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ICO Analysis: Cosmos “Blockchain of Blockchains”

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Cosmos is a novel answer to “sidechains,” which aims to enable users to traverse a galaxy of blockchains with ease. One intended usage of the platform will be to enable automated overflow of transactions, due to the congestion in current cryptocurrency designs. Cosmos consists of “zones” and “hubs.” A “zone” can become congested, just like a traditional blockchain, but a hub operator can simply redirect portions of the traffic through other zones. Anything can be traded, including Bitcoin, provided that the zones being traded through are trusted by the trader(s).

Cosmos uses proof-of-stake instead of proof-of-work, which normally means that the computational capacity required for securing the blockchain is replaced with ownership. Those who own large amounts of coins generate larger amounts than those with smaller amounts, rather than competing in a mining race for block rewards, but Cosmos uses a slightly different method of doing so via Tendermint.

Interesting, right? Sounds like it has a lot of potential.

But we know how these “ICO” things go here at Hacked. Too often, the “initial coin offering” is in fact the only offering the coin ever produces. The Paycoin fiasco and others illustrate what can happen when you fork over money for something that doesn’t yet exist. There are a lot of things to consider when considering an ICO as an investment vehicle. For starters, is there a “premine,” or initial reward of coins to the creators in order to “fund development”? Premines are a huge red flag, because if the initial offering price of the coin is relatively high the temptation for said creators to simply cash out on the backs of investors is very real. Cosmos has no such premine, because it is not a cryptocurrency in and of itself, but it does have these early investors who have already claimed 5% of the total proceeds of the project.

These “initial investors” are not as much of a red flag, but rather a positive sign. If their investment can be verified, and they are not known scammers, then this investment could act to create an overly positive mood for later investors. These guys are already holding down 5% of the fort. Another 20% of the fort is held by Intercoin Foundation and the developers of Tendermint. This leaves 75% for the public to hold.

While having no premine per se, Cosmos does have another pretty severe liability: it does not yet exist. The funds being raised are intended to develop the concept. This means that your money could be better invested simply funding your own competing development. The lack of existing code for security and other researchers to audit is a major drawback to this offering. It’s almost enough to make this writer recommend against the risk.

What Cosmos does have is Tendermint. Tendermint is an interesting spin on proof-of-stake, and it is the technology Cosmos intends to underpin the blockchain of blockchains with. Rather than using the amount of coins that a user holds to determine new coins that enter the ecosystem and what transactions are confirmed when, the concept of block “validators” is introduced. A validator is a user who has placed a “bonding transaction,” which locks a certain amount of his coins away. Groups of validators submit “commit signatures” in order to confirm blocks. Blocks can be “forked” if two groups, each with a two-thirds majority vote, vote oppositely on the same block. This is unlikely, however, because validation groups are kept in check by a punishment system, in which whoever cast a duplicitous vote (there is no such thing as four thirds) will have their bonded coins eliminated from the system.

Cosmos is offered by the Interchain Foundation, which is (allegedly) a non-profit based in Switzerland. We use the term “allegedly” here because unlike the United States, Switzerland has no convenient way to verify the non-profit status of an entity. Swiss law does, however, make it very easy to create a non-profit and, by law, the status offers significant legal protection, as told by the NGO Service:

The members of an association, as well as the Committee members, cannot personally be held responsible for debts and obligations contracted by the association, neither for the damages caused in the pursuit of its activities.

The civil and criminal liability of members of the Committee cannot be invoked for offences committed by the association in its own name.

However, Committee members may be considered criminally liable if they have deliberately committed misdemeanours or have broken the law (theft, misuse of assets, sexual abuse, etc.)

ICF itself consists of the two people who started All-in-Bits (Tendermint, more later) and a person called Guido Schmitz-Krummacher. This Guido is apparently their man in Switzerland, and his qualifications seem to stem from a career of good management in avuncular fields.

Tendermint, on the other hand, is provided by a for-profit company called All-in-Bits, Inc., which has worked with other blockchain developers in the past. Founded by two of the same people who are behind the ICF, All-in-Bits has seen some significant successes in the blockchain space. Notably by helping eris, a blockchain development platform with an apparently promising future. AIB founder Yong Jae Kwon registered the corporation, which is based in Delware, in California two months ago in order to apply for a trademark on Tendermint. He lists a residential address of 1319 South Van Ness Ave #a, San Francisco, CA 94110 as the contact address for AIB in California.

