Gridcoin: a simple investment thesis

Suiteki
15 min readApr 1, 2021
Gridcoin Logo

Introduction

Gridcoin is not new. It was created in 2013 by Rob Halförd (pseudonym). The protocol rewards people for contributing to scientific research.

It’s explained on the website as:

Gridcoin is an open source cryptocurrency (Ticker: GRC) that rewards volunteer computing for science. — [1]

A post [2] about the project recenlty reached Hacker News frontpage and caught my attention.

Surely Gridcoin has a strong value proposition and potential. In this article, I provide a simple model to analyse the project. A model that can be viewed as an add-on to anyone’s due diligence.

Model

Call it VUNCL.

  • Value
  • Usage
  • Network
  • Community
  • Liquidity

Five components to assess the state of any blockchain project. Let’s look at them in more details.

VUNCL Model

Although not complete, the VUNCL model will give you a fair 360 degree view of the project.

Value

Since the early 1970s, computing power has increased by roughly a factor of 4,324 [3]. In other words, a computer is now capable of doing its simplest operation 3,200,000,000 times per second, compared to 740,000 half a century ago. The direct result of constant more powerful hardware is ‘bloated software’, wrote a programmer.

The only consequence of the powerful hardware I see is that programmers write more and more bloated software on it. They become lazier, because the hardware is fast they do not try to learn algorithms nor to optimize their code — Olimex [4]

Although the day-to-day software piece of computing we use requires increasing hardware resources, the validity of Moore’s law [5] and the computer chip race have created an unprecedented situation. Anyone who owns a computer has a superpower in their hand.

Except for work and leisure, what are you doing with your superpowers?

Gridcoin allows you to help science research by using your computer’s unused processing power, and rewards you for that contribution. Save the world while you sleep, work or watch Netflix. What else? Wait a minute. Are we not on the verge of a new concept: ‘passive volunteering’?

As systems become more complex and can complete many tasks, we like to think about ‘use case’.

A specific situation in which a product or service could potentially be used. — [6]

I rather like to think about utility, in its utilitarian sense.

By utility is meant that property in any object, whereby it tends to produce benefit, advantage, pleasure, good, or happiness... — Jeremy Bentham [7]

How satisfying is it to get rewarded for helping search for COVID-19 treatment [8]? How happy am I to help scientists solve the world’s biggest problems in health and sustainability?

The answer is subjective.

I view Gridcoin more as an addition to the science. If Gridcoin collapsed and went to zero, I still would have done something useful with my machines and helped science. I can’t say that about many other coins. — Roboticmind [9]

Utility, adapted within neoclassical economics, refers to a utility function. A function that represents a consumer’s preference ordering over a choice set.

For example, if someone prefers dark chocolate to milk chocolate, they are said to derive more utility from dark chocolate. — [10]

Although you can ‘volunteer computing’ using Science United [11] or Folding@home [12], both independent from Gridcoin, there is no incentive other than the greater good. Gridcoin offers an incentive (GRC rewards), which creates a rational choice to use Gridcoin over others, all else being equal.

Usage

Usage starts with accessibility. How do you access the wallet? How do you interact with the network? How to chose the scientific project(s) you want to support? Etc.

Usage, like utility, takes us on a personal journey. Mine was quite straightforward.

  1. Understand the ecosytem
  2. Download, install, and use it

Plus, engage with the community.

Although the first value of Gridcoin is to help scientific research (let’s call it Gridcoin Research), Gridcoin can serve other use cases, such as payment. I present the following view to capture this idea.

Gridcoin: simplified view of addressable market

Surely BOINC caught your attention.

Traditional forms of large-scale computing — building your own cluster, buying time on a supercomputer, buying time on commercial clouds — are all expensive. Many scientists can’t afford large-scale computing. Those who don’t have large research grants, work in under-funded research areas, work at small institutions, or live in poorer countries…are therefore limited in the research they can do. Volunteer computing tries to solve this problem. — David Anderson [13]

BOINC was born in 2004 and first developped by David Anderson to address this problem. In other words, BOINC is a scientist-to-volunteer cornerstone. Below a simplified view to understand the ecosystem.

Simplified ecosytem

There are different pieces of the puzzle to get familiar with (BOINC, Project, Gridcoin, etc.). The value being at the intersection of those pieces.

