Helium (HNT) Review: Hotspots Meet IoT Meets Blockchain
The blockchain has allowed for the decentralization of a number of things, and one that’s quite interesting is decentralizing wireless networks.
It’s called the Helium Network, it’s growing fast, and it could be a way for you to mine cryptocurrency without running an expensive and power hungry server. It also promises to be scalable and affordable, bringing wireless connectivity to millions of devices, sensors, MCUs and chipsets for just pennies a year.
If all this sounds as fascinating to you as it does to us then let’s dig in and see what’s under the hood of the Helium Network.
What is the Helium Network?
The Helium Network is a long-range wireless network that is both distributed and global, providing coverage for IoT devices that are LoRaWAN enabled. The network is comprised of Hotspots that provide the public network coverage, and in return are compensated with Helium’s native cryptocurrency – HNT. The network is also integrated with the Helium blockchain in order to provide the incentive for running Hotspots.
After less than 2 years in operation the Helium network and blockchain already has over 25,000 global Hotspots, making it the largest LoRaWAN network in the world.
What is LoRaWAN?
LoRaWAN is a point-to-multipoint networking protocol that uses Semtech's LoRa modulation scheme. It's not just about the radio waves; it's about how the radio waves communicate with LoRaWAN gateways to do things like encryption and identification. It also includes a cloud component, which multiple gateways connect to.
The Helium Blockchain
The Helium blockchain uses a new consensus algorithm dubbed Proof or Coverage (PoC). The mainnet for the blockchain was launched on July 29, 2019 and since then it has grown considerably, particularly in North America and Western Europe. The Helium blockchain is behind the largest LoRaWAN network in the world, and provides Hotspot incentives in the form of HNT payments.
Proof of Coverage
Proof of Coverage is the new algorithm that was created for Helium. It verifies that the Hotspots in the network are physically located where they claim, and that they are honestly representing the wireless coverage that’s being created by the Hotspot for its location.
Why Proof of Coverage?
The success of the Helium network is dependent on it being able to provide reliable wireless network coverage for the connected devices using the network. This required a work algorithm that was specifically created to fulfill that use case. With Proof of Coverage the Helium network and blockchain are able to take advantage of the unique properties provided by radio frequency to produce proofs which are meaningful for the network and those using the network. In particular, Proof of Coverage relies on these three characteristics:
- RF has limited physical propagation and, therefore, distance;
- The strength of a received RF signal is inversely proportional to the square of the distance from the transmitter; and
- RF travels at the speed of light with (effectively) no latency;
Through these properties the blockchain is always using the PoC challenge mechanism to interrogate Hotspots regarding their location and coverage. This allows the Helium Network to constantly use the data generated to definitively verify the exact wireless coverage that’s provided by the network’s Hotspots.
Proof of Coverage Challenges
The PoC challenge is the discrete unit of work used by the Proof of Coverage algorithm. In the less than two years since the Helium network has been launched there have been tens of millions of challenges issued and processed by the Helium blockchain. As each new challenge is issued and processed the Helium blockchain receives and records more information regarding the quality of the network.
The PoC challenges all involve three distinct roles on the network:
- Challenger - The Hotspot that constructs and issues the POC Challenge. Hotspots issue challenges approximately once per every 240 blocks.
- Transmitter – Also called the "Challengee", this Hotspot is the target of the POC challenge and is responsible for transmitting (or "beaconing") challenge packets to potentially be witnessed by other geographically proximate Hotspots.
- Witness - Hotspots that are geographically proximate to the Transmitter and report the existence of the challenge packet after it has been transmitted.
Consensus Protocol Design Goals
The design of the consensus protocol used by Helium was predicated on using the following principles:
Permissionless – As long as a Hotspot is operating in accordance with Helium’s consensus rules and network specifications it should be able to participate freely in the Helium Network.
Truly decentralized by design - No incentives are provided for taking advantage of factors like inexpensive energy costs or deploying additional hardware in the same location.
Byzantine Fault Tolerant - The protocol should be tolerant of Byzantine failures such that consensus can still be reached as long as a threshold of participants are acting honestly. For this, Helium is using a variant of BFT known as HoneyBadgerBFT as detailed below.
Based on useful work - Achieving network consensus should be useful and reusable to the network. In Nakamoto Consensus-based systems like the Bitcoin blockchain, work performed to achieve consensus is only valid for a specific block. By comparison, Helium’s consensus system performs work that is both useful and reusable to the network beyond simply securing the blockchain.
