***PDF LINK (updated 10/12): Halo’s ICO HALO–everything but the mining***
ORIGINAL PDF: Halo’s ICO HALO (updated only to put in my twitter handle at the top. This was original written for the half-dozen co-investors I plan on starting a T2 MN with, and no one else. But you can compare the “public” one to this for integrity.)
**This brief has been revised for a general audience. The content provided is for informational purposes only and should not be considered legal or financial advice.**
HALO: WHERE’S THE BEEF? OH…IT’S RIGHT HERE
The Halo platform is pretty straightforward. If you’ve seen the demo videos, then you already know if you can imagine yourself using their product. From the beginning, that’s one of the things I liked about this company—and one of the main things that has deterred me from confidently recommending other ICOs like Coss.io’s COSS or LAToken’s LAT. In my review of Coss.io, I said that I “would love to navigate only one website for all my crypto-related stuff.” The problem was, all you could really see was a bloviating whitepaper that tried to sell you on their professional credibility and (undoubtedly workable) vision. I ended up giving it a lukewarm recommendation as a long-term medium-yield token.
Lukewarm is not how I feel about Halo.
The very first thing you see is the product. It’s all about the Halo Platform and the user, not about the company. Like Unikrn (UKG), Halo is pretty lean right now, which is an encouraging sign. Currently their payroll consists of: Phil Reale, co-founder and designer; Fabio Cardoso, lead developer; Mike Quale, Halo’s cloud architect; and the founder, Scott Morrison, as well as several teams of engineers they’ve contracted to develop the platform. Scott is the one you’ll see responding to inquiries on their slack channel, and the one interviewed by Tijo in the ArcaneBear interview. According to Scott, Halo has mostly been financed through personal investments (from him and the others). He called Halo a “labor of love,” and I can’t find anything that contradicts the “if we were 30 years younger we’d be doing this in a garage” vibe.
While my impressions are generally positive, I still rate this coin as high risk given the lack of available information and online presence. That doesn’t mean you shouldn’t invest—on the contrary, I’ve contributed $500 toward a share of a Tier 2 Masternode (each one costs $10,000). Simply having an online presence (for example in the form of reviews) isn’t actually a reflection of the product. In fact, a lot of coins pay for advertising in the form of “ICO Reviews” that don’t do anything more than reiterate what’s in the whitepaper. The more that information is repeated, the more people start to think in terms of the vision of the company, and less in terms of “do they have a good product?” or “will the value of this coin/company appreciate over time?” If you find yourself saying “this coin/company looks good” without having anything solid to hang your hat on (like a visible product), dial up the skepticism and hold onto your coins. Halo may be a bit under the radar right now, but when I first saw their website, my reaction was not “this coin/company looks good,” it was “this product looks good.” And that makes a world of difference.
WE’VE GOT THE BEEF, NOW…WHERE ARE THE CUSTOMERS
Businesses that fail to market to their core demographics survive by word of mouth referrals, which are slow and unreliable. You could have a perfect product but if you fail to market yourself, no one will buy it. That was my main concern with Halo, so I looked at other companies with an online presence that recently conducted ICOs. I looked at: Minexcoin (MNC), Lust (LST), Aldoin (ALDO), Prover (PROOF), Bitcore (BTX), DisLedger (DCL), BurstIQ (BIQ), BioCoin (BIO), VegaCoin (VEGA), Bankera (BNK), Paragon (PRG), Hut34 (Entropy), Signatum (SIGT), SelfPay (SxP), Rupee (RUP), JustDatingSite (JDC), HomeToken (HOME), SONM (SNM), GoldMint (GOLD), EthereumDARK (ETHD), Embercoin (EMB), Wi Coin (WiC), and Dash (DASH). I looked for: forum presence (e.g. bitcointalk); amount of time between first advertisements and ICO; twitter followers and retweets; facebook likes, follows, and shares; reddit presence; whether they were discussed on some of the ICO sites I use (Coinschedule, ICOrating, ICObazaar, ICO Tracker, ICO Alert, The Control, Smart ICO Investor, Token Market…); ICO success; coherence and business fundamentals.
This took a long time.
I discovered that, for the companies with a solid product to offer, there’s very little apparent connection between online presence and ICO success. In essence, if you build it—and it’s good—they will come. Advertising, social media, and forum presence only marginally improved the ICO profitability of companies that had a visible, believable product. While the data isn’t perfect, I did spot a correlation between online presence and ICO profitability for companies that did not have a visible product. In essence, the more your business is “out there”, the more advertising, social media, and forum presence can increase the ETH you get during your crowdsale. We know this intuitively from things like craft beers: the microbreweries try to shock you with offensive labels or creative label designs to draw you in. They may not be “out there” in the same way a blockchain company can be, but they’re small and have a lot to prove, so they try to grab you by startling you. In the ICO world, it’s easy to be startled by an ambitious whitepaper, or have your attention grabbed by a flashy ad. They do it because it works. Since Halo has a visible, believable product, I think we should judge it by how the platform might work, not on how much online presence they have. That being said, they do have a big Facebook presence, and they have many, many more Facebook likes and followers (~27.5k) than most of the coins I looked at in the list of 20+ above. This (and a few other quirks on how people have responded to them on the bitcointalk forum) suggests to me that there is a large block of people interested in this project who follow it but aren’t vocal about it. But that’s really no more confident than a gut feeling. It’s no longer a gut feeling; their ICO reached the $1 million / 100k Halo mark within 12 hours. (UPDATE: it reached $5 million / 500k Halo mark within 1 week.)
