Coin Report #17: HEAT

AD: Before I begin this post, I’d like to briefly mention Bitcoin.Live, who are sponsoring my blog.

Bitcoin.Live offers regular, detailed content on their free-to-access blog, created by a panel of analysts (including Peter Brandt), and covering all manner of market-related topics. I found both the video material and the blog posts to be genuinely insightful, with many differing analytical perspectives available for viewers and readers. The platform also offers premium content for paying subscribers who find value in the free material, with daily videos, alerts and support provided. Check it out and bookmark the blog.

N.B: In the spirit of full transparency, the following Coin Report on HEAT is a Sponsored Post.

Welcome to the 17th Coin Report. In today’s report, I will be assessing the fundamental and technical strengths and weaknesses of HEAT. This will comprise of an analysis of a number of significant metrics, an evaluation of the project’s community and development and an overview of its price-history. The report will conclude with a grading out of 10. I hope you enjoy the read!

Introduction

A couple of months ago, the team working on HEAT got in touch to book in a Coin Report to be published around the time of their recent platform release, which I shall cover a little later. Prior to this point, I had not heard of HEAT before and thus the research process truly began from scratch. In conclusion of said research, I found there to be many gaps, all of which shall be detailed. That said, there are certainly positives to take away from this report, too.

I hope the report will prove objective where it must be and fair on more subjective matters. For those who’d like to learn a little more about HEAT prior to reading this report, here are some primary links:

Fundamental

General:

Name: HEAT

Ticker: HEAT

Algorithm: SHA256 (Proof-of-Stake)

Sector: Decentralised Asset Platform

Exchanges: HEAT Ledger & Cryptopia

Launch Overview

HEAT, or HEAT Ledger, was launched in the summer of 2016, building on the work done by NXT to create a “Gen 3.0” cryptocurrency platform. It operates using a dual Proof-of-Stake/Proof-of Presence consensus mechanism with 25-second block times. Proof-of-Presence allows users to be rewarded for storing a copy of the blockchain. Current block rewards are 3 HEAT for each of the two consensus mechanisms. The codebase itself is written in Java to ensure suitability for applications within finance.

The coin was created following an ICO that raised around $900,000 and ran from July 11th to August 8th. This equated to 1632 BTC at the time and led to the creation and distribution of 25 million HEAT in January 2017.

Price-History Overview

Given HEAT’s launch in July 2016, the coin has almost three years of very interesting price-history that we shall tackle in the later sections of this report. For now, it will suffice to say that it made an all-time high against Bitcoin in March 2017 in a huge spike to 65k satoshis. It made its all-time high against the Dollar in January 2018 at $3.03. Since these highs, however, HEAT has lost over 99% of its value.

Project Overview

HEAT’s core development is its HEAT Ledger platform that integrates a decentralised exchange, block explorer and multicurrency wallet, optimising for security, speed and scalability.

We shall see how it fares in this respect.

Let’s begin with some Metric Analysis:

Metric Analysis:

Below are listed a number of important metrics, all of which are accurate as of 31st March 2019. For anyone reading this who has yet to read a Coin Report, it might be worth reading this section of the first report, where any potentially unfamiliar terms are explained. For any terms or metrics specific to this post, I will provide explanations besides the figures.

Metrics:

General:

Price: $0.014 (350 satoshis)

Exchange Volume: $2,163

Circulating Supply: 39,713,357 HEAT

Total Supply: 39,713,357 HEAT

Maximum Supply: 50,000,000 HEAT

% of Max. Supply Minted: 79.43%

Network Value: $569,206 (139 BTC)

Network Value at Max. Supply: $716,625

Category: Lowcap

Exchange Volume-to-Network Value: 0.38%

Average Price (30-Day): $0.018

Average Exchange Volume (30-Day): $40

Average Network Value (30-Day): $709,831

Average Exchange Volume (30-Day)-to-Network Value: 0.01%

Volatility* (30-Day): -0.0538

Average Daily On-Chain Transactions (30-Day): N/A

Average Daily Transactional Value** (30-Day): N/A

NVT*** (30-Day): N/A

% Price Change USD (30-Day): +23.1%

% Price Change USD (1-Year): -93.4%

USD All-Time High: $6.74

% From USD All-Time High: -99.6%

Premine % of Max. Supply: N/A

Premine Location: N/A

Liquidity (calculated as the sum of BTC in the buy-side with 10% of current price across all exchanges): 0.115 BTC

Liquidity-to-Network Value %: 0.08%

Supply Available on Exchanges: 65,500 HEAT

% of Circulating Supply Available on Exchanges: 0.16%

*Volatility is calculated by taking the average price over the given time-period, calculating the difference between it and the highest price and it and the lowest price over that same time-period, and multiplying those figures together. The closer to 0, the less volatility during that period, and vice-versa. Read this for more on volatility.

Supply Emission & Inflation:

Block Reward Schedule: Current block reward is 3 HEAT for Proof-of-Stake and 3 HEAT for Proof-of-Presence for the next ~200,000 blocks. Following this, block rewards decrease to 2. More on this can be found on p27 of the whitepaper.

Average Block Time: 25 seconds

Current Block Height: 2298915

Annual Supply Emission: 5,402,136 HEAT (18.91 BTC at current prices)

Annual Inflation Rate: 13.6%

Circulating Supply in 365 Days: 45,116,493 HEAT

Staking:

Network Staking Weight: N/A

Staking ROI (Annual): Minimum 6.8%* (assuming all circulating supply is being staked)

*Calculated by dividing the annual supply emission rewarded to stakers by the circulating supply: 2,701,068 / 39,714,357 = 6.8%

Analysis:

Well, unlike for most Coin Reports, there is a little less to work through for HEAT, as its recent developmental changes and the lack of a fully-functional block explorer meant that I could not evaluate the coin’s distribution. Further, HEAT does not have masternode functionality.

