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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).

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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.

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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Recommendations

Trade Recommendation: Verizon Communications

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verizon

As U.S. markets are moving lower, Verizon is one of the few stocks that are expected to move higher irrespective of the broader markets’ next move.

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Technical Overview

  • After breaking from a double bottom pattern in 2010 (lows – violet trendline; breakout above pattern’s interim high – first blue arrow), the stock has climbed higher, finding support at a long-term trendline (green trendline and arrows).
  • Since 2013, the stock has stalled in the $53.70 – $55 range on multiple occasions (resistance range – red horizontal trendlines; retests – red arrows).

Figure 1. VZ Weekly Chart

  • Zooming in, the stock broke above a 2-month resistance (orange horizontal trendlines in Figure 2) on the heels of reporting strong Q1 earnings.
  • Since mid-March, a short-term support has carried prices higher (purple trendline).

Figure 2. VZ Daily Chart

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Implications

  • Filling the up-gap will give a bullish K-Divergence signal. While, on average, almost 85% of gaps get filled within 2 months of occurring, the stock’s strong price action during a broad market sell-off is constructive and this particular gap may remain open in the foreseeable future.
  • The stock is expected to find support within the $47.50 – $49 area if today’s up-gap is filled.
  • Nearest major resistance is at $53.70 (lower boundary of long-term resistance range – lower red trendline).

Outlook

  • Bullish as long as the stock remains above the purple trendline.

 Trade Recommendation

  • Buy half a position at current levels ($49.67 at the close on April 24). Buy another half if the up-gap gets filled and the stock remains above the short-term support (purple trendline, currently at $47.35, rising by roughly 17 cents/week).
  • Target: $53.70
  • Stop: A close below the short-term support (purple trendline).

 Benefits of Recommended Trade

  • A favourable risk-reward profile (roughly 1 : 2). Even more favourable if the up-gap gets filled and the average entry price is lower (due to averaging down).
  • An upward-sloping support used as a stop, resulting in an improving risk-reward profile of the trade as time goes by.

Disclosure: No position but may initiate a long stock/call position at any time.

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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Analysis

Technical Update: NASDAQ and S&P 500 Approaching their Intermediate-Term Supports

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Technical Overview

  • After breaking their short-term supports (white trendlines in Figure 1, 2 & 3) on Friday (April 20), U.S. indices continued sliding into this week.
  • Given the lack of any major support levels within the range spanning from the low on April 2 to the high on April 18, U.S. indices moved sharply lower on Tuesday (April 24).

S&P 500

  • Next major resistance – the trendline connecting the January & March highs (orange trendline in Figure 1, currently at 2,736).
  • Next major support – the intermediate-term support (ITS – violet trendline, currently at 2,605).

Figure 1. S&P 500 Daily

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NASDAQ

  • NASDAQ’s intermediate-term support (ITS) is of extreme importance as it overlaps with the neckline of a large H&S pattern (tops – red ellipses in Figure 2). A break below the ITS activates a target of 6,000 (vertical yellow trendline). Note, the pattern is tentative until the neckline is broken.
  • Next major resistance – the trendline connecting the March & April highs (orange trendline, currently at 7,265).
  • Next major support – the intermediate-term support (violet trendline, currently at 6,885)

Figure 2. NASDAQ Daily Chart

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DJIA

  • Today’s decline intensified after the index broke back below its 2018 Resistance (red trendline Figure 3).
  • Next major resistance – 2018 Resistance is expected to continue serving as resistance after today’s move below it
  • Next major support – Feb & April lows at roughly 23,350 (green horizontal trendline).

 Figure 3. Dow Jones Industrial Average Daily Chart

Implications

  • Breaks of the intermediate-term supports for both S&P 500 and NASDAQ will carry significant bearish implications, with downside targets of at least 10 to 15%.
  • NASDAQ’s monthly chart depicts why a potential break of the ITS may lead to declines sharper than the ones observed in February and mid-March. Since June 2016, the index has marched higher, in an almost vertical fashion. Upward movement implied by the steep slope of the intermediate-term support is unsustainable in the very long run (violet trendline in Figure 4). Eventually, once the ITS is broken, the index is expected to retest its long-term support (dark blue trendline).

