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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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As we move towards the launch of the Kin blockchain main network launch, there have been a lot of questions regarding the need for ‘7 federation nodes’ to start the official decentralized network.

At the core of that need sits some mathematical and regulatory theory, based on how Kin’s Consensus Protocol (KCP) works.

What is a Consensus Protocol?

Every blockchain is made up of entities we call “nodes.”

Nodes are essentially computers that have chosen to download and run the network software. Each of these nodes monitor transactions on the network and choose to validate or invalidate each transaction based on a series of mathematical computations. (For a more in-depth look at how nodes work, consider reading our guide: “What is a Blockchain?“)

Each of these nodes are given a vote within the network, and with those votes we aim to reach a ‘consensus,’ or decision. In any situation where voting occurs, we have a ‘consensus protocol’- a formal set of rules that help us to decide when a satisfactory decision has been made.

The most common consensus protocol that most people are familiar with is “majority rules.” We might use this in a classroom setting when a teacher is asking her students which activity they wish to do. She’ll ask for a show of hands and the activity with the most votes wins.

However, in our every day lives, we do deal with much more complicated consensus protocols, such as voting in elections, where all votes may not be voted equally.

When it comes to a blockchain network, consensus protocols are very important as they need to:

  1. Validate the authenticity of transactions and balances infallibly.
  2. Define a ‘safe’ majority that both prevents network attacks, but also prevents a tyranny of the majority.
  3. Create a network that can be considered fair and decentralized from a regulatory perspective.
  4. Ensure that no minority (counted either by votes, or by entities/people) can control the will of the network and out vote the majority.
  5. Prevent stalemates or failures.
  6. Prevent breaks or hard forks within the network.
  7. Incentivize good actors (users).
  8. Disincentivize bad actors (users).

Each of these criteria result in an increasingly complicated set of rules being applied to reach consensus. The challenge is that reaching consensus is costly. If you had to poll 100% of nodes in the network each time and figure out the majority vote it would be extremely resource intensive- and depending on how you define a node (such as by hashpower, or number of computers run), it could be easy to manipulate the votes financially.

Given all this, nearly every blockchain network in development currently has set out with the goal of creating a unique consensus protocol that they feel can address these challenges.

What is the Kin Consensus Protocol (KCP)?

Our understanding of the Kin Consensus Protocol is still forming. As of right now, we know that the Kin network is based on a fork of Stellar and the Stellar Consensus Protocol (SCP).

The Kin team is currently discussing and exploring additional features they aim to implement regarding the ability to incentivize good actors, and disincentivize bad actors, but beyond this, we believe that the KCP will operate in a manner very similar to Stellar’s SCP model.

But, we can walk through the features of the Stellar Consensus Protocol and look at how they interact.

Understanding the Landscape of Kin Consensus Protocol (KCP):

#1 – Byzantine Fault Tolerance (BFT):

A “Byzantine Fault” or “Byzantine Failure” is when an individual node, or nodes, act arbitrarily or unexpectedly within a network.

Imagine a scenario with four voters: “User A,” “User B,” “User C” and “User D.”

All four voters are told they can pick between ‘Chocolate’ or ‘Ice Cream’.

A, B and C all pick between the choices that were provided to them. User D, however, says their vote is for ‘Potatoes.’

Now we have a very basic byzantine fault within the network. Luckily, we don’t need full unanimous consent in order to reach consensus. But, if we don’t require complete consensus, then we must have a specific model in place to decide what the minimum consensus is and how we deal with byzantine faults.

In a BFT system, validators send messages back and forth, and will confirm a transaction to be true if more than 66% of the validators vote in favor of the issue. (The BFT model is much cheaper and faster than ‘Proof of Work,’ but it does sacrifice decentralization in favor of a more centralized authority.)

Classic BFT, which is used by blockchains like Ripple, require a pre-set validator list, which is often defined by the company behind the blockchain. Anyone can create a validator, but you can only partake in consensus if the central authority adds you to the list.

While blockchains like Stellar attempt to shift away from this model, they still often ship with a recommended list of validators in the node code in order for a new node to connect to the network, who become overly powered and essentially mimic classic BFT behavior.

