Why the future of video transcoding will be decentralized

Thesis By creating an open market for video transcoding, Livepeer can bring decentralization to video apps while simultaneously lowering costs By our analysis, Livepeer transcoding can be up to 40% cheaper than using centralized alternatives such as Amazon AWS as of May 2021 Livepeer Protocol has seen large growth while also maintaining high levels of active participation from token holders Video broadcasting consumes up to 80% of all internet traffic, so a cheaper alternative will be tapping one of the largest markets on the internet Miner-level integration with Filecoin will emulate the seamlessness of web2.0 by combining storage and processing in close to one another The state of transcoding today Video traffic over the internet currently constitutes a majority of all traffic worldwide. Cisco estimates video traffic will account for 82% of all information transmitted over the internet by the end of 2021, increasing from 73% in 2016. As 4K video and VR services continue to increase in popularity, video content’s share of total bandwidth will continue to grow. Because of the large variety of device sizes and connection speeds that a user might have, the need for efficient transcoding has become essential to making these broadcasting services possible. Transcoding is a process by which a raw video stream is adapted to many alternate formats that a viewer may need. This allows the same video to be watched from a smartphone, tablet, or laptop, and still be seen in the highest possible quality. Transcoding is a computationally difficult task and thus requires expensive hardware to be performed efficiently. The primary option for transcoding is to use expensive cloud-based services such as Amazon’s AWS. This has raised the barrier to entry for small and medium-sized businesses and led to a high degree of centralization in video broadcasting. How Livepeer is upending current architecture with a superior solution Livepeer solves the barrier to entry problem by introducing an open market for video transcoding, allowing anyone with sufficient hardware and bandwidth to offer their services to the network in exchange for a fee. At the same time, this scheme can lower the cost of video transcoding by a factor of 2.5 (see calculation below), making it an attractive alternative to traditional video transcoding services. Livepeer’s protocol is built with the Ethereum blockchain. The Livepeer network has three classes of participants: Broadcasters Broadcasters consume the network’s services. When a broadcaster wants a video or stream to be transcoded, they submit a job to the network detailing what work is to be done and in what region. In exchange for the network processing their video, the broadcaster must pay a fee in ETH. Orchestrators Orchestrators are active participants in transcoding on the network. They have access to hardware that can perform video processing efficiently. When a broadcaster submits a job to the network, Orchestrators in the broadcaster’s region bid against each other for the job. Orchestrators must stake LPT tokens in exchange for the right to bid on jobs in the network. Orchestrators that perform dishonestly will be penalized by losing part of their LPT stake. Orchestrators that complete jobs correctly collect the fees paid by the broadcaster as well as new LPT issuance. Delegators Delegators are holders of LPT tokens who do not have access to the hardware needed for video processing jobs. Delegators may delegate their LPT tokens to Orchestrators and receive a cut of the fees the Orchestrator collects as well as a cut of new LPT issuance. The role of a delegator is to signal trust in a particular Orchestrator, incentivizing broadcasters to choose Orchestrators with the best uptime, honesty, and access to hardware. Between April 25, 2021, and May 1, 2021, the Livepeer network processed 593,543 minutes of video at a total cost in fees per day of $7184, implying an average cost of $0.012 per minute. Amazon’s Elemental MediaConvert service offers comparable transcoding services to the Livepeer Network. 1 minute of HD video transcoding on Amazon’s Professional Tier transcoding service is $0.03 per minute for a video input between 30 and 60 frames per second (see table below). Thus the total cost of processing 593,543 minutes of video with Amazon’s transcoding service is $17,806, or 250% more expensive than Livepeer. As the Livepeer network gains additional scale, the cost for transcoding a segment of video are likely to decline. The average cost of one hour of streaming on Livepeer between April 25 and May 1 was $1.37, but the actual cost of this operation for a transcoding node is currently closer to $0.02 per hour; as more orchestrator nodes enter the network and add additional GPU capacity the cost per hour on the network competition between orchestrators has the potential to significantly lower the cost per job. AWS Transcoding Price Table (source: https://aws.amazon.com/mediaconvert/pricing/)