As a volunteer, you would need to download and install Gridcoin wallet and BOINC, plus sign up on the project’s website(s) you want to contribute to. There are currently 19 scientific projects supported by Gridcoin [14]. Here are three examples:

This is not a guide to get you setup! Please check the official guide to get started.

On a scale from 0 to 5, 5 being a smooth and very easy experience, I would say that getting ready to volunteer on Gridcoin is quite a painful process. Maybe a 1 or 2 on our scale. Three different entry points (BOINC, Project(s), Gridcoin), each having its own user experience, may confuse the user’s initial goal, potentially extending the length of the onboarding process.

How many people actually use Gridcoin? The exercise is difficult for any blockchain, simply because the relationship between one individual to one wallet is 1 to n. If we look at active users only, and by active we mean a wallet that has at least one transaction a month (whatever the type), I think the ‘zone of truth’ is between the average number of on-chain voters for the last two polls and the number of downloads for the last mandatory version of the wallet.

  • Average number of voters (last two polls: Minecraft and Folding): 469

Data extraction source: Gridcoin v5.3.0.0 wallet — March 22, 2021

  • Number of downloads for the 5.3.0.0 wallet version: 2,530

Data extraction source: [15] and [16] — March 22, 2021

So, the number of active Gridcoin users lies between 469 and 2,530. In the UK (random), the general election turnout was 67.3% in 2019 [17]. To polish our interval, let’s say that we have the same proportion of non-voters in Gridcoin as in the UK in 2019. We would come close to something (more realistic) between 700 and 2,530 active users. The current 1,148 BOINC accounts [18] verified on the blockchain supports the idea that the ‘zone of truth’ may live in this interval.

In absolute terms, that does not sound a lot. Yet, there are probably more active Gridcoin users than residents of the Vatican City [19]! In relative terms, it is difficult to compare as there is no similar and known blockchain project. Well, you may have heard about CureCoin, Obyte or Primecoin [20]. The first supports one project and is based on a proof-of-work consensus. The second relies heavily on a centralised system. The latter, limited by a proof-of-work algorithm, only focuses on prime numbers and does no other scientific computation.

The above gives us a state at a given date, not a trend.

Gridcoin Google searchs have been ‘insensitive’ to the 2020 institutional growth and current momemtum in the space. Check below.

Gridcoin Past 5 Years Google Search Volumes [21] — March 22, 2021

Note: Numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term.

Yet, the number of visitors to the Gridcoin.us website has increased substantially in the last few months. A wave of new or / and potential users may be on the horizon. Every journey that takes us to very innovative and disruptive concepts starts with a learning and self-educating phase, which often leads to a delay between interest and actual usage of the tech. The website is the legitimate space to start this journey.

Gridcoin.us number of visitors per day — Google Analytics, 2021

Network

At the time of writing, the blockchain is closing its 2,203,698 block of transactions.

Block information and network statistics can be easily accessed via three independent block explorers. Gridcoinstats [22], GridcoinNetwork[23] and GridcoinSwitzerland [24]. For more info, I strongly suggest that you check the monthly ‘state of the network’ report [25] provided by Jringo.

How decentralised is the network? Let’s have a look at two indicators.

  • Number of nodes
  • Supply dispersion

The more interconnected nodes (peers) are, the healthier is the network.

Worldwide distribution of nodes makes the network resistant to disasters like local power outages, natural disasters, or political upheaval, as there is no single point of failure. — Gridcoin White Paper 1.0.1 [26]

The network has an estimated 3,470 unique nodes spread all over the world [27]. Let’s be prudent with this estimate as it dates back to 2019. The method used for this estimate derives from the Bitcoin Add getnodeaddresses RPC command [28]. Its first application to the Gridcoin network is credited to Grider123 and can be described as follows.

To finally answer this question I made some small source code adjustments to get all IP addresses of known nodes from the client that were online in the last 7 days. Of course, these are only the nodes that my client knows and not necessarily all that exist. But I have added as many addnodes as possible to reach as many clients as possible. I also used Maxmind’s Geoip-Location Service to find out the approximate location of all nodes. — Grider123 [29]

We could investigate further the level of decentralisation by looking at block producers. For example, out of 100 consecutive blocks, how many were different block producers.