Kin will likely use the Stellar alternative to BFT, called “Federated Byzantine Agreement (FBA),” which we’ve outlined below. But this still relies on principles of BFT, and is likely to ship with a starting list of validators that most people won’t change, making it much closer to classic BFT models.

#2 – Federated Byzantine Agreement (FBA):

The specific model for dealing with byzantine faults within Stellar, and therefore Kin, is a Federated Byzantine Agreement (FBA). FBA is a decentralized alternative to BFT.

Within an FBA network, rather than relying on a list of approved validators, each node decides which validators it wants to trust. These validators are referred to as a ‘quorum slice.’ Quorum slices of each validator overlap throughout the network, and eventually result in a quorum (or network wide consensus) on any decision.

The important part of an FBA model in its pursuit of decentralization is the ability for anyone to create a validator on the network, and for users to be easily able to change and manage their own quorum slices.

FBA models have received some criticism due to the complexity or cost associated with both of these tasks. Some blockchains that are being run on FBA models have changed the functionality of their validator nodes to make it cost prohibitive for the average user to run a node, thus centralizing this process.

Configuring a quorum slice within your validator node’s configuration file is also a complicated process that requires knowing the IDs of various nodes, and listing mathematically balanced quorum slices. Since most users are not capable of this, the validator code that users run on their system often ships with a set of pre-defined quorum slices set by the developer. Since most users do not change from the default (or can’t), and tools are not provided to allow users to easily create their own slices, these default nodes become very powerful within the network.

#2 – Vote & Accept:

In most voting systems, we’re used to two scenarios:

  1. We can vote for or against something (“Do we want to ratify this agreement? Yes, or no?)
  2. We can pick one choice within a set (“Do we want to go to Germany, France, or Mexico for Vacation?)

In the byzantine agreement system used by blockchains like Ripple, Stellar, and Kin we actually have a third option. We can choose to vote for a specific answer, as well as note which answers we will accept.

So, if it was the vacation question, I could cast my vote as “I vote for Germany, but would accept going to Mexico.” This becomes a critical concept as we delve into quorum slices.

#3 – Quorum Slices:

In any decentralized network, we have something called a “quorum,” which is the set of nodes that is sufficient to reach an agreement.

In our example above, perhaps we decided that as long as 75% of users placed a valid vote, then we met our minimum quorum. This means we could simply ignore the invalid vote from “User D.”

Within Ripple, Stellar, and now Kin, we’ve shifted from simply using quorums to using ‘quorum slices.’

A quorum slice is a subset of a quorum, a trusted group that can convince one particular node to agree with it.

Four nodes on our network, three of which make a quorum slice

Within this example, the yellow node (the first circle in our diagram) has the other three nodes within a quorum slice.

From these slices, it can create a series of rules where the yellow node says:

  • If two-thirds (66%) of nodes within this quorum slice agree with an option I “accept,” then change my vote to that option.
  • If 100% of nodes within this quorum slice agree with an option I didn’t accept, then change my vote to that option.
  • If 66% of nodes within >66% of the quorum slices I follow agree with an option I didn’t accept, then change my vote to that option.

Quorum slices are essentially groups of nodes that the user trusts. The rules a user sets for their quorum slices allow different layers of trust and influence for each quorum slice.

Perhaps within the Kin network, a node decides that they are going to create three quorum slices they trust. One consisting of the nodes hosted by Kik, the Kin Foundation and IMVU. The second slice consisting of all the developers from the Kin Developer Program, and the third consisting of community hosted nodes.

When a transaction gets made, the node sees that Kik and the Kin Foundation are voting “No” on that transaction, but IMVU is voting “Yes.” At this initial stage, the node assumes that “Yes” is the accurate vote.

As it checks with the two other quorum slices that are within its defined Byzantine Fault Agreement, it realizes that 100% of these other two quorum slices are voting “Yes.” At this point the node changes its mind, realizing there must be an issue with the votes from Kik and Kin, and it now decides to vote “Yes” as well.

#4 – Quorum Slice Overlap:

The final important factor for us to note before we can walk through an example of a Kin Consensus Protocol decision is ‘quorum slice overlap.’

