How we priced GRAFT ICO

  We get a lot of questions about the ICO pricing, including “Why GRAFT ICO is so expensive”. What follows is an attempt to explain how we arrived at the ICO pricing and what all contributed to it.  

Not All Altcoins Are the Same

There are two types of altcoins (aka tokens) out on the market today – one that sit on top of another blockchain (like Ethereum), and others that implement their own blockchain. The ratio of derivative tokens to custom blockchain ones are roughly 100:1.   It is a lot easier to do a derivative token based ICO – you just write a small amount of code in  Solidity (if Ethereum) – and you have a token you can sell. Doing or modifying a blockchain on the other hand involves a very substantial amount of engineering efforts – the team has to figure out the math and economics behind the blockchain, implement additional capabilities, secure that new functionality, create API’s, in many cases create applications like a wallet, etc. They also have to create a whole new network complete with node installation procedures, upgrade processes, and many other considerations. GRAFT is the latter of the two – while leveraging CryptoNote protocol which addresses privacy, decentralization and fungibility as well as  great work that Monero team has done to improve scalability among other things, GRAFT is having to implement a new communication protocol that allows instant authorizations, a distributed API (DAPI) that allows connections from the POS and other applications, and a set of reference applications for the point of sale  and the wallet – just to name a few high-profile tasks.    

Derivative Tokens Cost More

Tokens run on top of another blockchain (say Ethereum), so purchasing a token is not sufficient to run the application that the token represents – you also need to purchase “fuel” (which is the underlying coin/token). The amount of fuel depends on the amount of transactions that the token application represents. Compare this to the blockchain like GRAFT which encompasses the value of entire transaction. As you can see, the cost of a token is more than meets the eye, in some cases much more.  

Pay Attention to Valuation, not Token Cost

Valuation (or capitalization) follows a simple formula: (Number of tokens or coins) x (Price of the token / coin). It’s natural for people to think that smaller price of the token represents a bargain, but the critical piece in this equation is the number of coins or tokens that are being issued. For example, which is less expensive (has higher valuation) – 1 billion tokens at $1, or 10 million tokens at $10? It is as you could calculate the latter, with corresponding valuations of $1B vs $100MM.  So when you buy a $10 token from a 10 million token pool, you actually end up with a significantly (10x) larger piece of the pie than if you buy the same amount of the $1 token in a 1 billion token pool. Most token ICO’s are not burdened by emission math (the formula that guides how the coins are mined, making the later mined coins harder to mine than earlier mined coins), so they issue a very large number of tokens (often in 100’s of millions or even billions) and then pricing the tokens low for the perception of the low entry cost. Top 10 Derivative tokens (illustrating circulating supplies differences)  

GRAFT Valuation is 1/40 of Dash

GRAFT’s total final emission (the number of coins to ever be minted) is roughly 18 million (18,446,744 to be precise). We’re pre-mining certain number of coins (45%) to cover the ICO, marketing, reserves, and incentives. This is it. We will never be able to add or pre-mine any more coins!  We have also decided not to siphon off any fees from the transactions to fund the development like some of the other blockchains are doing.    As such we have to make sure that whatever we raise now will be sufficient to sustain GRAFT project until no further development or support from the core team are required (we estimate that to be roughly 7 years with the overall team growing to 30-40 people). This is roughly $25MM.   Now, we also have to account for additional unexpected expenses, crypto-currency fluctuations at the time of the raise, and potential taxable events. This means that we need to need to double the $25MM getting us to $50MM. Since the ICO represents 25% of the total coin supply, the $50MM has to be equal to 25%, which brings the valuation to $200MM, and subsequently the price of the coin to roughly equivalent of $11 USD.  

Summary

When evaluating GRF pricing, it’s really important to compare apples to apples in terms of:
  1. size of emission (or the number of tokens available)
  2. type of a token/coin – a blockchain or a token on top of another blockchain
  3. valuation which is a product of number of tokens multiplied by price
If you do such comparison, you will see that GRF token ICO compares very favorably against other blockchains on the market:
Current circulation Price Market Cap / Valuation
Bitcoin 16,678,650 $6,100.00 $100,000,000,000
Ethereum 95,715,037 $310.00 $29,500,000,000
Ripple 38,622,870,411 $0.20 $30,000,000,000
Litecoin 53,819,707 $60.00 $3,250,000,000
Dash 7,687,407 $340.00 $3,200,000,000
Monero 15,345,839 $118.00 $1,800,000,000
Graft (after ICO) 100,000,000 $.32 $32,000,000 (numbers are approximate)

Update:

We have made couple of changes to the ICO and token structure since the article was first written:
  1. decided to lower our ICO hard cap to 5% of the total emission (or around $11,000,000 in USD), down from 25%,  and keep the rest of the coins slated for ICO in reserve for subsequent raises as needed.
  2. Do a 1:100 split, multiplying the total emission by 100
These changes doesn’t really change any of the math, just help us improve usability of the coin at pont of sale, and address some of the perceived value concerns.

