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Kik (the company behind the Kin ecosystem) recently launched their first beta app “Kinit” on the Google Play Store. The launch received polarizing feedback with both an out-pouring of positive reviews on the Play Store, but, some tough criticisms from both the community and reporters who failed to understand parts of Kik’s strategy.

A Quick Recap of the Main Criticism:

  1. From the Community: “They aren’t doing any marketing of this launch!
  2. From the Community: “Their future plans are only to market to developers!
  3. From TechCrunch’s John Biggs: “ By encouraging usage they drive up the token price and token velocity and by launching a general beta full of cutesy imagery and text they are able to avoid the hard questions about developer adoption until far into the future. While the KinIt app is probably not what most Kin holders wanted to see, it’s at least an interim solution while the team builds out sturdier systems.
  4. From CCN: “There isn’t any business model — how will this work?
  5. FUDsters and haters: “Kik hasn’t done much since the big ICO
Over the next series of posts, I’m going to address each of these points, explain why I believe they are fundamentally flawed, and address why I think Kin’s strategy is headed in the right direction.

They aren’t doing any marketing of this launch!

One of the main points that the community is making right now, is that Kik and the Kin Foundation are not currently doing anything to promote the Kinit app. Before we dive into the reasons that this is the right decision, it’s important to remember some background:
  • Kinit is a beta.
  • “Beta” in technology projects is very different than “beta” games which are normally just early access.
  • Kinit is limited to one country currently (the US).
  • Kinit is only available on Android during the beta.
  • Kin is still testing their new Kin blockchain (based on Stellar).
Given the above, there are two reasons why Kik should not be marketing Kinit to the general public right now. # 1 — Understanding the Chasm: Heavily marketing a beta launch, especially to the general public, is a horrible idea. Consumers fall into a number of different categories in terms of their willingness to adopt new products, and their ability to be forgiving about bugs and expectation gaps.
Image result for crossing the chasm
When a startup or new product launches into beta, they focus on a “minimum viable product” (MVP) which is essentially a first draft of their product with slimmed down feature sets. This MVP often acts as the beta for innovators and early adopters to help test, refine and give feedback upon. These users are part of an early market that exists outside of the mainstream. They are used to using early, incomplete, and complicated products, and will stick with the products even if there is a lot of friction or frustrating bugs. (Chances are, if you are reading this you are in the ‘Early Adopter’ category. Because crypto has not yet “Crossed the Chasm.”) After that early market group, you reach a point called “The Chasm.” This is the gap between early adopters and a mainstream market. “The Chasm” is tremendously challenging for products and startups to cross, and it often ends up being a fatal point in the growth trajectory of most startups. Beyond “The Chasm,” most consumers expect a complete, polished, easy to use and easy to understand product. These mainstream users don’t know anything about wallets or private keys and they’ll abandon any app that has simple bugs, including:
  • Frequent typos or grammar issues.
  • Poor layouts.
  • Auto-rotation glitches.
  • Issues with SMS/2FA.
  • Overlapping text.
  • Poor support on certain devices.
Not to mention that they’ll be far less forgiving on things like the amount of surveys, and amount of offers they want to be able to redeem on a recurring basis. Mainstream users are picky. Unlike early adopters (you) they don’t have emotional, ideological or financial connections to a product. They will look for any excuse to churn out and never use your product again. They also cost more to reach as you often have to educate them on the purpose of the product. #2 — The Leaky Bucket: In marketing, when we advertise to new users and try to get them to adopt a new product this is called our “marketing funnel” — the “marketing” that most people talk about is usually paid advertising that takes place at the “awareness” level of the funnel.
When looking at the effectiveness of a campaign, we take detailed measurements on a marketing funnel (I won’t get into these here, but if you are unfamiliar with funnel metrics I can highly recommend Andrew Chen’s post on “How to Create a Profitable Freemium Business.”) The most important factor to understand is that we pay out at the top of the funnel, but we profit from the bottom. Think of it like trying to fill a bucket at your tap. You are paying for the water coming out of your tap, but, you are only benefiting from the water that goes into the bucket. But, if you drop any water from the bucket, it goes down the drain and you can never put that specific drop back in your bucket. If your bucket has no leaks, then this isn’t a problem. But, your bucket does have leaks.
Related image
All product buckets do — but the goal is to minimize the leaks. Right now, when someone discovers Kinit the leaks are:
  • 100% of users who use iPhone.
  • 5% of users who use an Android device running versions older than 4.4.
  • 100% of users outside the US.
  • Users who are frustrated by bugs.
  • Users who can’t SMS verify.
  • Users who don’t feel there are enough surveys.
  • Users who don’t feel there are enough redemption rewards.
  • New landing pages which are still being optimized.
  • New onboarding flows which are still being optimized.
  • Lack of churn mitigation and reengagement from the app.
  • and many more.
Paid marketing funnels are tough for free apps, and so they need to have an air tight funnel. You may be thinking “Yeah, but, I hear of developers who get $0.50 — $2 cost per installs when marketing their apps so Kin should just go buy 1M users!” and while that is true, it doesn’t account for retained users and it isn’t viable at this scale. Paid marketing has a tremendous challenge wherein the larger the audience you try to reach, the less cost efficient it becomes. While getting 10,000 installs for $1 — $2 a piece is trivial, getting 1M installs using paid marketing channels is likely to cost more in the order of $7 — $12 per install at scale. (Math post to follow later in the series!) This matter is made worse by the fact that on average only 33% of users retain on apps after the first 30 days. This means Kin could be effectively paying $21-$36 per user (excluding gift cards) which would be a terrible strategy. $1M spent on partnering with established developers, apps that are growing and have higher CPAs due to freemium models, and partnership teams is going to go a lot further than 300,000 purchased users. The goal of Kinit is to act as a central wallet point within the Kin ecosystem, and so as the ecosystem grows users will naturally be on-boarded to the app. #3 — Kik is spending money on acquisition: Lastly, it’s important to realize that Kik IS spending money within their marketing funnel. They are just spending it in the “engagement” / “retention” part of the funnel rather than on awareness. The gift cards within the Kinit app are currently having their cost compensated by Kik. I’d hazard that the compensation is around the 75% mark. So even if we assume that a user only receives one $5 gift card during their entire beta, then that means Kik has spent $3.75 on making it easier for that user to earn the gift card and retain the user. Takeaways & TL;DR:
  • The app is a beta, and not ready for a picky mainstream audience.
  • Advertising to a mainstream audience before your product is ready for them makes it MUCH more costly to advertise to them in the future.
  • Spending money on awareness campaigns is wasteful until you iron out your conversion funnel.
  • Paid acquisition marketing (at the awareness stage of the funnel) is effective for small businesses. When trying to scale a company to tens of millions of users it loses efficiency and requires a much higher RoI margin that a free app like Kinit doesn’t have.
  • Kik IS spending money on marketing, by compensating the cost of user gift cards in Kinit. This is money spent at the engagement/retention phase of a marketing funnel, which is by far the most cost effective stage.

