With the Metaverse hype moving into full swing in 2022, there will be a renewed focus on VR/AR headsets.  With the display representing the largest share of BOM for most VR devices, there are a few terms associated with what are typically called micro-displays used in such devices that are import to understand.  The first is pixel pitch, sometimes known as dot pitch, a term used to specify the distance between the center of a display pixel and the center of an adjoining pixel.  In large displays it is usually expressed in millimeters and can represent any type of pixel, such as LCD, OLED, LED, Mini-LED, Micro-LED, or ELQD, and can range anywhere from ~4mm (0.157”) for commercial (in-store) displays, to 10mm/11mm for window displays, to 25mm to 32mm for large outdoor displays. 

The concept of pixel pitch in displays would imply that the smaller the pixel pitch, the better quality the image would be, and from a technical sense that is correct, but a more realistic concept would be ‘acceptable viewing distance’, the point at which the viewer is far enough away from the display that they no longer can discern individual pixels.  However things get fuzzy (sorry) though as the viewer’s visual acuity comes into play, with a person having 20/20 vision likely to be a bit further from the display to reach that point than a person with 20/50 or greater.  This makes such calculations subjective, but the display industry has come up with a number of ways in which ‘acceptable viewing distance’ can be calculated.

• The 10x rule says multiply the pixel pitch by 10 to get the ‘approximate viewing distance’ in feet.
• The Visual Acuity rule says pixel pitch times 3438 gives the viewing distance in millimeters, but requires 20/20 vision
• The Average Comfortable Viewing Distance is a subjective measure that takes into account a number of variables, such as eyesight, content type, and content resolution

Here’s what each rule gives as ‘acceptable viewing distance’ for various pixel pitches under the above rules:

As can be seen, the results vary so widely that such calculations seem either misleading or completely useless, and even as a rule of thumb, it would be hard to imagine putting much faith in brand literature that might suggest similar calculations.  Ideally the user should actually look at the display they are considering (in an actual store), starting as close to the screen as possible and stepping back until individual pixels are no longer seen, a more realistic process that would provide a better understanding of the necessity for smaller or larger pixel pitch displays.  Considering that as pixel pitch declines (more pixels/in), the cost of production increases, there is a ‘happy point’ where the consumer sees a uniform image but is not paying the cost of a smaller pixel pitch that serves no purpose.
But what about VR/AR displays?  If any of those rules are used, the pixel pitch of a display that is essentially 0” from your eye would have to have to be microscopic.  Doing a calculation for a VR headset like the HTC Vive Flow, the pixel pitch would be 0.01mm (~10um), 2,262 pixels/in, or 5.12m pixels for a 1” display.  That’s a lot of pixels in a very small space, which makes the fabrication of such displays a far more complex task than producing displays typically used for most CE devices, but pixel pitch and pixel density are only two of the multitude of factors that go into the ability of a VR headset to accurately portray a realistic image, and a deficiency in almost any of these factors can cause the motion sickness and fatigue problems that plague many potential VR users.
Much research on the root of motion sickness derived from VR comes from US Military studies that looked for reasoning behind the motion sickness that affected many that used flight simulators, particularly those for helicopters.  Given that it cost taxpayers $1.1m in 2004 ($1.62m in today’s dollars) to train a pilot, with the cost of simulator training vs. that of a live aircraft being a 1:40 ratio, there was considerable incentive to determine the cause of the problems that many faced during simulator training.  Medications were studied with some minor success, but all had side effects that would prevent their use in such situations.
In order for one to perceive motion, there are two visual systems that must work together.  The ambient system is used to detect large objects and visual flow in a user’s periphery.  The flow of information from this system increases with velocity, detail, and the nearness to the ground, so flying above the clouds in VR provides less information to the ambient visual system than it would if the user were running across a VR field.  This behooves the Metaverse designer to maximize detail in order to give the ambient visual system enough data to understand the environment.
The second component is the focal system, which is used for fine detail, size, shape consistency, and perspective, but both should be able to provide information that is consistent with what the user’s brain considers ‘normal’, so when information from either system is inconsistent with the other or with norms, problems occur and are not limited to those who have experienced motion sickness on forms of transportation.  Typical motion sickness, with ~30% of study participants experiencing seasickness in moderate seas and as high as 90% in rough seas, shows little correlation to VR issues, but at least in reference to physically caused motion sickness, continued exposure to the stimuli that caused the distress lessens the symptoms and severity over time, although it has been seen that when Navy crewmen are transferred from one type of ship to another, many show motion sickness problems until they adapt to the new environment.
One salient point that also appears in the data is that motion sickness of any kind decreases with age, which is counterintuitive for the Gen Z set, who always say, “I grew up with video games, VR won’t make me sick”.  Data collected during WWII showed that soldiers aged 17 to 19 reported seasickness at a 31% rate and those between 30 and 40 saw that drop to13%, but that same study also said that motion sickness of any kind is ‘very rare’ beyond age 50, which to anyone who has gone deep sea fishing on a choppy and cloudy day, knows is not correct.
While most VR brands focus on optics, there is another part of perception that is also a factor in motion sickness or fatigue in the VR space, and that is the vestibular system, a series of canals and organs that reside in the inner ear.  The canals give the brain information about angular velocity, particularly the rate of change, acting like a bubble on a level, and the inner ear organs measure the force of gravity and linear acceleration, all of which creates a system for maintaining balance and equilibrium, and while those born without those organs are still able to compensate with other senses, they do not experience motion sickness at all.  As the above organs are dependent on gravity for orientation, they work well in a normal environment, but are easily confused by rapid acceleration and a zero gravity environment, giving meaning to the name ‘Vomit Comet’ applied to aircraft that can create a short zero-gravity training setting during rapid directional changes.  VR environments that have no gravity reference present conflicting information to the vestibular system that is perceiving normal gravity and little or no acceleration.
All in there are many factors that need to be addressed before we become a society that can live in virtual worlds for extended periods.  We have barely touched on other issues facing micro-displays, including Field of View, Motion Tracking and Resolution, all of which must improve to make the virtual world a ‘reality’.  Of course, companies involved will spin a Metaverse story that is already happening, but we still have a lot of ground to cover before you can slip on a VR headset and spend hours floating through the rings of Saturn or playing golf with Phil Mickelson on a course you designed last weekend on an island off the coast of Australia..
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LG Display (LPL) has announced a new, brighter OLED display, called OLED-EX, which it expects to put into production at its plants in Paju, South Korea during the 2nd quarter of 2022.  The company is said to have been using the new material at its plant in Guangzhou, China as part of its OLED TV panel supply to parent LG Electronics (066570.KS) for its EVO OLED TV line. The changes to the new panel are said (by the company) to be two-fold, with the first part a change in material composition, and the second a change in the way the sub-pixels are used.  LGD did not give much information on either change but we derive at least somewhat of an idea about the possible change to LGD’s OLED material composition.
Organic compounds are based on carbon, where the carbon atom is bonded to a hydrogen or other atoms or radical structures.  The bonds between these two elements comes from the fact that carbon, which has 4 electrons in its outer shell can share those electrons with 4 hydrogen atoms that have 1 electron in their outer shell.  In OLED displays, the application of an electrical current pushes the electrons out of the shell and as they fall back they give off that extra energy as light, hence the name light-emitting diodes; essentially what goes in as electrical energy comes out as light.  Sounds simple but it’s not.  If the reaction happens too quickly some of the excitons (let’s say ‘excited electron’) ‘quench’ the reaction of other excitons, reducing the light generated, and too little ‘push’ from applied current produces no reaction, so the organic materials and the electrical charge have to be carefully balanced.
Over time the bonds that hold such organic materials deteriorate, with higher energy organic materials (blue) deteriorating more quickly than lower energy materials (red and green), creating both lifetime discrepancies and persistence problems, also known as burn-in.  Chemical engineers have found that by substituting an isotope of hydrogen called deuterium, which still has the same one electron to bond to carbon but is a bit heavier (aka ‘heavy hydrogen’), they can slow down the reaction and reduce the ‘quenching’, increasing the brightness of the material without the normal decrease in lifetime that comes with more typical methods of driving materials to higher brightness by increasing the current.  While deuterium occurs naturally in water, the ratio is one atom for every 6,420 ‘regular’ hydrogen atoms and the process to separate those atoms is energy intensive, so LGD is buying the blue material from supplier DuPont (DOW), rather than its usual supplier of fluorescent blue emitter material, idemitsu Koasan (5019.JP).
While we don’t know precisely what LG Display has done to its OLED materials, based on IP filings by Samsung Display (pvt), Universal Display (OLED), LG Chem (051910.KS), Rohm & Haas (DOW) and others[1], the idea of substituting heavy hydrogen for elemental hydrogen in OLED materials is one of interest to many of those developing such materials, especially blue emitters and hosts, so we speculate a bit on what LG Display has done on the material side to generate a new OLED brand name.  As to the results, which are said to boost brightness between 25% and 30%, we expect both the material change and a new AI pixel processor contribute to the increase.