However, there is still a fair bit to discuss, and I’ll begin with the General metrics:

Firstly, let’s take a look at Volatility.

However, I must first mention that HEAT is currently only traded on one exchange (its own DEX) with extremely low volume and liquidity whilst Cryptopia is undertaking work to get itself back online. As such, volatility was expected to be high. HEAT’s Volatility came in at -0.0538, meaning that it has actually had less movement than Trittium, Altbet and MonetaryUnit over a 30-day period. This can be explained by the lack of volume, and thus the lack of movement in price.

Now, let us take a look at Liquidity measures, all the while keeping in consideration that there is only one exchange at present:

HEAT’s Liquidity was calculated to be 0.115 BTC within 10% of current prices on the HEAT Ledger DEX, which equates to 0.08% of its Network Value. If I’m honest, I was actually expecting worse Liquidity than that, but it does still place HEAT fourth from bottom amongst the coins in previous reports. What I was surprised at is that, despite the lack of volume or even multiple exchanges, it still had slightly greater Liquidity relative to its Network Value than Cashaa – a multi-million dollar ICO.

Regarding its sell-side liquidity, I calculated that there was ~65,500 HEAT available on the HEAT Ledger orderbook, equating to 0.16% of the circulating supply; by the far the lowest figure recorded in these reports. Again, though expected given the lack of exchanges, does give some indication as to lack of desire for the holders of the other 99.84% of the circulating supply to sell at current prices. Overall, it indicates to me that, at present, there is a general lack of interest from buyers or sellers, and that is perhaps to be explained a little later when we cover Development.

Now, before we move on to cover volume and conclude the General metrics, I’d like to briefly mention price. HEAT’s current price of around $0.014 is over 99.5% below its all-time high of $3.03. I would generally expect this of a coin that is now abandoned or fraudulent or something to that effect, and yet HEAT clearly is neither of those things, given their recent platform release and the PR campaign that they have organised to begin around said release… as such, it is likely that there is indeed an opportunity here, yet the lack of an even somewhat liquid exchange is likely the very reason it is trading at such a discount; no one is able to buy any significant amounts, at least not without going over-the-counter. I expect the dynamics to change when the HEAT market is re-enabled on Cryptopia, or, ideally, when they are listed on new exchanges.

To conclude this coverage of General metrics before we tackle Supply Emission, let us take a look at the volume-related figures:

HEAT traded $2,163 of volume over the past 24 hours, equating to 0.38% of its Network Value. Now, on the surface, that doesn’t sound all that bad (not great, no, but not abysmal either). However, this was an anomaly over the past 30 days, with the Average Daily Volume coming in at… wait for it… $40. In essence, zero. That is 0.01% of its Average Network Value – for the same period – of $709,831. Now, what this confirms is that there is simply no interest in HEAT on its own exchange at present. Unfortunately, I can’t determine OTC demand, and thus this is all I have to go on. There is a clear necessity here for more exchange listings in order to gain an audience of speculators that will at least drum up interest in trading HEAT, so that any fundamental developments can become more visible.

So, with that said, let’s now take a look at Supply Emission:

HEAT’s average block time is 25 seconds and its current block rewards are 3 HEAT to each of its consensus mechanisms (Proof-of-Stake and Proof-of-Presence). However, these rewards decrease to 2 each in the next ~200k blocks. I calculated that the supply emission for the next 365 days will be around 5.4mn HEAT, or 18.91 BTC at current prices. This gives HEAT a moderate annual inflation rate of 13.6%.

Given HEAT’s sustained lack of volume, it would be rather useless to determine the relationship between volume and its supply emission. Inflation is clearly not much of an issue at 13.6%, and there should be no real headwinds to price growth if the real issues of volume and liquidity are resolved. This is critical.

And that concludes this section on Metric Analysis. Onto the HEAT Community:

Community:

There are two primary aspects of community analysis: social media presence and Bitcointalk threads. I’ll begin with the former before moving on to the latter.

Social Media:

Concerning social media presence, there are four main platforms to examine: Twitter, Facebook, Telegram and Discord.

HEAT is present on all platforms except Telegram. To begin, let’s look at the various social metrics that I calculated from the HEAT Twitter and Facebook accounts:

Twitter Followers: 3042

Tweets: 589

Average Twitter Engagement: 0.22%

Facebook Likes: 5934

Facebook Posts (30-Day): 7

Average Facebook Engagement: 0.02%

As usual, I will be using RivalIQ‘s social benchmark report for evaluation purposes.

Twitter:

Given that HEAT has been around for almost 3 years, its Twitter audience is not particularly large and its engagement is not particularly strong. That said, in RivalIQ’s report, we find that the average Twitter engagement rate across all industries is 0.046%, which means that HEAT’s engagement rate is currently 4.78x greater. Further, the average engagement rate for the Media industry (the most relevant in the report) is 0.013%, thus HEAT’s is 16.9x greater.

However, its engagement rate relative to other cryptocurrencies is very much average, placing it in the middle of the pack of coins previously reported on.

Facebook:

Facebook, unlike for many cryptocurrencies, is HEAT’s largest audience, with close to 6,000 likes. The team do not post all too regularly, however, with 7 posts in the past month. Engagement is very poor here, with 0.02% being the average engagement rate for the past 30 days.

HEAT’s average Facebook engagement rate is also lower than the average across all industries of 0.16%, and lower than the Media industry average of 0.08%.

This needs work, as there is no point in having a solid working product (the platform, which we shall cover later) when no one is paying any attention.