Curious what all the fuss is about? Check out the Kinit app where you can earn and spend the Kin cryptocurrency every day! [thrive_leads id=’3175′]
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Metcalfe’s Law

Unless you work in the telecom industry, you may never have heard of “Metcalfe’s Law.”

And rightly so, as Metcalfe’s law is a simple and obscure mathematical observation relating to the impact/reach of a telecommunications network.

The law states that the potential of a network is simply the number of nodes squared, or mathematically:

n2

All this means, in its basic form, is that the network is more valuable the more people that use it.

For example, if you had a phone that could only call one other phone, then that network has a low value, as there are only two possible connections. Phone A can call Phone B, and Phone B can call Phone A.

If you add an extra phone to the network (for a total of 3 phones) then your total number of connections doesn’t just increase by one. Instead, if you have phone A, B and C you can now have connections:

  • A calls B.
  • B calls A.
  • A calls C.
  • C calls A.
  • B calls C.
  • C calls B.

So whereas a network of two phones had 2 connections, a network with 3 phones has 6 connections. This compounding growth curve is represented on a graph by the equation. The growth of value in a network scales exponentially, giving us what we call “the network effect.”

How does this work outside of telecom?

While it may make sense for a telephone network (or computers on the internet), how do we apply this to systems outside of telecoms?

My favorite example involves currency and gift cards. But before we dive into that example, we need to define a few terms. When we think about the world of gift cards, there are two types: “closed-loop” and “open-loop.” They get their name from broader concepts which can be applied to financial systems.

Closed-Loop Financial Systems

Closed-loop financial systems are ones in which the flow of money is controlled and can only be earned or spent in certain places.

For gift cards, this is like buying a gift card for a specific company such as McDonald’s.

You give $10 to McDonald’s, they give you a gift card valued at $10, and they know you can only spend it at McDonald’s.

Another example would be something like tokens in an arcade. You’ve purchased the tokens, which are the closed-loop currency, and can only use them in that arcade. Outside of the arcade they have very little value.

In fiat economic systems, we don’t really have any examples of a 100% closed-loop financial system. The closest we come is the Chinese Renminbi/Yuan which is a controlled currency. The Chinese government works hard to prevent Yuan from leaving the Chinese financial system, although it still does leak out through various black market channels.

It’s important to remember that closed-loop (and open-loop) aren’t categories. They are a sliding spectrum.

Open-Loop Financial Systems

On the other hand, open-loop financial systems are when money can be entered into a system that is not controlled. The most open example of this is any national currency, when you buy into it you are free to spend it anywhere in that country and can often find places around the world to easily accept and exchange your currency.

But, when we talk about gift cards, “open-loop” refers to a gift card that can be redeemed at multiple locations. One such example might be a gift card you can redeem at any store in your local shopping mall, or, if we want an even more open-loop card we’d use the example of pre-paid Visa gift cards, which can be redeemed just about everywhere.

Once again, as we can see, there is no example of a financial system that is 100% open, and there are multiple levels of “openness.”

Applying Network Value to Gift Cards

Now, let’s assume that I have four different financial instruments in my possession:

  1. A $5 bill.
  2. A $5 gift card to Einstein Bro’s Bagel Co.
  3. A $5 gift card to Starbucks.
  4. A $5 Visa gift card.

