What Is Skycoin (SKY)?

Skycoin is a blockchain project which seeks to create a decentralized, peer-to-peer Internet service in which users provide network services in exchange for cryptocurrency. Skycoin was launched in 2013 and the Skywire mesh network launched in 2019.

Unlike Bitcoin, Skycoins cannot be mined via proof-of-work. All 100 million SKY tokens were created at the launch of the Skycoin blockchain, but the majority are locked and inaccessible to developers. As of April 26, 2021, Skycoin was ranked the 506th largest cryptocurrency by market capitalization, according to CoinMarketCap.

Key Takeaways

  • Skycoin (SKY) is the cryptocurrency associated with Skycoin, a project launched by Brandon "Synth" Smietana. It runs on a proprietary consensus algorithm called Obelisk that seeks to solve the problems of proof-of-work and proof-of-stake systems.
  • Skycoin produces hardware and software to support a decentralized, peer-to-peer Internet service in which infrastructure providers are incentivized with the SKY cryptocurrency.
  • Skycoin has been accused of being an elaborate fraud, though Skycoin supporters strenuously deny this.

Understanding Skycoin (SKY)

Skycoin was first conceived in 2013 by Brandon “Synth” Smietana, who claims to have been an early developer in the Bitcoin community.

While working on those projects, Smietana saw the flaws of Bitcoin's proof-of-work system (for example, energy inefficiency and the possibility that coordinated miners could capture the decentralized system), and decided to create a new consensus algorithm that would be both truly decentralized and impervious to malicious attacks or takeover attempts.

Skycoin's consensus protocol is called Obelisk. This protocol is based on a "web-of-trust algorithm," in which each node subscribes to a select number of other network nodes, and the density of a node’s network of subscribers determines its influence on the network.

The system is theorized to distribute influence over the network and makes consensus decisions depending upon the influence score of each node. To this end, each node in the network has its own blockchain that acts as a “public broadcasting channel.” According to the white paper:

The public record left by each node’s personal blockchain allows the network to react to defections by severing connections with less trustworthy or malicious nodes. Under the same principle, if the community feels that power within the network is too concentrated (or not concentrated enough), the community is able to shift the balance of power by collectively changing their trust relationships.

Related Skycoin Projects

Skycoin operates as an ecosystem of hardware and software products to support its blockchain solution. Some of these features resemble similar projects found on Ethereum or other competing blockchains.

Skycoin Hours

Skycoin Hours, or Coin Hours, are a second-tier currency tied to Skycoin intended to incentivize nodes on the Skycoin network. Holding one Skycoin for an hour in the Skycoin wallet entitles the holder to one Coin Hour. Coin Hours can be used to trade bandwidth and other services within the Skycoin platform.

Fiber

Skycoin also operates its own platform for decentralized applications, which can be used to run Initial Coin Offerings (ICOs) or other commercial applications. According to the company, the architecture of Fiber can be described as "an infinitely scalable network of blockchains laid side by side, like strands," each strand of which can handle speeds of 300 transactions per second.

Skycoin claims that Fiber is "lightning fast," uses little energy, and has no transaction fees. "Because each company has their own blockchain," according to the Skycoin white paper, "they do not face the congestion issues seen on platforms such as Ethereum’s ERC-20."

KittyCash

Following the success of CryptoKitties, the Skycoin team announced their own feline-themed collectibles game in 2018. Although very similar to the Ethereum game, Skycoin claims that KittyCash, which runs on Skycoin Fiber, has the added advantage of lower transaction costs and higher speeds.

Skywire

Skywire is theorized as an incentivized mesh network that is faster, more affordable, more accessible, and offers higher QoS than the current Internet. A developers' version of Skywire launched on mainnet in March of 2019, and a "public mainnet" launched a year later.

Skywire can be conceived as a decentralized network that allows users to exchange data without compromising their anonymity. Traffic is routed through Skywire nodes, which provide computation, storage, and bandwidth in exchange for Skycoin and Coin Hours.

Skyminer Hardware and Hardware Wallet

Skyminers are multi-processor rigs that act as network nodes on the Skywire meshnet, allowing operators to provide network services in exchange for cryptocurrency. Official Skyminers can be ordered from the Skycoin company for approximately $2,000, but a DIY version can be built for $600. The company has also hinted at the launch of wireless antennas, which would allow Skyminers to function as local ISPs in their neighborhood.

Skycoin also offers a crypto hardware wallet that is cheaper than the most popular wallets, but it can only hold Skycoin unless the user gives it a firmware upgrade.

Concerns About Skycoin

The ambition of Skycoin's projects has led some observers to criticize the operation. Given the number of scams that proliferated in 2017 and 2018 and the collapse of many crypto projects through 2019, verifying the claims of the remaining projects has become central to protecting investors from being defrauded.

Tristan Greene, a reporter for The Next Web, has written about the concerns around Skycoin. He said in an email to Investopedia, "You'll be hard-pressed to find someone who supports the project who doesn't either hold Skycoin, or receive payments for their work. There's simply no basis for the technology they claim to have (ie: the ability to decentralize the internet using PCs with antennas)." Skycoin's Wikipedia page has also been deleted, and moderators for the online encyclopedia have accused Skycoin boosters of spreading disinformation to pump the cryptocurrency's prices.

The biggest criticisms of Skycoin are that it was premined, with all tokens effectively under the control of Skycoin developers. Though Obelisk claims to solve the problems inherent in proof-of-work systems, it is not clear how it builds consensus in a way that is not vulnerable to manipulation, given that Skycoin's creators hold a great majority of the extant coins.

Smietana also has a questionable reputation as a businessman. In June 2018, the Chinese marketing team of Skycoin broke into his house and held him and his family hostage. They also allegedly took more than 18 bitcoins (at that time worth around $120,000).

Simon Chandler at Cointelegraph writes the attackers may have been emboldened because of Smietana's shady dealings: "There were also indications that insider trading was taking place within the company," he says. "If Skycoin was fraudulent, this could have contributed to the feeling among potential kidnappers/robbers that they could steal Synth’s crypto with impunity, given that Synth may have been wary about exposing too much of his business to public scrutiny."

The Bottom Line

Skycoin is an ambitious project that claims to be creating hardware and software for a new, decentralized Internet, built around the Obelisk consensus algorithm. However, many of these promises sound too good to be true, and the project's leaders have attracted many critics and scandals.