MVP Development Status Update

We would like to update the community on the status of Graft blockchain development. We have made a lot of plans and promises, and now it’s time for our dreams to start coming true. In order to achieve our ambitious goals, we have put together an efficient team of very talented and experienced developers. Two of them came from Monero project, which is very important for us as we forked the blockchain from Monero, and there will be many blockchain protocol changes.

Network Node, Testnet, and Blockchain Explorer

As an important milestone, we have finished some initial blockchain code modifications which allowed us to set up a public testnet with the first Graft block explorer.

While the testnet is open for access from the Internet, we have not published yet any information on node/supernode setup, configuration, and connectivity since we are still frequently updating it, and we would like to make sure it is stable enough to be open for public view and alpha testing. We will notify everyone once we publish the instructions so anyone will be able to connect and test the basic network.

Supernode

The majority of the work, however, currently is concentrated in supernode code which is — unlike network node forked from Monero — being designed from scratch. The proof of concept supernode was written in Python for the sake of rapid prototype development. After thorough review, the team decided to refactor the supernode code in C++ in order to keep a single technology stack and optimize the development process and network performance. Although the supernode and network node are based on the same technology stack now, the supernode is still deployed as a separate process (daemon), and we intend to keep it this way, at least for the near future.

Mining

Also, we are working on instructions for miners, including GPU and mining pools. Initially, it will be possible to mine on CPU, so the entire full supernode can be hosted on single machine. That’s how the typical testnet supernode is configured. On the mainnet, however, the network hashrate will grow fast, which will require GPU, then multiple GPU, and eventually mining pools to be set up in order to efficiently mine and maintain the full supernode. We are working on providing instructions for GPU miners as well as creating a first mining pool. The GPU mining machine can be detached from the supernode, which enables a hybrid “on premise/cloud” configuration, where, for example, the GPU mining rig is located at home while the supernode is hosted in AWS.

Mobile Wallet, Point of Sale, and Payment Terminal Apps

Finally, we are working on development of client applications, which include wallet and point of sale mobile apps that should look familiar from the PoC phase, as well as new apps running on payment terminals such as Verifone, Ingenico, Equinox, and AnywhereCommerce. Those new apps are going to be different from our existing mobile apps as they are going to be tailored to particular terminal hardware/OS/API/SDK and mostly integrated with third party point of sale software. The terminal apps are very important as they will open the door to the mainstream merchants including top tier retailers. Here is how the typical terminal app will interact with Graft blockchain:

We are still on initial design phase with those apps, but we believe we will be able to demonstrate the working prototypes before the ICO. Stay tuned!

GRAFT Merchant Tokens: Introducing VChains

Merchant token is a simple smart contract that allows creating a private token that belongs to its owner. Unlike some other smart contract and token platforms, creation of GRAFT merchant token does not require any programming and can be done by anyone.

The business features described below are typically associated with using complex third party service providers and high implementation costs, which makes those services inaccessible for small to medium size businesses and expensive to large businesses. GRAFT Merchant tokens allow any merchant to implement those important business features with minimum efforts and low cost.

Types of Merchant Tokens

Store Credits

Store Credits are typically utilized by merchants for performing purchase returns and exchanges, when return cannot be done using the original payment method, or the merchant’s return policy does not allow the full refund. Store Credit essentially transforms return to exchange, so the merchant does not lose the customer and associated revenue.

Store Credit Token can be linked to the item price in local fiat currency, so the customer can use those tokens during next purchase “instead” of or in addition to the payment with local fiat currency. Store Credit tokens usually either do not expire or have very distant expiration date as they are basically replace the fiat currency.

Loyalty Rewards

Loyalty Rewards is powerful marketing instrument which attracts customers and increases spending. Loyalty Rewards can be awarded with each purchase, or as one-time bonus, or using other models. The rewards than can be used to makes purchases of particular items or all items, or converted to cash. Loyalty Rewards are not necessarily linked directly to fiat or crypto currency as they can be spend to provide discount or buy a special “unique” reward items that are not available for sale using other methods of payment.

Loyalty Rewards usually have relatively close expiration date. This way the merchant “stimulates” earning more rewards and eliminates accumulation of very large amounts of reward points that can become useless.

GIft Certificates

Gift Certificates can be issued by merchant in order to attract customers. In order to increase the effect, gift certificates can be sold with discount (for less than their nominal price). Gift Certificate tokens usually either do not expire or have very distant expiration date as they are basically represent the fiat currency.

Discount Coupons

Discount coupons can be used for one-time or long term promotions. The coupons can be distributed publicly or to individuals, in wallet or paper form. The coupon then can be scanned by point of sale in order to get discounted or even free item.

Transactions with Merchant Tokens

Create

Creating new merchant token (“smart contract”). Can be done using point of sale app.

Renew

Renew merchant token (“smart contract”). Can be done using point of sale app.

Add

Add more merchant tokens to the circulation.

Issue

Merchant’s point of sale sends merchant tokens to the customer wallet or prints a paper wallet.

