Smoke Network Rating Review
|Start ICO||20 Apr 2018|
|End ICO||25 May 2018|
We assign Smoke.Network a “Risky+” rating.
Smoke.Network is a project aiming to create a social network for the rapidly evolving cannabis market. If cannabis becomes more widely legalised worldwide, this market will have a significant growth driver which could contribute to the development of this project.
The team have previously collaborated on another project related to the cannabis market.
We wish to highlight a number of factors that could have a negative impact on the future development of the project. A number of market risks described in the relevant chapter ("Analysis of factors affecting future value of the token") will restrain the growth of the exchange value of the token.
The project has not disclosed any future financial model. All calculations are based solely on funds raised during the ICO. Details of the token economy, in particular the platform’s fees, are not described in the documentation.
These risks, as well as those that are considered in the "Analysis of investment risks" chapter along with other factors, including the absence of an audit of the smart contract, claimed growth rates for numbers of users above the market growth rate, token distribution structure for the team, etc. prevent us assigning a higher rating to the project.
General Information about the Project and ICO
The Smoke.Network platform is a project belonging to Smoke Holdings IBC, registered in Belize.
The platform is a social application for the cannabis community that rewards users with SMOKE tokens for reviewing strains, creating content, engaging new users and other participation. The application is completely decentralized and the compensation mechanism should encourage participants to expand the network.
Smart contract platform: Graphene
Token emission: 42,000,000 SMOKE
Soft cap: $0.25 mln
Hard cap: $1.90 mln
Accepted currencies: BTC, ETH, BCH, LTC, DASH, EOS
Minimum purchase amount: $50
Maximum purchase amount: $50,000
Start date: August 15, 2017
End date: September 15, 2017
Token rate: 1 SMOKE = $0.005
According to information posted on the website, 13.4 mln SMOKE were sold during the pre-sale.
Start date: April 20, 2018
End date: April 27, 2018
Token rate: 1 SMOKE = $0.083
Token emission: 4.2 mln
Hard cap: $348,600
Start date: April 27, 2018
End date: May 04, 2018
Token rate: 1 SMOKE = $0.086
Token emission: 4.2 mln
Hard cap: $361,200
Start date: May 04, 2018
End date: May 11, 2018
Token rate: 1 SMOKE = $0.09
Token emission: 4.2 mln
Hard cap: $378,000
Start date: May 11, 2018
End date: May 18, 2018
Token rate: 1 SMOKE = $0.095
Token emission: 4.2 mln
Hard cap: $399,000
Start date: May 18, 2018
End date: May 25, 2018
Token rate: 1 SMOKE = $0.1
Token emission: 4.2 mln
Hard cap: $420,000
Distribution of tokens is as follows:
Structure of distribution of funds received during the ICO is as follows:
Charity – 2%
Legal – 3%
Team – 10%
Marketing – 25%
Business Function – 25%
Product Development – 35%
Unsold tokens are not burned, but will be stored in a special project fund.
Tokens allocated to the team will be blocked for a period of 12 weeks after the end of the ICO.
Description of the Project Services
The product is aimed at the following categories of users:
Regular cannabis users – cannabis users who seek high-quality content, and who are curators of content generated on the platform.
High quality cannabis content producers – users which produce cannabis content - reviews of strains, dispensaries, grow journals and various media related to cannabis.
Cannabis brands, such as seed banks and dispensaries, as well as smoking peripheral manufacturers who want to promote their products by launching ads on Smoke.Network without the risk of censorship.
Smoke.Network offers the following functions:
Publication of various types of content related to cannabis with the option of using a pseudonym.
Supervising and voting (upvote or downvote) for published content, thus providing a measure of content’s popularity.
A variety of settings for home page display, feed and profile information editing, as well as a platform wallet tied to the user's account.
Strain database supplemented by the platform community and stored on blockchain.
Strain search toolkit, strain reviews and scoring, as well as voting opportunities for platform participants.
Reviews and scoring of dispensaries, a function for finding closest-located ones, the ability to add dispensaries to the list.
Dispensaries will be able to create business pages on Smoke.Network in order to promote their products.
Developers will be able to create DApps related to cannabis, functioning on the Smoke Network blockchain.
Advertisements placed by platform participants based on rates - the higher the rate, the higher the ad in the list.
The Smoke.Network platform will enable members of its ecosystem to earn tokens for their activities, thus promoting growth and development of the platform’s community. When registering on the platform, a user supplies a cell phone number to which only one account can be registered; this is to avoid creating spam accounts.