So for example in 100 blocks, if there were 100 independent block creators, that would be ideal…What you are really looking for on a short timescale is minimal periods where the same block producer creates consecutive blocks, ideally no two consecutive blocks are created by the same party, though that is impossible to guarantee even with very good decentralization. — Scalextrix [30]

The exercise would be perilous and difficult to achieve.

The design of the network specifically hides the source node identity of a stake or transactor, to preserve anonymity. — Jim Owens [31]

The goal is to give you an appetite of the level of decentralisation, rather than a detailed analysis.

How do 3,470 nodes compare to the last Aat de Kwaasteniet’s crypto ranking by number of nodes?

Crypto’s ranked by number of nodes, February 2021 [32]

Not too bad for a crypto that as 1/2893 the marketcap of Litecoin [33].

Why shall we look at wealth concentration too?

The distribution of wealth is a critical factor in any economy, roughly coinciding to the distribution of economic influence. For cryptoassets, which often grant large token allocations to the founding team, it’s also a severely underexplored one. — Coinmetrics [34]

Before we jump into the analysis, note that I took the addresses that are related, and not single addresses. The method can’t be 100% accurate because it can’t always match everything and may miss things like change addresses.

Let’s observe the Gridcoin wealth inequality. I have re created the famous global wealth pyramid (data source: courtesy of Gridcoin Stats and Startail) to have a bigger picture of this wealth concentration.

The Gridcoin wealth pyramid

0.5% controls 4/5 of the total supply. To give you a point of comparison, roughly 12% of world adults control the same proportion (4/5) of the total world wealth [35]. Looking at Dogecoin, for example, only 0.02% controls almost the same proportion (78.99% [36])! What would be interesting to watch in the next months are:

  1. Wealth transfers from top layers to new entrants (layer 1 and layer 2)
  2. Consolidation of layer 2 and 3
  3. Whales accumulation or ‘shrinkage’

Note that bc3NA8e8E3EoTL1qhRmeprbjWcmuoZ26A2 is the foundation address and holds more than 30 million GRC, roughly 7% of the current supply. In addition to that, the foundation is a multisig address and doesn’t stake and create any blocks as a result. The fund is used for development, server costs, or for any expenses or uses approved in polls. In comparison, the ETH foundation holds approx 0.4% of the ETH circulating supply [37].

The current total supply is rougly 446 million GRC. Unlike BTC and many, GRC has no capped supply. Let’s look at inflation now. In a nutshell, the proof-of-stake protocol mints per day:

  • 28,750 GRC equally distributed among listed projects to reward volunteers [38]
  • 9,600 GRC from block rewards to stakers

Note: the block reward is 10 GRC per block, 1 block is 90 seconds (roughly), which makes 960 blocks per day * 10 GRC = 9,600 GRC

Roughly 38,350 GRC are minted every day. Which leads to an estimated ≈3% annual inflation rate. Note that this percentage is not a fixed amount, and that since the inflation is linear, the percentage decreases over time.

Coinmetrics published a great report last year [39], aiming to provide transparency of the supply dynamics of cryptoassets. Although figures may have somewhat changed, the graph below gives a reasonable and starting point for comparison purposes.

By Coin Metrics | August 11, 2020 | Original Research

Finally, Gridcoin has an embedded voting system [40]. From the economics of the network to the whitelist of scientific projects to other polls (development, opinion, etc.), you can participate, via a pleasant experience, to the democratic life of the network. Since 2019, 27 polls have been suggested.

Community

Gridcoin is 100% community run. There is no central entity behind it. The activity of the development team is to any blockchain project what water is to any form of organic life. There is a total of 63 contributors to the Gridcoin-Research Github repository. The repo is being viewed / watched by approximately 100 people every day.

A well-known metric to measure the activity of the development team is the number of commits. In brief, a commit is a modification (bug fix, enhancement, etc.) to the code.

A commit, or “revision”, is an individual change to a file (or set of files). — [41]

CryptoMiso ranks cryptos based on the commit history of their most popular Github repository [42]. It’s worth noting that Gridcoin is ranked 20th out of more than 200 cryptocurrencies! And comes before projects like Tron, Zcash, Stellar, Ethereum, Ox, and many other well-known cryptos.

Gridcoin CryptoMiso [43] — March 30, 2021

Another related and interesting metric is the number of open issues / tickets.

