DigitalNote — Update II

09.04.2019

TL;DR. Ecology:2 (2). Technology:2 (2). Decentralization:2 (3). Valuation:4 (4). Rating:3/10 (3/10)

Six months have passed since the last BD Ratings review of the CryptoNote-based coin DigitalNote. Let's explore if the prior weak ratings yet again have been justified.

The initial DigitalNote BCT thread is all but dead right now as a new team allegedly took over stewardship of the project. After having accused the old developer(s) to be scammers, the new team promptly started a new BCT thread as well as a new Twitter handle. As documented in the earlier article on DigitalNote, the team spent the first part of 2018 by issuing necessary emergency hard forks one after another. The end of that year was quieter however, and it was not until January 2019 that something interesting happened.

From nowhere, a potential future chain rollback was announced on Reddit and on Twitter. As the network had only a few active users, no real discussion was held on the matter. Instead rollback plans proceeded and a huge network upgrade was announced approximately one month later, with a code base switch from CryptoNote to Bitcoin Core. This chain reset upgrade was set to activate on the rollback block, and included a shift from pure Proof-of-Work to PoW (bmw512)+ PoS (Echo512) Masternodes. DigitalNote developers had, quite rightly, realized that by sharing a PoW-algorithm with the much larger Monero, the blockchain was in a constant state of vulnerability to 51% attacks. Monero miners could hypothetically point hash rate at DigitalNote and easily build a second branch of the chain in order to steal money from for example exchanges. Additional to hoping for a security boost, DigitalNote developers also wanted to introduce coin mixing enabled through the use of Masternodes in an attempt to increase untraceability.

On 25th of March, a future change of Difficulty Retargeting algorithm was announced on Twitter as well. The algorithm's job in the network was to constantly re-balance the upcoming PoW and PoS relationship. In any case, the announcement was met with scorn by people who thought the DigitalNote team failed to credit the GravityCoin creators of said algorithm. Shortly thereafter, a collateral of 2 000 000 XDN was set as the requirement for every Masternode, meaning around USD 3000 at the time. The large pivot activated on April 5th, 2019, and included a coin swap requirement as the new blockchain came in he form of a complete re-set.

Ecology

When looking at the main DigitalNote subreddit, it is evident that activity has picked up slightly, but is initiated more often than not by DigitalNote developers themselves. The DigitalNote Medium account is still inactive, with its last post being from June 2018. As for the new DigitalNote 2.0 network launched just days prior to this article, we see a very low number of transactions occurring, especially when not counting the block rewards.

The centrally introduced mining tax to developers as well as increased total supply casts a shade on the integrity of the developer team. This keeps economic activity away from the blockchain just as nationalization of businesses keeps foreign companies away from a country.

Grade: 2

Reasons: Still inactive community and chain. Centrally imposed mining tax and supply increase.

Technology

After seeing a 6-month break in new GitHub commits from November 2018, they started again in March 2019. The activity, counted in the flawed measurement of number of commits, is not that high and the coin seems to have only one or two developers.

As mentioned earlier, the network saw huge changes during the rating review period, with code base switch from CryptoNote to Bitcoin Core (and Dash to an extent). It is too early to say how this affects the technical stability of the network, but large changes often come with unforeseen problems and attack surfaces. In the longer run however, possibilities are that they will pave way for a more stable network.

Grade: 2

Reasons: GitHub active again. Developer team introduced large technical changes.

Decentralization

The fact that a new developer team can without any type of consensus pivot the whole project towards a PoW-PoS hybrid consensus mechanism is definitive proof of centralization. No public discussions were held to BD Ratings' knowledge, so coin holders just had to accept this new reality, good or bad. With that said, the switch to a hybrid mining algorithm ought to partly increase decentralization in the sense that ASICs were dethroned from their position of power over the network.

Furthermore, the pivot itself required a coin swap to tokens on the new chain. This is something that usually is forgotten by a subset of coin holders, who are then left with worthless tokens on the old chain should they fail to act during the 6-month grace period.

The centralization of the project also resulted in the new DigitalNote 2.0 chain having a sudden ~15% increase in total supply, with a developer tax introduced for each block. This is absolutely unacceptable. It is one thing to construct some type of mining tax before genesis block, so that network participants know what they are dealing with. It is much more serious when developers start giving wealth to themselves after regular people already bought in to the project.

Grade: 2

Reasons: Large code base changes with no discussion or vote on the matter. Mining tax introduction. Supply increase.

Valuation

With a USD ~13M valuation, DigitalNote is still overvalued despite a continued fall from the levels seen at earlier rating reports. The main reason is the extreme level of centralization, which erodes the whole point of the project. Most relevant to the Valuation section of this article is probably the imposed supply increase to 10B instead of ~8.6B. That increase is obviously a dilution of assets, and will partly go to developers after the introduced mining tax.

Grade: 4

Reasons: Weak fundamentals overall.