The Smoke.Network reward algorithm is based on user authority and the amount of SMOKE Power the user owns. This setup is designed to prevent abuse of authority. Rewards for postings are reset every 24 hours, motivating users to produce high-quality content to receive rewards. Remuneration is divided equally between the author and the curator of a post.
At the time of writing, the project has launched its MVP in test mode - Smoke.io, showing the capabilities of the future platform. After launching Smoke.Network, none of the settings, accounts and user achievements from the test network will be transferred to the main product.
In the future, it is planned to develop and launch a mobile application for Android and iOS.
The content posted is stored on blockchain and is not censored / deleted, as it is on major social media platforms such as Facebook, Instagram or Twitter. Moreover, Smoke.Network makes it possible to create publications keeping anonymity and confidentiality. Such factors in our opinion will help attract users, but let’s not forget that cannabis’ legal use is limited to only a few countries.
According to Zenith Optimedia, the volume of the global social media advertising market will be growing by 72% between 2016 and 2019, from $29 bln to $50 bln respectively and will catch up with the advertising market for newspapers and magazines. According to analysts' forecasts, 20% of the entire online advertising market will be social media advertising by 2019; the current share is 16%. In addition, the total amount spent on online video advertising will be $35.4 bln by 2019. Total size of the advertising market is projected to grow by 4.4% annually.
With the market for cannabis advertising things are different. Despite the partial legalization of marijuana in the US, Google and Facebook do not allow posting advertisements on the sale of cannabis or stories about its use. However, activists say that these rules are not executed correctly, causing a complete ban on content.
The Californian authorities legalized the medical use of marijuana in 1996. Since then, similar laws have been adopted in other regions of the United States. Currently, the use of marijuana for medical purposes is permitted in 25 states.
In early 2014, experts cited the production of marijuana as one of the fastest growing business sectors in the US. According to the ArcView Group, the volume of the legal cannabis market grew by 71% in 2016 ($2.7 bln). In the event of marijuana legalization in other US states, the cannabis market could reach a volume of $11 bln by 2019.
However, according to US federal law, marijuana is still a banned substance, and its distribution, storage and use is a criminal offense. This prevents active development of the cannabis market online.
This is also why internet giants such as Facebook, Google and Instagram fear, with some justification, that they will be held accountable for promoting drugs. As a result, marijuana businesses have resigned themselves to the fact that their pages and posts on social media can be unexpectedly "frozen" or blocked.
The introduction of a decentralized social media application to promote advertising content about cannabis can solve a number of problems present in advertising legalized marijuana on social media.
The social media advertising market has of course existed for a long time, and there are many giant platforms successfully operating including Facebook, Google and Instagram; payments on these platforms require fiat currency however. The promotion of cannabis advertising on classic platforms is facing problems due to legal regulation.
The following blockchain-based competitors for the Smoke.Network project are all connected in some manner with the market for cannabis and marijuana:
Paragon - a project designed exclusively for those involved in the cannabis industry internationally. The goal of the project is to make the cannabis market transparent and stable. The platform implements its ParagonOnline component – a social network that should help to organise and combine common efforts to legalize marijuana. The community will be able to offer projects, vote for them and the best projects will be implemented.
The project’s PRG token is traded on HitBTC and LiveCoin; current capitalization is $15 mln.
PotCoin – a project aimed at facilitating interaction between cannabis producers and consumers for conclusion of sales transactions. The project intends to create a separate community where both of these parties can remain in touch constantly.
The PotCoin token is traded on the following exchanges: Bittrex, Poloniex, Cryptopia, Bleutrade, CoinExchange and Tux Exchange. Current capitalization is $29 mln.
CannabisCoin– a payment solution for retailers, vendors, cultivators and distributors of cannabis. CannabisCoin is backed by medical marijuana where it is adopted at the legislative level.
The CANN token is traded on Bittrex, Cryptopia and YoBit. Current capitalization is $4.8 mln.
The listed projects are mainly engaged in cryptocurrency transactions on their platforms; some of them are even engaged in the management of marijuana supply chains. Smoke.Network is concerned with advertising cannabis on social media. As the social media advertising market is a promising direction that regularly shows high growth rates, Smoke.Network’s chances of success in the evolving cannabis community are also increasing. Decentralization and anonymity of users are important factors in this area.