Discord:

HEAT’s Discord group is rather small relative to its other platforms, with only 359 members. There are plenty of channels for relevant topics but I could not find a channel with links to useful resources for new users.

As usual, General is the most active channel, with 20 members active over the past week (around 5.6% engagement). However, there are only a handful of daily messages posted, and the channel is lacking consistency in any real, meaningful discussion on the development of the project. The team are active, as are a small group of dedicated community members, but there is no palpable wider interest. What I did like was that the team, irrespective of the lack of heavy engagement, are consistently providing detailed updates on their progress, including their Business Strategy roadmap for 2019, which I cover later in the report. I also found out that new altcoins will be added to the DEX in Q2 to help improve volume; that a PR campaign is underway to help visibility of the platform release; and that HEAT will be sponsoring the Evolvement podcast for awareness. Heatwallet 2.9.0 (the multifunctional HEAT platform) was released a few days ago, featuring its integrated DEX and multicurrency wallet, as well as markets added for NXT assets, plus a blog post detailing the ins and outs of the release.

Overall, the team is clearly making an effort to inform the community of their progress, and that is highly commendable. However, engagement and interest is very limited and the group is quite subdued in its discussion.

BitcoinTalk:

The (new) HEAT BitcoinTalk thread was created on June 10th, 2017, and has since generated 1023 posts spanning 52 pages in 662 days. This equates to 1.54 post per day, on average. However, in the past 90 days, the thread has had 44 posts, giving an average of 0.48 posts per day; a serious decline in engagement.

The announcement itself is mainly just a series of links to key resources. There is little to no branding or design, and the announcement still features a roadmap from 2017. It does not even introduce the project nor provide any basic info on coin specification or the block reward schedule.

Regarding the content of the thread, there is some discussion concerning the Cryptopia hack, as this is the only exchange listing other than the HEAT DEX, which seems to be a sore point for the community. There seems to be a fair amount of bickering in the thread, with the new platform release being the only real useful post in the whole thread. Not overly impressed.

Community growth needs to be given serious attention, especially given the recent platform release, which has a number of positives that would be useful to users. My primary problem, however, is the severe lack of information; as someone who is spending an entire day on this research process, I struggled with finding certain information – what about new users and visitors who merely browse?

Development:

For the following Development analysis, I will be evaluating project leadership, the website, the roadmap, the whitepaper, the wallets and finally providing a general overview:

Project Leadership:

There are 6 core team members listed on the website and 7 contributors to the Github.

Of these, there is a CEO, CFO, CTO, Senior Developer, Head of Marketing and Head of Content & PR.

There is clear balance here, as well as experience, yet the research done thus far points to a heavy focus on development and a lack of attention or commitment towards marketing (something that is only recently changing, as per the website evaluation in the next section and the current PR campaign).

Website:

https://heatledger.com/

The HEAT website is perhaps the first sign of a changing tide regarding the project’s lack of commitment to marketing, which, in turn, implies a lack of commitment to user growth. I was very happy to find that the team have recently done an overhaul of the old website, with clear progress made in UI/UX and the overall visual appeal of the design.

The Web Wallet login is clear and accessible, and branding is much stronger than elsewhere within the HEAT ecosystem. The platform’s use-cases are front-page to ensure new visitors are made aware – overall, it is just much better tailored to the end-user than anything covered so far in the report. The multi-currency wallet is emphasised, as is the ability trade anonymously and securely on the integrated decentralised exchange. Further, I discovered that HEAT are branching out into ETOs, with asset issuance and market creation available on their platform; something unmentioned elsewhere. The HEAT platform is available on all operating systems and these are clearly linked, as are HEAT’s social channels.

I can definitely see the direction that the projects wants to move towards just from the differences between this new website and all of the older material in the ecosystem. Further, HEAT is providing free ETO evaluations for businesses, with the HEAT platform committed to providing support for successful issuances. The platform itself will allow businesses to create their tokens and a market for them, as well as allow users to store the tokens.

Far more impressed with this than anything I have seen thus far.

Roadmap:

I was provided with this Business Strategy roadmap by the HEAT team, which gives an overview of what is to come for 2019. It can also be found on their website, though the size is not quite large enough to read for some reason; at least not on my PC.

In truth, it does not give away much detail on what’s in store for the project, but it does show that they are indeed thinking ahead and that they plan to develop a number of products and services related to HEAT. I would like to see more detail, however.

Whitepaper:

https://heatledger.com/HEATWhitepaper.pdf

The whitepaper is 32 pages in length, and is dated August 2016, thus likely out-dated. It is very much a technical whitepaper, not necessarily meant for the layman, with much of the prose jargon-heavy and highly technical. They do mention that the document will be “amended and expanded” over time as the project develops, but this doesn’t seem to have been the case.

There is much here on the technology being developed and its applications, in particular the “complete removal of the embedded database” in HEAT, which means that, unlike most cryptocurrencies, HEAT does not have a single, ever-increasing blockchain file, but rather uses “serialized blockchain files”. This is where Proof-of-Presence comes in, which rewards HEAT users that store copies of the blockchain.

There is, however, also important information on block reward schedules, consensus mechanisms, the decentralised exchange and other useful material for those perhaps considering investment, but overall I feel that the paper is very much aimed at those with a degree of technical proficiency, rather than being utilised as a tool to onboard more potential users of the platform (who are often laymen). In fact, the entire project feels very much like this, as was the case when I wrote reports on Arionum and Bismuth; HEAT feels similar in its priorities and thus is clearly experiencing similar issues.

Wallets:

The HEAT platform with integrated multi-currency wallet is available online and on all operating systems.