High rate of confirmed transactions - The protocol should achieve a high number of transactions per second, and once the transaction is seen by the blockchain it should be assumed confirmed. Users sending device data through the Helium Network cannot tolerate long block settlement times typical of other blockchains.
Censorship-resistant transactions - Hotspots should not be able to censor or otherwise select or deselect transactions to be included in a block.
As mentioned above, consensus in Helium is based on a variant of the HoneyBadger BFT protocol that was originally designed and created through research done by Andrew Miller and the team at the University of Illinois, Urbana-Champaign.
HoneyBadger BFT was created as an asynchronous atomic broadcast protocol that enables a collection of known nodes to achieve consensus over a set of unreliable links. Helium has implemented the consensus in such a way that the consensus group of elected Hotspots receives encrypted transactions and then work to reach an agreement on how these transactions should be ordered. They then add the transactions to a new block and add that block to the blockchain.
The scheme that allows HoneyBadger BFT to work properly is called threshold encryption. With this all transactions are encrypted with a shared public key. The transactions can only be decrypted when the entire elected consensus group works together to decrypt them. By using this scheme Helium is able to achieve censorship-resistant transactions.
How to Earn HNT Tokens
While the altruistic idea of simply helping the network by running a Hotspot is a welcome idea, the fact that Helium has set itself up to offer HNT tokens as an incentive tells us that most people will not simply help the network out of the good will in their hearts. However the presence of incentive rewards means it is possible to earn HNT tokens by running a Helium Hotspot.
Helium distributes rewards to the Hotspots which have earned them at the end of each epoch. In Helium each epoch is 30 blocks, and the network targets 60 seconds for the creation of each block. So, the total theoretical time for an epoch is 30 minutes. You can see the actual block production statistics at the Helium Block Explorer.
As of April 2021 65% of the mining rewards are distributed to Hotspots as an incentive, with the remaining 35% being distributed to Helium Inc. and some of the other early investors. Hotspots can be rewarded for all of the following activities:
- Submitting valid proof of coverage challenges (as a “challenger”)
- Successful participation in proof of coverage as a target (as a “challengee”)
- Witnessing a proof of coverage challenge
- Transferring device data over the network
- Serving as consensus group member
The distribution of the 65% rewards for Hotspots is as follows:
Hotspots are chosen by the network to issue challenges, encrypted messages over the Internet, to a target group of Hotspots. Challenges are used by Proof-of-Coverage to validate wireless coverage. Hotspots can issue challenges from any location, not just to local Hotspots.
Hotspots earn a share of HNT for participating in Proof-of-Coverage and validating their peer’s wireless coverage. The amount each Hotspot earns depends on how often it is directly involved in Proof-of-Coverage activity.
Hotspots that monitor and report Proof-of-Coverage activity (beacons) of other Hotspots receive a portion of HNT depending on how much activity they’ve witnessed, and the reward scaling of the Challengee.
NETWORK DATA TRANSFER: 32.5%
HNT is distributed to Hotspots that transferred data from devices on the network. The amount of HNT is allocated proportionally based on the amount of data a Hotspot transferred.
CONSENSUS GROUP: 6%
Hotspots are randomly elected to the Consensus Group to perform tasks including validating transactions and publishing new blocks to the blockchain. Group members receive a portion of the 6% distributed to the Consensus Group.
The Helium Hotspot
The Helium Hotspot is a physical device that is used for mining and broadcasting on the Helium network. Anyone who wishes to participate in the network by running a Hotspot needs to purchase one from a third-party manufacturer.
Currently there are 5 different Hotspot models listed at the Helium website store and they range in price from $410 to $577. These Hotspots are available as both indoor and outdoor models, and as of April 2021 they are so popular that the manufacturers have been unable to keep up with demand. Most are backordered at this time and not shipping until the summer.
Set up for the Helium Hotspot devices is easy, not much different than many other IoT devices. Beyond the basic initial set up also keep in mind that to get the best range possible the Hotspot should be installed near a window and certainly not tucked away behind walls or metal enclosures. Even better is if you can afford to add an antennae to increase the range of the Hotspot.
Your earnings will vary based on the number of Hotspots in your area. I’ve seen Hotspots earnings as little as 0.25 HNT per day and others earning 50 or more HNT per day.