[1] Jeong, Eunjae, et al. ORGANIC ELECTROLUMINESCENCE DEVICE AND AMINE COMPOUND FOR ORGANIC ELECTROLUMINESCENCE DEVICE.
Chen, Hsiao-Fan, and Jason Brooks. ORGANIC ELECTROLUMINESCENT MATERIALS AND DEVICES.
Kim, Chi-Sik, et al. ORGANIC ELECTROLUMINESCENT COMPOUND AND ORGANIC ELECTROLUMINESCENT DEVICE COMPRISING THE SAME.
Kim, Seong-So, et al. ORGANIC LIGHT EMITTING DEVICE.
DOH, Yoo-Jin, et al. ORGANIC ELECTROLUMINESCENT DEVICE.
 
 

​China’s largest panel producer BOE (200725.CH) will invest ~$47.1m (4.29% stake) in a fund being created by the Beijing government.  Each of the partners below will contribute their capital share in 5% increments as needed by the fund over a 4 year investment period and a 4 year exit period (which can be extended), although the withdrawal mechanism will depend on IPOs, technology transfers, M&A, etc.  The fund manager will get a 2% yearly fee of the investment amount, while the limited partners will receive 8% compounded interest.  80% of the profits (called surplus), if any, will be allocated to the limited partners, with the remaining 20% to the GP.

​The boilerplate indicates that the fund will act as a link between the BSCOM (#1) and BOE, generating ‘the synergy effect’ to ‘create a complete industrial supply chain based on display, sensing, artificial intelligence and big data’, while creating no new competition (for BOE).  While the text is the familiar blather attached to such documents, it would seem that the fund is just another way in which the Chinese government funds the display industry.  Aside from the construction subsidies and infrastructure projects that have been supplied to all of China’s display projects and the operating subsidies that allow for capacity expansion projects (in some cases the difference between a profitable and a loss year), such state funds are used to build out upstream projects without burdening display companies themselves. 
While the limited partners all look relatively legitimate, we expect there is considerable pressure put on potential investors given their partial or full state-ownership., sort of a Godfather request, with such the Beijing government collecting yearly fees on all.  It seems a bit unfair to promote the success of the Chinese display industry knowing that it would not have been anywhere as successful if it had to have developed on its own, but such is life in a socialist republic.  We, on the other hand, encourage companies to build in the US by offering local tax breaks while partisan politics does little to actually provide help to industries that keep US leadership alive in the CE space.  Luckily local taxpayers don't seem to mind and local politicians fade away before any reconciliation comes due.  All is fair in love and war…
Fund Limited Partners:

Back on August 1`9, we noted that BOE had raised $3.14b  by selling shares in a private placement for a variety of projects including the ramp to production and capacity expansion of its new Gen 6 flexible OLED fab in Chongqing.  At the time we noted BOE’s top 10 shareholders which we duplicate here, with the focus on shareholder #1, who tops the list above, giving even more indication that the investment made in the abovementioned fund was less of a suggestion than a hopeful request.

​On December 23, the Chinese government locked down the city of Xian, limiting its 13m population to only one resident per home allowed to go out for necessities each day.  The lock down came in response to a round of testing revealed 127 new COVID-19 cases across 14 districts in the city, triggering the biggest lock down in China since the original Wuhan incident.  The delta variant is still responsible for most of the new infections but such precautions are being taken to make sure that the Omicron variant does not take hold.  All domestic flights in and out of the city were cancelled and all transportation routes have been closed.
Samsung’s (005930.KS) semiconductor fab in Xian has been affected and while shut down, the company did indicate that it was making ‘flexible adjustments’ to its production lines as it is now working with limited personnel.  The plant, which produces ~40% of the company’s NAND flash is expected to continue to operate under limited conditions, but an extended lockdown could begin to affect NAND pricing into January, and a full line stop would take weeks to restart.  Since the Chinese government has left the lock down timing as indeterminate, the effect on Samsung’s production and global supply has yet to be determined.

