ARK — Update I

17.01.2019

TL;DR. Ecology:4 (3). Technology:5 (4). Decentralization:5 (6). Valuation:6 (4). Rating:5/10 (4/10)

Six months have passed since the first BD Ratings review of ARK. Here is how that prediction has turned out so far.

2018-07-17 USD 1.36, Satoshis 20 294.

2019-01-17: USD 0.40, Satoshis 11 093.

The prior rating of 4, equivalent to 'sell', is clearly a hit so far. Let's explore what the project has been up to the last 6 months.

On the 24th of July 2018, an update on the ARK Core v2 was released. The V1 backwards compatibility requirement was dropped due to the complicated code inherited from Crypti and Lisk. This practically meant that a hardfork would be neccesary and coordination with all exchanges and other stakeholders was essential. A dozen developers continued the work on the Core v2 code base by running tests and finding bugs. On the 15th of August, v2 launched on a testnet. Final testing was announced in September.

On the 24th of September, the network accidentally forked but was later put back on track with the help of active delegates. In the post mortem, legacy code in Core v1 was blamed as the culprit. On October 9th, the ARK network again experienced downtime due to errors that were preventing delegates to confirm blocks. With the help of delegates, the whole network was reset to the latest snapshot. All transactions that after that point in time had been broadcasted to the network could be re-broadcasted. On the 19th of November, it was announced that mainnet launch was scheduled at 28th of November. This new mainnet, with a fully re-written codebase, launched around that time. Work was immediately started on getting ARC Core v2 migrated from JavaScript to TypeScript.

Ecology

During the last 6 months, a number of smaller partnerships have been announced by the team. For this to be of any importance at all, it needs to result in a broader, larger ecosystem, and the easiest way to quickly measure this is by looking at the on-chain transactions. BD Ratings sees no evidence of high transaction throughput on the block explorer. Once data supports higher activity, it will be brought up here.

Other than the partnerships, ARK team members have been hosting and participating in hackatons, which of course is something positive for long term community building. The team has also been focused on user experience and so released ARK Pay, a client for stores and market places that facilitates ARK payment functionality in a simple way.

ARK delegates are active in the ecosystem and a culture seems to have been established where the community as a whole is demanding action from delegates in order for them to receive votes. This means delegates not only secures the network, but are often actively trying to expand it as well. In general, ARK has a thriving community of supporters as well as an active and engaging team. But as for economic activity, this might take some more time. It is worth mentioning that the team has ceased with the stupid marketing operations and instead been focused on technical development.

Grade: 4

Reasons: Considerable and active community. Low on-chain activity.

Technology

Continuous bug bounties were published throughout the end of 2018, encouraging community participation. This was iterated also before the ARK Core v2 launch. Another example of good use of funds is the collaboration with Bugcrowd. All this bounty focus was reviewed and planned for 2019 as well. Furthermore, new developers were hired throughout the period, partially due to being on the team's radar after GitHub bug bounty contributions. The GitHub repositories are active, with multiple contributors. Development of the core client is done by around ten to twenty individuals, which is still enough for some redundancy as well as having a reactive resource pool that could counter unintended blockchain behavior.

The ARK developer readiness was put to a test in September and October 2018 as the network came to complete halts. Although the network, with the help of a couple of delegates, could be brought up online again, the situations became rather serious. Even if all was legacy code from v1, it still has to be accounted for in this rating analysis due to its dangerous nature.

After ARK Core v2 was live, a series of serious vulnerabilities were found and patched. Among those was an infinite inflation bug that made it possible to generate ARK tokens on the network with a multi-signature transaction. In the blog post, the team mentioned a standardization of the vulnurability disclosure process, and the transparency in general is a good trait that the team has.

In ARK Core v2, dynamic fees was introduced. This is a welcome addition to the protocol as it introduces a fee market for each block, resulting in more efficient blockchain utilization as well as likely higher governance participation rate.

Grade: 5

Reasons: Mainnet launched with multiple bugs. Acceptably large pool of active developers.

Decentralization

One slight change that concerns the decentralization of ARK is the v2 change of how snapshots are conducted. The old code was dependent on the ARK team for snapshots when building or rebuilding a node, while with the new system node operators may use their own copies of the database.

Reddit user rhakht analysed the practical DPoS situation in ARK and came to some valuable conclusions. The voter turnout when excluding exchanges was deemed quite high, and is further encouraged as dynamic fees has been introduced. As voters only receive kickbacks if they voted for delegates that made it in to the top 51 list, there is little or no incentive to vote for good candidates currently outside the top list. This causes some stagnation in the change of population of top delegates and ought to be addressed somehow as it increases the risk of a cartel forming. With ARK as of now, frequent fluctuations and ongoing competition between delegates have luckily hindered such centralization.

Lastly, BD Ratings wants to correct the earlier Decentralization ratings. Having a rating of 6 is too high considering the rather untested version of DPoS that ARK has deployed. As the consensus mechanism of ARK is a modified copy of that of Lisk's, there is a risk that ARK will stumble down the same road, resulting in powerful, entrenched delegates, or as Vitalik Buterin might have described them: parasitic rent-seekers. ARK developers are obviously aware of the game theory that can cause this, which is good, but the risk remains. BD Ratings demands evidence of centralization resistance before raising the rating much further.

Grade: 5

Reasons: Working DPoS mechanism where as of yet no obvious centralized entities have formed.

Valuation

With a CMC ranking of 75 and a valuation between USD 40-50M, ARK is at the very least undervalued compared to Lisk with all its centralization problems. In fact, the considerably lower valuation compared to when BD Ratings first rated the coin is enough for an increase since other fundamentals have increased as well.

Inflation is still at an acceptable level and is decreasing constantly. Additionally, by delegating, users can significantly reduce effective dilution of their assets.

Grade: 6

Reasons: Stronger fundamentals as the community and team are active, and as new code base finally has been integrated.