Once you’ve installed the Hotspot and set it up there’s not much else that needs to be done. You can log in to see the performance and your earnings, but that’s really about it.
Rewards in Practice
Making money from Helium for most people isn’t as simple as buying a Hotspot, setting it up, and watching the money flow in. You need to be in range of other Hotspots, but not too many. Either too few or too many Hotspots nearby will lower the earnings made from your Hotspot. Currently the best places are urban areas in the U.S. and Western Europe. Each Hotspot has a range of around 10 miles, although this can be extended by placing the Hotspot at a higher elevation, or by installing an antennae.
Of course it might not be too bad to be the first in your area to get a Hotspot. As coverage improves so too will your earnings improve. For example, there are some users who have reported a significant increase in earnings over a short period of time as more Hotspots are added to the same area where they have their Hotspot. As with many things in the cryptocurrency space, the early adopters are the ones who will make the most profits.
Helium Hotspots – US vs EU
As of April 8, 2021 there are 25,957 active Hotspots on the network. Those living in major urban centers in the U.S. and Western Europe already have a good chance at earning a decent amount of HNT, and coverage is already spreading to the suburbs in some areas. Below is a screen shot of the current coverage in the U.S. and across Europe.
You’ll also find growing coverage in China and a few other Hotspots in Japan and across the rest of Asia. The number of Hotspots grew very rapidly across North America and Europe, so it will be interesting to revisit this map in 6 months time and see the growth in Asia as well.
Maximizing HNT earnings
The easiest way to increase your earnings is the obvious move of adding more Hotspots. However that isn’t necessarily in your long-term interest because at a certain level of coverage the rewards per Hotspot begin to decline.
Ideally you should set up your Hotspot early, and it should also be in a location where the number of Hotspots is growing. Currently that makes the east coast of the U.S. the best place for a Hotspot, but other areas are rapidly catching up and the coverage in Europe and the UK is vastly better now versus just six months ago.
Helium has further advice, including:
- Deploy Sensors as 30% of all HNT goes to Hotspots that route actual sensor data (such as the trackers Helium sells)
- Ensuring you aren't the only hotspot in your area is the method most likely to increase your earnings. If you are in an area with three or more Hotspots you are likely to participate as a PoC Challengee and Witness more PoC challenges that are happening around you. These are the two highest HNT distributions for Proof of Coverage per epoch, so optimizing around them has a high impact.
- Upgrading to a larger antenna will help in situations where you have other Hotspots nearby but either fail challenges that you participate in or do not witness challenges that they are participating in.
- Opening internet network ports helps in delivering PoC Challengee and Witness receipts to the PoC Challenger.
The Helium Team
Helium was founded in 2013 by Shawn Fanning, Amir Haleem, and Sean Carey, with a mission to make it easier to build connected devices. Of the three only Amir remains with Helium, serving in the position of CEO. Amir previously worked as CTO of the video game startup Diversion. He was also one of the original programming team behind Battlefield 1942 from DICE.
The CTO at Helium is Marc Nijdam, a technology professional with over 25 years of experience. Prior to joining Helium in 2015 he worked as a Senior Engineer for Yahoo!, and prior to that held a number of roles with technology leaders such as Qualcomm.
And then there’s the COO of Helium Frank Mong. Frank is responsible for business development, sales, and marketing for Helium. Prior to coming to Helium Mong spent 20 years in cyber security including CMO at Hortonworks, SVP of Marketing at Palo Alto Networks, and VP/GM of security at HP.
Co-founder Shawn Fanning also remains on as one of Helium’s advisors. Fanning is an American computer programmer, entrepreneur and angel investor. He built the first popular P2P file sharing platform Napster in 1999 and Rupture. Shawn is also the co-founder of Path and Airtime.
The Helium (HNT) Token
The native cryptocurrency of the Helium blockchain is the Helium Token or HNT. There was no pre-mine of HNT and the very first token was produced with the genesis block on July 29, 2019.
The Helium Token is designed to serve the needs of the two primary parties in the Helium blockchain ecosystem:
- Hotspot Hosts and Network Operators. Hosts mine HNT while deploying and maintaining network coverage.
- Enterprises and developers using the Helium Network to connect devices and build IoT applications. Data Credits, which are a $USD-pegged utility token derived from HNT in a burn transaction, are used to pay transaction fees for wireless data transmissions on the network (in addition to things like adding Hotspots and sending).
