Clear DefinitionsICP
2 min read
Pronunciation
[eye-see-pee]
Analogy
ICP is like a multi-purpose resource in a digital nation. Similar to how a national currency might be used to pay taxes, vote in elections, and reward public service, ICP serves as the economic fuel for applications (when converted to cycles), the voting power in governance decisions, and the incentive for node operators who provide the physical infrastructure that powers the entire ecosystem.
Definition
The native utility and governance token of the Internet Computer blockchain, used for participating in network governance through the Network Nervous System, creating cycles to power applications, and rewarding node providers who contribute computing resources to the network.
Key Points Intro
ICP provides the economic foundation and governance mechanism for the Internet Computer ecosystem.
Key Points
Functions as the governance token for the Network Nervous System (NNS).
Converts to cycles that power computation in canister smart contracts.
Rewards node providers who contribute hardware to the network.
Can be staked in neurons for voting rights and staking rewards.
Example
A developer building on the Internet Computer needs to convert ICP into cycles to deploy and run their application's canister smart contracts. Simultaneously, an ICP holder might lock their tokens in a neuron with an 8-year dissolve delay to gain significant voting power in the NNS, helping shape the platform's future development and earning staking rewards.
Technical Deep Dive
ICP implements a complex tokenomic model with several key mechanisms: (1) Conversion to cycles at a variable rate pegged to the IMF's Special Drawing Rights (SDR), creating a stable cost of computation despite ICP price volatility; (2) Neuron staking, where tokens are locked for periods ranging from 6 months to 8 years with longer lockups providing greater voting power and rewards; (3) Voting power multiplication, where dissolve delay and age of the neuron amplify governance influence; (4) Automatic neuron management through the concept of following other neurons on specific proposal topics; and (5) A deflationary mechanism where cycles consumed by canister execution are not recycled, permanently reducing overall supply. The governance process operates through various proposal types including network management, subnet creation, node provider rewards, and protocol upgrades. The token distribution includes allocations to early contributors, the DFINITY Foundation, and community members, with a significant portion controlled by the Internet Computer Association for ecosystem development. Neurons participate in voting through the NNS dapp, with proposals passing or failing based on majority vote weighted by neuron voting power.
Security Warning
Caveat
While ICP's governance model aims to be decentralized, the initial token distribution and voting power concentration has raised concerns about effective decentralization in practice. Additionally, the complexity of the governance system creates a steep learning curve for meaningful participation. The token's price volatility has also created challenges for the ecosystem, despite the cycles conversion mechanism that aims to provide stable computation costs.
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