What is Kusama (KSM) and how does it work? Everything you need to know

What is Kusama (KSM)?

Kusama (KSM) serves as a public testing environment for Polkadot, operating on an early unaudited version of the Polkadot blockchain. It functions as a sandbox, enabling developers to test early iterations of Polkadot projects in a live setting. Acting as a "Canary Network," Kusama plays a critical role in the Polkadot ecosystem by allowing thorough testing and validation of major updates and code releases before deployment on Polkadot.

Kusama has its native cryptocurrency, KSM, which is not an ERC20 token but is managed through its own blockchain technology. KSM serves several purposes within the network, including governance, staking for network operation, bonding for connecting chains as parachains, and utility for network users.

How does Kusama (KSM) work? 

Kusama is a sibling network to Polkadot, closely resembling its key design elements. Like Polkadot, Kusama employs two blockchain types to manage transactions and network operations. The primary chain, known as the Relay Chain, is where validators are staked. This chain has limited functionality and oversees the entire system. Additionally, there are user-created chains known as Parachains, each with unique structures, functionalities, and purposes depending on the specific project utilizing them.

Who founded Kusama?

Kusama was established in 2016 by the creators of Polkadot: Gavin Wood, Peter Czaban, and Robert Habermeier. Starting from July 2019, individuals could claim KSM if they possessed DOT indicator tokens during Kusama's genesis block.

The token sale for Polkadot (and thus Kusama) was managed by the Web3 Foundation, with Gavin Wood serving as president. Kusama was introduced by Web3 before DOT, debuting at a price of $1.71 in December 2019. Kusama's distribution mirrored that of Polkadot, with eligible users who had bought DOT in the pre-sale able to claim an equivalent amount of Kusama. The team reserved 1% of KSM for future incentives on the KSM network.

What sets Kusama (KSM) apart from others?

Kusama stands out as a distinctive "Canary" testnet for Polkadot. While most blockchain ecosystems rely on a testnet for developing their decentralized applications (dApps) and projects, Kusama utilizes a live blockchain network, providing a functional market and testnet conditions that are unmatched by other chains. Kusama also implements adjusted governance parameters, enabling it to operate up to four times faster than Polkadot.

Additionally, Kusama features two blockchains: the main network and user-generated networks known as Parachains. Parachains are a unique aspect of Kusama, allowing users to operate separate layer-1 blockchains alongside the Kusama network. This approach not only ensures the security of the Parachains but also significantly enhances the scalability and interoperability of the Kusama network.

What gives Kusama (KSM) value?

Kusama's unique role as a canary network for Polkadot provides it with a first-mover advantage for many new dApps and projects within the Polkadot ecosystem. Numerous dApps will debut on Kusama before refining and updating their offerings for the Polkadot network.

Moreover, Kusama employs Parachains, independent layer-1 blockchains that enable users to engage in token models and incentives not typically available on the Kusama Network. To utilize Parachains, projects must secure a slot in Parachain Auctions. These slots are not only valuable but also require KSM to be locked for the lease duration. Winning bidders must then succeed in subsequent auctions to renew the lease, ensuring a steady flow of KSM for projects.

The primary function of the KSM token is to sustain and manage the Kusama network. Users can derive value by engaging in various activities on the Kusama network, such as staking, bonding, and participating in governance.

How many Kusama (KSM) coins are currently in circulation?

As of May 2021, there are 8,980,098 KSM tokens in circulation out of a total supply of 10,000,000 KSM. Unlike DOT, there is no maximum supply of KSM, and it follows a 10% annual inflation rate. The distribution of newly minted KSM tokens depends on the proportion of KSM staked, with validators receiving all new tokens when exactly half of the KSM supply is staked. Any excess inflation goes to the Kusama Treasury if the staked amount is above or below 50%. KSM tokens can be purchased on the secondary market and earned through participation in Kusama's dual node network.

Additional Technical Details

• Dot indicator token: Users who bought DOT during the initial coin offering (ICO) received this token and could redeem an equal amount of KSM during the Token Generation Event.
• Validators: Validators can claim staking rewards for running a validating node, with the required amount of KSM to become a validator changing dynamically.
• Nominators: Nominators in the Kusama network earn passive rewards in KSM by delegating their KSM to up to 16 validators, with rewards varying based on the number of participants and current yield.

How to use Kusama (KSM)?

KSM serves as a governance token for overseeing protocol updates and fixes, and also for paying fees for transferring messages across parachains. Validators can stake their KSM to help secure the network and earn rewards from inflation, while nominators can stake their KSM to validators to receive a portion of these rewards. Furthermore, KSM can be bonded to support new parachains.

How to select a Kusama (KSM) wallet?

The choice of Kusama (KSM) wallet depends on your storage needs and usage preferences.

Hardware wallets, or cold wallets, offer the highest level of security with offline storage and backup. Ledger and Trezor hardware wallets support KSM storage. While they may be more complex and expensive, they are ideal for storing significant amounts of KSM, especially for experienced users.

Software wallets are free and easy to use, available as smartphone or desktop apps. They can be custodial, where the service provider manages and backs up your private keys, or non-custodial, where private keys are stored securely on your device. While convenient, they are less secure than hardware wallets and more suitable for smaller amounts or beginners.

Online wallets, or web wallets, are also free and accessible from any web browser. They are considered less secure than hardware or software wallets as you rely on the platform to manage your KSM. It's important to choose a reputable service with a strong security track record. Online wallets are best for holding smaller amounts or experienced traders.

Kriptomat offers a secure storage solution for KSM, providing both storage and trading capabilities. Storing your KSM with Kriptomat ensures enterprise-grade security and user-friendly functionality, allowing for easy buying, selling, and exchanging of KSM and other cryptocurrencies.

Kusama (KSM) staking

Kusama offers three methods to create a wallet for staking KSM: the Polkadot UI, the Polka Wallet, or the Polkadot JS staking app. Once a wallet is created, users must bond their KSM using the staking section of the app, ensuring to reserve some KSM for gas fees. Bonded assets are locked on the network for the bond's duration. Users can then choose up to 16 validators to send their assets to. Validators who misbehave will be penalized through slashing, resulting in a loss of a small portion of their funds.

In summary, Kusama (KSM) stands out in the market as the most dynamic testnet currently available. Its fast-paced and occasionally tumultuous chain environment creates unique and potentially rewarding prospects for investors and users. Developed by Gavin Wood, a co-founder of Ethereum, Kusama benefits from the same team behind Polkadot and leverages the innovative and robust Polkadot codebase. With its progressive design, KSM is poised to lead in dApp production and blockchain development, likely maintaining its status as one of the most vibrant and beneficial testnets for years to come.