ROI – Return on Investment
One of the things I’d like to explain this week before we dive into any specific coins or offerings is something that might not be immediately obvious to everyone – simply that it’s possible to participate in the world of crypto currency in a variety of ways. What we have been focusing on in this podcast thus far is the this phenomenon of what you might call “splashy” Initial Coin Offerings. To recap, this usually involves a very modern and well designed website, a whitepaper which explains the what why and how of the idea, and how that idea can be realized in a better way for everyone if some sort of digital token is involved. And along with the idea and the whitepaper and the impressive website, there is inevitably an impressive team of people, whose stellar achievements are easily found through LinkedIn and other Social channels, as well as repositories like GitHub, all designed to install confidence in the project. You’ll also see pre-emptive well-thought out posts on all kinds of channels from medium, to personal blogs, or Steam, of BitCoinTalk and Reddit – and these espouse certain elements of the whitepaper, Very often this is a way to sort of test the waters for the concept itself. This is all in preparation for and inevitably leads to a carefully orchestrated token “sale” – and that word “sale” is an especially accurate description of the event, because in all of the ICO’s we have thus far covered, this is how it has gone – in exchange for currency, generally in the form of bitcoin and ethereum, the participants in the sale receive tokens – and more often than not, there are ERC 20 Ethereum-based tokens. And these tokens – at least in every single ICO that we have covered in this podcast, and in 99% of the token sales you will see nowadays, are what we call 100% “pre-mined tokens” Meaning, they are simply issued, in total, with some lines of code on the Ethereum platform, and they exist as this massive 50-million-plus store of available coins, ready to be sold in the Initial Coin Offering Event – or Token Issuance Event – or whatever the latest creative name is in fashion. And the idea – perhaps a little disingenuous as we have seen – is that people who purchase those tokens will not view this as an investment in a security, or in any kind of speculative investment, and presumably these participants will use the tokens in the future when the network is up and running to obtain services, or benefit of some kind, or maybe they will do things on the network. That’s what we have come to know lately as a typical ICO, since 99% of them right now are a variation of that model.
But first of all, I want to point out that this is not the way bitcoin started. And it’s not the way that most early coins and tokens started, and most importantly it’s not the only way to release a coin or token to the public. It is entirely possible, and it actually sometimes happens, as we shall see this week, that coins are issued in ways in which are quite different from this sales model. So maybe you are wondering what then, is the chief difference between these typical ICO’s and what happened in the past? The difference that matters here is the mechanism by which new tokens and coins are created – and so, the difference is all about mining.
Now, since not everyone understands how mining works, and because it can get a little complicated, I just need to spend a little bit of time explaining the fundamentals of a so-called “mined” coin – or digital token – against one that is “pre-mined.” So as we mentioned, pre-mined tokens are just created out of thin air with some lines of code. With the Ethereum platform, it’s really quite trivial to do this – practically anyone can create unlimited amounts of a given ERC 20 token, with literally a few clicks. Now look – I’m simplifying it – while this is true, this is not what the vast majority of ICO’s are doing – they are creating somewhat sophisticated Smart Contracts, with rules about the issuance baked into the smart contract and thus the coin itself – but even so, it’s not exactly rocket science to create coins for an ICO and pre-mine any number of them.
Mined coins, however, gain their existence through various methods which as a class, have become to be referred to, very generally, various forms of “proof.” There are several types of proof – “proof of work” is one – “proof of stake” is another – “proof of burn” is yet another. There are more methods – and in fact the crypto-currency world is by no means finished thinking about and working on this concept, and innovation continues to solve problems around this issue. The fundamental concept, though, whether the coins are “minted” as in proof of stake, or “mined” as in proof of work – is that the coins do not exist before the method of creation and they do exist after the method is applied. They are, therefore – created by participants in the network – and not before the participants join the network. That’s the fundamental difference.
In this article we will cover Proof of Work and Proof of Stake – but we will begin with “proof of work” – because that is how it all started with bitcoin and that’s how bitcoins are created to this day – and it’s also how Ethereum coins are created currently as well.
Proof of Work
In the so-called the “proof of work” method, nodes – which as we have said before on this podcast – are computers running the full version of software related to the token – these nodes perform actual mathematical and computational work to “validate” the transactions that appear on the network. The way in which bitcoin and coins that employ Proof of Work accomplish this validation is to perform a specific type of cryptographic function in order to solve a difficult “problem” associated with a set of transactions that occur on the network over a specific period of time. In the case of bitcoin, it’s about 10 minutes. You might ask what a transaction looks like – well not much. While it’s true that it’s possible to inject all kinds of strange things into the bitcoin network, the vast majority of information for a transaction consists of a few fields – some of which are encrypted, such as sender, receiver, and then the date, the amount, and a few other fields. Think of a very narrow spreadsheet.