General:

In general, the key issues for HEAT are self-evident: community engagement and liquidity. Given sufficient commitment to resolving these, I believe there is promise here, but these are no small tasks.

The positives are largely tied to the recent platform release, which, though it needs some polishing up with regards to design, is highly functional and would be a very useful tool if and when it begins to receive some volume.

It is clear that the development-heavy approach has left holes in key areas for HEAT that must be remedied now that the platform has been released. That said, I must emphasise how impressive I find it that a project that has experienced a 99.5% decline in the value of its coin has continued to work tirelessly at developing a working product.

That concludes the Fundamental analysis, onto the Technical:

Technical

Above, I have provided the Weekly and Daily charts for HEAT. Before I begin any analysis, I must first mention that the lack of liquidity means that I would not be able to take a position, in any case; there is simply not enough buy-or-sell-side liquidity. As such, this analysis is largely for the sake of study and to be returned to when HEAT becomes more liquid (although price, I imagine, will likely be higher by that time).

It is clear from the Weekly chart that we have seen progressively lower peaks on the bull cycles, culminating in an all-time low being formed around 150 satoshis. Levels of prior support became resistance on the way down, such as at ~3600 and ~1650 satoshis, though those levels are a long way away from where price is currently trading.

Looking now at the Daily chart, we can see that the downtrend from 2018 has ended, and price is largely range-bound between 350-600 satoshis. This would usually imply potential accumulation, but the lack of volume makes it unlikely, unless there is volume being traded OTC. (A rich-list would have been useful here). The last period of significant volume was in November 2018, when price rallied above 1100 satoshis; since then, volume has been exceedingly low.

I would like to see new exchanges added for HEAT, or a serious increase in the volume of their own decentralised exchange, before taking any position. As I have likely made clear, there is some promise here and price is certainly attractive, but it is currently too illiquid and at the mercy of the growth of its own exchange.

Conclusion

This report is now over 4,000 words, and it is time to draw it to a close.

My final grading for HEAT is 6 out of 10.

Here, you can find my grading framework, for reference.

Lastly, here is a link to a Google Sheets file with any significant data from previous reports compiled for cross-comparative purposes. I will keep this updated as I continue to write these reports.

I hope this report has proved insightful and that you’ve enjoyed the read! Please do feel free to leave any questions in the Comments, and I’ll answer them as best I can.

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The Precedence of Price

AD: Before I begin this post, I’d like to briefly mention Bitcoin.Live, who are sponsoring my blog.

I’d like to preface this post by mentioning that this, unlike the vast majority of blog posts I publish, is expressly aimed at newer speculators, with little to no familiarity with markets.

The price paid for any asset is the single most important aspect of speculation, and one that largely determines the profitability of said speculation.

This idea is drummed into our heads by the most successful traders, investors and speculators of all time; and justifiably so.

Whilst investors like Warren Buffett refuse to acknowledge the long-term utility of technical analysis, relying solely on fundamentals in their decision-making process, they all – going all the way back to Benjamin Graham – make the concession that price is paramount. Price is both fundamental and technical in its nature, with all technical analysis deriving from two data-points: price and volume.

For the purposes of this post, we will be focusing on price, as it is the most critical component to your decision-making process.

Now, the problem with a sole reliance on fundamental analysis is that it often disregards the price-history of an asset. Whilst there are many valuation models in equity research that allow for a relative measure of cheapness to be determined, this is not the case with cryptocurrencies, at present.

In this space, we rely heavily on past prices for an indication as to the relative value of current prices. This is because fundamental analysis is very much in its infancy within the cryptosphere, and those valuation models do not yet exist, thus technical analysis is critical to prevent from overpaying for any given altcoin; an act that renders profitability highly unlikely.

A project might be impeccable in its fundamental quality, comprising of an engaged and growing community, consistent development, a working product and unique use-cases; but if you enter a position in that project at or near all-time highs, there is a strong chance that you spend a long time underwater or even realise a loss. Indeed, gravity is far greater a force within this particular asset class, and no amount of structural soundness will prevent the eventual (and cyclical) collapse.

As such, a study of price-history is indispensable when considering an entry for a new position. In fact, if you do nothing else in your research except study price-history, you will likely be doing enough to find some degree of success.

Now, this is all exceptionally simple; intuitive, one might argue. And so, I’ll refrain from rambling on any more. Rather, I believe it will prove useful to provide some examples of this concept of relative cheapness, if only to illustrate its simplicity.

First, consider all that has been said thus far. All we are looking for are periods of cheapness and dearness across price-history – in essence, we are reframing the concepts of support and resistance and simplifying them.

Below are printed the before-and-after charts of several coins. These are just a sample of the dozens and dozens of examples that are available in the market:

DOGE:

Dogecoin is perhaps the best possible example to illustrate this concept, as it has experienced numerous market cycles in its price-history. Looking at this first chart, intuitively, which prices look as though they are cheap and which look expensive?

Here, I have depicted my thoughts on this, where there is a price range of extreme cheapness, which has only been traded 4 times; a price range of cheapness, which has been traded 8 times; and a range of expensiveness, which has been traded 6 times.

Those that have bought within the extremely cheap range have been rewarded every single time with a possibility to sell within the expensive range. Those that have bought in the cheap range have been rewarded 5 out of 7 times with the same opportunity (excluding the current, 8th touch of this range) without experiencing price trade inside this range a second time prior to reaching the expensive range. To clarify this, look at the 2nd and 6th periods of price trading inside the cheap range: subsequent price-action took price up and out of the range but fell short of the expensive range, moving back inside cheap before making another (this time successful) run at expensive.

In all of Dogecoin’s price-history, buyers below 50 satoshis have been rewarded with an opportunity to sell above 100 satoshis, no matter when they decided to buy below this point.

