions per second. For example, Bitcoin can process 7 transactions per second, Litecoin can process 56 transactions per second, and Bitcoin Cash can process 300 transactions per second.
Mediation System in Coti
As the name suggests, mediators in the Coti network solve disputes like billing errors, non-delivery of goods & services, sending payments to wrong addresses, among others. But a mediator gets involved only after counterparties are unable to come to a solution among themselves.
Every dispute will include multiple mediators who try to find real-world information to solve the dispute. The mediators do not coordinate among themselves but are encouraged to come to a similar conclusion. Mediators have a vote which they can cast in the favor of the party they believe is correct.
The mediators will also have to deposit COTI tokens while voting. The winner & losers are decided based on the number of votes the counterparties receive. The winning party receives their funds back. Now, the mediators who had voted for the winning party receive rewards and also get their COTI deposit back. The mediators who vote for the losing party will lose their deposits.
The native token of Coti is COTI, and its maximum supply is 2,000,000,000. It has a circulating supply of 669,740,238. 30% of the COTI tokens supply or 600 million COTI tokens were available for sale in the private and public sale, whereas 440 million COTI tokens have been set aside as a reserve for the development & stability of the Coti network.
The Coti team will receive 300 million COTI tokens, which remained locked for the first six months. Then gradually over the two years, at every quarter, the tokens will be released proportionally to the team members. A total of 200 million COTI tokens have been set aside to reward key members contributing to the growth of the Coti network. For the incentive program to reward users, partners, validators, and merchants, a total of 260 million COTI tokens have been allocated. The remaining 200 million COTI tokens are set aside for liquidity measures.
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Coti – The Perfect Crypto-based Payment System for Global Commerce
Due to the pace at which the online payments industry is growing, the world needs a system that can handle this explosive growth easily. Coti is the answer to this problem as it is highly scalable and becomes even better with an increasing number of users. Coti transactions are faster, better, and cheaper, and both buyers & sellers can trust Coti.
The concept of trust score & merchant rolling reserve enables are the key features of Coti Network. They enable Coti to compete against the big boys like PayPal & Visa. Also, leveraging a directed acyclic graph instead of blockchain to build their data structure proved a masterstroke for Coti. It made it possible for Coti to process almost 10,000 transactions per second, making it better than a majority of cryptocurrencies available today.
Coti beats even Visa when it comes to the capacity of processing the highest number of transactions per second. Coti has placed safeguards for safe payments like PayPal and has transaction speed that beats Visa. Therefore, in terms of features, Coti is a combination of both PayPal & Visa. Coti has all it takes to gain a huge market share in the growing online payments space. It would be interesting to see how Coti does in the long run in the competitive global online payments landscape.