So … every ten minutes, the list of transactions one the bitcoin network is collected by every node on the network – those transactions are continuously broadcasted to all members of the node – and so everyone mainly has the same set of transactions. And the software – the so-called bitcoin client – that all the nodes are running makes an effort to solve a mathematical puzzle associated with that set of transactions. So this is a grand competition – in the case of bitcoin, about 13,000 nodes all competing all at once in one gargantuan cryptographic event for a single winner. The very first node that solves the problem and announces it sort of like a screaming Bingo Winner — and claims the prize. And perhaps you are wondering – what prize? At the moment, it’s 12.5 bitcoins – which is a little over $90,000 at the moment. Every ten minutes. That 10-minute set of transactions, by the way – is called a “block”. And that miner, that solved that block – actually won the right to give birth to the next block of bitcoin transactions – and guess what the first transaction is in the new block that the miner just won the right to create is – well of course, it’s the 12.5 newly minted bitcoins given to the address of the miner. And that new block with that new transaction is then appended to the historical chain of blocks — very much like the tower of blocks you played with as a kid, except this is one massive tower of blocks, because they stretch all the way back to January 2009. Every single validated transaction going back in time to the beginning of bitcoin itself.
Proof of Stake
So that’s proof of work. Proof of Stake is a bit different. Some things are the same – there are lists of transactions, known as blocks. These blocks are recognized and placed on the blockchain, and the first transaction in the new block belongs to the miner – except in many PoS systems they are called something else – “forgers” is a term that is sometimes used. But there are other differences – first of all, there is no block reward per se, but in many POS systems there is a reward for staking over time – or holding, the tokens. By the way – I have to mention this – it’s too amusing not to – If you start to research this space you might see the term HODLING –rewards for HODLING. Just so you know – this is essentially a major meme nowadays, which was started by some guy who was drunk on Bitcointalk, raging about the price of bitcoin at the time, and drunkenly types HODLING – and that was all it took. Instant new word added to the English language with all the force of thousands of people cracking up. I think they finally shut the thread down two or three years later. But anyway – so you hold your coins the wallet in Proof of Stake and you are rewarded for it. And you should think of it as a sort of lottery – but with some weight attached to it. In most PoS systems the forger is provided the block based on a weighted lottery system, where the amount of coins you hold will raise the changes of you being awarded a block. But only the changes – there’s still plenty of room for smaller stakes to get awarded the block – otherwise it would be an instant capital rush and one node would get all the coins – so it’s still a game of chance, so to speak – but slightly weighted to incentivize people to hold their tokens. The chief reason for this is that it takes almost no computing cycles – and it is thus much greener purely in terms of energy. At the moment, the entire hashed power of bitcoin could power a small country’s electricity needs quite easily, and so, rightly so in my opinion, proof of work systems use energy which could well be used in other areas of distributed computing – like folding proteins and such. Now there is one more thing worth mentioning about Proof of Stake – and that’s that it has recently exploded, because there are a now a whole slew of coins that are available to invest in using what is known as a so-called “MasterNode.” This got it’s start with the DASH coin – one of the first major PoS coins – but it now applied to many others – all of which have the same concept in common – that is, with a solid investment, you can set up a computer to run a masternode that performs valuable services on the network and which is paid a dynamic sort of return on the original stake. You can spend as little as $40 to run a masternode, or as much as $300,000 or more, depending on the coin. If you are curious about this – go to masternode.pro to see a full list.
Return on Investment – ROI Coin – An ICO for the Rest of Us
So the first thing you have to understand about ROI is that there is no whitepaper. There’s a facebook page and a basic, informative website. The team isn’t overly hyped – no Stanford and Harvard grads who spent half their lives working for hedge funds and the other half coding web apps just for fun. So that is there – well, there is at least one dedicated, passionate and talented person who simply posted the following on BitCoin talk about a month ago:
ROI Coin CPU Only Solo Mining Hybrid, 8% POS, 600% Term Deposit. The details were CPU only ASIC/GPU Resistant. Pre-mine – 6% for development costs, expenses, exchange fees, rewards, contests and bounties.
What does this mean? Well, it means that anyone – you, me, your neighbor, or anyone else that has a computer, can download the open source software, run it, join the network and start to mine for ROI coins. Pretty much where Bitcoin was in the fall of 2008. You probably already know this, but in case you don’t, I should explain the mining situation of bitcoin now. While it is technically possible to download the bitcoin software and mine bitcoin with it – that is, compete with the other 13,000 bitcoin nodes – it’s utterly fruitless. You would probably do better to spend your time and money with the PowerBall Lottery. This is because the project time frame for a home computer to solve a bitcoin block at the present time is about 140,000 years.