Why the future of video transcoding will be decentralized
Thesis By creating an open market for video transcoding, Livepeer can bring decentralization to video apps while simultaneously lowering costs By our analysis, Livepeer transcoding can be up to 40% cheaper than using centralized alternatives such as Amazon AWS as of May 2021 Livepeer Protocol has seen large growth while also maintaining high levels of active participation from token holders Video broadcasting consumes up to 80% of all internet traffic, so a cheaper alternative will be tapping one of the largest markets on the internet Miner-level integration with Filecoin will emulate the seamlessness of web2.0 by combining storage and processing in close to one another The state of transcoding today Video traffic over the internet currently constitutes a majority of all traffic worldwide. Cisco estimates video traffic will account for 82% of all information transmitted over the internet by the end of 2021, increasing from 73% in 2016. As 4K video and VR services continue to increase in popularity, video content’s share of total bandwidth will continue to grow. Because of the large variety of device sizes and connection speeds that a user might have, the need for efficient transcoding has become essential to making these broadcasting services possible. Transcoding is a process by which a raw video stream is adapted to many alternate formats that a viewer may need. This allows the same video to be watched from a smartphone, tablet, or laptop, and still be seen in the highest possible quality. Transcoding is a computationally difficult task and thus requires expensive hardware to be performed efficiently. The primary option for transcoding is to use expensive cloud-based services such as Amazon’s AWS. This has raised the barrier to entry for small and medium-sized businesses and led to a high degree of centralization in video broadcasting. How Livepeer is upending current architecture with a superior solution Livepeer solves the barrier to entry problem by introducing an open market for video transcoding, allowing anyone with sufficient hardware and bandwidth to offer their services to the network in exchange for a fee. At the same time, this scheme can lower the cost of video transcoding by a factor of 2.5 (see calculation below), making it an attractive alternative to traditional video transcoding services. Livepeer’s protocol is built with the Ethereum blockchain. The Livepeer network has three classes of participants: Broadcasters Broadcasters consume the network’s services. When a broadcaster wants a video or stream to be transcoded, they submit a job to the network detailing what work is to be done and in what region. In exchange for the network processing their video, the broadcaster must pay a fee in ETH. Orchestrators Orchestrators are active participants in transcoding on the network. They have access to hardware that can perform video processing efficiently. When a broadcaster submits a job to the network, Orchestrators in the broadcaster’s region bid against each other for the job. Orchestrators must stake LPT tokens in exchange for the right to bid on jobs in the network. Orchestrators that perform dishonestly will be penalized by losing part of their LPT stake. Orchestrators that complete jobs correctly collect the fees paid by the broadcaster as well as new LPT issuance. Delegators Delegators are holders of LPT tokens who do not have access to the hardware needed for video processing jobs. Delegators may delegate their LPT tokens to Orchestrators and receive a cut of the fees the Orchestrator collects as well as a cut of new LPT issuance. The role of a delegator is to signal trust in a particular Orchestrator, incentivizing broadcasters to choose Orchestrators with the best uptime, honesty, and access to hardware. Between April 25, 2021, and May 1, 2021, the Livepeer network processed 593,543 minutes of video at a total cost in fees per day of $7184, implying an average cost of $0.012 per minute. Amazon’s Elemental MediaConvert service offers comparable transcoding services to the Livepeer Network. 1 minute of HD video transcoding on Amazon’s Professional Tier transcoding service is $0.03 per minute for a video input between 30 and 60 frames per second (see table below). Thus the total cost of processing 593,543 minutes of video with Amazon’s transcoding service is $17,806, or 250% more expensive than Livepeer. As the Livepeer network gains additional scale, the cost for transcoding a segment of video are likely to decline. The average cost of one hour of streaming on Livepeer between April 25 and May 1 was $1.37, but the actual cost of this operation for a transcoding node is currently closer to $0.02 per hour; as more orchestrator nodes enter the network and add additional GPU capacity the cost per hour on the network competition between