At first glance, if we were asked which of these is the most valuable, it might be tempting to say “Trick question! They are all worth $5!” But, given what we now know about how networks are valued, we may take a different approach.

When we think about selling these items, we instantly know that the $5 is the most valuable, because we would never sell a $5 bill for anything less than $5. The underlying reason for this is a $5 bill can be used anywhere and so we don’t discount it at all.

As for the rest of the cards, let’s take a look at what they are worth on second hand networks. If we go over to GiftCardGranny.com, we can look up the value of the different cards.

Einstein Bro’s Bagel Co.

When we look up the gift card at Einstein Bro’s Bagel Co. we can see that the average giftcard for their store is selling at a 35% price discount:

This means if we attempted to sell our $5 Einstein Bro’s Bagel Co gift card, we’d probably only get $3.25 for it.

Why? By exchanging $5 of an open-loop currency for a closed-loop currency, we are restricting the number of places we can spend it, which makes it less valuable. So the supply and demand of “people who want Einstein Bro’s Bagel Co gift cards” and “people who have Einstein Bro’s Bagel Co gift cards” is out of balance, and thus, sellers must compete on price discounting to get their money back into the open-loop.

Starbucks

So, by this same logic then, we may expect to see that our $5 Starbucks gift card is worth about $3.25 as well, right?

Instead, the average Starbucks gift card is only 13.56% discounted, meaning our $5 card is worth about $4.32.

Why the difference? When we look at these cards as “networks” we have to remember how we apply Metcalfe’s law – the number of nodes matter.

For gift cards, these nodes are:

  1. Starbucks locations.
  2. Number of people who want Starbucks.

Simply put, there are more Starbucks than Einstein Bro’s Bagel Co locations, and more people who prefer Starbucks to Einstein Bro’s Bagel Co. Therefore the network has more nodes and is more valuable.

Visa Gift Card

At this point, I think we all know what to expect:

The average Visa gift card trades at a discount of only 0.75%, making our $5 card worth roughly $4.96 – because it has a wider network with more nodes. More freedom for spending, more demand for buying.

The Value of Our Cards

So that makes our final value list:

  1. The $5 bill (Worth $5)
  2. The Visa gift card (Worth $4.96)
  3. The Starbucks gift card (Worth $4.32)
  4. The Einstein Bro’s Bagel Co gift card (Worth $3.25)

Applying the Law to New Economic Systems and Crypto

Now that we have an understanding of Metcalfe’s Law, it would seem to suggest that we could simply count the number of nodes or transactions within an ecosystem and accurately get the price of a currency, right?

Many folks who are far better economists and mathematicians than I am, have tried (with varying levels of success) to apply this model to cryptocurrencies; and while many models fit backtests [Read: Issues with Backtesting], they fail to accurately predict the growth of a cryptocurrency based on either its number of nodes (users) or the number of transactions moving forward. (Although many of them are really awesome models).

Why is this?

There are two main reasons for this:

  1. The original Metcalfe’s Law is designed to only measure the maximum potential value of a network. It does not measure the current or actual value.
  2. The original Metcalfe’s Law is designed to measure all nodes within a system at an equal value.

So while the general trend of “Network Transactions2” is historically true, this is more likely a matter of correlation, and not causation.

Different Transaction Values:

As we saw in our gift card example, not all nodes are of equal value or strength – and this is especially true of transactions in a financial network.

For example, here are four transactions:

  1. I transfer $5 worth of Bitcoin between two wallets.
  2. I transfer $500 worth of Bitcoin between two wallets.
  3. I purchase something worth $5 using Bitcoin.
  4. I purchase something worth $500 using Bitcoin.

We can’t assume that these transactions have all added equal value to the network. In fact, we could debate if the first two added any real value at all.

The two remaining purchases were value within an ecosystem, but, at very different scales.

Different Node Values:

If we want to think of nodes in terms of network services/participants rather than transactions (which would be useful if you are applying the model to something like the Kin Ecosystem) then we can look at a different case.

Imagine two developers add Kin into their app:

  1. “Developer A” has 1,000 daily active users (DAU) who love using their product, have an emotional connection to it and think it is an important part of their daily lives.
  2. “Developer B” has 500 DAU. They find the product useful, but in a solely functional manner.

In looking at Metcalfe’s Law we couldn’t equally weight these two systems, in fact because of the emotional component it wouldn’t even be fair to count the 500 DAU as 50% of the 1,000 DAU, as users with a strong emotional connection will pay more for something than those using it solely for function.

How do we solve for this?

That’s something I don’t have the answer to, and never will – at least not as a concrete formula. Metcalfe’s Law simply isn’t designed to predict the future price of a currency or network, primarily because to do so requires us to do complicated weighting and individual investigation for each node that makes it prohibitive.

How would we approach it? For us to evaluate the worth of a network I think we need to take into account:

  • The number of nodes.
  • The weight of that node compared to others within the system.
  • The value added by that node’s transactions.
  • The emotional weight users have to that node, measured by engagement KPIs.
  • The number of users on that node.

