Investing in New Kind of Network

NKN, short for New Kind of Network, is an open-source protocol designed for peer-to-peer (P2P) networks. Its innovative model revolves around a public blockchain that tokenizes network connectivity and data transmission capacity, akin to how Bitcoin and Ethereum decentralize computing power, and IPFS and Filecoin decentralize storage.

In the realm of open source, NKN adheres to a paradigm where computer software source code is publicly available under a license, granting users the rights to utilize, analyze, modify, and distribute it freely. This collaborative approach, typical in open-source software development, is particularly prevalent in the creation of blockchain protocols, embodying the trustless, public, borderless, neutral, open, and censorship-resistant attributes synonymous with blockchain systems. Ethereum, introduced in 2015, emerges as a potential framework for a decentralized internet. Distinguished by its incorporation of smart contracts, Ethereum expands beyond Bitcoin's core functionality, fostering a diverse range of innovations such as Initial Coin Offerings (ICOs), stablecoins, and decentralized finance (DeFi) applications.

The InterPlanetary File System (IPFS), a peer-to-peer network developed by Protocol Labs, facilitates file storage and verifiable data transfer. Notable projects integrating or utilizing IPFS include The Sandbox, Rarible, Unstoppable Domains, and the Flow blockchain.
Decentralized applications (dApps) operate on blockchain networks, diverging from traditional web applications by transacting in a distributed, peer-to-peer manner. The NKN blockchain, in constant evolution, offers distinctive features including nConnect for secure remote access, nMobile with decentralized chat and wallet integration, dataRide for streamlined dApp development, and Global ID for easy access to the expanding NKN crypto ecosystem.

nConnect: This protocol ensures secure remote access to users' private data and personal files, utilizing encryption and an immutable ledger for data protection.

nMobile: Available on both iOS and Android, this mobile app incorporates decentralized chat and wallet integration, facilitating secure communication and non-custodial token storage.

dataRide: This feature offers resources and technical documentation to streamline the creation of decentralized applications (dApps). It includes template modules and a framework for developing custom modules and dApps.

Global ID: Streamlining access to the expanding NKN crypto ecosystem of dApps and services, this protocol employs a unique NKN address, making it easy to locate users and applications when needed

NKN's native utility asset, the NKN coin, plays a pivotal role in facilitating digital asset transfers and compensating for data transmission resources within the network. With over 100,000 active NKN nodes across 71 countries as of November 2021, NKN continues to evolve and expand its product line.

How does it work?

NKN operates as a connectivity exchange for data transmission, employing a distributed ledger of nodes within a peer-to-peer (P2P) network to authenticate and record network traffic transactions. Remarkably, the platform can accommodate millions of nodes, boasting 91,582 full consensus nodes on its mainnet as of September 1, 2023, a considerable leap from Bitcoin's approximately 10,000 nodes.

The abundance of nodes can be likened to cell towers in a telecom network, enhancing the overall internet experience for users. Each node serves as a facilitator for data relay and bandwidth sharing, linking with neighboring nodes to efficiently provide connectivity to clients. NKN's nodes, operational 24/7, possess internet connections ranging from 100 Mbps to 1 Gbps, each catering to thousands of clients concurrently. Notably, transactions on the platform do not rely on a central authority or telecom organization for processing data transfers. The NKN token fuels the distributed network, enabling users to purchase tokens for digital asset transfers and payment for data transmission resources. Users can also engage in mining to acquire tokens, a process simplified by NKN's user-friendly approach. With basic hardware like a home router or PC and a stable internet connection, users can choose from three mining packages tailored to different levels of expertise:

One-click solutions for those with minimal terminal knowledge.
Configure NKN for miners with basic terminal knowledge.
Configure and Build NKN package for miners with advanced terminal knowledge.
NKN stands out as a developer-friendly network, supporting major programming languages such as C++, Java, Python, JavaScript, and Golang, along with mobile phone languages for both iOS and Android.

NKN Key Features

NKN aims to revolutionize the internet by creating a decentralized and anonymous peer-to-peer (P2P) system, focusing on enhancing efficiency, sustainability, and safety. The platform employs a set of technical features to achieve this vision.

