In a matter of months, millions of new users will be flooding the cryptocurrency markets looking to buy more Kin to spend on their favorite digital services and apps. In order to create frictionless first impressions and snowball this mass adoption, it’s imperative that we, the Capitalists, provide liquidity to these markets, as prescribed in the Kin whitepaper. It’s critical that we work now to combat misinformation and instead cultivate an even larger community of market savvy Kin holders and traders.
In conversations with amateur cryptocurrency investors who are taking their first look at Kin, I often run into two very pervasive and very flawed assumptions about Kin’s investment potential, which I’d like to counter. It’s important to understand that these don’t stem from any particular malevolence towards the Kin project; they are rather symptomatic of a lack of understanding of financial markets among the nascent cryptocurrency hivemind.
“Kin will never be worth as much as Bitcoin if its total supply is in the trillions.”
The short answer here is simple: One KIN doesn’t need to be worth nearly as much as one Bitcoin to reach the same overall market valuation (and in doing so, provide incredible returns to investors).
Anyone just getting into financial markets, including the crypto markets, needs to understand the relationship between the core metrics of an asset: The market cap, price, circulating supply and total supply.
If you’re reading this article, then you’re probably already aware that the market cap is equal to the price times the circulating supply, and it represents the coin’s overall valuation within the market. You’re likely also aware that the circulating supply for most coins is less than the total supply, because coins are being unlocked over time as a reward to users contributing to the network. But what many beginners don’t realize is that while coins are not shares of a company, each coin does represent a share of the circulating supply. It’s important to not think of your coins in terms of the number that you have, but rather the percent of the supply that you have. It doesn’t matter if you have 50 million of one coin and five of another. Potential growth is measured in percent, not dollars. The market cap is all you really need to know to determine whether a coin is over- or undervalued.
The size of a coin’s total supply is arbitrary, chosen by the developers. So why did Kik choose an arbitrary supply of 10 trillion KIN? I’ll just quote Kik’s research head, Oded Noam, from an FAQ he put out in November:
Q: Do you think there is a need for 10 trillion kin?
A: Kin supply will be used to power the whole ecosystem — not just Kik. As mentioned in the whitepaper, our goal is to drive mainstream adoption of a cryptocurrency, and in order to do that, we need users to be able to transact in whole numbers, not fractions.
Remember that all cryptocurrencies are divisible into multiple decimal places, and for many, like Bitcoin, we end up talking about them in terms of sub-decimal amounts. If I wanted to buy a gallon of milk with Bitcoin today, the cashier would tell me I owe 0.000396 BTC. Values like these are not intuitive for a newcomer to wrap their head around.
I’ll leave you with a couple more thoughts on this issue:
- Because of the supply differences, Bitcoin’s price was already $25 by the time it was at Kin’s current market cap.
- IOTA has a supply so large (in the quadrillions) that we trade and talk about them in terms of millions of IOTA at a time.
“How am I expected to turn a profit with a currency that’s inflating every day?”
In order to counter this assumption, we need to first unpack the reason for the inflation in the first place. I’ve already done so at length in my article “The Magic of Kin," so I’d encourage you to take a look there before going further here.
One of the core features of a cryptocurrency (with rare exception) is that they are programmed with a fixed total supply. There can never be more coins ‘minted’ beyond this total. Most cryptocurrencies, too, begin with a circulating supply far lower than this total supply. Typically a portion of the supply will be set aside as a reward for the developers to vest over a period of time. Another portion is set aside to reward the users contributing to the network, as mentioned above and explored in the “Magic” article. This results in asymptotic expansion of the circulating supply over time, and Kin is no exception.
Despite this, new users often wrongly perceive Kin as having a more dramatic inflation schedule- perhaps because its reward mechanism is different from other cryptocurrencies, or because it is still in the pre-launch stage where the bulk of the inflation has yet to begin.
For those who aren’t convinced, I’d like to refer you to this graph of Bitcoin’s inflation rate over the years. Zoom out a bit. In the face of all this inflation taking place, how did anyone turn a profit? The answer is simple. The appreciation of Bitcoin’s price was driven by an overwhelming increase in demand that more than offset any potential depreciation resulting from the inflation of the supply.
Kin’s position as the first cryptocurrency to reach millions of mainstream users (through Kik and through partnered apps and services) will generate a similarly overwhelming demand in a very short period of time. In my estimation, this will drive the market cap upwards by orders of magnitude, dwarfing the effects of inflation.
For those still unsatisfied, there may even be recourse to directly counter the effect of inflation on your percentage share of the total supply. The KRE RFC document explores the idea of Capitalists voting for themselves on a daily basis so as to collect their stake’s proportion of the daily reward, therein increasing their stake and negating the daily inflation. While still a contentious topic, it appears that the Kin Foundation intends to allow such activity, because to deny it would risk the essential balance of participating capitalists and users in the economy. If you’re interested in learning more about the debate, the RFC document is more thorough than I’m willing to be here, and makes for an interesting read.