orchestrators has the potential to significantly lower the cost per job. AWS Transcoding Price Table (source: https://aws.amazon.com/mediaconvert/pricing/)Livepeer tokenomics and incentive design The LPT token is the mechanism by which activities on the Livepeer protocol are coordinated. As an ERC-20 standard token, it can be integrated into other Ethereum-based platforms including borrow/lend systems, decentralized exchanges, and derivatives. New LPT tokens are minted in ‘rounds’ that occur every 5780 blocks, or once every 17 hours. New LPT issuance is distributed to Orchestrator nodes and their delegators, incentivizing token holders to put their LPT to work in delegation rather than using it elsewhere. Since July 2020 the Livepeer network has maintained a participation rate, or percentage of tokens staked or delegated, above 50%. Source: explorer.livepeer.orgTraction over time, Filecoin, and catalysts Recently Livepeer has begun a pilot of a co-mining system with Filecoin, a decentralized network for file storage and recovery. Combining Filecoin mining with Livepeer orchestration opens the possibility of fully-decentralized video based applications that offer the same degree of responsiveness that can be found in services like YouTube or Vimeo. Additionally, the colocation of Filecoin mining and Livepeer transcoding should expand the pool of available hardware for both networks across different geographic locations. Use of the Filecoin network will allow for transcoded video to be stored on-chain, allowing for fully decentralized apps that both provide real-time streaming and cached video. As of May 1, 2021, the LPT network is valued at $737 million with a daily exchange volume of $14 million. The Livepeer network has seen steady growth, both in valuation and network usage throughout 2020 and 2021. The LPT token supply valuation grew from just $7 million on July 15, 2020, to more than $500 million today and network use has kept pace. Estimated usage per day grew from less than 20,000 minutes in July 2020 to more than 600,000 in May 2021. Grayscale added an LPT trust to their suite of products on March 10, 2021, providing a further source of demand for LPT tokens. Combined with the high rate of LPT staking, the Livepeer network has potential for continued growth going forward. CoinFund’s active network participation CoinFund aims not only to invest in protocols, but also to take an active role in the network through staking, governance, and infrastructure provision. For Livepeer CoinFund maintains an orchestrator node on a dedicated server. Because of the high uptime of the CoinFund orchestrator, it has attracted 946,000 LPT in delegated stake from delegators, making it the 5th largest node on the Livepeer network as of May 1, 2021. The orchestrator node routes jobs for the network and makes a daily reward call, collecting new LPT issuance and distributing it to delegators. By actively participating in the network CoinFund hopes to foster continued growth of the network into the future. Conclusion Demand for video broadcasting and transcoding services continues to grow as 4K video and VR streaming become more commonplace and more media services move from television to online streaming. Livepeer is a robust marketplace for video streaming and transcoding services and has grown steadily over the last year. As of May 1, 2021, 593,543 minutes of video (the equivalent of 412 days of footage) are processed per week by the network. The market for video broadcasting services is a growing market that currently has a small number of expensive options for services. Livepeer enables anyone, from a PC gamer with an idle GPU during the day, to a large-scale GPU-based cryptocurrency miner with unused capacity to bid on transcoding jobs provided they meet a minimum required stake of LPT. Through a resilient decentralized network, Livepeer significantly reduces the costs of video processing for a broadcaster and enables an entirely novel set of use cases for video previously unfeasible due to costs. Additional resources: https://github.com/livepeer/wiki/blob/master/WHITEPAPER.md#introduction-and-background https://github.com/livepeer/wiki/blob/master/STREAMFLOW.md https://explorer.livepeer.org https://livepeer.org/primer Disclaimer: The content provided on this site is for informational and discussion purposes only and should not be relied upon in connection with a particular investment decision or be construed as an offer, recommendation or solicitation regarding any investment. The author is not endorsing any company, project, or token discussed in this article. All information is presented here “as is,” without warranty of any kind, whether express or implied, and any forward-looking statements may turn out to be wrong. CoinFund Management LLC and its affiliates may have long or short positions in the tokens or projects discussed in this article. 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