​On December 28, BOE officially began mass production at its Gen 6 OLED fab in Chongqing, a fab that will eventually be capable of producing 48,000 Gen 6 sheets/month.  The fab, which is operating a 16,000 phase 1 line currently and constructing phase 2 and phase 3 lines which are expected to be opening in 2022, cost ~$7.3b to build and will help BOE compete against both Samsung Display and LG Display for Apple’s (AAPL) iPhone display business going forward.  While the local press says that phase 2 production will start in January, and BOE will increase shipments to 80m units next year, we expect mass production, based on a more conservative ramp to see an incremental 27m units from Chongqing in 2022, but we note that is at 100% yield, which we expect is far different than what is seen currently and what will be the case as the new Chongqing lines ramp up. 
On 11/08/21 we noted a more muted party at BOE, celebrating the company’s official inclusion into Apple’s iPhone display supply chain, something that had presented a number of challenges to the company since 2020.  When all three phases of the Chongqing fab are in operation and the even newer Gen 6 flexible OLED fab in Fuzhou is completed, BOE will have a combined Gen 6 capacity of 144,000 sheets/month, second only to Samsung Display, who remains the leader in the flexible OLED space, roughly double the capacity of LG Display’s small panel flexible OLED capacity and four times the flexible OLED capacity of any other Chinese small panel OLED producer.

​According to our database, there have been 14 VR headsets released this year by 8 companies, 10 of which are standalone types, meaning they do not need to be paired to a device.  Of those 14 headsets, the average price is $643 (although some do not include controllers, which cost extra).  The average weight (of those that disclose) is 454 grams (1.0009 lbs.), the highest being 785 grams (1.73 lbs.) and the lowest being 189 grams (0.41 lbs.).  All but one are based on a single or dual LCD micro-display (one is OLED) and most use a Qualcomm (QCOM) chipset, although they vary as to which Qualcomm chipset is used. 
The most telling statistic from those VR headsets released this year is that the headsets were based on 7 different VR ‘platforms’, usually particular to a brand, such as HTC’s (2498.TT) Viveport, although Steam VR (Pvt) is a supported platform for 6 of the 10 brands.  Horizontal FOV, the distance left to right that you can see without moving, ranges from 90⁰ to 116⁰, with the human eye having a ~135⁰ FOV (non-moving).  There are 12 additional VR headsets that have been announced but have yet to be released, which is not unusual as some of the headsets released this year were announced almost one year ago. 

On 12/16/21 we noted that Apple (AAPL) had notified employees that any return to offices for Apple staff employees, which had been tentatively scheduled for September and then pushed to October, would be postponed until January 2022 due to the Delta variant, which was then postponed indefinitely.  At various times Apple has closed its stores in a number of global locations in response tp the spread of COVID-19, particularly the Delta variant, with all stores finally being reopened in June of this year, for the first time in just under a year and a half.
As we mentioned in our recent note, Apple has begun to close a number of stores in the US and Canada and the Omicron variant spreads, and yesterday announced the closing of all of its stores in New York City, as new cases surged.  Apple has a number of flagship stores in NYC, with the largest being the 5th Avenue store between 58th and 59th, at one time being the only Apple store open 24 hours a day.  All stores are still open to outside product pickup, but only Apple employees are allowed inside.
While we certainly give Apple credit for being proactive concerning the safety of customers during the pandemic, all is not perfect in Appleland, with a strike and walkout staged by Apple employees on Christmas Eve, albeit one not endorsed by any Apple trade unions.  The walkout was the result of a customer incident in Jacksonville, Florida where a customer spit on an Apple employee, and was later allowed to return to the store, with the employee allegedly being told that ‘the customer did nothing wrong’.  Of course, once such was posted on Twitter, reports of other incidents, abusive store managers, and other employee issues soon followed.  While we doubt much changed as a result of the strike, which was said to encompass some 50 workers, a wise old man once said, “It’s a sewer out there”, and now it seems to also be a sewer in there.