So, if Metcalfe’s classic law of n2 gives us the upper-bound value score of a network, then what we need to do is weight each node on some form of distribution and discount or increase the value of each node from there. In the end, we should end up with something that is a fraction of n2.

For a cryptocurrency like Kin, this might end up being something like:

((N1((f)(a)/2)+N2((f)(a)/2)+…+Nnth((f)(a)/2))2

Where:

  • Nnth is each individual node, represented by a count of N=1
  • f is the bell curve score of each node based on the value added to the network (solved as f(x) = y1 + ((y2-y1)/(x2-x1)) (x-x1)).
  • a is the bell curve score of each node based for user engagement, based on user engagement over number of users. (Same bell curve scoring as above).

 

Walking through the challenges

In this model, we take each node and give it a starting score of 1.

We then take their scores for “user engagement” and “value added” and grade them on a bell curve against all other nodes, giving us a weighted score for each. We then get the average of those scores. For example:

If N1 was the best node for “value-add” then it gets 100% or “1” and if it was a leading node for “user engagement” then it may get an 80% or “0.8” score for that.

We take the average of those two values and we get 0.9. We then discount the value of N by multiplying it by that weight. In this case, since the node started at “1” it is now a score of “0.9”.

We repeat that process for every node within the system and then we add up the final scores, after this we then square the sum of our result.

That will leave us with a number that is some sub-fraction of the classic n2 rule that is probably a more accurate predictor of the value of our network.

Does this really work? Is it accurate?

No, not at all. There are probably a number of issues with both my assumptions, and with the actual math equation. I’m not a mathematician. The point here is more to illustrate that in order to adapt Metcalfe’s Law, we would need to come up with complicated weighting mechanisms which makes it unrealistic to accurately predict the value of a currency.

The math gets very complicated very quickly, and the needed variables become almost impossible to measure.

Wait, so you are saying that we can’t predict the price of a crypto with Metcalfe’s Law?

Yes. Sadly, the goal of this article is to help you realize that Metcalfe’s Law is a mental model designed to help us think about measuring and growing value. It’s not something that we’ll likely ever be able to adapt and apply as a predictive tool.

At best, we’ll be able to adapt it in a way where we can accurately backtest/backfit data within acceptable bounds, but it likely won’t be a good indicator of raw price.

At the end of the day, Metcalfe’s Law won’t tell you the future price of your currency, but, understanding the principle of more nodes in a network equaling more value is important.

While many folks have created very complicated variants of Metcalfe’s Law to try and apply it to cryptocurrency and other financial systems, the only thing that has remained true is the simple n2.

Metcalfe’s Law is a theory. It’s a guideline to help you understand that networks grow value in a compounding and non-linear fashion. It wasn’t designed to predict the price of a network – the only thing you need to takeaway from Metcalfe’s Law is that if you want your cryptocurrency to be worth more, then adoption of earn and spend opportunities are the key.

TL;DR:

Metcalfe’s Law is about how “network effects” create compounding value. It will never be usable as a forward looking price predictor. But, it’s an important concept to understand in economics.

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One of the great debates in blockchain centers around what it means to be decentralized, whether it’s a necessary trait for the application you’re developing, and how a blockchain’s centralization should affect the regulatory status of the cryptoasset(s) running on top of it. While many followers of the blockchain space would identify as decentralization ‘maximalists,’ touting the utopian anarchic virtues of their favorite project, others would argue that centralization is a sliding scale, and that none of the major blockchains in production today are truly as decentralized as they claim to be. Take Bitcoin, for example, where the world’s longest-running and most valuable blockchain has one-third of its hashpower consolidated under one mining pool operator, Bitmain, nearly putting one multi-billion dollar entity in control of the protocol.

Or take two of the other top 10 cryptocurrencies by market capitalization, XRP and Stellar, which have been criticized relentlessly since their inception, for adopting federated Byzantine fault-tolerant models of consensus, as opposed to the more popular ‘trustless’ Proof-of-Work (PoW) or Proof-of-Stake (PoS) models. Where PoW grants power and incentives to the users that run the most powerful machines supporting the network, and PoS grants power and incentives to the wealthiest users supporting the network, federated models optimize for network efficiency by employing ideas like flexible trust and quorum slices. While I’m not savvy enough to go much deeper into consensus theory, the short story is that decentralization maximalists typically aren’t fans of consensus models that require ‘trust’ in any specific node on the network, regardless of the blockchain’s application.

Consensus and Kin

So when the development team behind the Kin cryptocurrency, the Kin Foundation, announced several months ago that it would ‘fork’ the Stellar blockchain to use in parallel with the existing ERC20 token, and that the ONLY node operator at the outset of the new blockchain’s production network would be Kik, the chat app that launched the cryptocurrency, the crypto community’s negative reaction didn’t come as much of a surprise. While Foundation (and Kik) CEO and Founder Ted Livingston later clarified that this wouldn’t be a problem for the blockchain’s end-users because they already trust the app’s developers, and that the network would grow to be more decentralized as additional apps and partners joined the ecosystem, the maximalists didn’t want to hear any of it.