STEEM:

Now, above is printed a STEEM chart, but I have excluded the first few months of price-history simply because it was an anomaly that massively distorts the chart. This is often the case when coins first begin trading, as circulating supplies are extremely low, drastically affecting early pricing.

Where, on this chart, would you consider price to be cheap and where is it expensive?

Clearly, there is one price-range that indicates relative cheapness across STEEM’s price-history. This range has been traded inside on 3 separate occasions. Each entry within this range has been reward with an opportunity to sell inside the expensive range except the most recent one, from which price is only just exiting. If we look between the 2nd and 3rd entries into the expensive range, we can see a failure for price to return to cheap, and thus bargain hunters would have missed this opportunity; a risk always present for those who adhere to the approach of buying at the very extremes of relative cheapness.

BCN:

BCN is an interesting case, as it spent a long time in a relatively tight price-range before experiencing several cycles in quick succession. Where would you consider price to be cheap for BCN, and where is it expensive?

Now, whilst this entire exercise is largely subjective and open to interpretation, BCN in particular is a trickier case. Whilst I doubt anyone would argue against there being a cheap range below 20 satoshis, I have marked out the area above it (between 30-40 satoshis) as relatively expensive rather than, say, less cheap or relatively cheap. That is because this range between 30-40 satoshis has only acted as a catalyst for a move towards the expensive and extremely expensive ranges once without price also moving into the cheap range. It has also acted as a range from which price has actually declined back into cheap without moving any further up on two occasions.

You might feel that this is actually still a relatively cheap range, and that is your call to make. For me, there is only one range that I’d be buying, and that is below 20 satoshis. Now, every single time price has traded within this range, it has been followed by at least a move up to 40 satoshis, with the more common pattern being a move up towards the expensive and extremely expensive ranges.

Price is currently trading inside the cheap range for the 5th time in BCN’s price-history.

SC:

Siacoin has a beautiful price-history, with very clear areas of relative cheapness and dearness. Looking at the above chart, where would you expect these to be?

Clearly, the range below 50 satoshis is extremely cheap; this range has only been traded within on 2 separate occasions. There is, however, a more recent cheap range that has formed just above it since around November 2017. Why is this range relatively cheap? Because it – like the extremely cheap range – acted as a catalyst for extremely expensive prices.

We have three gradations of dearness depicted, also. There is a relatively expensive range that has been hit 4 times in price-history; 3 of which have occurred after price has traded inside the cheap or extremely cheap ranges.

That concludes the examples, but I would advise you to go and seek out your own examples. The more you study and observe the entire price-histories of altcoins, the more you’ll spot periods of relative cheapness that can be capitalised on. Don’t make things difficult for yourself by seeking out opportunities in altcoins with obscure and clumsy charts; it is unneccesary when there are thousands of coins out there.

I hope this post has provided some insight for less experienced speculators.

As ever, feel free to leave a comment or question below and I’ll get back to you!

Coin Report #16: NKN

AD: Before I begin this post, I’d like to briefly mention Bitcoin.Live, who are sponsoring my blog.

N.B: The following Coin Report on NKN is the third and final community-selected report of Q1 2019.

Welcome to the sixteenth Coin Report. In today’s report, I will be assessing the fundamental and technical strengths and weaknesses of NKN. This will comprise of an analysis of a number of significant metrics, an evaluation of the project’s community and development and an overview of its price-history. The report will conclude with a grading out of 10. I hope you enjoy the read!

Introduction

Much like the prior two community-choice Coin Reports from this quarter (Cashaa and Bettex), I knew nothing about NKN. However, unlike those two, NKN is traded on Bittrex, and so it had at least come across my radar, even if any familiarity with the project was limited to its chart.

One similarity that NKN shares with Cashaa is that it is an ERC-20 token that raised funds via ICO; seems like the community are still keen on ICOs, even if I am not. Nonetheless, I would be lying if I said that I didn’t find this particular research process rather fascinating. The premise behind the NKN project is indeed intriguing…

Anyway, I hope this report will prove objective where it must be and fair on more subjective matters. For those who’d like to learn a little more about NKN prior to reading this report, here are some primary links:

Fundamental

General:

Name: NKN (New Kind of Network)

Ticker: NKN

Algorithm: ERC-20

Sector: Peer-to-Peer Network Connectivity

Exchanges: Bittrex, Gate.io, Bilaxy, IDEX, Upbit, LAToken, BCEX & Bitrue

Launch Overview

NKN (New Kind of Network – a name that tips its hat to Stephen Wolfram; the man behind A New Kind of Science) was launched in January 2018, but raised funding via an ICO in April 2018, after which its token was created. The ICO sold out in minutes and raised over $12mn, though this figure is difficult to verify as there are discrepancies between sources. The token itself recently underwent a swap to become part of the Ethereum ecosystem; a swap that is still ongoing, until the end of this month. NKN was priced at $0.13 during the ICO. The token itself operates using a Proof-of-Relay consensus mechanism; a novel development.

Price-History Overview

As will become apparent from the Technical section, there is very little to discuss regarding NKN’s price-history. Despite the fact that there is around a year’s-worth of data, most of the token’s history has been spent range-bound. NKN set an all-time high against BTC of ~7200 satoshis in June 2018, after which it spent a few months bleeding out alongside the rest of the market. Since mid-August 2018, however, it has been stuck between 325 and 1300 satoshis; a large range, but an unbroken one. We’ll see whether this makes for an opportune entry or not a little later…

Project Overview

NKN is a fascinating project, seeking to develop a peer-to-peer network connectivity protocol that improves upon the inefficiencies and poor security of the current client-server model. In their own words:

“We use economic incentives to motivate Internet users to share network connection and utilize unused bandwith. NKN’s open, efficient and robust networking infrastructure enables application developers to build the decentralized Internet so everyone can enjoy secure, low-cost and universally accessible connectivity.”