Issues are a great way to keep track of tasks, enhancements, and bugs for your projects…Most software projects have a bug tracker of some kind. GitHub’s tracker is called Issues, and has its own section in every repository. — [44]

Out of 60 current open issues, almost half of them are flagged as enhancement.

The community does not stop at Github. Gridcoin has a strong digital presence with the following number of followers / members.

  • Reddit: 5,300 members
  • Discord: 3,100 members
  • Facebook: 2,300 followers
  • Telegram: 2,200 members
  • Slack: 900 members

Daily average number of posts / threads varies from one channel to another. Most important, the participation is active. Proximity with the core team is probably one of the best elements of those decentralised organisations. You might write a post and have a reply from a tech guru and world-class developer like Jim Owens [45].

From my personal experience, the community has been very welcoming, reactive and helpful.

Liquidity

GRC is listed on three exchanges: SouthXchange [46], Txbit [47], and Flyp.me [48]. On SouthX and Txbit, supply and demand meet through the traditional Central Limit Order Book (CLOB) technology, whereas Flyp.me provides a Request For Quote (RFQ) way of doing deals. Ask for a quantity, and you get a price.

I am only going to focus on SouthX and GRC/BTC, where the liquidity and price action are. The average daily volume is extremely poor, oscillating roughly between $1,000 to $10,000. Low volumes lead to a painful price discovery.

I have re created the orderbook of SouthX to give you an appetite of its depth.

SouthXchange GRC/BTC [49] — March 30, 2021

Liquidity is clearly insufficient and does not provide a fertile ground to support price actions. The book also highlights a selling pressure, with a significant wall / offer to sell 2.7 million GRC at 0.000000215 BTC. The bids (how much someone is willling to pay for something) on the orderbook clearly show the lack of support from buyers.

Looking at the GRC/USD chart from 2015 to now, All Time High (ATH) was reached on 09/01/2018 at $0.208. And a new bottom was touched on 16/07/2019 at $0.00165. Currently on ‘the penny line’, GRC has recovered from the death valley ($0.001), being approximately a +506% revival.

Coinmarketcap GRC/USD [50] — 30 March, 2021

The dry period had a significant impact on liquidity. Bittrex delisted GRC in early 2019. Poloniex delisted the project in late 2018. The reason is unkonwn but was probably due to a lack of demand and volumes on both exchanges. Not in absolute terms but rather in terms of meeting the volume expectations for top-tier exchanges.

Finally, with such a poor volume on exchanges but strong on-chain and off-chain momentum, I suspect that much of the volume happen over-the-counter [51] and in dark pools [52].

Conclusion

With an estimated 50 billion connected devices worldwide by 2030 [53], the global reservoir of unused processing power will be gigantic. The case for volunteer computing is ubiquitous, acccelerated by the Covid-19 pandemic and the urge to tackle climate change.

Although Gridcoin faces different challenges, I believe the technology is very well positioned to offer a frictionless volunteer computing experience to the public in the next decade.

Gridcoin challenges: sketching ideas

Finally, when I first discovered Gridcoin, I found it very easy to see in appearance the ashes of a eight-year project. I found it less obvious yet stunning to see the resilience of it.

It’s worth noting that a lot of work (4500+ hours in ten months of development and testing [54]) has been put into a massive rewrite of the wallet in 5.0.0. (deployed at the end of 2020) — Roboticmind [55]

As wrote a 17th century Japanese poet and samurai.

Barn’s burnt down -- now I can see the moon. — Mizuta Masahide [56]

By Didier Pironi

Acknowledgments

I would like to give a big thanks to all the community members who have helped and supported me in my research. Special THANKS to Roboticmind, Jim Owens, Gridcoin2moon, Startail, Jringo, Scalextrix, and Nateonthenet.

