Decentralized vs federated payment structures in Althea

Me and Deborah Simpier were just talking about the role of decentralized node-to-node payments vs “federated” subnet DAO payments in Althea. For some context, we designed Althea with a vision of an autonomous network, which expands organically as people are incentivized by node-to-node bandwidth payments to build new links.

This is the vision which is front and center in our materials and which has inspired people all over the world to start planning and building Althea networks. The ideal is that if everyone in an area is incentivized to strengthen the network, then they can grow the network without the centralized coordination of a traditional ISP.

Deborah has been helping people plan these networks, alongside building her own Althea network in Clatskanie. As these networks are moving past the planning stage and into reality, we’ve been hitting up against some of the hard facts of the ISP market. One of the main points of friction that the basic Althea system has with the way business is done today, is that wholesale, resalable internet access usually involves very large connections with high monthly costs, and long minimum contracts.

For instance, a 500mbps dedicated connection in Clatskanie costs $1400 per month on a minimum 3 year term. This is not a huge impediment in starting a traditional ISP, you just plug it into a spreadsheet along with the rest of your startup costs, monthly charge, and expected user base, and either the numbers add up or they don’t.

But in the basic Althea model, we ideally want there to be different “gateways” (people paying for this large subscription and selling it into their local network), who coexist and compete to some extent. But that’s tough to bank on. While Althea’s per-gigabyte bandwidth payments promote viral growth by allowing the system to reward nodes granularly, they are also inherently somewhat uncertain. Having fixed payments can be beneficial.

That’s exactly why we designed the Althea governance system the way we did. The governance system works alongside the bandwidth payment and routing system, but it involves each node making fixed monthly payments to a “subnet DAO”, an on-blockchain organization run by a group of local people who are promoting the network and providing customer support. Because each node on a network is identified by an IP address, these are known as “IP leasing fees”.

These subnet DAOs are meant to be separate from the gateway nodes which are connecting to the internet and the intermediary nodes who are forwarding traffic through the network. In a large, mature Althea network, we want many different players to be able to coexist and coordinate more efficiently than they would under the roof of one monolithic firm. For example, multiple subnet DAOs could provide multiple levels of service while utilizing many of the same gateways and intermediaries in an area.

However, it’s becoming clear that in the early days, the people in a subnet DAO are often the ones coordinating a build-out of the network at all and are often taking on the cost of gateway bandwidth. We are going to start recommending a higher subnet DAO fee (30–50% instead of 5–10%), and as we guide people in starting their own networks, having them plan them more along the lines of a traditional ISP, until the network is large enough to sustain internal collaboration and competition of different independent players.

The Althea software works great in this mode as well. This doesn’t actually involve any changes to the software at all. Justin Kilpatrick and the rest of our dev team have done a really great job writing software that helps people easily set up networks without many of the configuration and equipment selection headaches that usually come along with a new network. Althea networks configure themselves autonomously (barring a few stubborn bugs!). Network architecture is not something that the person setting up the network needs to think about with Althea.

As Althea networks mature, and people using the network understand that they can earn money reselling, strengthening, and expanding the network, bandwidth payments will become a bigger part of the picture.