But Wait a Minute

Effectively, the fact that the three-person board of ICF and the co-founders of AIB overlap, two individuals appear to have access to somewhere in the neighborhood of > 15% of the total atom supply at the outset.

The unit of exchange in Cosmos will be the atom. Atoms were sold to the pre-fundraisers at a discount of 15%. It is important to note that the ICF has reserved the right to raise more funds in the future by offering a discount of up to 25% to what they consider “strategic partners.” Strategic partners for Cosmos would be exchanges and others which have more incentive to act as honest validators than to attempt to attack the system. The Bitcoin enthusiast is likely thinking “inflation,” and Cosmos has addressed this in detail here.

  • The minimum inflation rate is 7%.
  • The maximum inflation rate is 21%.
  • In the beginning, the inflation rate will be 7%.
  • If in the past 4 months more than 2/3 of atoms were bonded more than 1/2 of the time, then decrease the inflation rate.
  • Otherwise, increase the inflation rate.

Atoms themselves are only valuable if the entire system has some value. This means that the functional value of an atom will require adoption of the platform, but those who hold the atoms and are therefore capable of validating will increase their holdings year-over-year just like a certificate of deposit. Assuming the rate of exchange is comparable upon exit, the ability to lose money is limited.

The initial cost of an atom for you will be ten cents each. The offering will begin April 6, 2017 at 6:00 AM PDT (9AM EST) – just a few hours from now. A total of 25% of the coin supply will be eliminated from the public offering, being awarded to the ICF and the Tendermint team, as well as the initial investor group. Interchain Foundation has published detailed instruction manuals on how to invest in atoms. They are accepting Bitcoin and Ether in exchange for atoms.

On a scale of 1 to 10 in terms of smart investments, Cosmos probably rates a 4.8 or so. There are significant drawbacks: technically hard to grasp and therefore potentially lacking mass appeal; 25% withheld from public hands, increasing the risk of a major pump and dump; non-existent technology (excepting Tendermint); concept/market has already seen and will continue to see significant competition, meaning an all-in bet on this could equate to a total loss on the opportunity (perhaps better to spread the eggs amongst the “blockchains of blockchains” baskets).

That said, there is a lot of potential for this technology. One can imagine massively multiplayer online games creating assets on the Cosmos network for in-game transactions; companies issuing rewards programs using zones designed for as much; relay networks for large financial institutions; stock exchanges tracking trades; inventory applications, and much more.

Despite the low rating, it’s hard to advise against putting a few dollars into the project. If you pick up a few thousand atoms and the whole thing goes sour, you can dump along with everyone else and suffer a minimal loss (if any) in the deluge. As previously noted, however, it’s probably wise to invest in similar plays, like Ethereum, simultaneously.

As a pure stock-like investment, though, it rates even lower than previously rated. The liquidity has too few guarantees, for one, but also a significant time would have to be spent compensating for technical debt in the investor. This time might be better spent actively trading coins which have less of a learning curve.

Yet, again, as a complex investment, wherein you are willing to take the steps to learn how to maximize the yield (such as starting up zones, lending your atoms to validators, and building applications around the platform), it could be the most profitable buy you make this year. Could be. It’s hard to express an extreme amount of confidence in a product which does not yet exist. Further, not enough is known about the process which will be used to hire a development team. This part alone contains all the makings of a great scam: convince people they are investing in development costs, award the development contract to yourself, and never deliver the product.

It’s all very complex, and requires a technical mind to fully grasp. However, so was Ethereum, and while many bet heavily against it believing it would be just another scam coin, an ether is currently worth over $40, making it one of the best performing non-Bitcoin cryptocurrencies around.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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5 stars on average, based on 2 rated postsP. H. Madore has covered the cryptocurrency beat over the course of hundreds of articles for Hacked's sister site, CryptoCoinsNews, as well as some of her competitors. He is a major contributing developer to the Woodcoin project, and has made technical contributions on a number of other cryptocurrency projects. In spare time, he recently began a more personalized, weekly newsletter at http://ico.phm.link




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2 Comments

2 Comments

  1. jedashford

    April 6, 2017 at 6:21 pm

    Woke up and was sad to see it already sold out. This article would have been perfectly timed…yesterday 🙂

  2. Parentesi

    April 9, 2017 at 3:31 am

    Agreed, a few hours to late, the article or me ^_^
    Are there any options in the near future to invest in Atoms?