My secondary concern is that they’re doing a lot all at once. Not that this is a bad thing—on the contrary, like I said with COSS, the idea of going to just one place for all my crypto stuff is very attractive. But the more complicated something is, the more tentative people “outside the circle” are to adopt it. People settle in to routines. They navigate the cryptosphere in a particular way based on the available platforms. Even though they may not be completely satisfied with the process now, the idea of switching to something new (or adding something) can be a strong deterrent. For that demographic, it doesn’t matter how straightforward the Halo Platform is; they’ll balk, and depending on how big of a group that is, it could mean slower appreciation than expected. I don’t anticipate this being a big problem, but a risk of slower appreciation could be compounded by the fact that their online presence is low (except for Facebook). That being said, DASH increased 13x from February ’14-15, and Dash’s goal is to disrupt Bitcoin itself, so I wouldn’t be surprised if HALO increases as well.
INITIAL TOKEN COIN OFFERING
HALO is an ETH clone, but it’s not going to be released on the Ethereum platform. It’s its own cryptocurrency. Their ICO will offer 1 million coins priced at $10 per coin. They had a small, private pre-ICO for a few investors who wanted to fund them early, and these will be counted against the 1 million. During the ICO, the price of BTC/ETH will update every 5 seconds. To buy HALO, you lock in your BTC/ETH price and then have 2 hours to send payment. Besides simply being the capital-raising mechanism for the Halo team, the currency will be completely functional. One thing that sets it apart from others: there are no transaction fees. When you send someone 1 Halo, they receive 1 Halo, not 0.9995 Halo. Merchants may charge fees, and there are fees to operate on the exchange, but sending coins back and forth between users is completely free. (Those exchange etc. fees will be distributed primarily to the Masternodes, as we’ll see below.)
FUNDING, DASH, & MASTERNODES
No coins have been set aside for Halo’s continued operation. I like this. If you remember Unikrn’s whitepaper, they plan on releasing a mere 20% of their tokens; the rest are going to be used to finance different aspects of the business. Halo will get continued funding from blocks, though. It works like this: blocks are generated roughly every 4 minutes. Every block created generates 38 HALO. Halo gets 0.5 HALO from every block (that’s 0.67% of the block reward). That means Halo gets 180 HALO every day ($1,800/day, or $54,000/month at the ICO rate). Before you shout abuse, let’s consider how Dash finances itself. 45% of every block reward goes to DASH Miners, 45% to DASH Masternodes, and 10% to “Budget Proposals.” Budget Proposals, or simply the Treasury, is how Dash plans to finance improvements to the Dash blockchain/network. At its inception, 10% of the block reward (7,450 DASH) amounted to about $15,000 per month. They used this to buy the Dash.org domain ($20k), fund their core team to go talk at leading blockchain conferences, etc. When DASH hit $10, Dash had a monthly budget of $77,480. With DASH currently at $345.64, their monthly budget is $2.6 MILLION ($2,575,018. I just wanted to write “million” in all caps). Granted, they can’t actually sell that many coins without risking massive deflation, meaning, they’re stuck simply holding them. So don’t balk at the fact that Halo is paying itself with its own block rewards—they’re not the first and they won’t be the last. Miners and Masternodes get the majority of the block reward, so let’s focus on that. (By the way, according to founder Scott Morrison, Halo’s cloud architect Mike Quale has been approached by Dash on more than one occasion. DASH has a market cap of $2.6 billion right now, and the fact that they want one of Halo’s employees is encouraging to me.)
In addition to block rewards, service fees will also be divided up among the platform, Masternodes, and miners. 35% of all fees go to Halo, 15% goes to miners, and 50% gets distributed among the Masternodes according to their tier and number. Masternodes are an improvement on the Bitcoin network and will function similar to those on the Dash network. If the Spartans want to put something up for a vote, it’s the Masternodes that have the privilege of voting. Masternodes will also generate blocks in between the regular 4 minute intervals if/when there’s traffic congestion. That way, if there’s a higher than normal number of transactions, the network won’t clog up—Masternodes will create special blocks designed to deal with the traffic. As for the rewards, there are four levels of Masternode. Here’s what one might get with a Tier 2 MN (taken from the whitepaper):
Tier 2 Halo Masternodes will have a block reward of 7.5 Halo and receive 7.5% of service fees. They will have a price of 1000 Halo ($10,000 USD). Tier 2 Nodes will generate 0.675 coins per day for a total of 20.25 Halo per month.
