Grin is a recently launched (15th January 2019) cryptocurrency based in the MimbleWimble protocol.

The protocol was originally published in August 2016 by an anonymous dev nicknamed Tom Elvis Jedusor (Voldemort’s French name in Harry Potter book series) and a couple months later, Andrew Poelstra (a well-known mathematician working for Blockstream) made precise Tom’s original idea and added further scaling improvements. Only a few days later, another anonymous developer with an alias with Harry Potter references (Ignotus Peverell, the original owner of the invisibility cloak) started a Github project called Grin.

Firstly, it is important to make something clear. Grin is a recently launched project, and as such, comparable to new startups in traditional investing, chances of success are thin. And even if it is successful, chances of “becoming the new bitcoin” are almost negligible.

This doesn’t mean that the financial opportunity isn’t there. Altcoin fights to “flip bitcoin” and become the new cryptomarket leader are fierce, and some have even got near it during their hype seasons.

Figure 1. Cryptomarkets dominance chart extracted from CoinMarketCap

Ethereum reached as much as 82% of bitcoin network value and rewarded its early investors with up to 300,000% gains in just 3.5 years. Another token that toyed with the idea of a flippening is XRP, which in January 2018 had a network value as high as 55% of bitcoin network, having reached 52% of bitcoin network value a few months earlier.

Lastly, we need to talk about the bitcoin cash race, because many won’t consider Ethereum and Ripple as direct competitors of Bitcoin, but Bitcoin Cash certainly is. Moreover, Ethereum and Ripple can be considered anomalies, because of the huge percentage of supply out of the circulation (due to ICOs/smart contracts in Ethereum and due to vested tokens in Ripple). But BCH, whose circulating supply is equivalent to bitcoin, reached a whopping milestone with Coinbase listing: it traded (using coinmarketcap data) over 4000 USD, having then a network value of 70 billion against the 275 billion of bitcoin (which puts Bitcoin Cash network value approximately at 25% of Bitcoin’s netowork).

But why could Grin toy with the idea of a flippening one day? What does it have to compete with bitcoin? This is something we are going to address in this report before making some numbers to estimate what prices could “reasonably” reach GRIN in a new bull market.

Technology

MimbleWimble protocol, on which Grin is based, uses well tested and known cryptography. It is based in Elliptic Curve Cryptography, like bitcoin, and uses Confidential Transactions that are currently in use in cryptocurrencies like Monero. Grin also leverages Dandelion relay, a technology first published in early 2017 and submitted to strong peer review since then, which protects users IPs when broadcasting a transaction.

All this tech (and more) assembled together makes MimbleWimble-based blockchains, and by extension, Grin cryptocurrency, highly private and scalable blockchains.

Privacy

Grin transactions have 2 properties that make them private

· There are no addresses

· There are no amounts

As a result of this, one transaction is indistinguishable from another. If you are not part of a transaction, all inputs and outputs look like random pieces of data. This, combined with the built-in masking of IP’s broadcasting transactions, make of GRIN strongly private coin by default.

Privacy by default is important because if there is a “non-private” way to use the coin, all coins using the privacy features would be under suspicion, breaking the fungibility for ever: every coin must be equal to any other coin.

Scalability

With no addresses and no amounts, transaction weight is reduced. But if this wasn’t enough, once a transaction is included in a block it is “merged” with all the other transactions in the block: a grin block looks like a giant transaction that includes all inputs and outputs of every separated transaction.

This feature is called cut-through, and strongly reduces the resources needed to run a node, because “transaction history” (the blockchain) is smaller and needs less storage space and each single block is also smaller reducing the consumption of bandwidth and relaying delays.

Because of the data that is stripped of the blockchain, in average GRIN transactions are 70% smaller than bitcoin transactions and +90% smaller than Monero transactions.

Economics

GRIN improvements over bitcoin is not limited to technical features, but it also includes some key economic/game theory characteristics.

Fair launch

Grin project was announced in October 2016 and was launched in January 2019, over 2 years later. This allowed a community of both developers and miners/investors to develop even before the launch. Something that is important to get a fair distribution and penetration of token supply.