The Helium blockchain is making use of three separate tokenomic principles to ensure that the supply of HNT is sufficient for network needs, but also scarce enough to support an increasing price. The three principles are max supply, burn-and-mint, and net emissions. Let’s have a closer look at each below.
There will only ever be 223,000,000 HNT mined. Since genesis the network has been targeting 5 million HNT per month as a mining target. However the Helium blockchain also uses a two year halving schedule, so as of August 1, 2021 that monthly target will decrease to 2.5 million HNT per month. According to the halving schedule all HNT will be mined within the 50 years following the beginning of the halving schedule on August 1, 2020.
Data Credits and Burn-and-Mint Economics
Data credits are a $USD pegged utility token used to pay all the transaction costs on the Helium network. They are created from a burn transaction in which HNT is burned to create data credits. One feature of the data credit is that it will always cost $0.00001, meaning $1 will buy 100,000 data credits. Of course the value of HNT does fluctuate, so the amount of HNT needed for $1 will fluctuate.
The relationship between HNT and data credits is based on a design called burn-and-mint equilibrium. It is intended to allow HNT to respond to changes in network usage so that eventually equilibrium can be found and the amount of HNT will remain static.
The principle was heavily derived from its usage by Factom, although that isn’t the only other blockchain using burn-and-mint. The amount of Data Credits produced by burning HNT will move up and down based on the USD price of HNT as reported by the HNT Oracles
Net emissions is fairly new to the Helium network, having been introduced with HIP 20 on November 18, 2020. It addresses the quandary presented by the obvious question of how the network can avoid running out of HNT if it is capped at 223 million tokens and continually burned to mint data credits.
This is why net emissions was required. It gives the protocol enough HNT to reward Hotspots and consensus group members forever.
Here’s a quick rundown on how net emissions will work to keep the supply of HNT from being depleted by burn-and-mint economics:
- Using Net Emissions, the blockchain would monitor how many HNT were burnt for Data Credits in a given epoch and add them to the number of HNT to be minted that epoch. For example, if 10 HNT were burned for Data Credits in an epoch, the system would mint 10 more HNT than were expected in that given epoch.
- Because HNT produced via Net Emissions do not add to the total outstanding, they do not violate max supply.
- However, Net Emissions would counteract the desired, deflationary effect of Burn and Mint. If the system replaces all the HNT that are burned to create Data Credits, there is no resulting reduction of supply.
- Because of this, when implemented, there will be a cap on the number of HNT that can be created via Net Emissions per epoch. When the HNT burned for DCs exceeds this cap, there will be a reduction in supply.
The HNT Token Performance
The HNT token started out well enough, trading around $0.50 initially, and rising to $2.00 within two months. Price dropped back to $1.25 the following month, then rose back to $2.00 by October 2020. Soon after the token traded down below $1, but that only lasted for a short time and as 2021 began the HNT token was trading around $1.25.
Of course, soon after it began to respond to the broad-based altcoin rally of early 2021 and price turned parabolic, finally reaching an all-time high of $21.17 on April 7, 2021. At this price most users will easily recover the cost of a Hotspot within a month, if not within days in some cases.
There’s no way to tell if prices will remain elevated, or if they will drop back to prior levels. Even if we see price decline back to the $1.25 range it won’t take more than a few months for most users to recoup the cost of a Hotspot and have a positive ROI.
While Helium got off to a slow start, it has rapidly grown, going from something like 7k Hotspots in August 2020 to over 25k in April 2021. Yet there is still plenty of growth to be had as the network is currently only well represented in the major urban centers of the U.S. and to a lesser degree Western Europe. And in Asia there is massive growth potential as Hotspots have only recently begun popping up in China. Currently there is virtually no representation in India, southeast Asia, or Australia.
One thing that can be said is that the technology does work as intended. It’s fully expected that growth can continue, and Hotspots will continue to be both profitable and valuable long into the future. This is even true if the HNT token erases its gain from 2021 and trades back down to the $1 to $2 level.
While the roughly $400 investment is out of the reach of many, it is well within the reach of enough to see continued growth from the network, particularly if the value of HNT remains elevated.
One question mark for Hotspot owners is how the halving will impact them. While they will lose half their earnings it is also possible the halving will create enough upside in the value of HNT to offset that loss of token income.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.