Decentralized Data Transmission Network (DDTN): Serves as the network layer, transmitting data without relying on a central server. Utilizes a Chord Distributed Hash Table (CDHT) network topology for scalability and security. Employs a randomized mapping topology for deterministic and verifiable routing, safeguarding against attacks.

Major Vote Cellular Automata (MOCA) Consensus Process: In a decentralized system, uses Majority Voting Cellular Automata (MVCA) for scalable consensus. Allows nodes to reach consensus with neighboring nodes, ensuring faster global consensus.

Proof of Relay (PoR): Utilizes a PoR consensus mechanism, a variation of proof of work (PoW). Rewards nodes for relaying useful data along the network, correlating with token rewards. Implements a secure hash signature chain for tamper-resistant, attack-resistant, and scalable data transmission.

Universal Communication System (UCS): A decentralized communication protocol bridging traditional Web 2.0 services and Web3 applications.Uses NKN as the network layer, offering end-to-end encrypted communication, real-time communication, flexibility, interoperability, and easy migration between platforms.

Is cryptocurrency and NKN the same thing?

No, cryptocurrency and NKN are not the same thing. Cryptocurrency is a broad term referring to digital or virtual currencies that use cryptography for security and operate on decentralized networks, typically based on blockchain technology. Cryptocurrencies aim to provide secure, transparent, and decentralized methods of transferring and storing value.

NKN (New Kind of Network), on the other hand, is a specific project within the cryptocurrency space. It is a blockchain-based platform that focuses on creating a decentralized and anonymous peer-to-peer (P2P) internet system. NKN utilizes its native cryptocurrency, NKN Coin, to facilitate digital asset transfers, pay for data transmission resources, and incentivize network participants.

Cryptocurrency is a general term encompassing various digital currencies, while NKN is a specific project and platform within the cryptocurrency ecosystem. NKN operates using its unique cryptocurrency as a utility token within its decentralized network.

Navigating Corporate Investments in Digital Assets

Several operational companies are actively directing funds toward digital assets, a trend that gained momentum in 2020 and persists despite market fluctuations. A notable early example is MicroStrategy Inc., which, in 2020, disclosed over $1 billion in bitcoin purchases, citing it as an investment for potential higher returns and capital value preservation compared to holding cash. Other companies have followed suit, prompting interest in understanding how to invest in bitcoin and other digital assets. Reasons for incorporating digital assets into a company's balance sheet vary, encompassing seeking asymmetric risk return, hedging against fiat currency fluctuations, aligning with a modern technology strategy, or facilitating acceptance of digital assets as payments.

This document primarily explores bitcoin investments, given the recent surge in corporate interest and its commonly acknowledged role as a store of value. It's crucial to note the diverse nature of digital assets, with Ether (ETH) also recognized as a store of value, particularly for enabling transactions on Ethereum-based decentralized applications. Contrastingly, central bank digital currencies (CBDCs) and stablecoins are digital representations of fiat currency, deriving their value from the underlying currency in circulation. Equity and derivative tokens represent corporate stock or legal rights to assets. Some digital assets offer additional features, such as voting rights or access to decentralized applications, providing commercial benefits. Prior to investing in any digital asset, thorough understanding of the investment's terms, conditions, and characteristics is essential, considering its impact on accounting, tax, risk, controls, and legal aspects.

The guidance presented here delves into the foundational considerations influencing corporate decisions to invest in digital assets, particularly bitcoin. Additionally, it outlines ongoing actions that cross-functional teams within a company should take for effective monitoring and sustained long-term investments. Rather than providing a foolproof approach, this guidance offers a high-level overview of the diverse consideration’s companies may encounter when contemplating investments in bitcoin and similar digital assets. Emphasizing the absence of a one-size-fits-all approach, the document acknowledges the varied characteristics of digital assets but suggests that the broad methodology and considerations presented may be applicable to multiple corporate investment scenarios involving select digital assets.