As we’ve noted, each node will ultimately have multiple quorum slices that it trusts. In order for the network to operate, these quorum slices all need to layer together in a manner that allows the entire network to reach a quorum consensus (>66%).

However, if users are able to create their own validators, and define their own quorum slices, we can run into what I call “the faction trust problem.”

The faction trust problem is when a portion of the network trusts one quorum slice, but no nodes outside that quorum slice, and another portion of the network trusts a different quorum slice but none outside of that.

These two opposed quorum slices could both reach different conclusions on a vote and leave the network stuck at a standstill. We refer to these quorums as “disjointed quorum slices.”

Disjointed quorum slices with no overlapping trust.

Given the fact that these quorum slices are disjointed, it is impossible for the network to come to a complete consensus. Even though 5 nodes are voting one way, they only add up to 55% of the network vote. Since their quorums do not overlap there is no way to convince one of the other three nodes and reach 6/9 votes (66%).

In some blockchains, this type of situation could cause a hard fork wherein the blockchain splits into two chains that diverge and continue to process separately. This would ultimately produce a risk of a double-spend attack and other challenges.

Since protocols like Stellar and Ripple are designed to be used by real-world financial institutions and support tangible underlying assets, it is crucial that the chain never splits. For this reason, the Stellar network (and all FBA networks) are designed to halt any new transaction until a network consensus (>66%) is achieved.

This is why it is crucial for the quorum slices to overlap, so there is always a connection between slices, and the network can never be divided into two camps.

Three overlapping quorum slices, ensuring the network can always reach a point of consensus.

The Journey of a Kin Transaction:

For a very simple example of how a Kin transaction might work within the KCP, let’s pretend that Dillon and I have invited Ted out for a coffee. We’ve decided to vote on where we want to go for coffee using the Kin Consensus Protocol and our Kin validator nodes. Each node is named for the person it represents.

In this scenario, we will assume:

  • Dillon has voted for Starbucks. He has not voted for, nor voted to accept any other answers.
  • Adam has voted for Starbucks. He has also voted to accept Tim Horton’s.
  • Ted is undecided at the start of our scenario.
  • Ted’s quorum slice consists of Dillon and Adam’s nodes.

Voting and Accepting:

When Ted is asked to place a vote, he sees that the options before him are “Tim Horton’s,” “Coffee Time,” and “Starbucks.”

Being the true Canadian that he is, Ted decides to vote for Tim Horton’s- but he also decides he can accept going to Starbucks as it is near his office and provides good quality coffee. He decides that he isn’t willing to accept Coffee Time because, quite frankly, it’s terrible coffee.

Ted is now broadcasting the following to any quorum slice that he is a part of:

  • Vote(Tim Horton’s)
  • Accept(Starbucks)
  • Reject(Coffee Time)

Now he checks the quorum slices he follows (which consist of Dillon and Adam). Ted’s node notices that both of the nodes in his quorum slice (100%), are voting for Starbucks. Since Ted has listed that he is opening to accepting Starbucks, he won’t argue against it.

Ratification:

Once every member of a quorum slice has voted for the option, they in turn “ratify” the decision. The ratification of a decision means that that entire quorum slice is now represented by the vote. So in this case, because >66% of the quorum slice voted for Starbucks, and Ted noted he would accept Starbucks, the vote is ratified. In this case, anyone who follows Ted, Dillon and Adam as one quorum slice would now see that the slice is voting for Starbucks.

Voting for Starbucks doesn’t assert Starbucks as the right option. Instead, Starbucks will be accepted as the right option only if it is ratified.

Confirmation:

Confirmation is the final step of the voting process, and is used to ensure system-wide agreement (quorum consensus).

Once there is an agreement, the nodes begin to exchange confirmation messages. Each node is asked to agree to an statement, and once sufficient messages are delivered and processed to show that the network has reached consensus then every live node on the network after that is forced to accept the decision.

In our example, Adam and Dillon may send out the message “accept(Starbucks).” When Ted sees that more than 66% of nodes within the network are agreeing with “accept(Starbucks),” his node is now forced to do the same, and begins to broadcast the message “accept(Starbucks).”