Fast forward five months, after the maximalists and some pre-sale investors have exited a large portion of their Kin position, bringing down the value of the Kin token in conjunction with an extended bear market, and the topic of nodes has surfaced once again. After the release of the atomic swap between ERC20 Kin and the token on the new blockchain was indefinitely delayed, despite already having the technical procedure developed and audited, the project’s followers wondered why. And in recent updates posted by Livingston and community manager Yoel Rivelis, it was revealed that the atomic swap won’t be cleared for release by the Foundation’s legal team until the Kin blockchain federation has assembled at least seven full nodes (operated by independent entities) to run the network. In other words, the Foundation has come to the conclusion that based on their blockchain’s consensus model, they can’t reasonably claim that the blockchain is decentralized enough to link to the ERC20 token until they have seven nodes. I’ll say more on why that probably is, in a moment.

This revelation, which comes at the tail end of a Q3 which saw several major announcements from the Kin Foundation, including the launch of the Kinit survey rewards app, the launch of Kin inside of beauty app Perfect365, and the hiring of former Twitch exec Matt DiPietro as CMO, may also explain other undelivered promises from the project.

The Liquidity

For example, a recurring problem for early adopters and followers has been the available market liquidity of the Kin token. During the token’s “distribution event,” community staff assured prospective investors that they had received indication from multiple exchanges that planned to list the token shortly after launch. The Jaxx wallet even formally announced they would support Kin (and presumably, would offer it on their built in Shapeshift exchange as well). And in the year following those statements, the largest exchange overall that has listed the token, HitBTC, only offers one trading pair, and they aren’t even Kin’s largest exchange by volume.

While Livingston claimed that the Foundation had de-prioritized listing the token on exchanges until there was a call to action for developers and advertisers to buy and sell the asset, according to the community staff, it had become a priority as early as late July. And yet, two months later, the token remains unlisted on any additional major exchanges, despite the project’s high profile and connections to various exchanges at the board of directors level.

While many high-volume cryptocurrency exchanges, both in the United States and around the world do not have very strict criteria for asset listing, other than substantial application fees (to the tune of millions of USD), others hold themselves to a high standard of eligibility based on the project’s fundamentals. Perhaps the most sought-after exchange, for its retail customer base and direct pairs to fiat currency, Coinbase publishes strict eligibility criteria (which they call the Digital Asset Framework), which include concepts such as decentralization and token utility. While the ERC20 version of the Kin asset is fully decentralized (at least, as far as the industry at large is concerned), without at least seven nodes, the Kin blockchain is not. And without the aforementioned atomic swap, the ERC20 Kin asset has arguably zero utility, as it isn’t connected to the app ecosystem where Kin is earned and spent.

The Regulators

Coinbase isn’t the only organization involved in crypto that has a problem with tokens that lack the combination of decentralization and utility. The Securities and Exchange Commission of the United States (SEC) regulates the sale of securities assets to and from citizens of the US. The SEC has recently developed a greater interest in enforcing securities laws in the cryptocurrency space, particularly with respect to tokens sold in an initial coin offering event (ICO), which is how the Kin Foundation raised their development funds. After issuing guidance on non-compliant token sales such as The DAO, and taking enforcement action against sales in-progress like Munchee, and completed token sales like Centra, the SEC has been intensely deliberating amongst themselves and other US regulatory bodies to develop a better framework for how the laws should apply to crypto assets.

https://steemitimages.com/0x0/https://cdn.steemitimages.com/DQmesqJsffFW5afTEKJk3thtZJDEGrB1MyFkwF6BKmpxvJa/image.png

William Hinman, SEC Head of Division of Corporation Finance

In June, the head of the SEC’s Division of Corporation Finance issued an unofficial statement that Bitcoin and Ethereum are not securities, and that the decentralized status of their blockchains was a key determining factor in reaching his conclusion. The SEC, which has had an open investigation into Kin’s token sale since shortly after the conclusion of the sale (alongside investigations into dozens of other tokens), is keeping a close eye on how the Kin Foundation conducts itself, and may be watching how it proceeds towards decentralizing its blockchain, and whether it succeeds in providing meaningful utility to the Kin token. Exchanges based in the US, such as Coinbase, Gemini, Bittrex and others, are likely to be wary of listing assets that may fit the SEC’s fuzzy criteria for a security token. And even if the atomic swap were achieved with only one node running the Kin blockchain, the utility of the token would remain limited to that centralized chain, therein not qualifying the ERC20 asset for real utility.

The Partners

Kin has also had a hard time onboarding major partners, as well as smaller developers in the absence of any programmatic incentives for integrating their cryptocurrency. It is plausible that some app companies, who likely follow the crypto space to some degree, aren’t sold on the idea of implementing a currency over which so much power is held by one or two entities, or which is still lacking so many of the fundamental infrastructural features necessary to make it all ‘work.’ This presents something of a ‘chicken and egg’ scenario, in which exchanges, regulators, apps and investors are hesitant to partner with a blockchain so centralized and feature-incomplete today, which means they won’t run nodes for Kin, which means the blockchain won’t become decentralized enough to unblock those missing features.

