The Future is at Stake
April was all about change. A change in seasons from winter to spring.
A change for our climate — the message delivered by a young teenage Swedish girl called Greta, which brought London to a standstill.
A change from Proof of Work to ‘green’, sustainable Proof of Stake blockchains, with Cosmos going live for its first full month.
Cosmos Atoms and Staking
After finally releasing our public announcement via the exchange we can publish the blog with the main event in April for KR1: Cosmos went live with its Proof-of-Stake network generating KR1 revenue via Cosmos staking yields, see the announcement here, and also ATOM are being listed on all major crypto exchanges, allowing us to realise the occurring revenue from the staking yields.
As explained in the March update, Cosmos is exciting because it connects siloed blockchains together, it is the TCP/IP of blockchains. On top of that, Cosmos is the first large-scale, working Proof-of-Stake blockchain that has been deployed with a sophisticated staking logic. Both of these things have never been done or existed before in the blockchain universe until now.
April saw the first full month of Cosmos, the new ‘green’, clean and mean Proof-of-Stake (PoS) network in action, and it worked flawlessly. The network was quickly secured by over half the total supply of ATOM tokens actively staking. A great network statistics website for Cosmos network parameters is B-Harvest’s English wallet page.
Instead of farms of powerful computers using enormous amounts of energy looking for a ‘stupid’ cryptographic puzzle solution to be accepted as being a new, fresh block (this is Proof-of-Work), Proof-of-Stake networks do not require this computational power. Proof-of-Stake networks use ‘real’ economic value that is being deposited into the network’s ‘consensus engine’ to guarantee ‘truthful’ behaviour by the participants.
This means a leaner, faster, more secure crypto network. Why is it more secure? Well, if a Proof-of-work network is attacked by malicious entities to cheat transactions the attackers use the large-scale computer farms with the respective energy consumption. In case of an unsuccessful attack, the only thing an attacker risks is the energy that is being consumed, not hardware as in computer farms as those cannot be touched by the Proof-of-Work network itself. Thus, they could re-launch an attack with the same computers (and perhaps a few more) soon after the first attack or in a different case just attack a different blockchain that happens to have fewer computers securing it than the first one (thus making the attacker more powerful). Conversely, if an attack is launched on a Proof-of-Stake network, say Cosmos, the attacker loses their coins/tokens if the attack is detected and people decide to fork out the attacker (i.e. delete the coins/tokens from existence). For a second attack, the attacker would need to acquire lots of coins/tokens again and would start from a balance of zero, thus their assets are much more at risk and it requires much more economic power to sustain attacks, making it very unrealistic long-term.
In Cosmos case, ATOM tokens are used for this guaranteed security as a sort of ‘security deposit’ to participate in the validation and block production process and thus generate rewards for transaction checking and processing things on the network. Revenues generated through this process are referred to as ‘staking yields’. The fees generated can be in the form of ATOM (the native digital asset in the Cosmos network as a network reward/inflation), Bitcoin, Ethereum, Dai Stablecoin or any other arbitrary digital asset that is going to be white-listed as a fee token on the Cosmos network.
Details of the first two months of operations from staking activities for KR1 are the following. As in our annoucement, we’ve generated 15,463 ATOM up until the date of the annoucement. In addition, we’ve also sold the accrued revenue from the staking yields (the revenue is accruing in the native Cosmos digital asset, ATOM), realising 15,463 ATOM at an average price of $4.76 USD per ATOM for a total of $73,671 USD.
To summarise, we are starting to generate healthy revenues through staking assets and investments that are already major positions on our balance sheet for the first time, in this particular case we’re talking about Cosmos. This is a new dynamic for us as an investment company as we previously relied on selling assets or fundraise rounds to fund operations, while now the staking yields can play a role in subsidizing our operations. As in the announcement and also in the interview with George below, this is hugely exciting for the company and this is only the start as we believe there to be similar revenue potential from other Proof-of-Stake networks once those go live and launch. Most notably Polkadot and Dfinity, as well as RChain, Enigma and FOAM to a lesser extent, all of which are projects KR1 has invested in.
There was major excitement in that fact we heard that code plan for Ethereum’s highly-anticipated proof-of-stake (PoS) blockchain called Ethereum 2.0, is on course to be finalized as early as sometime next month. Such specifications are effectively blueprints for developers looking to work on Ethereum’s next-generation blockchain.
“One is Casper, which is our proof-of-stake algorithm which replaces mining…with something that we consider to be much more efficient,” Buterin said at the time. “The second part is sharding which is this massive scalability improvement which happens because you don’t need every computer in the network to process every transaction in the network any more.”
Buterin added that with sharding, he anticipates a “1,000 factor increase in scalability” to the network. However, sharding will only come in the later two phases of ethereum 2.0 roll-out. The first phase — dubbed Phase Zero — strictly launches ethereum’s new proof-of-stake blockchain.
In the markets, some situations reminded of the ‘great slaying of the bear whale’ back in 2014, a difficult moment for Bitcoin at the time, let’s see how it plays out today and for how long… we aren’t sure.
If you want to understand how the market is reacting to Bitcoin see this brilliant ‘Expectation vs Reality’ presentation by Chris Burniske at the Fluidity Summit in NYC recently.
KR1 in the Press
George McDonaugh, CEO at KR1 joined IGTV’s Victoria Scholar to discuss the end of the bitcoin bear market, immaturity in the crypto space, and future challenges facing the blockchain and cryptocurrencies.
“There’s always a myriad of possible reasons why bitcoin has had a surge in price,” McDonaugh said in an email.
“There have also been rumours about buying bots going awol after some fake news about an ETF green light from the SEC was released as part of an April Fools’ joke. You literally can’t make this stuff up.”
“I’d veer towards the first explanation than the second,” he said.
“There’s always a myriad of possible reasons why bitcoin has had a surge in price. The fact that there was $415 million worth in short positions on the Bitmex exchange may have been too succulent a target for the market not to move against,” said George McDonaugh, CEO of KR1, a London-based digital asset investment company in an email to MarketWatch.
What Investment, ISA for cryptocurrency exposure — is it time to invest?
For investors considering whether to use their ISA for cryptocurrency investment is a serious one. Following a tumultuous few years in the cryptocurrency space, including a boom and bust cycle that made the dotcom era look like a minor tick upwards on the charts, cryptocurrencies are still seen as complicated and more than a little murky.
One thing is clear though, the market does not yet know how to value this new technology and so we may continue to see similar volatility for some time to come. With the price of Bitcoin having recovered back towards $5,000 and lifting other cryptocurrencies with it, the sector could be piquing the interest of any investors looking to diversify into this emerging and evolving world of digital assets. There are ways to gain exposure to the digital asset class other than just buying Bitcoin directly.
Find KR1 at…
NYC Blockchain Week: In May we’ll be around the New York Blockchain Week at lots of events, meetups, presentations and meeting hunting for new exciting projects, getting updates on old ones and re-connecting with fellow partners in the space. Find out more about NYC Blockchain Week here.
CryptoCompare Digital Asset Summit: In June our friends from CryptoCompare are hosting a great summit in London with confirmed speakers like Andreas Antonopoulos, we’re very excited to have Andreas back in town!
Web3 Summit: In August we’ll be representing KR1 at the Web3 Summit, hosted by the Web3 Foundation featuring Polkadot, Cosmos, Tezos, Ethereum, Filecoin/IPFS and lots of other exciting technologies.