Tuesday, November 4, 2014

HashCoin Is Here; Let's Check Out the Whitepaper

After a bunch more talk and hype about how great HashCoin (currently just a code name) is going to be, and how HashBase will revolutionize cryptocurrency, last night there was an eagerly awaited announcement... which turned out to be more hype than substance yet again. Ugh. HashCoin now has a countdown set for 20 days from now (give or take). But at least this time we have the HashCoin Whitepaper, so that's something tangible.

Don't get me wrong: I think GAW has done some pretty interesting stuff, but when they do an interview talking about how they're protecting the miners from the hardware resellers and bringing back profitability to mining, I have to ask: are they talking about profitability for new miners, or only people that started mining several months back? Because right now, if you go and buy a Hashlet, you're not going to be hitting profitability any time soon (until/unless GAW changes something with payouts/maintenance).

Anyway, let's talk a bit about that whitepaper. The key tenet is the idea of better controlling the payout of block rewards, increasing transaction time to be nearly instantaneous, and basically getting the coin adopted by businesses. The latter isn't something we can really say much about until it happens, but Josh Garza basically says everything is in the works... so just trust him I guess.

The instant transactions is actually interesting, but without knowing exactly what's happening and how, what I gather is this: there will be privileged nodes that basically approve transactions (Prime Controllers), and there is no transactional malleability -- a supposed flaw with Bitcoin. My concern is that if there are Prime Controllers, how are these kept functioning in the wake of hacks, government intervention, etc.? Saying a system works and is secure is one thing; building such a system is entirely different. Also, calling these "Prime Controllers" seems to link them to Hashlet Prime and Project Prime, which of course would mean all of the Prime Controllers are in the hands of GAW, so not exactly a decentralized system. I guess we'll have to await further clarifications to really know how the HashCoin system works.

As for the rest of the plan, this is a bit more straightforward. HashCoin will be a SHA256 coin (no surprise there as GAW just purchased 5+ Petahash of SHA256 ASICs), there will be 1.2 billion coins generated over 15 years, and there is an 8% "premine" that will get things going with the ICO -- Initial Coin Offering. Here's where things get a little odd.

GAW is saying users can buy HashCoin with their HashPoints at $4 per coin, and that the backing of HashCoin with fiat will guarantee $20 per coin. If we have an 8% premine that goes into the ICO, and it's split into three "silos", we're still looking at 32 million coins for the HashPoints ICO. At $4 per coin, that's $128 million, and there is apparently a separate reserve of an additional $256 million for R&D, guaranteeing a minimum price, etc.

Given GAW is talking about having a HashCoin value of $20 when the ICO opens up to fiat money, we're actually talking about a premine of $1,920,000,000 worth of HashCoin. That's a bit less than half the value of all Bitcoins currently in existence and more than ten times what all current Litecoins are worth. So either I'm doing some really bad math, or GAW is completely off their rocker when they talk about HashCoin being worth $20 per coin at launch.

It's one thing to buy BTC.com for a bit over a million dollars; we're talking about kick-starting a cryptocurrency with nearly $2 billion. Best guess, right now there are well over 200,000 MH of Hashlet Prime in existence. With a nominal value of $50 each (being generous), the total amount of money invested into Hashlet Prime is between $10 and $25 million. Add up all the other Hashlets and perhaps we're talking $50-$150 million. That's still a drop in the bucket in comparison to the initial valuation of HashCoin that's being claimed, so you can lump me in with the skeptics on this one.

Sure, I'll mine HashPoints and then I'll but some HashCoin at "$4" each, and then I'll hope for the best. It would take some amazingly deep pockets to get HashCoin up to $20 at launch, and to guarantee a floor of even $10 over the next 15 years HashCoin would have to be worth three times the current value of Bitcoin. If that happens, HashCoin could just as well replace Bitcoin, and clearly that's something GAW wouldn't mind doing. Removing the 10-60 minutes transactional delay could help make that a reality, but I'm not going to invest my life savings into HashCoin, that's for sure.

Perhaps more concerning to me is the amount of talk that Josh puts out there is advance of announcements like this. The interview linked above is a prime (*cough*) example, where basically he's making it sound like buying HashCoin at $4 per coin is the smartest thing in the world, as you're "guaranteed" $20 per coin as soon as the fiat portion of the ICO opens up.

If I take all my HashPoints mining between now and 20 days from now, and then I manage to multiply it by 5X shortly thereafter, why wouldn't I? Because it just sounds too good to be true. That's why.

Thankfully I've already got what I need and I'll continue running my Hashlets and hope for the best, but if this whole thing blows up in our faces next month I can only hope people become a bit less trusting and a bit more skeptical. Talk is cheap, and for a business that still struggles with bugs and glitches in their system I can't help but be worried about anyone thinking they're worth $100 million, let alone nearly $2 billion.

Best of luck, GAW and Josh. I really hope you can prove my skepticism wrong and that you can establish a cryptocurrency that rivals Bitcoin. Many other coins have tried (over 600 or so now, by my count), and every single one has failed to come close. Second place (LTC) currently belongs to a coin that has about 1/37 the value of BTC, while third place (DOGE) in total is valued at 1/223 of BTC. If GAW can will into existence a coin that's better than those and make it stick, they deserve all the praise they can get. And if they fail... well, I guess that's why we have words like "hubris".

4 comments:

  1. 200,000 MH of Hashlet Prime in existence? Top ten alone has 90,000 so i would guess 400,000 to 500,000 at least.

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  2. Hence, "well over 200,000". There are some big numbers at the top, but it trickles off quite fast. All I know is that with 89MH of Primes I'm #784. There's no complete list of Hashlets that I know of, so basically I know there are at least (Top 10) + (100 * 774), but the numbers could definitely be higher. Best-case, I'd say the initial valuation of HashCoin at $4 for 8% ICO is 10 times the amount of money currently invested into Hashlets; worst-case, it's more like 50 times that amount.

    Basically it's a quantum leap in valuation. It's like saying, "Wow, this CEO did awesome managing a $10 million per year business... let's make him CEO of a $5 billion megacorporation, as he clearly knows what he's doing!" You could do that, and the CEO might actually do awesome, or he might fail in cataclysmic fashion. GAW might successfully launch and manage a $2 billion cryptocurrency that eventually becomes a $1 trillion cryptocurrency, or maybe only $20 billion, but it's a long shot I'd say.

    For a company (and CEO) that routinely makes huge promises but often ends up being weeks or months late, I have serious reservations. That's all I'm saying.

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  3. I am not fully convinced either, but if Josh really has one or more real big banks that invest in this ICO and back it up later its possible that we may reach these levels. We have seen coins backed up by nothing than thin air rise simply because of awesome developer or community. If gaw manages not to let the price fluctuate so much as btc they will attract more and even more important larger investors. Btw, how many hashpoints did you mine so far and what will you do with them if i may ask? best regards Bansheroom

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    1. I'm mining about 7500 HP per day, maybe a bit more, and since there's not much else to do other than save them and then invest in HashCoin, that's my plan. What I'm not doing is buying more hashing power to generate more HashPoints.

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