Metric Analysis:

Below are listed a number of important metrics, all of which are accurate as of 14th March 2019. For anyone reading this who has yet to read a Coin Report, it might be worth reading this section of the first report, where any potentially unfamiliar terms are explained. For any terms or metrics specific to this post, I will provide explanations besides the figures.

Metrics:

General:

Price: $0.035 (887 satoshis)

Exchange Volume: $337,832

Circulating Supply: 350,000,000 NKN

Total Supply: 700,000,000 NKN

Maximum Supply: 1,000,000,000 NKN

% of Max. Supply Minted: 70%

Network Value: $12.209mn (3104.5 BTC)

Network Value at Max. Supply: $34.885mn

Category: Midcap

Exchange Volume-to-Network Value: 2.77%

Average Price (30-Day): $0.033

Average Exchange Volume (30-Day): $783,572

Average Network Value (30-Day): $11,684,610

Average Exchange Volume (30-Day)-to-Network Value: 6.71%

Volatility* (30-Day): -0.03588

Average Daily On-Chain Transactions (30-Day): 100

Average Daily Transactional Value** (30-Day): $79,034 (source)

NVT*** (30-Day): 154.49

% Price Change USD (30-Day): +21.2%

% Price Change USD (1-Year): N/A

USD All-Time High: $0.54

% From USD All-Time High: -93.6%

Premine % of Max. Supply: N/A

Premine Location: N/A

Liquidity (calculated as the sum of BTC in the buy-side with 10% of current price across all exchanges): 8.06 BTC

Liquidity-to-Network Value %: 0.26%

Supply Available on Exchanges: 6,194,553 NKN

% of Circulating Supply Available on Exchanges: 1.77%

**Transactional Value in $ is calculated by taking the daily transactional value in NKN and multiplying it by price.

***NVT is calculated by dividing the Network Value by the Average Daily Transactional Value. See here for more on NVT.

Supply Emission & Inflation:

Block Reward Schedule: Remaining 300,000,000 NKN to be released over a 25-year period as a reward for block maintenance. See p29 of Introductory document for more info.

Average Block Time: N/A

Current Block Height: N/A

Annual Supply Emission: 17,500,000 NKN (~155 BTC)

Annual Inflation Rate: 5%

Circulating Supply in 365 Days: 367,500,000 NKN

Distribution:

Address Count: 10,439

Supply Held By Top 10 Addresses*: 77.27%

Supply Held By Top 20 Addresses: 80.38%

Supply Held By Top 100 Addresses: 92.15%

Inactive Address Count in Top 20 (30 Days of No Activity): 9

*Of the top 10, the top 2 addresses are currently locked as Founders’ fund, the 4th-richest is tagged Gate.io 3, the 6th-richest is tagged Bittrex and the 8th-richest is tagged Gate.io 1. For now, I have included them in the figures shown, but in the later analysis I shall provide figures discounting these public addresses.

Analysis:

Now, there’s rather a lot to get through here, but given NKN’s aims, let’s begin with the metrics related to on-chain transactions:

Using the explorer, I was able to calculate that NKN averaged 100 daily on-chain transactions over the past month, amounting to average daily transactional value of ~$79k. This gives NKN a 30-day NVT of 154.49; around 6x greater than that of BTC at present, as per data from CoinMetrics. For a relatively small and new project like NKN, this isn’t too bad at all, and shows on-chain interest.

With NVT out of the way, I will run through the remaining metrics from the General sub-section, before moving onto Supply Emission & Inflation, concluding this section with some Distribution analysis:

Firstly, I’d like highlight Volatility, which I calculated to be -0.03588 for NKN; about equal to the Volatility calculated for Cashaa. This aligns with the aforemention range-bound nature of NKN at present, and suggests that we may indeed be sitting at prices worthy of an entry – but this is yet to be determined…

Now, let us take a look at the metrics related to supply and demand: namely, Liquidity and Supply Available on Exchanges.

NKN was found to have ~8 BTC of Liquidity, equating to 0.26% of its Network Value. This places NKN in the middle of the pack, relative to other coins that have been previously reported on. As for its sell-side equivalent, I calculated that there was ~6.2mn NKN available for purchase on listed exchanges, equating to 1.77% of its circulating supply. This again places NKN right in the middle amongst the other coins I have calculated this metric for, suggesting that there is a moderate degree of demand at current prices but also a slight lack of willingness to hold NKN at present.

Moving on, I’d like to highlight the fact that NKN is currently trading almost 94% below its all-time high of $0.54. Now, this could be highly indicative of a potential bargain entry; something we shall only know for certain once more fundamental analysis has been completed. But it’s something to keep in mind…

Finally, from the General sub-section, let’s discuss volume, because this is where I believe NKN stands out:

Over the past 24 hours, NKN traded ~$337k in Exchange Volume, equating to 2.77% of its Network Value. Those that have been reading this blog for a while (or that have read my book) will know that I like to see a figure of 1% or greater to indicate significant interest, though I prefer this to be the case with the Average Exchange Volume-to-Network Value rather than from the past 24 hours. Now, NKN has averaged $783,572 of daily traded volume for the past 30 days, equating to a huge 6.71% of Average Network Value for the period. This is the highest figure I’ve calculated to-date in these reports. Undoubtedly, some of this will be wash-trading, but there is clearly interest here at current prices.