The BFA system has additional features for dealing with breakdowns among quorum slices and other bad actors, but this process of vote, ratify and confirm outlines the basic model of BFA in a consensus protocol, and the primary model we expect the Kin blockchain to be using.

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NuFi.io is an independent publisher aimed at providing quality journalism in the cryptocurrency space. NuFi is not associated with, paid by, or employed by any cryptocurrency project. We rely on subscriptions from readers like you!

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The Kin Foundation set the lofty goal of “becoming the most used Cryptocurrency by End of Year” in 2018.

Depending on their measure of success, they’ve either got a long way to go, or an incredibly long way to go.

There are also some key problems that stand in their way that will need to be resolved – but shipping solutions to these challenges would send strong signals that Kin is poised for growth in Q4.

The Most Used Cryptocurrency:

To reach the status of the “most used cryptocurrency” by the end of year, Kin would likely need to compete on transaction numbers, transaction volume or total number of wallets. Kin is a long way off on all these fronts, but the most likely measure is in terms of transaction count (especially given Kin’s focus on micro-transactions).

So where does Kin sit currently? As of September 5th, during a slow bear market, here are the top transacting blockchains based on Blocktivity’s reporting of a 7 day average:

Transactions Per Day, Per Blockchain:

  • EOS – 4M transactions/day
  • BTS – 1.2M transactions/day
  • Steem – 1.1M transactions/day
  • ETH – 600k transactions/day
  • BTC – 230k transactions/day
  • KIN – 20k transactions/day

While there is some debate as to the legitimacy of how transactions are counted for “EOS,” “BTS,” and “Steem” (all of whom are made by the same dev), even if we were to discount them entirely and leave ETH as the leader with 600,000 daily transactions, this is still very far from Kin’s 20,000 transactions a day – many of which are automated account creation transactions performed by the Kin Foundation.

So, let’s examine some of those key problems.

Problem #1 – Restricted Integration (SDK):

Even though the Kin Foundation is focused on building an “open and fair” ecosystem on an open source technology, they’ve taken a very restrictive approach to their early integrations.

While the Kin team launched a $3 million Developer Program and accepted 40 different participants to that program, the ability to build on the Kin blockchain is not yet available to anyone else.

Right now, developers who are interested in Kin are stuck:

  • Building for the ERC20 Kin token, which is unsupported. It’s also unclear if these apps will count towards the KRE.
  • Waiting for the Kin SDKs to have a public launch in the future.

At this point in time, developers have no real ability to develop for the Kin ecosystem and so Kin is turning away party guests before they even have a chance to knock on the door.

If Kin hopes to be the most used cryptocurrency by EOY, they will need to play a volume game with developers and not be too dependent on current apps, which could face serious challenges with integration, legal and user education.

Problem #2 – Isolated Ecosystems (Identity Layer):

One of the most important aspects of the Kin Ecosystem, that we’ve yet to hear any official discussion about, is the “Identity Layer” solution.

In order for users to move their Kin in and out of apps without creating multiple wallets, Kin will need to provide some sort of “Login with Kin” button (likely through Kinit) allowing people to receive compound value for their Kin by earning it in one app and spending it anywhere.

This is one of the core tenants for Kin and their “rebel alliance” – without this ability, apps are just isolated ecosystems that are no different than current in-app “rewarded video” experiences.

Rather than create a work-around, Kin has chosen that the first batch of apps will not be able to have users transfer their Kin outside of the app until some unknown future date.

An identity layer is crucial for Kin’s long term success, but the ability for users to transfer their Kin from apps to a public blockchain is table-stakes for truly being the most used cryptocurrency by end of year.

Problem #3 – Centralization (No Public Blockchain):

Kin has positioned themselves as a private, single-product focused blockchain, which wins them no friends within the cryptocurrency community.

Right now, Kin’s nodes are all run by the Kin Foundation or other private members of the ecosystem. It is currently not even possible to run your own node for the Kin blockchain mainnet as:

  1. The GitHub code is not up to date with the mainnet nodes.
  2. The network passphrases are not publicly released.

This means that the Kin Foundation fully controls the Kin blockchain network and could rollback any transaction or change a transaction at any time.