This is in big contrast with premines (such as Ethereum, Ripple or any ICO), that favor concentration of supply and create an unbalance of opportunities.

But more importantly, all this happened in a sufficiently developed ecosystem. Cryptomarkets in 2019 have nothing to do with cryptomarkets in 2014, and much less with cryptomarkets in 2009.

When bitcoin launched it was only Satoshi mining, joined a few days later by Hal Finney. The interest, or for what is worth, knowledge in cryptocurrencies was inexistent, something allowed to develop two phenomena:

· Millions of coins lost forever, because they were worthless

· Huge “bitcoin whales” that assumed little to no risk

The first issue adds uncertainty on actual coin supply. Are all Satoshi coins (estimated over a million coins or 5% of hard cap supply) lost forever or could one day get back into circulation? How many of the unmoved coins won’t be moved forever and how many are just waiting for the right moment?

The second issue is certainly a problem for a worldwide adoption of the coin. Even if this people, very early adopters, deserve reward for being pioneers of the technology, it is understandable that outsiders think they would be unfairly rewarded.

With Grin launch these two issues are strongly minimized. There have been strong investments even before the launch in mining efforts, ensuring no one will be able to accumulate a huge stash of GRIN without assuming a proportional risk. This, never trading at stupidly low prices, also reduces the inevitable loss of coins, increasing certainty over actual circulating supply.

Tail emission

GRIN monetary policy strongly differs with Bitcoin, and it is more like Ethereum or Monero.

Unlike Bitcoin, GRIN coin supply isn’t capped, and it will inflate to the infinite.

Grin block reward is fixed at 60 grin per block, and it will never change, creating an inflation curve that very slowly tends to 0. With one block per minute and a per-block difficulty adjustment, GRIN will take 4 months to issue 10 million coins, over 3 years to issue 100 million coins, and 30 years to reach one billion coins.

Figure 2. Comparison chart of annualized inflations rates of Grin, Bitcoin and Monero during their first 25 years of issuance.

10 years after launch, Grin inflation will be below 10% (vs below 4% for Bitcoin and just over 2% for Monero), after 50 years it will be below 2%, and it will go below 1% only after almost 100 years.

This may shock Bitcoin and Austrian economics maximalists, that are strongly opposed to unlimited supply and any kind of coin inflation rates, but it has several benefits.

1. Mining subsidy guaranteed, regardless of transaction fees. If bitcoin (or any other deflationary cryptocurrency) will have enough transactions paying enough fees to pay for security is something unknown. Block rewards ensure that there are enough incentives to protect the network, because the higher the network value, the higher the block rewards. A relation that does not necessarily hold true when the security model is solely based in transaction fees.

2. Substitution of lost coins. A non-negligible amount of coins is lost every year because of mismanagement of private keys and wallets backups. Similar to what is happening with the destruction/deterioration of fiat bills and coins.

3. Smoother supply distribution/penetration. A slow distribution of coins allows more players to participate in this distribution, increasing the supply penetration. A comparison of this slow distribution with bitcoin and monero can be seen in the next chart

Figure 3. Comparison chart of Grin, Bitcoin and Monero showing supply issued as a percentage of the supply issuead by year 25 after launch.

Coin supply inflation can incentivize spending and investing, helping to reach an equilibrium in supply and demand of store of value that can match wealth creation. This is something central banks try to control with their interest rates, but at least with GRIN it will be predictable and not decided by a small group of powerful bankers, increasing a strongly needed certainty.

For instance, not even Gold supply is fixed either. Gold inflation is variable because mining investments are directly correlated with gold price, but it is safe to assume an inflation rate of roughly 2% yearly, a rate that GRIN will reach ~40 years after its launch.

Valuation

To find a fair value for each GRIN coin, the most important factor is its inflation rate.

As every full PoW new coin, its initial inflation rates are crazy, and they can cause huge miss valuations in its early days, as supply is tiny, and demand can be very variable.

This miss valuations can play in advance of the smart investor, buying when the inflation is over considered and selling when the market forgets about its high rates.

To try to figure out at what prices we can consider Grin is cheap and at what prices it is expensive, we will compare with other cryptocurrencies and previous market cycles.