Naturally, the ‘seven nodes’ requirement raises several key questions, the first of which we (at NuFi) feel we already know the answer to.

So, why does Kin need at least seven nodes?

I’ll defer to Adam to comment on this:

While it’s important that Kin not be recognized as a security, it is also important that the network not be recognized as a Money Services Business (MSB) by FINCEN.

As we noted within “How Does the Kin Consensus Protocol (KCP) Work?” the Kin network will need a series of federated validator nodes within the network to create balanced quorum slices who can ultimately ensure >66% accepting votes in a network consensus.

So why seven?

Having 7 nodes ensures that no entity controls more than 20% of the vote. Which seems to be the magic number the Kin Foundation believes results in the network not being considered a money services business.

What is so special about 7 nodes and the 20% number?

For the Kin Consensus Protocol to successfully validate a transaction, the network must reach a consensus of >66% of votes. These votes are voted on by overlapping quorum slices, where within each one of those quorum slices a >66% or greater vote must take place.

Since members who follow a quorum slice can have their vote changed by the quorum slice they follow, it actually takes significantly less than 66% of voting power to influence the network.

In fact, if a single actor (entity or user) were to control 20% of the votes in a Federated Byzantine Agreement network (like Kin or Stellar), and all quorum slices within that network overlapped, that it is almost mathematically impossible for the network to vote the same way as the actor who controls 20%. In order to defeat the vote of the 20% actor, every other tangential quorum slice would have to cast their primary vote against the vote of that actor. If any single node within the network that is in a tangential quorum slice were instead to vote in favor of that vote, or vote to accept that vote, or to fail to vote, it would create a domino effect of quorum slices changing their votes due to the level of influence this node has.

The only other way around this would be to isolate that node (or those nodes) in a specific quorum slice, which runs the risk in turn of leaving us with disjointed quorums which result in a broken network.

Given this, anyone who controlled more than 20% of the federated nodes that were default to a Federated Byzantine Agreement network would have the power to:

  1. Always get their vote approved even if it was the initial minority vote.
  2. Hold the network hostage with fractured quorum slices.

In any scenario in which a minority entity (or entities), or a minority of the voting nodes can exercise control over the majority, the network is no longer decentralized and therefore can not be considered exempt as a money services business.

At 7 federated nodes, we are able to create interdependent quorum slices, where no one node has excessive voting power and the majority favor always plays out within these votes.

Who is running a node today?

As mentioned above, the only confirmed node operator to date is Kik Interactive, developers of the Kik chat app (and current parent company of the not-for-profit Kin Foundation). It’s possible that the two other apps that have partnered with the project, IMVU and Perfect365, are also running (or planning to run) nodes, but we aren’t clear on that.

Who will run nodes in the future, and when?

It’s possible that the Foundation has stipulated in its terms of partnership with apps like IMVU and Perfect365 that they are to run full nodes for the network as soon as they’re ready for integration, but this has never been stated. As for smaller developers and followers of the project, the Foundation hasn’t yet made it clear what the operating costs to run a node will be, and they also haven’t published all of the code necessary to get a full node running on the new blockchain. A preliminary documentation FAQ uncovered on Github a month ago estimated a cost of upwards of $2000/month for Kin blockchain nodes. So, in the meantime, Kin may need four additional major app partners to run nodes in order to achieve their goal of seven.

Other blockchains have thousands of nodes. How does the Kin blockchain have fewer than seven nodes after a whole year since raising $100 million and beginning development?

While Kin started raising funds over a year ago, they didn’t shift blockchain strategy to forking Stellar, thus needing to build their own network of nodes, until May. And because these nodes need to be sufficiently independent of each other in order to truly decentralize the network, they can’t just buy Amazon AWS instances around the world and claim decentralization. They also may be bound by what incentives or funding they can offer node operators, as the Foundation paying for others to run nodes could easily raise eyebrows over the threat of collusion. Still, with nearly five months behind them, and a major fundraise completed, it is concerning that the Foundation hasn’t yet been able to onboard more than just two apps to participate in the ecosystem, and presumably, in consensus as well.


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One thing that we try to avoid at NuFi is wild and unfounded speculation. Instead, our wild speculation is mildly founded with rough interweb sleuthing. While most of the community has been on a fervorous hunt for bread-crumbs that they believe are evidence that Evan Spiegel (CEO of Snapchat) is the new board member, we here at NuFi decided to do some digging and come up with some other potential (long-shots) of who we’d really like it to be.

Here’s what we know:

  1. Ted mentioned that they’ve begun working with a new board member.
  2. Ted mentioned that the board member is an “independent.” (Not an employee of Kik.)
  3. Ted (et al.) have used gender neutral language when referring to this individual.
  4. The developer contest was decided upon with the help of an un-announced Kin executive. We believe it’s likely this is the same person.
  5. If Kin is hiding their identity it’s likely they are influential.
  6. If they are also working as an executive and a board member, it’s most likely someone who isn’t working at another company currently.