Team and stakeholders
The project team has more than 10 main members; 4 people are involved as advisors. Key positions are held by the following people:
Jonathan Hunter (LinkedIn) – Founder and CEO
Jonathan has been involved in the project since January 2018. Jonathan has more than a decade of experience in both cryptocurrencies and the cannabis market.
University of Cape Town – 2007-2011
Pearson High School – 2001-2005
Patrick Meier (LinkedIn) – Co-founder and CSO
Patrick has been involved in the project since August 2017. Patrick has extensive experience in the cannabis field, and he is directly responsible for involving the 420Smokers.us community - a thriving fan base with more than 500,000 users. Has experience in managing cannabis-related social media pages covering more than 1 million users.
Joseph Ashburner (LinkedIn) – Co-founder and CMO
Joseph has been involved in the project since August 2017. Joseph is an experienced project manager and product developer. He founded LaptopNinja, one of the most popular laptop sites in the world for comparing purchases. Has experience in project management and user interface design, as well as aggressive online marketing and search engine optimization.
St Andrew's College, Grahamstown – 2006
Tuan Pham Anh (LinkedIn) – Blockchain developer
Tuan has been involved in the project since August 2017. He is co-founder and leading developer of the Peerity platform, a social-evolving platform uniting people to enable them to create their own communities in the way they choose.
FPT - Aptech – 1999-2001
FPT – Greenwich – 2009-2012
We wish to highlight the following advisory board members:
Harrison Jordan (LinkedIn) – a lawyer specializing in cannabis; he regularly posts on Leafly.com.
Marek Lorinc (LinkedIn) – has more than 20 years of experience in the financial and banking sectors. Until April 2018 Marek worked as executive director of Stox, a leading forecast platform based on the Ethereum blockchain.
We note that the founders have previous experience of working together on the project 420Smokers.us, which aims to become a main news source on cannabis and specializes in publication of content on marijuana. This previous collaborative history will be important for the implementation of the new project
Product development is conducted in open source mode via GitHub.
The platform will be launched on the private Graphene blockchain, which is a fork of Steem using the Proof of Stake (DPoS) consensus algorithm. Witnesses who form chains of blocks on the network are elected through coin voting.
SMOKE tokens are intended for use in the Smoke.Network ecosystem for the following purposes:
Payment of rewards for created content (strain reviews, dispensaries, etc.). The size of the reward depends on the popularity of the content (the number of upvotes that the content receives).
Payments of rewards to platform participants for content management.
Payment for the posting of adverts.
Rewards for attracting users under a referral program.
Daily remuneration for token holders described below.
Similarly to Steem, SMOKE has 2 forms:
SMOKE Power (Vested SMOKE) – The token's privileged form, enabling the following features:
Upvote and downvote posts (the amount of SMOKE Power a user owns affects the power of his upvotes and downvotes).
Leaving comments on posts and content.
Posting of content on the platform.
Influencing remuneration amounts for content management.
Receipt of a daily reward according to the DPoS algorithm used on the platform (the amount of SMOKE Power owned by a user affects the amount of reward received).
Liquid SMOKE – the more "regular" SMOKE, a platform cryptocurrency that can be transferred to other participants in the ecosystem, as well as to exchange wallets. It is circulated both within and outside the platform without the privileges SMOKE Power confers.
Users must vest their SMOKE Tokens in the Smoke.Network using the "vest function" in order to receive SMOKE Power. The quantity tokens required to receive SMOKE Power will be locked. Their unlocking takes place over 13 weeks in equal parts, while the amount of SMOKE Power in the user's balance is reduced. A new user on the platform also accrues a small amount of SMOKE Power, proportionately giving him the privileges described above.
The main function of the token is for use on the platform, which characterizes it as a utility token. The only thing that can be regarded as passive income is the daily reward for users who have "vested" their SMOKE.
The amount of funds raised during the ICO can be found in the "dashboard" section of a user account:
Six cryptocurrencies (BTC, BCH, DASH, LTC, ETH and EOS) are accepted for payment. At the time of writing, displayed information in the Dashboard corresponds to the actual figures:
Each transaction for each currency can be tracked using the dashboard.
Users will require SMOKE Power for interaction with the platform, but SMOKE Power can only be obtained if SMOKE tokens are available. This creates demand for SMOKE tokens among participants.