Chinese internet giant Baidu (BIDU) is hosting a three day developer event for up to 100,000 virtual attendees in its just released Metaverse, based on its XiRang (“Land of Hope”) application that allows users to create avatars and interact with each other at the virtual conference.  There are 100 speakers that will give presentations in the virtual world during the conference, but the real intent is to create an open-source platform that Metaverse developers can use to create new virtual worlds, supplying them with digital infrastructure, although the platform will not support digital currencies or NFT-like trading assets, despite the app’s use of block chain technology.  The conference can be accessed through a VR headset, smartphone (2D) or computer (2D).  The short promo video link is below, followed by a longer but more realistic view of the app being used by attendees using VR:
twitter.com/i/status/1474379610087374880
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​youtu.be/ME9gsUI_bZg

​While in typical fashion Baidu noted that the conference was the first Chinese conference to be hosted in the Metaverse, the announcement was followed by an unimpressive look at the Baidu Metaverse itself, which looked like a video game from the early 2000’s, with the comment that it would likely take ~6 years to fully develop the application to full potential from the head of development.  Baidu wants Metaverse development, at least Metaverse infrastructure, to be open source, removing the need for licensing and opening the development up to a global population that can contribute to Metaverse development.  As the company receives the bulk of its revenue from advertising and merchant services, the faster the Metaverse can be developed, the faster Baidu will see incremental sales from the new revenue source.  It’s a play on the old “Give a man a fish…” with the application essentially teaching others to ‘fish’ or really to expand the Metaverse, expanding the revenue base of those who can capitalize on the income stream.
That said, while the Metaverse infrastructure (site creation, modeling, etc.) are the ‘flashier’ tools that get promoted by the media, and VR/AR headsets are the display source that are currently a gating factor for Metaverse development, there are a host of other ‘layers’ that need to also be developed in order for the Metaverse to become ‘the next internet’ as many suggest.  High speed streaming services will certainly need to be upgraded considering the amount of data that needs to be transferred during live interactions, and graphics processors will also need to be stepped up if virtual worlds are to look convincingly real, but the real issue is still with how you actually view the Metaverse, because looking at a fanciful virtual world on a 2D screen still looks like a 2D image, and the idea that you can be an avatar and speak with others in such a world is a nice idea and more convenient than a Q&A dialog box or chat window, but not really earth shaking.
Improvements in VR, particularly improvements in resolution, FOV (Field of view), and ease of use (weight) will govern adoption rates for the Metaverse, despite what Facebook (FB) or Baidu say, as it will take quite some time before we see offices filled with VR helmeted workers or stores where customers are serviced by virtual personnel, despite the promotional pictures below.  Remember that ~30% of the population is subject to motion sickness, and a much large proportion is subject to not wanting to look like Daft Punk, so VR hardware developments will be needed before the use of the Metaverse becomes commonplace, although stranger things have happened.  20 years ago, did you think you would be able to watch movies on your phone?  Remember this from 2001?

​5 Year Plans are big with the Chinese government and the Japanese press has indicated that the Central Cybersecurity & Information Committee of the Communist Party of China (CCICCPOC?) has announced their 5 year plan for strengthening its competitiveness and building a national information plan under the auspices of ‘enhancing the convenience of the people through the advancement of information technology.”  Among the plan details are to increase the number of Chinese internet users from today’s 989m to 1.2b by 2025, which would be an increase in penetration from 15% to 56% over the same period, and to increase the revenue generated by e-commerce from the current $1.846t to 2.67t, a ~44.6% increase.  The plan also focuses on improving both government efficiency and corporate digital competitiveness, by increasing the percentage of permits issued by provincial level governments from 80% currently to 90% in 2025, and increasing the R&D expenses in manufacturing sales from 2.35% in 2020 to 3.2%. 
The plan also emphases speeding up the establishment of an IoT network that connects 5G mobile communication systems with automated driving, energy, and medical services, which it will eventually connect to domestic GPS systems, which would allow ground based sensors to communicate directly with drones and surveillance systems, essentially converging big data, IoT, artificial intelligence and surveillance cameras as part of an anti-terrorism network, a bit more dystopian than one might expect in a 5 year plan.  However the underlying principal is based on the simple comment by China’s General Secretary Xi Jinping, who stated “There is no modernization without information.”
While most folks believe that Chinese cities are the ones with the most surveillance cameras, it turns out that the two cities with the most CCTV cameras/km2 are Chennai and Hyderabad, India, with 657 and 480, which comes to one camera in every 131 ft2. or one camera for every 39 people in the city.  The Chinese city with the most CCTV cameras is Harbin, with 411/km2, while Beijing is 10th with 278/kn2. (London is 4th at 399/km2).  As China’s implementation of facial recognition has allowed it to build a vast facial database, the use of such data has been part of the government’s ‘blacklist/whitelist’ social programs that can go as far as matching faces on jaywalkers or those that eat on public transportation, and then blacklist them, which limits their ability to travel and can go as far as alerting residents near an offender, asking them to turn in the blacklisted resident.
While there have been legitimate court cases in China that placed limitations on the use of facial data in a number of circumstances, particularly by private companies, the government has access to that database and can use it for whatever purposes it desires.  All in, building out IoT infrastructure has a bit of a different meaning in China than it does in the US, at least for now, and does not quite seem to be only for ‘enhancing the convenience of the people.”