Blockchains are designed for decentralization through ‘trustlessness,’ and Kin won’t be able to become the most used cryptocurrency without building that trust with the blockchain community. Until Kin launches public nodes and decentralizes the network, then they can’t claim to be the most used cryptocurrency, as they would really just be a highly used in-app currency from a private company.

Problem #4 – Trapped Value (No Atomic Swap):

Currently, nearly all the Kin in existence is sitting on the Ethereum blockchain as ERC20 tokens.

The Kin Foundation shifted from Ethereum to their own private Kin Blockchain and left their tooling for the Ethereum blockchain unsupported.

This means there is no real purpose to the Kin ERC20 token (KIN1), and its value is entirely based on speculation until there is an “Atomic Swap” option to bring the Kin back over to the Kin Blockchain.

The Atomic Swap was originally targeted to go live in Q3 of 2018, but has been pushed back until at least late Q4 of 2018. With Kin’s track record of deadlines it is unclear if we’ll see the functionality released by end of year, but, it would be a crucial component to reaching their goal.

Problem #5 – Kik Engagement:

The Kik team has been disappointingly quiet on the progress of integrating Kin into Kik.

While Kik is supposed to act as a core beacon of the Kin Ecosystem, so far we’ve seen mostly idle wallets, minimal updates to the user experience and low engagement rates.

We’ve received minimal insights into the progress here, or future plans/timelines. The one communication we have from the Kin team on the “progress of the Kik integration” left us with vague answers, no hard data or concrete details.

Perhaps Kik is just playing their cards close to their chest – but the article doesn’t instill confidence. Coupled with the low volume of daily active users (and the lack of clarity around Kik wallet creation numbers), it breeds concern that the Kik integration may be under performing.

Integrating Kin into Kik could single handedly result in Kin being the most used cryptocurrency in the world by the end of year, if the engagement and retention rates are strong. This is Kin’s main lifeline for delivering on that goal, and yet the community has mostly been left in the dark here.

TL;DR Recap: How We Become Most Used:

What can Kin do to become the most used cryptocurrency by end of year? Any of these launches would signal good things:

  1. Launch public SDKs.
  2. Launch an Identity Layer.
  3. Launch public blockchain nodes.
  4. Launch the Atomic Swap.
  5. Roll out Kin into Kik.

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Recently, we published our 5 part series on “What Critics Fail to Understand About Kin.” While we firmly believe that there is a lot of unfair criticism about Kin, there are also many points that critics got right.

At the end of the day, successful projects are often successful not because of the things they do well, but instead because of their ability to identify their short-comings and work to correct them.

We already know the “5 Challenges that Kin Must Overcome to be the Most Used Cryptocurrency by EoY,” but these related primarily to technical and product hurdles.

Given that, it is important for the Kin community to know what critics have right about Kin.

#1 – Kin’s Communication is Either Confusing or MIA:

When it comes to communication from the Kin Foundation team, the community feels they have three choices:

  1. No information.
  2. Confusing and vague statements that don’t get clarified.
  3. A response of “I’ll look into it and get back to you!” that goes unanswered.

The Kin Foundation has struggled in the past to meet their deadlines and fulfill previous production promises. Rather than adjust their goal-setting practice, the Kin Foundation stopped giving updates.

There is no official resource for answers and the community has no insights or updates on:

  • The Kin & Kik Integration.
  • The KRE.
  • The Identity Layer.
  • The Atomic Swap.
  • Partnership integrations with Unity, IMVU or others.

Kin continues to operate like a private company, rather than a blockchain project with community stakeholders – and leaving people in the dark has left a sour taste in the mouth of many community members.

It’s also a misaligned behavior for a company that says its operations will one day be managed by a non-profit foundation where the community is supposed to have a strong voice.

#2 – The Community is Unkept:

Kin’s community is the overgrown garden that no one wants to love or nurture.

In the Kin subreddit, many posts, questions or requests for help are answered by the community members (when they have the information to do so) – but the content remains largely unfiltered. In fact, spammy advertisement for other cryptocurrencies, and referral links to exchanges have often sat on the front-page of the subreddit for days on end leaving the community to wonder where the mods are.