References

[1] https://gridcoin.us/

[2] https://news.ycombinator.com/item?id=26236325

[3] https://en.wikipedia.org/wiki/Microprocessor_chronology

[4] https://olimex.wordpress.com/2013/08/23/do-we-really-need-faster-computers-to-write-more-bloated-software/ — Olimex, 2013

[5] https://hasler.ece.gatech.edu/Published_papers/Technology_overview/gordon_moore_1965_article.pdf — Gordon E. Moore, 1965

[6] https://www.lexico.com/definition/use_case

[7] http://web.uncg.edu/dcl/courses/viceCrime/m7/The%20Utilitarian%20Theory%20of%20Punishment.htm —Jeremy Bentham, 1789

[8] https://www.worldcommunitygrid.org/discover.action

[9] https://news.ycombinator.com/item?id=26236325 — Roboticmind, 2021

[10] https://brilliant.org/wiki/utility-functions/

[11] https://scienceunited.org/

[12] https://foldingathome.org/

[13] https://www.vice.com/en/article/bmj9jv/7-ways-to-donate-your-computers-unused-processing-power — David Anderson, 2015

[14] https://gridcoin.us/guides/whitelist.htm

[15] https://api.github.com/repos/gridcoin-community/gridcoin-research/releases/39907768

[16] https://api.github.com/repos/Git-Jiro/homebrew-jiro/releases/39923565

[17] https://commonslibrary.parliament.uk/general-election-2019-turnout/

[18] https://gridcoinstats.eu/cpid

[19] https://en.wikipedia.org/wiki/Vatican_City

[20] https://gridcoin.us/wiki/advantages-and-features.html#comparison-to-curecoin

[21] https://trends.google.com/trends/explore?date=today%205-y&q=Gridcoin

[22] https://gridcoinstats.eu/

[23] https://gridcoin.network/

[24] https://www.gridcoin.ch/dashboard

[25] https://hive.blog/gridcoin/@jringo/gridcoin-sotn-54 — Jringo, 2021

[26] https://gridcoin.us/assets/img/whitepaper.pdf

[27] https://steemit.com/gridcoin/@grider123/the-size-of-the-gridcoin-network — Grider123, 2019

[28] https://github.com/bitcoin/bitcoin/pull/13152/files

[29] https://steemit.com/gridcoin/@grider123/the-size-of-the-gridcoin-network — Grider123, 2019

[30] https://teamgridcoin.slack.com/archives/C0YD47L2H/p1616089499034000?thread_ts=1616068543.031400&cid=C0YD47L2H — Scalextrix, 2021

[31] https://teamgridcoin.slack.com/archives/C0YD47L2H/p1616427185110100 — Jim Owens, 2021

[32] https://medium.com/@aat.de.kwaasteniet/cryptos-ranked-by-number-of-nodes-feb-2021-f5044d3e721f — Aat de Kwaasteniet, 2021

[33] https://coinmarketcap.com/

[34] https://coinmetrics.io/measuring-bitcoins-decentralization/

[35] https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html

[36] https://bitinfocharts.com/top-100-richest-dogecoin-addresses.html

[37] https://etherchain.org/account/0xde0b295669a9fd93d5f28d9ec85e40f4cb697bae

[38] https://gridcoin.us/wiki/magnitude.html

[39] https://coinmetrics.io/4281-2/

[40] https://gridcoin.us/wiki/voting.html

[41] https://docs.github.com/en/github/getting-started-with-github/github-glossary

[42] https://www.cryptomiso.com/

[43] https://www.cryptomiso.com/#GRC

[44] https://guides.github.com/features/issues/

[45] https://github.com/jamescowens

[46] https://www.southxchange.com/

[47] https://txbit.io/

[48] https://flyp.me/en/#/

[49] https://main.southxchange.com/Market/Book/GRC/BTC

[50] https://coinmarketcap.com/currencies/gridcoin/

[51] https://en.wikipedia.org/wiki/Over-the-counter_(finance)

[52] https://www.investopedia.com/articles/markets/050614/introduction-dark-pools.asp

[53] https://www.statista.com/statistics/802690/worldwide-connected-devices-by-access-technology/

[54] https://www.reddit.com/r/gridcoin/comments/im8ktw/gridcoin_5000mandatory_fern_release/

[55] https://news.ycombinator.com/item?id=26236325 — Roboticmind, 2021

[56] https://en.wikipedia.org/wiki/Mizuta_Masahide — Mizuta Masahide, 17th century

About us

Suiteki designs, develops and deploys on-demand trading solutions. Empowering investors in their crypto journey.

Disclaimer

Suiteki does not endorse or promote any of the projects or cryptocurrencies mentioned in this blogpost. Any descriptions of functionality and services provided are for information only. Suiteki is not responsible for any loss of funds or other damages caused as a result of using the projects described above.

--

--