Now, what about supply emission? One would be forgiven for assuming there would be zero inflation or further supply emission, as this is an ERC-20 token that was created with an ICO. However, NKN does have some degree of inflation, as 30% of the 1bn NKN that were created during the ICO were reserved to be rewarded over a 25-year period to those that relay traffic on the network and perform block maintenance.

This annual emission will be decreasing on a yearly basis, but it is expected that 17.5mn NKN will be released over the next year, giving an annual inflation rate of 5%; nothing major.

And what relationship does the supply emission have with NKN’s volume?

Well, using the figure of 17.5mn NKN, this equates to ~155 BTC of annual supply emission at current prices, or ~$610k-worth. This works out at $1,668 of average daily supply emission. NKN’s Exchange Volume for the past 24 hours covers this emission by over 200x, and its Average Exchange Volume covers it by ~~470x; there is quite literally zero chance NKN cannot sustain current prices on current volume, when supply emission is taken into consideration. Further, NKN’s Liquidity covers this emission by almost 19x.

To conclude this section, let’s now take a look at Distribution:

There are 10,439 holders of NKN. The top 10-richest addresses control 77.27% of the supply; the top 20 control 80.38%; and the top 100 control 92.15%.

However, there is a caveat to this, as 5 of the top 10 are not privately-owned address: The top 2 are the NKN Foundation and Developers’ Rewards funds, the 4th-richest is labelled Gate.io 3, the 6th-richest is labelled Bittrex and the 8th-richest is labelled Gate.io 1. There is ~49mn NKN in the two Gate.io addresses and 11.6mn in the Bittrex address.

Discounting the above 5 addresses (and substituting them for private addresses #21-#25), the top 10 owns 16.71% and the top 20 owns 19.63%, painting a clearer picture of the distribution of the current circulating supply.

Of these top 20 (again, discounting public addresses), 9 have been inactive over the past 30 days. However, 2 addresses are distributing, 1 remains largely unchanged and 8 addresses are in active accumulation. Fascinating…

That concludes this section on Metric Analysis. Let’s move onto the NKN Community:

Community:

There are two primary aspects of community analysis: social media presence and Bitcointalk threads. I’ll begin with the former before moving on to the latter.

Social Media:

Concerning social media presence, there are four main platforms to examine: Twitter, Facebook, Telegram and Discord.

NKN is present on three of these platforms; all except Facebook. To begin, let’s look at the various social metrics that I calculated from the NKN Twitter account:

Twitter Followers: 9082

Tweets: 765

Average Twitter Engagement: 0.34%

As usual, I will be using RivalIQ‘s social benchmark report for evaluation purposes.

Twitter:

Whilst the NKN Twitter account does have a fairly large audience, its engagement rate is not particularly special. That said, in RivalIQ’s report, we find that the average Twitter engagement rate across all industries is 0.046%, which means that NKN’s engagement rate is currently 7.39x greater. Further, the average engagement rate for the Media industry (the most relevant in the report) is 0.013%, thus NKN’s is 26.15x greater. However, its engagement rate relative to other cryptocurrencies is very much average, placing it in the middle of the pack of coins previously reported on.

Discord:

Whilst it is clear that the NKN Discord is the less significant community hub, relative to its Telegram (as you’ll see from the next section), its 1306 members are still very much active.

There is daily discussion in the General channel, mostly concerned with support queries and technical aspects of the project. There are channels for various languages, as well as channels focused on development and the various applications on the NKN network. However, there is no channel for relevant resources and links for new users, as might be expected of a Discord group, and engagement, whilst relatively high in terms of activity, is quite low with regards to the number of individuals participating in discussion of the 1306 members.

Not too much to worry about, however, as this is clearly not where the action takes place…

Telegram:

The NKN Telegram boasts over 31,000 members; the largest Telegram group of any coin previously featured in these reports. Given the size of its Twitter audience and Discord group, it is also somewhat surprising.

The pinned message links back to an urgent message for users to swap their tokens to the new ERC-20 NKN tokens, which makes sense given there’s only a couple of weeks left until the deadline.

Further, there are thousands of messages that have been posted to the group over the past 7 days, concerning all manner of topics: from support queries (which are answered swiftly) to questions on the future of the project, plus other developments, such as exchange listings, and, as is always expected, price. Much of the focus at the moment seems to be on the smooth transition of all holders to the ERC-20 token.

Overall, there is plenty going on in here for new users to get stuck into. The problem with Telegram, however, is in its lack of structure.

BitcoinTalk:

The NKN BitcoinTalk thread was created by a community member rather than the team on April 20th, 2018. It has since generated 147 posts spanning 8 pages in 328 days. This equates to 0.45 posts per day, on average. However, in the past 90 days, the thread has had 24 posts via 15 individual posters, giving an average of 0.26 posts per day; overall engagement in this thread is clearly low.

Regarding the content of the thread, I discovered that NKN is the only blockchain company to present at Nokia Open Innovation Challenge 2018 (one of six finalists). 2018 also saw the open-source development of NKN software, plus the launch of the public Testnet. Further, there is information on the swap from NEP5 to ERC-20 for the NKN token; the reasons for which are primarily to facilitate easier exchange listings and thus greater liquidity. This is confirmed by the co-founder.

I also found that NKN is due to be listed on Beaxy upon its launch; Stephen Wolfram was announced as an advisor to the project; one-click full nodes were made avaialable via DigitalOcean and Google Cloud Marketplace; and NKN joined the Google Cloud Technology Partner program.

Development:

For the following Development analysis, I will be evaluating project leadership, the website, the roadmap, the whitepaper, the wallets and finally providing a general overview:

Project Leadership:

There are 4 core team members listed on the website, plus 2 advisors. There are 30 contributors to the Github.