In Telegram the situation is even worse. Users frequently use Telegram to get answers on new projects they are exploring. When they come to the Kin chats, they are instead met with an onslaught of aggressive (and sometimes offensive) memes, and given misinformation by multiple sources. In fact, multiple new people have come into the Kin Telegram in the past day only to be told that Kin is crashing because it’s “an exit scam.”  (Note: The one saving grace here is if that if something is really bad and in need of moderation, you can often ping Benji and he will get to it in the next day or so).

The rare times we do hear from the community team, it’s with odd questions like:

The Kin Foundation has at least 3 full-time community managers, and yet, it’s unclear to the community exactly what they are doing. The community feels ignored and taken for granted and that needs to be resolved.

#3 – Kin Wants Free Labor:

Kin is the cryptocurrency that is supposed to be all about rewarding users who create value. Creating a rebel alliance so people can earn their fair share.

At the same time, Kin has shown on multiple occasions that they want free or underpaid labor themselves – such as with the creation of their Ambassador program, where they wanted tremendous community management commitment and content creation from their Ambassador team in exchange for prizes such as T-shirts or online badges (which are still undelivered weeks after the conclusion of the pilot program).

The team has even gone as far to float the idea of volunteer community moderators to help manage Reddit and Telegram.

It isn’t uncommon in the world of crypto to have users step up and help moderator and manage the community – what is uncommon, and in this case hypocritical, is not paying them.

In most communities, the community member moderators are rewarded with bounties paid out in the tokens they’re working for.

Given that Kin has raised $100 million in an ICO, and sits on trillions of vested Kin tokens, they should ensure they “walk the walk” when it comes to rewarding users who create value.

#4 – The Kin Rewards Engine is Broken:

The real core of Kin is in the KRE. Given that developers are essentially replacing their monetization methods with Kin, they need to be able to be dependably rewarded for their users actions.

Right now, all previously released information about the KRE is considered inaccurate and out of date and the KRE is back on the drawing board.

Kin has realized that:

  1. The KRE would cause too much downward pressure in an early market that is highly illiquid.
  2. The KRE will have challenges in identifying fraud.

There are some other problems they haven’t yet acknowledged:

  1. The KRE doesn’t give a reliable way to predict income per user action (as compared to “Rewarded Ad Views”).
  2. The KRE may open up developers to double-taxation events as it requires both receiving the token (income tax) and then selling the token for fiat (capital gain/loss).
  3. The KRE’s declining reward model, instead of a growing reward model, means early adopters win big, but later adopters will depend on the market growth matching the KRE output.

There are a number of complexities surrounding the KRE, but if developers don’t get clarity on their potential earnings, they simply won’t be willing to take that risk.

Woah, this sounds bleak, do you still believe in Kin?

After writing this article, and addressing “The 5 Challenges Kin Must Overcome to be the Most Used Cryptocurrency by EoY.” I know a lot of people are going to ask if I think Kin can still be successful.

The answer to that is, yes.

I still think they can be successful, although I am also less confident than I was before.

In order to get there, they have to acknowledge and work on correcting the challenges they face both as a team and as a product. Weak teams defend their actions, good teams correct them.

I still own the Kin I’ve purchased – but I’m certainly looking for a change in the status quo.

Why do you think these things are problems for Kin?

While I can appreciate that in any startup you need to “pick what you are best at” and cut corners on other aspects to move quickly, Kin can’t continue to cut corners on community and communication. Success in the blockchain world will depend on a strong community that supports the project, and potential partners will look at how Kin treats their community as a litmus test of how Kin would treat them.

Do you think Kin will be the most used cryptocurrency in 2018?

I highly doubt they will be able to achieve their goal of being “the most used cryptocurrency” by the end of the 2018 year – and I think Kin is going to be a long hold in order for it to be a success.

I think users who are dreaming of a $0.01 Kin (or higher) in 2018 are simply wishful thinkers. I think we have a long journey ahead of us to build a robust ecosystem.

At the same time, I would love nothing more than if the Kin Foundation proves me wrong. This is one case where I’d love to eat my words.

But, I think it is fair, healthy, and constructive for us to admit that there are a few things that critics have right about Kin.

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