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Analysis

Ethereum’s Tumble:  ICOs Aren’t The Problem

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Trying to come up with a rational explanation for crypto price movements is a thankless task. Sure, there are several attempts being made by quant jocks to develop a model for valuing coins and tokens.  Most of these that I have reviewed suggest that prices undervalue both the underlying asset or the eventual demand.

In other words, crypto prices are cheap: what a surprise.

This bit of wisdom may be of some comfort to committed long term investors, but it hasn’t translated into higher market prices. A good example of this is Ether. Over the past six months, while Bitcoin has been treading water (down 7%), the price of Ether has been cut in half.  This altcoin was the topic of one of my recent articles called: Has Ethereum Lost It’s Cache?

The essence of this article was to point out how Ethereum, the platform preferred by 75%-80% of all ICOs, was suffering from investor indifference.  When you measure the activity of the top 100 tokens according to CoinMarketCap.com, the US dollar value of 9 of the top 10 most actively traded amounted to an average of $14,000 over the previous 24 hours.  Please keep in mind, trading activity in ETH over the same 24 hour period amounted to $1.8 billion USD.

Bloomberg Speak

One of the more interesting contradictions to my research into Ethereum’s plight comes from an article originating from a highly respected source: Bloomberg News.  The headline reads: “Ether Tumbles as Concern Increases That ICOs Are Cashing Out”.  It is totally defies the data to believe that every ICO cashing out when there is almost no volume to confirm this claim.

Quoting from an August 13th article:

Initial coin offerings using the Ethereum blockchain are seen as one of the main catalysts for sending Ether’s price surging last year. Now they’re being blamed for its decline.

It is quite true that initial coin offerings using the Ethereum blockchain was a catalyst for sending Ether’s price surging last year. It gave investors a reason to buy Ether even if they didn’t tell an ICO from a UFO. But are ICOs the real blame for both the good and the bad of Ethereum price?  I will step aside and let you be the judge.

For starters it is important to remember that ICOs raised $2.4 billion last year while ETH value appreciated almost $70 billion. The concept of ICOs may have fueled blind speculation but the math tells us that real demand was much less.

As for taking the blame for falling ETH prices, consider this notion. At its peak in January ETH was valued at $133 billion.  Currently that value is $100 billion+ lower than just eights months ago.

Using the data from ICOWatchList.com, since the beginning of 2017 ICOs have raised a total of $8.5 billion.  The statistical experts claim the Ethereum platform was used by between 80%-83% of all ICOs, thus reducing the $8.5 billion number to $5.7 billion.  

There is no question that ICOs influenced ETH speculators but that doesn’t begin to explain the more than $600 billion in aggregate losses for all crypto assets.   

Criticism Of Startup Managements

Critics claim that ICOs give startups the ability to raise lots of capital but they are proving weak in management on the funds once they are in their crypto wallet.  There is a certain validity to this since the number of founders with deep experience as CEOs and CFOs is pretty limited. But how can anyone separate insider selling activity from all other volume?

Research website Santiment, which compiles a selection of Ethereum-based projects, estimates startups have spent over 110,000 Ether in the past 30 days. At current prices that amounts to about $33 million.  For sake of discussion, let’s assume this high rate of token liquidation took place each and every month this year. Then use and average ETH price of $700 and that brings the total to $616 million.

There is no question that ICO sellers have contributed to the decline in ETH.  It would even be fair to call it a catalyst that created fear of losing all (FOLA).  Now if we could only quantify fear with an index like the VIX used by stock investors, we would see the major cause of the decline.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 97 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Analysis

Commodity Update: Wheat Not Yet Out of the Woods

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Wheat (WHEAT/USD) is up 29.12% year-to-date as the market came to life early this year. The successful defense of a key support level attracted investors who were staying on the sidelines for years while waiting for a tradeable bottom. This ignited a powerful rally that saw the pair generate volume that’s never been seen in over 15 years. As a result, many investors believe that Wheat may have finally reversed its trend.

In the midst of the bullish rally, it appears that bears are pulling the biggest trick that’s up their sleeve. In this article, we explore why Wheat is not yet out of the woods.

Premature Reversal for Wheat

A quick look at the daily and weekly charts reveals that the commodity appears to have broken out of a cup and handle pattern. From a short-term perspective, the market registered a higher low of $3.908 in December 2017. This gave bulls the confidence to stage a massive rally. The rally eradicated resistance of $5.00 in July 2018 with colossal volume.