Figure 4. NASDAQ Monthly Chart

Outlook

  • Neutral with a bearish bias. While price action points to a likely retest and potential break of the intermediate term supports, outlook is not outright bearish until confirmation is received.
  • Short- and long-term bearish if S&P 500 and NASDAQ break their respective intermediate-term supports.
  • S&P 500 and NASDAQ need to hold their intermediate-term supports and break above the orange trendlines for outlook to shift to bullish, at least in the short-term.

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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ICON versus TenX: What You Should Know

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There are so many cryptocurrencies out there.  As the flow of ICOs continues, more tokens are added almost daily.  It may be some consolation that more the 80% of these tokens use the Ethereum platform and that means their value is connected to the mothership.  It may also help to remember that there are plenty of crypto exchanges that will unload your coin once the ICO is complete.

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That’s fine, but this takes time not to mention the fees that get tacked on along the way.  And if there has been a proliferation of currencies, now about every Fortune 500 company wants their own blockchain.  Instead of putting all of our efforts on figuring out who has the smartest contracts or which is the best crypto, maybe we should look for someone to connect all these dots.  My guess is this notion will be a big feature of Gen IV crypto technology.

Here Are Two Prospects

Of the most successful ICOs in 2017, two are really eye catching for their vision of connecting cryptocurrencies and networks.

TenX claims they will make all cryptocurrencies spendable through a debit card ranked. That vision made them $64 million during their token sale, enough for the tenth spot on the list of largest intakes. 

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The ICON project will be building one of the largest decentralized networks in the world. The total raised of $43 million was good enough for the #13 ranking of top 2017 ICOs. Before going deeper, let’s first take a look at TenX.

TenX Could Be a 10

TenX has an audacious plan to connect digital currencies and in the process disrupt one of the biggest financial monopolies in existence.  They are out to create a massive payment channel dubbed COMIT which stands for Cryptographically-secure Off-chain Multi-asset Instant Transmission network.  How does their white paper describe COMIT? It looks just like the Internet.

In simple terms, TenX is out to get a banking license, then use their own debit card running on the COMIT network to challenge the MasterCard, Visa, American Express monopoly.  The beauty of TenX is the ability to use any coin or token to buy goods and services with one card.

Even if a merchant doesn’t happen to accept crypto, no problem, TenX converts the crypto to the fiat currency.

This is the future of cryptocurrencies.  As bitcoin leads the way with some 10,000 mostly online merchants acceptance of other cryptos will follow. However, the amount of time involved in winning the game will be considerable. We are talking about a startup company attempting to capitalize on mass adoption of crypto as a medium of exchange.  So far fewer than 1% of all transactions fit that category.

Around the year 2000, online merchants accounted for 1% of all retail sales.  Some 18 years later, it amounts to just under 10%.

ICON: Connecting Networks

For those who really enjoy digging into the technical detail, here is how their whitepaper describes the project.

With ICON, numbers of blockchains are connected around Nexus via Portal. Nexus is a loopchainbased blockchain. Nexus is a Multi-Channel blockchain comprised of Light Client of respective blockchains.

Tokens called ICX (ICON Exchange) are embedded in Nexus and the interconnected blockchains can use ICX to transfer values. As a blockchain itself, Nexus can be connected to another Nexus, allowing different blockchains with different governance structures to execute transactions and exchange values.

For us simpler folks, think of the earliest days of the Internet.  Over 30 years ago, the Internet consisted of a bazillion independent networks throughout the world.  Then somebody came up with TCP/IP and presto, the modern Internet was born.

Use cases for ICX go beyond connecting currencies – they connect blockchains and that means doing something akin to TCP/IP.  So we are talking about things like connecting separate health systems and much more.

Just like TenX, the question for ICON is how long their plan will take and will $43 million be enough to deliver the bacon. However, for those investors looking for a Gen IV play, ICON is a candidate.  

Like about every other currency, ICX came down hard from its $9.95 price on January 30 to a $1.89 low earlier this month. Since then it has bounced back and is hovering around $4.30 at the time of this writing.  Raising $43 million may not be enough to get ICON to the promised land but it shows that a lot of serious investors did their research and bought the promise.

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 63 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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