For an investment of $500, then, the ROI for 12 months is 12.15 H, or $121.5—assuming Halo stays at $10 and we liquidate extra coins immediately, or at the end of the year. For fun, let’s compare it to some other Masternode cryptocurrencies. PIVX increased ~3.5x between Day 1 and the 6 month mark, and 23x at exactly 1 year on. DASH increased by ~19x in the first 6 months but then dropped, ending up at 13x after 1 year. Today, after 19.5 months, PIVX is 1,897x higher than Day 1; and DASH, after 43.5 months (3.6ish years) is 1,616x higher than Day 1. Almost all the growth for PIVX happened in March this year; for DASH, it began in January. What does this say about Halo? Maybe nothing. But if the price increases by even 4.2x after 1 year, then liquidating the previous year’s Halo rewards would net each $500 investor $510.3 on top of the principal. Not too shabby. And that’s not even including the real money-maker: service fees! They work like this: each level of MN gets a different cut of the fees. For example, Tier 2 Masternodes get 7.5% of all service fees from the previous day. (You can find more information on Masternode rewards on the Halo website.) If there are 10x Tier 2 Masternodes, then each T2 MN gets 0.75% of the previous day’s fees. The amount received depends on 1) the fees generated from the previous day, and 2) the number of MNs in your tier. So at 250x T2 Masternodes, and 10,000 Halo generated in fees, that’s (10,000*7.5%)÷250 = 3 H/day. Assuming a constant number of T2 MNs and the same amount in fees, that’s an extra 90 H/month (Total: 110.25 H/mo).
NOTE: the number of Masternodes allowed on the network is capped at a certain number (total and for each tier). And, according to Scott[i], only 40% of post-ICO coins are able to be held in MNs. All of the 1 million Halo up for sale during the ICO are eligible to be held in MNs. For a more detailed discussion of this, see my recent post on everythingcrypto.tech.
Finally, a tertiary concern for the coin. There is no maximum to the number of Halo coins that can be created. They start with a 1 million coin ICO. Proof of Work will generate approximately 410,410 coins per month, with a 25% reduction every 24 months.
NOTE: previously, 810,000 coins per month were to be minted by miners. That number has now been reduced, and will be graphically represented by “New”.
Here’s what the coin supply will look like over the next 2 years:
The next 5 years:
The next 20 years:
But hold on! This may be a concern, but that doesn’t mean you should run away. Let’s compare this to Bitcoin. We’ll look at the supply of BTC over time, the rate of inflation, and then calculate the rate of inflation for HALO.
Here’s the supply of Bitcoin from 2009 to the present:
Here’s the rate of inflation for Bitcoin for the first six months (actual):
And the rate of inflation for Bitcoin from month 6 to present (actual):
Aaaaand finally, the calculated inflation for HALO for the first five years:
If your eyes glazed over, that’s okay. Here’s the point: After the initial inflation spike in Bitcoin in the first month, it’s stayed very low, even though the coin supply has increased by tens of millions. Halo will have that same spike, albeit much lower (41% vs 1400%) and a little slower, as you can see from the graph immediately above. Even Ethereum, whose coin supply is unbounded (unlike Bitcoin) is doing pretty well, second only to Bitcoin. While this is something to be mindful of, it shouldn’t deter you from investing.
For a more detailed discussion of this see my post about inflation & butterflies.
Lastly, a note on the Masternode system. With Dash, there are more coins being held by the Masternode owners than there are in active circulation. If something goes wrong, and nodes start liquidating their holdings en masse, the value of Dash will explode downward. Dash allows a max of 5700 Masternodes. Halo allows 10,500. Eventually, however, some of us will want to liquidate our holdings into circulation (it might be more profitable to do that than transferring ownership). After all, Masternodes aren’t comprised of USD but HALO, and I’d be tempted to sell my 50 H if they rise to the level BTC is at right now ($3938 per, = $196,900 per $500 investment in the Masternode). Hopefully this doesn’t happen, but like the rate of inflation, this is something to watch. I can’t imagine a scenario outside of apocalypse where everyone would want to sell their all their Masternode coins at the same time, but the idea is scary, and could happen, so it’s worth mentioning.
THE FINAL WORD
I’m excited for this product, and the prospects of this coin. Like all cryptocurrency investments, the risks are high, but so are the potential rewards. I’ve personally invested in a Tier 2 Masternode (the first cryptocurrency I’ve actually invested in, as opposed to utilized, like Bitcoin). If you do choose to buy a few coins to hold, remember where you put them. In the winter of 2014/2015 I bought ~15 Darkcoins (DRK), ~14 Litecoins (LTC), and ~6k Dogecoins (DOGE). I remembered my purchase a few days ago and went looking for my wallet. I couldn’t find it. What am I missing out on? My DOGE would be worth about $60 (+500%), my LTC about $730 (+3550%), and my DRK? That turned into DASH. My initial $25 would have earned me $5093 (+20373%).
Even if you don’t invest in the coin, the Halo Platform looks great all by itself, and the best part is, we won’t have to wait that long to try it out.
[i] Halo Platform Slack channel, 9/29/17