1.ICO Overview
The payment processing space is filled with hundreds of thousands of companies. Very few are ever really game changers. Typically these Startups are often copying or slightly improving something that already exists. The reason so many companies can occupy one sector is that transacting online continues to grow, year on year.
The space still has plenty of growth. Why? A huge portion of the world is still not internet enabled, and thus not transacting online yet. So when you look at smartphone penetration growth in the next few years, in huge markets like India or down the South East Asian corridor, you can see very clearly that there's still plenty of new business growth to come.
Against this background enter QuarkChain. Operating in the decentralized world, where we are lucky if we witness 100 transactions per second, QuarkChain is the mother of all game changers.
QuarkChain intend to launch a solution to deliver 1 million transactions per second in the Crypto economy, without the level of trade-off seen by centralized systems or hybrid systems. This would establish, with one resounding move, that cryptocurrency really can be a mass-market alternative to FIAT.
QuarkChain drive this point home by pointing out Visa only manage to process 56,000 transactions per second. Alipay, the processor of the world's biggest eCommerce giant - 200,000 transactions per second.
So QuarkChain is potentially a vehicle for changing the entire trajectory of the Crypto economy. And you can't get bigger than that.
2.ICO Proposition
Ticker: QKC
Token Type: ERC20
Token Price: 1 QKC / $0.0253
ICO Hard Cap: $20m
Total Tokens: 10bn
Tokens for sale: 2bn
Investor Proposal
Sadly for such an incredible idea and such a comprehensive White Paper, QuarkChain omit to include any information for investors on what happens to their investment, once the ICO is concluded.
So, based on the White Paper, we'd say you’re investing in their currency, which due to its current limited issuance (2bn coins) should go up in value because those coins need to be bought by QuarkChain clients to pay for payment processing.
ICO Proposal
QuarkChain aim to become the world's biggest DPP - Decentralized Payment Processor - or the biggest decentralized payment network (in speed and volume) in the world.
However,throughout the White Paper (WP), they compare themselves to Visa & Alipay (both FIAT processors), so we aren't clear if this ambition includes the centralized world. There's nothing in their WP about FIAT being one of the currencies they will handle.
QuarkChain’s proposal is to build a payment network that will split out payment processing (currently bundled on most Blockchains) into separate data sets that will sit across different in-house Blockchains. This is how the data breaks down:
Shard Layer
This will comprise of eight minor Blockchains that will hold the transaction data required to perform the processing. The shard layer will also perform the transaction processing. When a client executes a transaction, the system will automatically partition (shard) that data to make it smaller, easier to mine, thus faster to process.
Every transaction created in the shard layer will have a unique Block Header. This Block Header will get passed to the Root Chain.
Root Chain
The Root Chain creates and stores the transaction confirmation record. The Shard Layer pushes the Block Header along with the processing result to the Root Chain.
Then the Root Chain creates the transaction confirmation.
Due to the transaction confirmation no longer holding tons of processing data, the data set size gets smaller, making it faster and more cost effective to mine. Mining suddenly shifts from super nodes to smaller clusters of nodes.
Using this technology QuarkChain aim to:
- Process 1m transactions per second;
- Deliver higher levels of security than current decentralized systems;
- Prevent double spending;
- Deliver a mining solution that doesn't require mining pools.
3.Feasibility of idea/business model in current market
Before we jump into the feasibility of idea, let's talk about the feasibility of the ticker name. Is it me or do you think about KFC( Kentucky Fried Chicken) every time you see the ticker name QKC ?
The second area I want to cover is funding. QuarkChain have already had angel investment, which they haven’t disclosed in the White Paper. This is not only unprofessional to not disclose prior funding but raises the question of what have they done so far with that money - given the only thing I can see is a website and some mining simulation results.
Feasibility of the Idea
Clearly, it’s a very ambitious plan to deliver 1m transaction per second(TPS), to surpass Visa (55K TPS) or Alipa (225K TPS). At a high level, it seems viable thanks to QuarkChain’s approach to data & mining partitioning. However, we do have a few questions about the feasibility of:
Shards
Just how quick is the system going to be in creating new shards, as clients execute new transactions?
Their entire growth model is based on a self perpetuating model of clients creating transactions, which create shards, which process transactions. Thus the more shards created all the time; the more transactions overall QuarkChain can push through. This is what gets them to their 1 million TPS.
So how come they haven’t shared how fast this is, given they had to have created shards in order to run their mining test simulation. We can see the mining results in the White Paper. Where are the in-shard results?
Security
Quarkchain state they will guarantee a minimum of 50% overall hash power to their Root Chain ( major blockchain). They state that weighting the hash power on the Root Chain will prevent malicious attacks. But how are they going to ensure this level of hash power?
Their mining simulation test results (which they ran to prove their game theory works) show they only achieved 45% hash power - that 5% shortfall in hash power translates to 11% of the overall hash power they need to back up their theory of the level of hash power needed to prevent double spending + malicious attacks. What's the impact of an 11% security shortfall on their network?
What’s going to happen, operationally, if they fail to get 50%? What does the system do then? Continue running with a security vulnerability? The White Paper doesn’t address this potential issue.
Feasibility of the Business Model
Payment processing is normally a safe ROI.
