Investors Rebel Over Kin’s Move Away From Ethereum

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To the surprise of ICO investors, Kin recently announced they are to transfer their ethereum based token to Ripple’s cousin, Stellar, a platform many say is centralized because it requires trusted third parties as Stellar itself says:

“Anchors… take your deposit and issue the corresponding credit to your account address on the Stellar ledger. You can make a withdrawal by bringing them credit they issued. You have to trust the anchor to honor your deposits and withdrawals of credit it has issued.”

In short, it uses banks, or as Stellar itself explains “most anchors are organizations like banks, savings institutions, farmers’ co-ops, central banks, and remittance companies.”

Kin ICO investors seemingly did not imagine that is what they were buying when they sent some $100 million worth of eth to Kik earlier this year. One of them says:

“If they want a centralized token, they might as well just track the transactions on their own in a centralized SQL database, it’d be just as secure and way faster than Stellar.”

Kin hasn’t made any formal announcement explaining their choice of platform or how exactly the token transfer will occur, with Ted Livingston, Kik’s CEO and founder, choosing a live questions and answers session to announce some pretty big news for Kin investors. He said:

“Using Ethereum has been complicated… The scale is very low. Even at 10,000 users, [we’re] starting to push the limits of the Ethereum blockchain,” before adding they were migrating to Stellar.

That was followed by a reddit post from a community manager who said they will provide full information in due course after stating:

“Though scaling solutions for Ethereum are currently being heavily worked on (e.g. proof-of-stake, sharding), they are still far from being ready for a production environment.

We are in a state where we plan to start using Kin in large scale with real users very soon (i.e. the following weeks).

Ethereum has different goals and timelines than ours, and we want to move forward quickly with our plan. We cannot wait for these solutions to become mature, as this would be a waste of time.”

In some of the most voted threads of the subreddit, investors expressed disappointment, one of them says:

“I invested in the Kin token partly because I love and support Ethereum and Kin with its large user base, was a project that I had hoped would break new ground in crypto and along the way would help Ethereum grow with it in terms of identifying areas of improvement…

Ted is complaining about the reliability and sluggishness of the Ethereum network but instead of dumping ERC20 token, he should have his team work on how to get to those scalability solutions quicker on Ethereum and find workarounds that will keep us on Ethereum while it grows.

Yes Ethereum has issues but I am willing to HODL through with solutions on the horizon. Dumping Ethereum for Stellar after an ICO that helped raise 100M from mostly Ethereum supporters? Not a wise move.”

Had Kin initially announced they were to ICO on Stellar’s platform, it would have probably raised many eyebrows, and although we don’t have an A/B test to know whether they would have raised anywhere near the same amount, it is probable the ICO would have been limited to the far smaller Stellar community.

Raising questions regarding their awareness of ethereum’s capabilities at the time of the ICO, and about the way this announcement was made, with some investors seemingly contemplating legal action. One of them says:

“The Canadian company has deceived customers with the advertising campaign it used to promote its supposedly ‘ERC20 Token’.”

The episode, however, does highlight just how important scalability is for public blockchains. Kik has millions of users, and although ethereum has a roadmap for Visa levels scaling, that’s months away at best.

But, the community manager says they expect “only” hundreds of thousands of transactions a day. Ethereum currently handles almost a million at a blocksize of just 1MB of data for every 10 minutes.

That can probably be increased to 4MB very safely and even 8MB, a level which would probably be appropriate even for bitcoin before long term solutions, such as second layer protocols such as Plasma, Raiden, and base layer protocol improvements, such as sharding, are deployed.

However, there are two significant differences between btc and ethereum. Eth rewards orphaned blocks (uncles), so an increase in their numbers might not matter to the same extent as for bitcoin.

And, perhaps more importantly, ethereum plans to phase out miners completely starting with a hybrid Proof of Stake/Proof of Work deployment hopefully in 2018.

Therefore any longer term negative effects in an increase of orphans for Proof of Work (PoW) blockchains may not apply to ethereum as the PoW mechanism is temporary.

And as we have seen so far, miners have been willing to increase capacity when the ceiling is reached, because ethereum has a soft limit that can be increased based on just a simple majority of miners, unlike bitcoin’s hard limit.

And even in bitcoin, miners almost unanimously wanted to increase the blocksize, but the developers in control of btc’s current reference implementation refused and prevailed.

Therefore bitcoin’s failure to increase capacity was primarily, if not solely, due to developers, with miners so far happy to meet demand while we await full solutions.

But whether that continues to be the case does remain to be seen and Kin is not without justification in being concerned. However, the manner this was announced does leave much to be desired and their lack of consultation with investors has seemingly led to disappointment.

That’s in addition to what appears to be lackluster performance so far as, although its price has jumped today, it does remain at just about the same level as the ICO price.

Kin’s market action

During the same period, ethereum’s price has increased far more, adding to investors’ potential anger towards what seemed to be one of the more promising ICO at the height of the token sale boom back in May.

But now, through this episode, gives us much to learn about investors relations in particular, and ICOs more generally.

 

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