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Analysis

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).

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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.

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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.

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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

Daily Analysis: Volatility Near Record Low 30 Years After Black Monday

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Monday Market Recap

Asset Current Value Daily Change
S&P 500 2555 0.12%
DAX 13003 0.09%
WTI Crude Oil 51.88 0.82%
GOLD 1296.00 -0.61%
Bitcoin 5680 2.95%
EUR/USD 1.1793 -0.25%

Stocks markets in the US are at a standstill near their all-time highs, with the major indices trading in extremely narrow ranges yet again. Volatility, as measured by the VIX, is close to its all-time high, in stark contrast to the average October readings, as this month is the most negative for equities regarding seasonality. In fact, this October is the least volatile ever so far, while this week is the 30th anniversary of the most volatile day ever on Wall Street.

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A Riskless Market?

On Black Monday in 1987, the Dow crashed by more than 23% during one session, as widespread bullishness coupled and novel portfolio techniques lead to a massive wave of selling. Although such one-day moves should be prevented by circuit breaking rules in today’s market, the notion that risk is non-existent in the current environment is as dangerous as it was three decades ago.

VIX, Weekly Chart

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Stocks have been very quiet across the globe today, with only the Nikkei continuing its break-out to two-decade highs yet again. In Europe, British assets were the most active, as the Brexit talks seem to be in quite a big trouble, and that pushed the Pound and the Euro lower compared to the Dollar. The Greenback’s rally put pressure on gold as well, and the Japanese Yen also declined, as safe-haven assets were sold in the calm environment.

Nikkei Index, 4-Hour Chart Analysis

Oil has been very active as the Iraqi army took control of Kirkuk defying the Kurdish resistance, the WTI contract rose as much as 2% before retreating below the $52 per barrel level, and as we speculated during the weekend, the spike is unlikely to cause a structural change in energy markets, and we expect the range trading environment to continue in the crucial commodity.

WTI Crude Oil, 4-Hour Chart Analysis

Cryptocurrencies

Today was a big day for the crypto segment thanks to the Byzantium update of the Ethereum network, and although the hard fork went smoothly, the session ended on a slightly negative note. Ethereum pulled back towards the $330 support/resistance level, while Bitcoin remained stuck near the $5700 level after recovering from Sunday’s dip.

Ripple has been the other major mover of the day as the coin first surged higher and hit the $0.30 resistance just to fall back swiftly below the $0.26 level towards the end of the day. Despite the decline, the currency is still in a clear uptrend, but more volatile moves are expected in its price. Among the smaller coins, Stellar Lumens more than doubled in price after the announcement of a deal with IBM, as blockchain adoption continues in full force, pointing out the sound fundamentals behind the boom in the segment

ETH/USD, 4-Hour Chart Analysis

Key Economic Releases on Monday

Time, CET Country Release Actual Expected Previous
3:30 CHINA CPI 1.6% 1.6% 1.8%
3:30 CHINA PPI 6.9% 6.3% 6.3%
14:30 US Empire Manufacturing Index 30.2 20.3 24.4

Key Economic Releases on Tuesday

Time, CET Country Release Expected Previous
2:30 AUSTRALIA RBA Meeting Minutes
10:30 UK CPI 3.0% 2.9%
11:00 GERMANY ZEW Sentiment 20.3 17.0
12:00 EUROZONE Final CPI 1.5% 1.5%
15:15 US Capacity Utilization Rate 0.4% 0.2%
15:15 US Industrial Production 76.2% 76.1%

Featured image from Shutterstock

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Analysis

Technical Analysis: Ripple Breaks Out Amid Ethereum Upgrade

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The major cryptocurrencies are on the rise once again today, with Ethereum’s major Byzantium update being in the center of attention. The second largest blockchain network has been updated through a hard fork, as usual, and the successful lock-in led to an initial surge in the price of the ETH token. The digital currency recovered above the $330 level after Sunday’s pull-back, but so far it failed to durably break-out above the prior swing high just above $340.

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With the long-term momentum readings still being neutral, the coin could be on the verge of testing the $380 resistance soon, with the all-time high near $400 being the last major technical obstacle. Below $330 further support is found at $300 and $285.

ETH/USD, Daily Chart Analysis

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Bitcoin is also on the rise after dipping below $5500 during the weekend, and the most valuable coin is joined in the rally by Ripple, which most likely finished its short-term correction and could be ready for another leg higher. The other majors are also generally higher, with NEO and IOTA being ahead of the pack, while the rest of the market trading near unchanged. As the broad rally seems to be well and alive, let’s see how the short-term charts are shaping up.

(more…)

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Analysis

5 Things to Watch Next Week: Byzantium, Bitcoin Stretched, Gold’s Strength, The Next Fed Chair, Kirkuk and Crude Oil

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1.            Ethereum’s Byzantium Upgrade is Here

In only a few hours time the second largest blockchain network will go through one of its biggest upgrades yet, when the block 4,370,000 is hit sometime around 6:00 UTC on Monday. The large Byzantium upgrade, the first part of Metropolis, seems to be in for a smooth start, but the coin is headed into the much-awaited event with mixed price action. The digital currency first hit a 5-week high above $340 on Saturday, thanks to the positive prospects of the fork, but it pulled back today to trade back below the crucial $330 support/resistance line.