Here are some ideal candidates we picked out that we like, but, it’s probably not them:

#1 – Jan Koum

Who: Jan Koum is one of the co-founders of the popular chat app “WhatsApp” which sold to Facebook for $19B. Why it might be them: Jan is notably anti-Facebook and has apparently left Facebook in a “rest and vest” style. Leaving him open to other projects. Why it would be great if it IS them: Jan knows how to grow a kick-ass chat app. Why it probably isn’t them: He’s got a fair bit of money, and is likely still on non-competes from Facebook. It’s unclear what value Kin would offer him, and if he wants to deal with the chat space again.

#2 – Eric Ries

Who: Eric Ries is the founder of IMVU, The Long-Term Stock Exchange and the author of “The Lean Startup.” Why it might be them: IMVU is a Kin partner putting it on Eric’s radar and with projects like the LTSE, Eric has shown his commitment to disrupting economic oligarchies. Why it would be great if it IS them: Eric is a master of the concepts of lean and MVP. Having been a student in Steve Blanks’ entrepreneurship class he knows how to lead tight and effective product teams. Why it probably isn’t them: He’s already got two projects under his belt including the LTSE which he seems to be focused on full time.

#3 – Marissa Mayer

Who: Marissa Mayer is the former CEO of Yahoo, and former COO of Google. Why it might be them: Marissa Mayer left Yahoo during its sale last year to star a project called “Lumi Labs” focused on consumer facing products and working with startups. Lumi is Finnish for snow. In 2015, Ted Livingston registered a trademark for Snowball Labs, based out of the Kik building. The trademark was later abandoned in 2017. Coincidence? Yes, entirely! Why it would be great if it IS them: Marissa Mayer is a master of running a tight ship. Her operational knack helped Google grow to be the empire it is today, and helped turn around Yahoo. She has an eye for excellence and takes no prisoners on the journey there. Why it probably isn’t them: In her time at Yahoo, her salary was roughly $900,000/week, and her exit package from the Yahoo sale was another $260 million. Marissa can work on any project that takes her fancy, and to her a project like Kik is probably fairly small potatoes. #4 – Gagan Biyani Who: Gagan Biyani is the founder of Sprig, Co-Founder of Udemy, Former Head of Marketing for Lyft, and founder of the Growth Hackers Conference. Why it might be them: Gagan currently isn’t leading any projects, and seems to be focused on investing. He’s linked indirectly to Ted/Kik via a mutual investor (Justin Waldron of Zynga fame). Why it would be great if it IS them: Gagan would bring with him great connections to multiple startups, as well as some strong marketing and growth prowess which would help Kin grow to the next level. Why it probably isn’t them: When Gagan shut down Sprig in July of 2017, he updated his LinkedIn profile to note that he is taking time off to travel and learn. It’s unclear if he is ready to dive back into the professional world yet. #5 – Alexis Ohanian Who: Alexis Ohanian is the founder of Reddit and author of “Without Their Permission.” Why it might be them: Alexis was pro-cryptocurrency early on, and even explored a Reddit based cryptocurrency called “RedditNotes.” Recently, Reddit noted they are retiring the Gold program and replacing it with Reddit Coins. Why it would be great if it IS them: Reddit…. Why it probably isn’t them: Reddit…. – it’s a bit of a handful to run. He likely doesn’t have the time to think about other projects. #6 – Ev Williams: Who: Co-Founder of Twitter and Founder of Medium. Why it might be them: No longer active at Medium and exploring other projects. Why it would be great if it IS them: Ev brings strong experience in managing peer-to-peer social communities. Why it probably isn’t them: Ev as a knack for starting his own thing. He may not be interested in joining other people’s existing projects. #7 – Naval Ravikant: Who: Co-Founder of AngelList, Co-Founder of CoinList, Prolific investor. Why it might be them: He seems to have taken a step back from the day-to-day at AngelList and CoinList, and is probably the only person in the world that might be as deeply involved in crypto as Fred Wilson. Why it would be great if it IS them: He knows (and has invested in) most major startups in the last decade, Naval is the best way to open any door in the valley. Why it probably isn’t them: We believe the new board member is also a full-time exec at Kik. That doesn’t seem likely to be Naval as he tends to move quick and be involved in lots of projects at the same time. #8 – Matt Mullenweg: Who: Founder of Automattic (WordPress) Why it might be them: Matt’s long been interested in cryptocurrency and added crypto address listings to Gravatar early on. They’ve also been extensively interested in new ways to monetize hosted WordPress.com blogs as the team has had trouble launching a successful WordAds network. Why it would be great if it IS them: WordPress powers more than 30% of the internet, and is at the core of great content creation. Why it probably isn’t them: WordPress powers more than 30% of the internet, and it’s just one of the many products at Automattic, it’s a handful and it’s not clear that it’s something Matt is ready to step away from. #9 – Thomas Hartwig: Who: Founder of King.com Why it might be them: King.com is the undisputed leader in cross-platform games. But, the game monetization industry is getting hard and harder due to the walled-gardens of Apple, Facebook and Google. Kin is the perfect fit in solving this. Why it would be great if it IS them: Thomas Hartwig is lord of cross-platform games, with hundreds of millions of users world-wide using King.com built games, there may not be a greater adoption play. Why it probably isn’t them: Even though game monetization is a tough business, King.com is historically quite good at it and may not be yet feeling the pressure to change their tactics. #10 – Marco Arment: Who: Co-Founder of Tumblr, Instapaper and Overcast. Influential app developer and podcaster. Why it might be them: Marco hasn’t been active in a major project recently, but, he has a deep interest in content creation, mobile applications, monetization and content discovery. A number of his posts on marco.org seem to echo sentiments of Kin’s philosophy. Why it would be great if it IS them: Marco is influential in the developer space and could really help drive adoption among app developers. But, perhaps more importantly, Marco has deep relationships with a number of major content discovery platforms and understands the nuances of the publishing space. Why it probably isn’t them: Marco is quite self-sufficient living off of marco.org and his Overcast app. It seems he has really found his passion and is living the good live. Pretty hard to give that up. [adace-ad id=”2530″] #11 – Brian Wong: Who: Brian Wong is the Founder of Kiip, a rewards platform that works with major brands. Why it might be them: Canadian entrepreneur in the rewards space. Why it would be great if it IS them: Brian Wong is not only an incredible entrepreneur who knows how to move quickly, but, he also has deep connections to top marketing executives at major brands and millions of users to bring to the table. The fit would be mutually beneficial both for Kin and Kiip. Why it probably isn’t them: Unlike a number of other companies, Kiip isn’t hurting. In fact it’s thriving. It doesn’t really have any need to do anything different. While it may make a calculated risk to grow to the next level, it’s a bit of a harder sell. #12 – Led Rivingston: Who: Led Rivingston is the secret clone of Kik CEO Ted Livingston. Why it might be them: 2% secret sauce much? Why it would be great if it IS them: A powerful army of Ted Livingstons can descend on the blockchain world, being in all places at once and securing every partnership. Why it probably isn’t them: I can’t think of any good reason!