Of the listed core members, the roles comprise of Architecture; Strategy and Operations; Core Researcher and Developer; and Business Compliance. There is plenty of experience here, as tends to be the case with ICO projects.

More impressive, however, are NKN’s advisors: Whitfield Diffie and Stephen Wolfram.

Website:

https://www.nkn.org/

In truth, the website is a little underwhelming from the perspective of a
potential new user, particularly when you consider that NKN is funded via a multi-million dollar ICO.

The navigation menu isn’t particularly helpful, and material you’d expect to find clearly linked inside the menu (whitepaper, roadmap, social links etc.) are not there. The website is also not very well-branded.

That said, it is highly informative with regards to the project itself, with plenty of detail on all manner of relevant information, plus there are a lot of resources (though these are poorly-linked). There is also a dedicated forum and a Medium blog that is updated at least once weekly.

For an ICO project, however, this is amateurish. It’s no good having a great deal of useful information if the website itself is poorly-designed and thus makes it difficult to attract interest.

The social links are found at the bottom of the website, along with a Logo Download tab in the Resource section; another example of poor UI/UX. This just looks a little out of place and messy – perhaps there should be a Branding section within the Resource menu, in which Logo Download would be a sub-section.

There are also plenty of NKN apps linked; but again, this feels amateurish
in all aspects of design. That said, advantages of the NKN project are very much clear and well-emphasised on the homepage, which will attract users. The scrolling banner featuring the latest news is exactly what the website needs more of with regards to design and accessibility.

All the material is there and relevant; just tidy it up!

Roadmap:

The roadmap is native to the website’s About page but is not clearly linked in the navigation menu, as it should be. It is also rather rudimentary, featuring a series of Testnet and Mainnet release dates with brief explanations of the updates in each. This functional but bare-bones approach is often adopted by development-heavy projects, as we have seen in past reports. Overall, there needs to be more detail on all aspects of the project, and the roadmap should really be better designed.

Nonetheless, Mainnet launch is scheduled for June 2019, and it is clear to see that the primary purpose of the project has been progressing since launch.

Whitepaper:

https://www.nkn.org/doc/NKN_Whitepaper.pdf

The whitepaper is 15 pages in length; professional in its format; and highly technical, as would be expected of this kind of project, where the whitepaper is indeed a technical document detailing the technology being developed.

This is perfectly fine, as there is also a 46-slide introductory presentation available for less-technical users, featuring a more comprehensive overview of all aspects of the project.

The whitepaper itself, however, delves deep into the technology behind NKN, referencing heavily and focusing on its use of cellular automata. That being said, it is not overly jargon-heavy (though this is a technical paper, and there is a lot of technical terminology) and explanations are provided of various concepts.

Regarding the introductory presentation, there are 46 slides that are much more accessible to all users, with clear, jargon-free prose and useful visuals. The problems of the client-server model are outlined, as are the ways in which NKN seems to improve upon them. NKN is placed as the third pillar of blockchain infrastructure where Ethereum is decentralised computing; Filecoin is decentralised storage; and NKN is decentralised networking.

The Business section of this presentation depicts the token sale details, stating that NKN is “tokenising connectivity.” 17% of all tokens created are reseved for the NKN Foundation for “strategic investment“; 18% are for developers; 35% was sold in the ICO; and the remaining 30% (300mn NKN) will be emitted over a 25-year period as a reward to miners for “traffic relay and block maintenance” via the Proof-of-Relay consensus mechanism. There is a decreasing annual emission schedule.

Regarding use-cases, the presentation states that NKN will facilitate “access to a universal p2p networking stack that provides direct connectivity between any clients without centralized servers” for developers. For consumers,“better connectivity, more choices for access, and earn rewards for sharing a user’s own network connection with other users”. For businesses, “ISPs can improve network coverage, offer secure and verifiable data transmission as well as trade unused bandwidth for new revenue streams.”

Overall, the documents available are highly informative and professional.

Wallets:

Compatible with any Ethereum wallet that supports ERC-20 tokens.

General:

In general, there isn’t much to add except that I urge people to read the dialogue with Stephen Wolfram, linked below:

https://medium.com/nknetwork/stephen-wolfram-creator-of-nks-tries-to-understand-nkn-b4018d747a3

Whilst a lot in there is highly technical (and beyond me), there was much of interest and I think it’s more useful for you to read it than for me to butcher Stephen’s thoughts in an attempt to summarise.

Technical

NKN has never experienced a bull cycle in its ~10 months of price-history. It set its all-time high back in June 2018 at around 7200 satoshis, after which price bled out, breaking through multiple levels of support until it made its all-time low at 325 satoshis in December 2018.

For 208 days – the vast majority of NKN’s price-history – it has been stuck between this all-time low and range resistance at 1300 satoshis. Price has spent this entire time battling the range midpoint at ~800 satoshis. This also happens to be the level at which the Daily 200MA has flattened out, with prices now trading above it. The past month has also brought with it significant volume, as we discovered in the Metric Analysis section.

Whilst reward-to-risk is not particularly attractive for a trade, given the size of the range itself, I would be inclined to allocate a predetermined percentage of capital at current prices for a longer-term position.

Conclusion

This report is now approaching 4,000 words, and it is time to draw it to a close.

My final grading for NKN is 8 out of 10.

As has been the case with many development-heavy projects, marketing and end-consumer accessibility is left by the wayside, and thus I could not score NKN higher than an 8; that said, there is much to be excited about here.

Lastly, here is a link to a Google Sheets file with any significant data from previous reports compiled for cross-comparative purposes. I will keep this updated as I continue to write these reports.

I hope this report has proved insightful and that you’ve enjoyed the read! Please do feel free to leave any questions in the Comments, and I’ll answer them as best I can.