Redeem

Customer redeems merchant tokens at merchant’s point of sale using wallet app or paper wallet.

Merchant Token Fees

All the merchant token fees are paid to the current supernode authorization sample.

Merchant Token Transaction Fees

Merchant always pays the token transaction fee, which means the buyer never pays the fee. A regular transaction fee is applied to each transaction with merchant token, including adding, issuing, and redemption. As GRAFT fees are proportional to transaction amount, the fee is calculated based on 1 token = 1 GRF, although it’s not necessarily that the token has any direct link to the GRF or other currency. It’s important to note that GRAFT fees are calculated based on logarithmical formula so there is no danger of paying high fee on large amounts.

Initialization and Renewal Fees

The initial Create transaction implies a special higher fee because it is associated with naming a token. In order to prevent “domain squatting”, the initial fee is set to a reasonable amount that prevents massive abuse. Initialization fee of 5 GRF is required to generate a new merchant token smart contract (Create transaction). The renewal fee is 10 GRF.

VChain

VChain allows creating a virtual chain of stores so multiple point of sales can be “connected’ to the same private “virtual blockchain”. Thus, there is a dual meaning of word “Vchain”: virtual chain and virtual blockchain. Vchain creates a private common platform for managing merchant tokens and items catalogue.

Merchants can create their own private vchain which is going to be accessible only by this particular merchant and contain all information about its tokens. Vchain allows connecting multiple points of sale or even creating a chain of multiple stores. Points of sale that belong to the same vchain can issue and accept the same merchant tokens, use the same shared item catalog stored and maintained on the blockchain, generate aggregated transaction reports, and more.

Buyers can use vchain to link multiple wallets so they can manage multiple accounts and move funds between those accounts without paying fees. This feature is useful for family and corporate accounts.

VChain Fees

There is initialization annual fee of 5 GRF for creating a new Vchain smart contract. The renewal fee is 10 GRF. Those fees are required to securely process the smart contract and prevent system abuse. There is a separate annual fee of 10 GRF for adding another point of sale or wallet to the vchain.

All vchain fees are paid to the current supernode authorization sample.

Summary Comparison of GRAFT Blockchain to Other Payment Solutions

GRAFT VS RIPPLE AND OTHERS: FOCUS ON BUYERS, MERCHANTS, AND THEIR PRIVACY

SINCE GRAFT USES CRYPTONOTE PROTOCOL, HAS THE MONERO COMMUNITY INDICATED SUPPORT FOR GRAFT?

ARE TENX AND OTHERS CRYPTO CARDS COMPETITORS?

HOW GRAFT IS DIFFERENT FROM OTHER CRYPTOCURRENCIES AND WHY IS IT BETTER FOR PAYMENT PROCESSING APPLICATIONS

HOW IS GRAFT DIFFERENT FROM DASH?

CASH, DEBIT, CREDIT, MOBILE, BITCOIN, OR GRAFT?

FEATURE COMPARISON – GRAFT VS. OTHER CRYPTO-CURRENCIES FOR PAYMENT PROCESSING APPLICATIONS

Cash, Debit, Credit, Mobile, Bitcoin, or GRAFT?

According to 2016 US Payments study published by TSYS, there’s a distribution of what methods people prefer to use when paying for things: In fact, they tend to use different payment methods in different situations: To understand what people use and under what circumstances, you’d have to consider the pros and cons that each method provides.  Cash for example is very easy to use, it’s accepted everywhere (even if power is out), but it’s subject to theft; debit cards on the other hand provide the convenience of not having to carry cash around and don’t allow people to spend more than they have, but they also don’t provide the fraud protection and require the terminal to be processed; credit cards are great, but allow you to spend too much and carry high interest rates.   So we’ve decided to compare all these methods, including Bitcoin, against GRAFT.  Here’s what it comes down to: GRAFT comparison to cash, credit, debit, mobile, and bitcoin Payment preferences change quickly and are different geographically and demographically, but based on this comparison, we think we’re on the right track!

Since Graft uses CryptoNote protocol, has the Monero community indicated support for Graft?

While Graft supernode code is being written from scratch, the blockchain CryptoNote implementation codebase is forked from Monero. We do not anticipate a direct and immediate Monero community support. However, we believe that our project attracts people from CryptoNote communities as it adds a lot of features that are not available in existing CryptoNote implementations. One example of such a feature is real-time authorization (instant confirmation). Another example is hidden transaction fee amount, which is exposed to public view in all existing blockchains. This table compares Graft with Monero, Bitcoin, Dash, and other cryptocurrencies.

However, there are even more important features that are not simply enhancements of the CryptoNote protocol. No one needs just another blockchain, even if it provides better privacy. But Graft is much more than just “another blockchain”. Graft is innovative payment application platform which supports various payment and payout methods, either traditional or innovative. While providing “reference”, default implementations of applications and services, Graft ecosystem is open for any software vendors and service providers. We believe in diversity of payment methods and cryptocurrencies.