Who do we actually think it is?

While we don’t think it will be an entrepreneur who is quite at this level we think it’s important for us to not get too stuck on any single individual. The goal of this article was to show there are hundreds, if not thousands, of great candidates who even if they aren’t the most well known mega-successful entrepreneurs, they still have unique skill sets to bring to the table that can help take Kin to the next level.

Who didn’t make it on to this list but was on our radar?

Tobias Lute (Shopify) Tom Anderson (Myspace) Jeff Atwood (Stackoverflow, Discourse) Rich Barton (Expedia, Zillow, Glassdoor – now Benchmark Ventures, on the board of Netflix) Matt Barrie (Freelancer.com) Nathan Blecharczyk (AirBnB) Sergey Brin David Byttow (Secret) Garrett Camp (StumbleUpon, Uber – Canadian) Charlie Cheever (Quora) Dennis Crowley (Foursquare and Dodgeball) Roger Dicky (Gigster and key engineer at Zynga) Jack Dorsey (Square, Twitter, Speaker at Consensus in 2018) Scott Farquhar (Atlasssian) David Filo (Yahoo) Janus Friis (Skype, KaZaA, Radio) Logan Green (Lyft) Garrett Gruener (Ask.com) Reed Hastings (Netflix) Reid Hoffman (LinkedIn) Ryan Holmes (Hootsuite) Dave Hyatt (Safari, WebKit, Firefox) Brendan Eich (Firefox, Javascript, Brave BAT) Michael Jones (Myspace, Science Inc, Science blockchain) Justin Kan (Justin.tv Twitch.tv, Y Combinator) Max Levchin (Paypal – awards a prize in cryptography) Dustin Moskovitz (Facebook, Asana) Aswhin Navin (BitTorrent) Pierre Omidyar (Ebay and First Look Media) Sean Parker (Napster, Facebook, Spotify) James Altucher (Reset Inc, Hedgefund Manager, StockPickr, Bitcoin investor, recently aiming to found a bitcoin exchange) Mark Pincus (Zynga) Sebastian Thrun (Udacity) Justin Waldron (Zynga, Investor in Kik) Tom Preston-Werner (Gravatar, Github) – Resigned from Github Noah Kagan (Sumo.com, AppSumo) Kevin Lin – Cofounder COO Twitch Andrew D’Souza (Founder of Clearbanc, moved from TO to SF, advisor to Kik, previously at Top Hat) David King (Green Patch, Blibby)  Mich Kaufman (Fixer) Raj Kapoor (Lyft exec) Lynda Ting (Venture/M&A exec, broad experience, connected in crypto) Neil Shah (Exec at Twitter/Slack) Thomas Hatwrig (King.com) Daren Tsui (Imvu) Brian Armstrong (Coinbase) Fred Wilson (USV) Moe Adam (Bitaccess) Michael Kitchen (Wealthsimple) Michele Romano (Clearbanc, Buytopia, Snap Saves) Sam Teller (SpaceX, Tesla, and like tons of other stuff) Glad Gil (growth exec and investor) Adam Ludwig (chain.com) Brian Acton (WhatsApp and Signal) Evan Spiegel (Snapchat)
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