Weekly chart of Wheat

The price action has led many to believe that the multi-year downtrend is over. But what if it isn’t?    

Major Roadblocks Ahead

A long-term view of the commodity reveals that it’s still in a downtrend. The market’s inability to close above $5.50 on the weekly and monthly charts is a signal that bears are not yet ready to hand over the keys to the kingdom. They are fighting back and so far, it seems that they have the upper hand.

Monthly chart of Wheat

Wheat is not reversing the trend as long as it respects the long-term resistance. This trendline has existed for 10 years and it is responsible for the commodity’s multi-year downtrend. From this perspective, it is easy to see that the pair continues to post lower highs and a lower low, which is the textbook definition of a downtrend.

Wheat still in a downtrend

Projected Movements

It’s not gloom and doom for bulls however. Even though a major resistance is staring down at them, they might still be able to come out on top. Keep in mind, bulls posted a record-shattering volume in July when Wheat went above $5.00. That means $5.00 has now become a key support level. It might just be strong enough to ignite a new rally and finally take out the long-term resistance.

Possible movements of Wheat

Otherwise, the record-breaking volume would work against bulls. All of those who bought above $5.00 are most likely using the support as a stop loss. Breach of this support would ignite a selling frenzy that can drive the market to even lower levels.

It is very possible that Wheat could capitulate during this plummet. When it does, there will be a long-term support where bulls can stage a rally to break out of the large falling wedge on the monthly chart.

Bottom Line

Wheat’s recent move above $5.00 with massive volume has attracted a lot of investors. The market may look bullish but in reality, it needs to deal with a long-term resistance before it can reverse its trend. In other words, Wheat is not yet out of the woods.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.6 stars on average, based on 223 rated postsKiril is a financial professional with 4+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

Pre-Market: Turkey Back in the Crosshairs Amid Sanction Threats

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The “red-bar-green-bar-madness” continues in global stock markets, as after yesterday’s rally, today the major markets are all in the red once again. Emerging market woes are still feeding the bearish narrative, with the Turkish Lira being back in the center of attention. The currency which enjoyed a three-day relief rally slid lower following threats regarding further retaliatory US sanctions, should turkey keep Pastor Brunson in custody.

USD/TRY, 4-Hour Chart Analysis

The diplomatic troubles only add to the problems of the country, while also helping the rhetoric of the Turkish leadership that focuses on a western “attack” on the nation. With the vague budget plans in mind, the endgame for the Lira still seems ugly, even as at the current levels, strong Turkish companies can offer great bargains for a long-term investment portfolio.

DAX Index, 4-Hour Chart Analysis

The divergence between the US and the rest of the world seems to be getting wider by the day, as the Shanghai Composite closed on a fresh bear market low, while most of Asia is also stuck in short-term downtrends, while Europe is looking wounded too from a technical perspective. The main US indices, on the other hand, are still near their all-time highs, and today’s selloff is also just a small blip in the ongoing uptrend.

S&P 500, 4-Hour Chart Analysis

On a slightly negative note, the Nasdaq has been underperforming the broader market ever since Tencent’s earnings miss on Wednesday, and today, it’s also the worst performing benchmark on Wall Street in the wake of Nvidia’s (NVDA) lackluster guidance that came out yesterday after the closing bell.

Today’ session could still go either way in the US, as the overnight losses are moderate, and yesterday’s trade war optimism could still fuel a recovery in the worlds strongest stock market, even amid the deepening emerging market crisis.

Forex Markets Stable As Dollar Consolidates

Dollar Index (DXY), 4-Hour Chart Analysis

The Dollar is consolidating just below its recent 13-month highs, with the EUR/USD pair rebounding to 1.14, and the broader Dollar index settling down near 96.5. The reserve currency is still clearly in a rising trend, and as the short-term overbought momentum readings are almost cleared, the rally could soon continue, especially if risk-off sentiment remains dominant outside of the US.

Copper Futures, 4-Hour Chart Analysis

Commodities are virtually unchanged before the US open, with gold still hovering just above its 17-month low near the $1185 level, crude oil being stuck near $65 per barrel regarding the WTI contract, while copper trying to hold its ground after the recent key breakdown.

Dr. Copper is still signaling troubles ahead for China and the global economy, as although the commodity outperformed today, it’s clearly below the break-down level near $2.7, and the downtrend will likely continue in the coming weeks.

Featured image from Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 321 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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