Coin Report #16: NKN

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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%

*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.

**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.


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