This is because the so-called Mining Difficulty for bitcoin has risen to the point at which the collective mining computing power that is being used to validate bitcoin blocks is about the same collective consumption of a typical single third-world country like Senegal. So … not the most cost-effective thing to do with your CPU. But the programmers who created ROI coin, understanding the issues with Bitcoin, have built their coin to be both GPU and ASIC resistant. GPU’s being $600+ graphic chips (used to mine ethereum) and ASICS being specialized paralleled processors designed specifically for mining bitcoin. The intention of this is for a $300 computer chip — like a computer running a typical Intel i7 processor, to be able to successfully mine ROI coins.
Now one thing I will briefly mention is Proof of Stake – although this coin supports proof of work – which is simply creating coins from mining, it also supports proof of stake, and in this case, it means that if you have ROI coins you can lock them for a certain period of time in your wallet, and that after that time, you will be rewarded for locking them by specific percentages based on how long you “staked” or locked, those coins. The full proof of stake schedule , as it were, is listed both on the site and also on the BitCoin Talk announcement, but it essentially ranges from about 2% for a one-week stake, on to about 50% for a 3-month stake, and then all the way to over 600% if you lock your coins for a year. Proof of Stake using methods like this are very popular at the moment and there is an entire crypto sub-culture who are deeply into Staking coins – and we will cover that topic in depth next week – for this week, just know that ROI coin supports BOTH proof of work and proof of stake.
ROI coins are currently traded on exchanges – they are going for about 1 penny at the time of this podcast. According to conversations on the Slack channel for ROI coin, a relatively modern i7 Intel processor can generate between 100 and 600 ROIs per day, which at the present value translates to about $65 per month. If you subtract electricity costs, a single computer might generate enough to buy your morning coffee (if you drink 6 ounces of drip coffee – but this isn’t really about the money at the moment. This is about understanding and participating in a true proof of work based digital token and generating those tokens without actually buying them. Now I would be the last person to say that the ROI token is going to be the next bitcoin – but there is nothing technically – and I stress the technical aspect of it – preventing this from happening. Practically speaking, it’s a long shot –– because in order for value to grow with this coin, more people would need to join the network and start mining, and then begin to transact to establish and grow value. No one can know whether this will happen – but remember, this is exactly how bitcoin got started, so you never know. One of the things you should be aware of is that although it’s very rare for anyone to launch a coin like this nowadays – it is by no means the only one. You simply have to look for them.
The Team and Community Response
Let’s talk about the team on this one, and the community response, because even though this is not a hyped coin, there is definitely some people behind it, and it has gotten favorable reception on BitCoinTalk, from the day it was announced. The original announcement occurred on November 5th , 2017 and a number of people downloaded and started to mine the coins. The people behind the coin stated the day after the announcement that that they were be running 50 mining computers to secure the network and keep it running. As more people signed up and started mining, the developers said they would be backing those off. At this moment there are 54 pages of discussion on BitCoinTalk, which is quite healthy. The slack channel was started on the 16th and the people manning it are happy to answer any questions. Right now there is a bit of a debate surrounding the use of clustered and pool mining vs. solo mining. This debate is mainly occurring on the BitCoinTalk channel. The facebook page seems to have decent support and the team has released an explainer video. If you read these discussions and posts you will see a lively discussion in what has to be described as the very early stages of a project.
My takeaway on this one is that you rarely get to see a truly grassroots project like this one appear, and it’s refreshing and kind of exciting to see it growing day by day. One comment I liked on Facebook was “and ICO for the little guy”. And it’s true – you don’t need any money to start with this project, and you have several choices as to how to participate – you can mine for coins, you can purchase and stake (or lock) your coins to receive a larger return over time, and you can participate through a bounty which is now just being developed.
The thing like about most this is the egalitarian aspect of it – anyone with a computer can join, and can get started immediately. I also like the fact that they are not asking for 50 million dollars. In fact, they aren’t really asking anything of anyone except to download their software and join the network to make it better and stronger.
The other thing I like a lot about this project is the attitude from the team – they are not promising great things in the future after they collect your donation – instead they went ahead and did the legwork first, built the system and now that is live, they are announcing and simply inviting people to join the community. This is very, very different than 99% of the ICO’s we see today.
And they are extremely active. In fact, one thing I should mention at the time of this podcast – Sunday, 11/19 they are planning a hard fork of the platform for a number of reasons. So expect plenty of interesting events to take place with lots of activity both on slack and bitcointalk.
If you are interested in joining a fast-moving project at the very early stages of development, that doesn’t cost you anything to participate except your time to learn about it, I would encourage you get started with this excellent project.