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Should the hard-fork upgrade go as planned, the price of the token might follow the path of Bitcoin after the Bitcoin Cash fork, and approach all-time highs in the coming weeks. In any case, volatility should increase significantly tomorrow, so short-term traders should be controlling position sizes even more than usual.

ETH, Daily Chart Analysis

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2.           Bitcoin Overbought but Will that Matter?

The most valuable coin had a great run, gaining almost 100% since the latest deep correction. The digital currency was the definite leader of the segment, storming past the historic $5000 price level and the previous all-time high, while altcoins lagged behind. With Ethererum and Litecoin gathering strength and Monero also showing signs of activity, another round of “rotation” might be happening in crypto world.

Low correlations are the hallmarks of bull markets, and a healthy correction in BTC would be a welcome development for bulls. That said, with the great fundamental background the coin might be in for another mind-blowing surge, so keeping some chips on the table is a good idea, without forgetting the rising correction risk, of course.

BTC, 4-Hour Chart Analysis

3.           Gold Defying Gravity

The precious metal is after an orderly correction that followed the much-awaited beak-out above the long-standing resistance at $1300. Gold spiked below the $1275 level before turning north again, and with the short-term environment for the metal being mixed at best, its performance is encouraging for bulls.

As we expect the headwinds to change in the coming months, gold might be ready to take the next step in the developing bullish trend and even reach the zone between $1375 and $1400 in a matter of weeks.  With equities still looking stretched a risk-off turn in financial markets could supply the fuel for such a move.

Gold, 4-Hour Chart Analysis

4.           Yellen or Somebody New Will Lead the Fed?

The first (?) term of Janet Yellen is ending soon, and the speculation regarding the Fed Chair is getting heated. The stakes are high, and the POTUS, as usual, has been very vague about his nomination plans. For now, Mrs. Yellen’s chances for a second term are slim, but she might turn out to be the safe bet for the sensitive position. Kevin Warsh has been the favorite for quite a while, but the hawkish candidate has lost ground to Jerome Powell lately after Trump met all the major contenders for the post.

We all know that Yellen is uber-dove when it comes to monetary policy, and both of the major candidates (Warsh is a prior while Powell is a current Fed governor) would likely be stricter with regards to interest rates and balance sheet decisions. That said, Warsh is considered to be the more hawkish of the two, and the Dollar and Treasury yields would likely rally on his nomination, with an even stornger reaction to the newly emerged name of John Taylor.

The timing of the decision is a bit shaky, as the President indicated mid-October, but even a few more weeks could pass before the real thing, so investors should be on alert for volatility spikes in bonds and currencies in the coming period.

The prediction market of the next Fed Chair as of October 15, Predictit.org

5.           The Kurdish-Iraqi Standoff Reaching the Next Phase?

Following the somewhat tricky Kurdish independence vote, which was most likely a slight bluff from the Pesmerga leadership, the Iraqi army started to assemble forces near the strategic city of Kirkuk. The territory is known for one of the largest oil reserves of the world, and as such it’s not a surprise that Iraq wants to control it, although they miserably failed against ISIS to do so. With only a few kilometers between the opposing forces, a conflict is not out of the question, although there is still chance for a peaceful solution.

The outcome could be vital for the future of the autonomous region, as Iran and Turkey are also against an independent state, and with the threat of ISIS declining the US might also back away from the Kurds. Oil could pop higher in the case of an escalation, but with the fundamental picture being mixed at best, we wouldn’t bet on a structural change in the energy market.

Key Economic Releases Next Week

Day Country Release Expected Previous
Monday CHINA CPI 1.6% 1.8%
Monday CHINA PPI 6.3% 6.3%
Monday US Empire Manufacturing Index 20.3 24.4
Tuesday AUSTRALIA RBA Meeting Minutes
Tuesday UK CPI 3.0% 2.9%
Tuesday GERMANY ZEW Sentiment 20.3 17.0
Tuesday EUROZONE Final CPI 1.5% 1.5%
Tuesday US Capacity Utilization Rate 0.4% 0.2%
Tuesday US Industrial Production 76.2% 76.1%
Wednesday EUROZONE Mario Draghi Speaks
Wednesday UK Average Earnings 2.1% 2.1%
Wednesday UK Claimant Count 3,200 -2,800
Wednesday UK Unemployment Rate 4.3% 4.3%
Wednesday CANADA Manufacturing Sales -2.6%
Wednesday US Building Permits 1.25 mill 1.27 mill
Wednesday US Housing Starts 1.18 mill 1.18 mill
Wednesday US Crude Oil Inventories -2.7 bill
Thursday AUSTRALIA Employment Change 15,200 54,200
Thursday AUSTRALIA Unemployment Rate 5.6% 5.6%
Thursday CHINA GDP 6.8% 6.9%
Thursday CHINA Industrial Production 6.4% 6.0%
Thursday UK Retail Sales -0.1% 1.0%
Thursday US Unemployment Claims 245,000 243,000
Thursday US Phill Fed Index 22.2 23.8
Friday CANADA CPI 0.1%
Friday CANADA Core Retail Sales 0.2%
Friday US Existing Home Sales 5.32 mill 5.35 mill

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