However, QuarkChain seem a bit confused about strategically which sectors they want to play in. Processing is a volume business. If you’re going to build the biggest payment network in the world, in terms of capacity, then you need to ensure you fill that capacity.
Right now QuarkChain state they want to target two industries, financial tech and online gaming. Then they state they want to target mobile dApp players in the social, storage and sharing space. Then they claim their solution is ideal for the authentication, eduTech and laboratory space. As a potential investor, this is a confusing strategic message.
Their business model is a typical payment processor business model. That is a fee payable per transaction processed. But they don’t state whether this is a fixed fee or a percentage of the value of the transaction.
It would be smart, if they are going after iGaming, to secure a % of the transaction processed as gaming has not only the volume but the value in each transaction. In 2014 $37bn was wagered using Bitcoin alone.
So clearly, this is a viable business model. All they need to do now is sign up all the big boys in iGaming. The current team doesn’t hold the sort of business development person, from that space, they are going to need. So this is a recruitment gap they will need to plug.
4.ICO Team
Founder
Unusually QuarkChain only has one founder. In non-ICO land, where Startups usually rely on VC funding, sole founders are automatically disqualified by VC’s. Why? Because statistically, VC’s believe founders of two or more have a better chance of surviving the Startup process to grow that venture into a mature operating business.
The questions I’m asking myself is, if the Founder (Qi Zhou) can assemble that many team members in a venture that seems to have no investment, why didn’t he onboard more founders? That is a bit strange.
Next is the gap. There’s no CEO. No clear strategic leader. The Founder has positioned himself ( I’m guessing as they omitted job titles) as the CTO.
For a proposition like this, I’d expect the Founder to have two types of former experience in order to establish some previous credentials:
- Payments experience
- Blockchain experience
But closely reviewing the Founder’s Linkedin profile, I can’t see any former experience in either of these areas. So I’m wondering how he came up with the idea on his own? It feels like there was someone else involved but who isn’t listed as a Founder ( just channeling the ‘dark arts’ here).
Another weird thing. This guy boasts of being a former Googler, but he only spent 9 months there. He only spent 13 months at Facebook (NASDAQ:FB). He doesn’t seem to have been able to settle in any role more than 18 months in the last nine years - which if I were a VC, would be a big warning light for me.
Senior Management Team
There is no information available on Linkedin about either the COO or CMO. I managed to find a very questionable website on Demo++ Incubator that the CMO Ting Du founded, but it lacks credibility.
Management Team
The community manager four months into being CEO of another Startup decided also take on the role of Community Manager for QuarkChain. Weird.
5.SWOT
Strengths:
- Payment processing is one of the safest ROI in the ICO space;
- The self-perpetuating growth of the shard layer is a clever design;
- The 'honest' node clusters that move away from the draining Super Node approach is a smart, efficient design.
Weaknesses:
- 51% of the hash power directed at its Root Chain;
- Cross sharding slows QuarkChain's response time from seconds to minutes;
- The team;
- No incorporation information yet; they have received angel investment so we assume they had to be incorporated for that;
- Not declaring previous funding. Why?
Opportunities:
I also see a new breed of exchanges & payment service providers being built on top of QuarkChain, almost like micro exchanges. They’ll pass on the speed and lower cost to consumers, thus disrupting the current legacy exchanges.
iGaming, dApps and IOT are also solid revenue opportunities.
Threats:
Ethereum or Neo could decide to roll out in-shard transactions in the next 6-9 months. Both have a bigger brand to leverage big partnerships. Ethereum have the advantage of the ICO capabilities added onto this.
6.Conclusion
I really wanted this to be a great ICO review. I love the idea. Its smart, creative, innovative. But the review threw up a few warning flags.
Something feels wrong about this team. It’s a sole Founder, which makes no sense, for multiple reasons. If he can attract a founding team this big, with funding in place, why couldn’t he add on some Founders?
Also his background doesn’t shout payments or blockchain, so I’m getting the strong impression we aren’t seeing everyone who’s been involved in shaping this idea. It’s just a hunch and normally mine are golden.
I’m also not seeing any payments or solid blockchain experience within the founding team itself. Part of this might be due to how Chinese centric the team are - it’s not their cultural practice to layout publicly their professional profiles in China. This might go a little way to explaining the gaps. But the Founder understood enough to know he needed his profile complete for ICO, so why not ask his COO & CMO to do the same?
Then there’s the issue of not disclosing they’ve been Angel funded. Everyone else discloses this, so why haven’t they?
There’s no doubt it’s a smart idea but right now it’s all theory. So although payment processing is a safe ROI, that is only the case where the team is credible enough to execute and scale. Right now I have a big question mark about this team.
If they can do it, clearly they are going to become desirable in a very short space of time for one of the big players, either in China (BAT (LON:BATS)) or in the Valley. The fact they start by positioning themselves as a P2P payment network, then compare themselves to Visa, then view Ethereum as their main competitors should tell you that whoever is really the vision behind this White Paper, isn’t just building a Payment Network, they have much bigger ambitions.
So if I were looking to invest Q2 2018, I would have a punt on this but I would exercise some caution given the team situation.
7.Score 0 – 5
- Idea/Business Model 5
- Scope/Potential 5
- Team/Advisers 2
- Token Economy 5
- Marketing 3
Community/Communication 3
This article appeared first on Cryptovest