Analysis of factors affecting future value of the token
There are special rates for tokens during the ICO. Those investors who decide to participate in the ICO earlier than others can acquire SMOKE tokens at more favorable prices. The token price will rise every week. After listing on exchanges, a portion of short-term investors will be able to realize their tokens for fixing profits received due to the difference between the token's bonus price and the exchange price.
Tokens unsold during the ICO will not be destroyed, but will be stored in a special fund. According to the founders, these tokens will be used for sale to advertisers, users and cannabis producers. Thus, the entire token emission will indirectly (by all platform users) be available for sale on the market in the future regardless of the ICO results, which will create pressure on the future value of SMOKE.
According to the roadmap, the launch of the final version of Smoke.Network and Smoke.io DApp are scheduled for Q3 2018. From the time of the launch, platform participants will be able to post content and start earning SMOKE tokens. During this same period, users will have access to their tokens purchased during the ICO and airdrop. Tokens will be available on exchanges in Q3 2018.
The growth of the number of users and the popularity of the project will increase demand for SMOKE tokens. The founders rely on growth in the number of users, and provide the following projected data:
50,000 users by the end of 2018.
250,000 users (a 500% increase) by the end of 2019.
1 000 000 users (a 400% increase) by the end of 2020-2021.
100% growth every year thereafter.
However, these growth rates for users on the Smoke.Network platform significantly exceed the projected growth rates of the cannabis market, and they are very optimistic. At the same time, it is also worth taking into account that the most popular social network in the world, Facebook, has increases in its active user numbers of no more than 5% per month.
Prices for cannabis and marijuana are set by the market in fiat currency, so the cost of advertising and reward for user activity cannot be higher than the cost of the advertised and promoted product itself, hence the token’s price growth has a reasonable limit even with an explosive growth in the number of users. The growth factor itself has a two-sided effect in this case, since with the growth of the token price, fewer tokens will be required for operations on the platform.
Smoke.Network will issue new tokens on a daily basis and distribute them among participants. In the first year, 9.5% of 42,000,000 tokens will be issued on the network. Following this a mechanism will be launched that will reduce the number of newly issued tokens by 0.5% per year, until a value of 5% is reached. The tokens issued will be distributed as follows:
75% go to the remuneration fund which is divided between authors and curators of content (50/50).
15% of tokens are for SMOKE Power holders.
10% of tokens is for witnesses for blockchain support.
Thus, the additional annual emission of tokens on an ongoing basis will lead to a token supply increase and it will therefore put pressure on the exchange value of the token. The platform does not provide for the buyback and subsequent burning of tokens, which would have had a positive effect on their exchange value. However, as a driver for token price growth, the following is notable: The more tokens a user keeps, the more he will receive as bonuses in the form of newly issued tokens (15% of the distribution).
All tokens received by the platform as payment for posted advertising and as transaction fees will be sold on the market to support current activities. This will also contribute to pressure on the token’s value.
Analysis of investment risks
We wish to note the following risks for this project.
The factors discussed in detail in the "Analysis of factors affecting future value of the token" section exert pressure on the exchange value under the influence of market mechanisms. They will create a market risk for long-term token holders.
In addition to the information in the previous chapter it is worth noting the following:
Currently, according to information provided by the founders, about $135,000 (in dollar equivalent at the current rate) is collected in electronic wallets after 3 weeks of the ICO. This result creates an even greater market risk for investors, since if only the Soft Cap is reached, all unsold tokens will be sent to the fund; their number will significantly exceed the number of tokens distributed during the ICO. At the same time, the distribution structure is arranged in such way that tokens assigned to the team are counted from the total volume of emissions. Unlocking the team’s tokens will occur approximately at the same time as the launch of the platform and the listing of tokens on exchanges.
The risk that the project will not be able to reach claimed growth rates in number of users we consider to be one of the main ones for this project. This is due to the fact that, despite decentralization, this service will attract users only in those countries where marijuana sales are legally permitted at least for medical purposes. In countries where it is forbidden, some platform functions will simply be useless, despite anonymity. Countries where turnover is permitted have competition in this market.
The project has not provided an economic model for development of the platform after the ICO is over. All calculations are made only until the point of distribution of funds raised during the ICO. In this connection, investors do not have an opportunity to estimate the project's future viability, which creates economic risks for them.
Among other risks, it remains unclear how the financial regulator of Belize (IFSC) will treat this project’s tokens in the future. Legislation in different countries regarding the crypto market is only just being devised and since token holders can receive passive income from their holdings there is a possibility that SMOKE tokens could be considered to be securities.