Testnet 2 Incentives Announcement

Today, we are excited to announce our next step towards launching the Aleo mainnet and supporting fully private, decentralized applications.

After months of research and engineering, we are launching our incentivized testnet, called testnet2, on December 6th. Not only is testnet2 a technical upgrade from testnet1, it also raises the stakes as a fully-incentivized network. Block rewards earned on testnet2 will be redeemable for Aleo credits at mainnet launch, and we invite all of our community members to participate.

To do so, please download and run a snarkOS mining node starting on December 6th. No sign-up is necessary to participate in the Aleo incentivized testnet.

The purpose of this public testnet is to validate the technical architecture and security of the blockchain in a setting that is as realistic as possible. For an ecosystem powering real-world applications at scale, it simply is not enough to merely audit source code. While several security audits are already underway, we believe a large part of what makes decentralized consensus work is through intrinsic economic incentives. And those are what are being tested here, and community participation is invaluable to help us make any final tweaks prior to mainnet launch.

Announcing the Incentivized Testnet

Our goal with testnet2 is to test these cryptoeconomic assumptions in a Byzantine setting, wherein the Aleo team does not possess control over nodes in the network or how nodes interact with one another in the protocol (honestly or dishonestly). In addition, mining nodes in testnet2 will be able to earn real value as part of their support of the network.

Fundamentally, the most important goal of this testnet is to help create a fully-functional and decentralized blockchain. What are the principles that we seek to achieve?

1. Ensure that our protocol works as intended and is secure

2. Maximize participation in the number of mining nodes

3. Fairly distribute tokens to all participants, not just large-scale miners

We believe a truly decentralized network must consist of a diverse ecosystem of validators. Our goal is not to bootstrap a network dominated by industrialized mining operations. Rather, our goal is to create an incentive structure for testnet2 that benefits all participants. We want to incentivize early community members who run a miner or a small number of mining nodes on their own hardware. Many have supported us through our journey since testnet1, and this continued support is critical to the long-term success of Aleo.

This testnet serves as a high-level network bounty wherein each miner is incentivized to identify advantageous strategies and exploit them. With that in mind, Aleo is allocating 15,000,000 Aleo credits, equivalent to 1.5% of the starting supply, to reward miners on testnet2.

Total Credits Distributed: 15,000,000 Aleo credits (equivalent to 1.5% of the Starting Supply)

10,000,000 Aleo credits for All Miners

5,000,000 Aleo credits for the Top 100 Miners

The incentivized testnet will run for a period of ten (10) weeks, starting on December 6, 2021, and ending on February 14, 2022. At the end of this period, the number of blocks mined by a participant will be used to determine a reward, denominated in Aleo credits, at mainnet.

Introducing Quadratic Mining

To ensure a fair distribution of Aleo credits to all miners in testnet2, we are using a quadratic formula to determine the rewards that each miner earns for their contributions to the network. In summary, any miner who successfully mines and confirms at least one block will earn 500 Aleo credits. In addition, miners who successfully mine and confirm more than one block will earn an additional multiple of Aleo credits calculated by the square root of the number of blocks mined.

The formula that will be used to determine mining rewards is as follows:

To provide an example of this, the following provides the expected mining rewards for different number of blocks mined:

The expected mining rewards for different number of blocks mined

The objective of quadratic mining is to ensure all participants receive a fair chance to earn a reasonable supply of the Aleo credits that will be distributed at mainnet. We believe this opportunity should be an equitable one for as many participants in our ecosystem as possible.

Mining Rewards for the Top 100 Miners

In addition to quadratic mining, we also want to recognize and reward miners who take the initiative to develop novel hardware and software to mine on testnet2. This includes those who develop mining pools, specialized hardware, and new software implementations of client and mining nodes that exceed the performance and security of the work done by the Aleo team.

Not only are these contributions essential to the long-term security of the Aleo network, but this form of participation also creates a realistic environment of mainnet. And so, to incentivize these participants, we are introducing special prizes for the top 100 miners who mine the most number of blocks on testnet2, with a grand prize of 1,000,000 Aleo credits for the top miner.

Claiming Your Rewards

All **participants in the incentivized testnet must prove ownership of the account private key corresponding to their claimed miner address, and complete a Know Your Customer (KYC) compliance process after the 10 week period in order to receive rewards at mainnet.

Process To Claim Mining Rewards:

1. Prove ownership of the account private key for the claimed miner address.

2. Complete the Know Your Customer (KYC) compliance process.

3. [For United States & Canadian Citizens] Prove your status as an accredited investor.

As part of this, we emphasize that attempts to Sybil attack the network will not result in additional rewards or bonus payouts. Rewards are paid on a basis of each individual party who has passed KYC, not per node. Ultimately, the Aleo team reserves the right to maintain discretion in rewarding individuals as part of legal and compliance requirements.

Disclosures for United States and Canadian Citizens: To comply with laws and regulations in accordance to the United States and Canada, miners operating as U.S. or Canadian parties will be asked to prove their status as an accredited investor prior to receiving any rewards from testnet2. Nonetheless please note that Aleo credits should not be considered an "investment" - they are credits for performing transactions on the Aleo network.

We are excited for this next step in our journey to mainnet, and look forward to building a truly decentralized ecosystem for real-world applications that are scalable, private, and interoperable.

REMEMBER: It is critical that you save BOTH your Aleo account private key AND account view key to receive rewards in the incentivized testnet. Please save both in a safe place, as we cannot recover them for you.

Good Luck and Happy Mining!