Strategic Considerations and Governance Framework for Corporate Digital Asset Investments: Insights from the Corporate Treasury Perspective

The overarching perspective from corporate treasury underscores the primary functions of risk management and capital preservation. When engaging in digital asset investments for both investment and operational purposes, the governance of digital assets becomes pivotal. It extends beyond merely formulating policies to encompass understanding the types of investments made and how these digital assets, such as bitcoin, fit into the broader investment strategy. Leadership, including the treasurer, Chief Risk Officer (CRO), CEO, Chief Technology Officer (CTO), CFO, and the board of directors, should have a comprehensive understanding of the asset's risk profile and the company's risk tolerance, ensuring ongoing alignment.

Risk tolerance, especially concerning the stake and type of digital asset, may necessitate periodic adjustments. Decisions on issues like the percentage of available cash designated for alternative investments in digital assets and the acceptable range of risk require careful consideration. Governing risk is an ongoing process, and adjustments within agreed-upon risk tolerance bands may be necessary frequently.

Incorporating digital assets into daily operations, such as payments, debt management, fundraising, and Initial Public Offerings (IPOs), necessitates a holistic approach. Treasurers must evaluate key considerations, including understanding the underlying features of specific digital assets and implementing robust control structures for effective usage. Control and storage choices, whether through self-custody, third-party leverage, or a hybrid approach, play a crucial role in determining exposure to counterparty risk. Risk management is imperative, especially when digital assets are spread across multiple wallets, exchanges, and custodians.

With emerging technologies, a comprehensive view is essential for reviewing positions and liquidity across wallets and exchanges due to the volatile nature of digital assets compared to traditional fiat. Adopting digital assets requires a risk assessment framework to identify exposures, manage assets, and ensure adequate controls are in place. Treasuries should consider the overall purpose, function, and strategic utilization of digital assets, along with establishing internal and external controls compliant with digital asset-specific policies.

Strategically, treasuries can advance efficiencies in payroll, vendor payments, trade, customer interactions, and cross-border transactions by integrating digital assets into key operations. The governance of digital assets is emphasized as a dynamic and adaptive process, continually adjusting to market, regulatory, and risk realities.

Regarding liquidity, the emphasis may not solely be on immediate considerations, especially for companies adopting a longer-term investment mindset. Nevertheless, provisions for extra cash on hand should be in place. In the event of liquidation needs, the company must assess the availability of facilities without premium penalties or depreciation of asset value when executing transactions.

The insights shared by Andrew Kang, CFO of MicroStrategy Inc., highlight the growth and maturity of the Bitcoin asset class since the launch of their digital asset treasury strategy in 2020. Regulatory clarity and advancements in layer 2 technologies are expected to further support adoption by institutional and retail investors, reinforcing Bitcoin's significance as a form of digital energy and a long-term store of value.

In conclusion, as the digital asset ecosystem undergoes changes in response to market events and evolving discussions on regulation and standard-setting, corporations engaged in digital asset investments must diligently monitor these developments. Allocating resources, time, and attention to staying abreast of regulatory changes is crucial. Simultaneously, organizations should continue their transformation efforts, ensuring readiness to understand and implement new regulations and standards as they are announced.

Investing significantly in digital assets goes beyond technical and regulatory challenges, involving a substantial cultural realignment across various departments and groups. This includes the board of directors, audit committee, risk, corporate reporting, finance, tax, internal audit, operations, controls, technology, and investor relations. Interaction with external parties, such as auditors, tax professionals, and legal counsel, necessitates a corresponding shift in thinking to effectively navigate the evolving landscape. The realignment process requires each corporate department and its external counterparts to reconsider the application of rules and policies, aligning with current and anticipated standards for digital assets. Given the unique nature of digital assets, norms associated with traditional investments may not apply. Once comfort is established with the evolving rules, departments should actively listen to each other, understand sensitivities, assess operational and technical dependencies, and reshape collaboration strategies to tackle challenges together.

As more operating companies explore the potential benefits of investing in digital assets like bitcoin, the likelihood of strategic investments becoming routine increases. However, successful pursuit of such investments requires the implementation of appropriate risk measures and tolerance levels. The complexities and fluid nature of the landscape can be navigated with commitment from all departments and external parties. By addressing issues related to rules, standards, processes, procedures, and risk along the decision spectrum, digital assets can offer innovative, bold, and dynamic alternatives to traditional investments.