ICO Analysis: Cosmos “Blockchain of Blockchains” – Should You Bet on the Fundraiser?
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.
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