Figure 4. Annualized inflation rate for Grin first 75 years.

Inflation is important because newly minted coins is the price the network must pay for security. Most miners need to cover costs (hardware amortization, electricity expenses and floor and manpower expenses for biggest operations), so in a fully developed ecosystem a big share of the new coins get sold in the open markets.

But this isn’t necessarily true in newly launched coins, where speculative miners take over the scene and hoard coins.

Figure 5. Miners rewards per day in millions of USD for various cryptocurrencies.

In the table above we can see how much the network was paying to miners daily at some cryptocurrencies ATH prices, and how much would GRIN network pay to its miners at different prices. As we can see, with Grin at around 60 usd per coin, miners would be receiving dollar rewards equivalent to the rewards that Litecoin and Zcash miners were receiving in December 2017 and January 2018.

This might seem a lot, but it is important to remember that each cryptocurrency bull market has increased all numbers of previous cycle by an order of magnitude.

Litecoin network value reached 1 billion USD in 2013 bubble, and it peaked 18 times higher in 2017–2018. Bitcoin network value increased by 23 since 2013 to 2017. As both Bitcoin and Litecoin had a reward halving in the middle, daily miners’ rewards absorbed by the market increased 9-fold in Litecoin and 11-fold in Bitcoin.

If in the next bull market, daily issuance that markets can absorb can increase another 10-fold, and grin can one day be comparable in size to Litecoin, that would allow for +$500 per grin.

Another way to account for inflation when valuing a token, is looking at the network value not in the current year, but in a standardized and remote date. In the next chart we are going to see the projected network value by year 2050 using various cryptocurrencies ATH prices in the last bull cycle and some examples of prices for GRIN.

Figure 6. Year 2050 network value in billion USD for different cryptocurrencies at their 2017–2018 ATH compared with price examples for GRIN

As we can see, GRIN at $500 per coin would imply a Y2050 network value equivalent to that of bitcoin at $19,665, its current all-time high price. If we assume that each bull cycle increases all statistics of crypto markets (combined network value, users, miners’ rewards, VC investing, trading volume and even number of assets) by at least an order of magnitude, and that biggest altcoins can reach between 10% and 50% of bitcoins network value, then $500 to $2500 for a successful grin is inside the possible scenarios.

Conclusion

Grin has the technical improvements to fight for cryptocurrencies leadership.

It certainly improves all privacy centric coins.

It improves Dash, due to smaller transactions and better supply distribution (dash, formerly Darkcoin and Xcoin in its inception, instamined 2 million coins in the first day due to a block reward and a difficulty adjustment bug), as well as privacy by default, improving fungibility.

It improves Monero, due to a 90% reduction of transaction size without sacrificing a robust privacy. And a slower emission rate helps a better distribution of token supply.

And it is better than Zcash, that has a founder’s reward that adds unnecessary centralization of development and regulation hassles. Moreover, Zcash privacy features are optional, damaging fungibility.

Furthermore, as discussed in this report, it solves some of the biggest bitcoin problems: lack of privacy, scalability issues, long term economic incentives and supply distribution and penetration.

Figure 7. Price chart for GRIN along with year 2050 and current network values

At the time of this report, Grin is trading at 3.218 USD in Bittrex, using Coinbase’s bitcoin to USD exchange rate. Price that is equivalent to 3.16 billion USD year 2050 network value and 14.466 million USD current network value.

In the table below we will show the returns in percentage assuming a buy at current prices and different target prices discussed in this paper. We will also show, as an illustration, what would be the actual nominal return of investment of a $5,000 buy.

Figure 8. ROI (Return of Investment) table for different target prices

To sum up, in my opinion Grin is worth the risk. Loosing over 70–80% of the investment is not off the tables, but the potential to hit a unicorn is appealing enough to give it a chance.

DISCLAIMER: This report is not an investment advice, but an exposure of objective facts and numbers. Grin, and for what is worth, any other cryptocurrency, is a very high-risk investment, and you should only risk what you can afford to lose.

DISCLAIMER 2: I am invested in Grin, and none of the price target examples used in this report are neither my actual price targets nor a recommendation of price targets.