There are lots of game types that can be accessed through the internet, such as RTS (Real-time strategy), FPS (First person shooter), RPG (Role Playing), Simulation (like “The Sims”), MMOG (Massive Multi-player), and Sandbox, but recently a new genre has appeared, that of P2E (Play to Earn).  While game companies have always found ways in which they can recover the cost of developing and supporting on-line games, players are not in the same position in most cases as there is the cost of the game software in some instances and the fact that gamers can (in some games) buy certain objects that help them through the game or give them status.  Those objects are paid for with real cash and while there are some external quasi-markets for such objects, game companies will ban users who buy or sell objects outside of the game world.
That said, the idea of P2E games, which are an extension of cryptocurrencies, stems from a number of games where only the top few competitors could earn actual currency when battling other top competitors in events sponsored by gaming platforms.  However P2E 2.0 now finds that a number of on-line P2E games have appeared where the average rank and file player can actually ‘earn’ cryptocurrency inside the game and transfer that crypto to currency outside of the game through NFTs or similar block chain systems.   While this all sounds a bit iffy, the key to such games are NFTs, which are generated by players as they progress through the game.  In order not to over-supply the market (NFT inflation) and decrease the value of generated NFTs, some algorithms allocate ‘rarity’ to certain objects which limits the overall growth rate of NFTs in a particular game, and each new P2E game tries to build a better ‘economy’ than previous games, given the economic structure of each are in the block chain for public examination.
So is this a bad thing or a way in which gamers can generate income, rather than have the game be a cost?  It’s not quite that simple, despite some games advertising that you can earn over $6.00 each day, as such games become so popular within days of release, that sites crash, making it difficult for those who like the game for itself and are not interested in creating a profit center.  It is also difficult to get earned money out of the games as this excerpt would indicate.

“It is necessary to withdraw the mined Ninky Coin (aka Idle Ninja Online Token - $NINKY) to the electronic wallet Metamask (browser extension/mobile app that is a secure repository for your in-game tokens) and purchase Binance Coins (a cryptocurrency exchange platform currency) to pay a ‘gas’ fee (whatever) and send it back to Metamask.  Even after swapping and selling it can be converted into cash through the process of sending it back to the domestic exchange”  Simple, right?
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Stories of users renting hundreds of computers for 3 days to mine in such games, producing over $330,000 in profits have circulated, inciting a new rash of users to jump into the P2E business, along with those who are willing (for a fee) to teach others how to mine and profit when playing such games.  In many countries, such games are illegal because they encourage speculation, as the value of in-game NFTs can swing wildly on a minute-to-minute basis, but many gamers resort to VPNs to hide their identities and create multiple user entities, making it difficult for governments to rein in such speculation.   While there are still a number of P2E games that have developed over time, a few have also been cancelled as platform owners were afraid that they would be targeted by government organizations as providing a platform for such speculation, regardless of the game itself.  To understand such volatility, we included a price chart for Binance Coin, one of the less volatile cryptos.  The site lists 8,558 different cryptocurrencies on a daily basis with today’s top winner Scar Token) up 718.49% (to $0.00000009333) over the last 24 hours and today’s loser Railnode, down 98.86% (to $0.05449) over the same period.  That’s volatility…