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Qtum ICO: Building the first UTXO proof-of-stake smart contract platformUpdate 3/2: Qtum has announced its token sale dates: March 16th – April 15th. They have also launched a new website and reopened their slack channel. They have also released several demos of their blockchain, including a technical walkthrough and a demo of a working qtum mobile wallet.
Update 2/28: Recent accusations have dogged the Qtum project. Here is an abbreviated version of recent events. ICOcountdown has compiled several days worth of relevant communication here, where we found much of the source material.
Here is a highlight of our thoughts at this time. Below, we provide a brief recounting of events, then explain our five takeaways.
There is not enough information to conclusively judge Dai’s character, but his involvement in Bitbay and his attempt to hide it casts a shadow on his credibility.
Given the high-profile third-party backing, it is unlikely Qtum is a scam.
Qtum should improve its transparency, open up its Slack or explain why signups were stopped, and release some form of code or demonstration product.
Interested parties should ignore several red herrings in this issue: PwC’s involvement, Dai’s multiple names, and Caspal’s Rubik’s cube record.
The community should not expect this to be a fully decentralized project at launch.
We will update our thoughts if more information emerges. We have reached out to the Qtum team for an interview. If there are any issues this analysis does not address, please let us know.
What has happened?
First, project Lead Patrick Dai was once the Steven Dai associated with the Bitbay scandal in 2014. Joshua Bouw of Blockcoin exclaimed on February 21 in a series of tweets that Patrick Dai was the Steven Dai “that fucked #bitbay and David Zimbeck.” In 2014, Zimbeck posted an account of the scandal on reddit; in it, he frames Steven as the one who originally approached him about Bitbay but then got “pushed around” by other members of the team, who then go on to try to extort David. In a recent letter addressing the accusation, Zimbeck seems to slightly change the narrative in presenting Dai as a thief and possible scammer. He also says Dai did in fact steal both Bitcoin and BitBay when he left and never returned many inquiries from Zimbeck about repayment.
At first, Qtum appeared to ignore and resist the accusations that Patrick and Steven were the same. However, on February 25th, Patrick admitted to using the pseudonym Steven Dai and being involved in BitBay, though he claims he returned all of BitBays funds before he left in 2015. Shortly thereafter, the Qtum foundation also released an official letter on the topic with the conclusion, “After studying the subject matter thoroughly, [we] see no fault in Mr. Dai’s past activities and regards the accusations as groundless.”
Since then, bitcointalk has erupted in accusations of scam and scandal. Qtum disabled signups to its slack channel, and beyond the letter posted in slack and reposted on bitcointalk, has not officially addressed the issue. While this controversy blankets English-language discussion of Qtum, it’s worth noting that at time of writing, neither major Chinese crypto media nor Qtum’s Chinese-language communities are discussing the issue. In addition, Qtum still has not released additional information about the sales terms less then twelve hours before the ICO is scheduled to launch on several exchanges.
Here are our thoughts on the situation.
There is not enough information to conclusively judge Dai’s character, but his involvement in Bitbays and his attempt to hide it casts a shadow on his credibility. It’s not clear why Zimbeck’s initial account cast Steven as a victim while his recent one casts him as a thief and possibly a mastermind. It’s also not clear why he would lie about it now. Some accuse Zimbeck of trying to pump the BitBay price, but this is unlikely–he has spent years disproving the defamation campaign BitBay team members waged and it’s not plausible that he would consciously throw it away. Zimbeck likely didn’t know what went on behind the scenes of BitBay–if he witnessed a Dai-led conspiracy to oust him, he could have posted it. Based on the information that has been posted, there are multiple ways to interpret what actually happened behind the scenes at BitBay. One’s interpretation would color one’s judgement of Dai. Ultimately, only Dai really knows what his involvement was. But he should have disclosed his version of it and now, he should do something to rectify it.
Given the high-profile third-party backing, it is unlikely Qtum is a scam. Despite what one thinks of Dai’s character, it is not the only relevant consideration in evaluating Qtum as a whole. If Dai did intend to mislead investors, the list of people deceived would include Roger Ver, Anthony Di lorio, business professor and angel investor David Lee Kuo Chuen, and Bo Shen of Fenbushi Capital, among others1. Of course, that’s not unheard of: Elizabeth Holmes’ team presumably misled investors about Theranos for years. However, Theranos-level scandals are far more rare than random pump-and-dump schemes. Even scandals like BitBay lacked third-party endorsement. The DAO was certainly a third-party-endorsed debacle but it was not a scam.
Qtum should improve its transparency, open up its Slack, and release its code or a public alpha. Dai should have disclosed his prior involvement to both his team and probably to the community. Dai’s recent success was also an opportunity to make things right with Zimbeck. Dai’s team members initially expressed surprise about the BitBay scandal and mocked the accusations. That looks bad, and Qtum should apologize beyond the formal letter it released. Finally, Qtum should also respond to accusations that there is no actual code. It’s not unheard of for teams offering enterprise-oriented software to keep code hidden from Github, but given prevailing concerns, they should make something available, even if it’s only snippets to show there is actually software. Overall, Qtum has an opportunity to apologize and course correct. It should take it.
Investors should ignore several red herrings in this issue: PwC’s involvement, Dai’s multiple names, and Pascal’s Rubik’s cube record. PwC’s involvement is not surprising: a project like Qtum would seek out major corporate partnerships to help it interface with the business community, its target market. The retraction of mentioning PwC’s involvement is also not surprising: small companies with large partnerships lined up do mistakenly release the information before it’s been fully authorized. As for Dai’s multiple aliases, it’s not uncommon in Chinese culture for people to go by different names in different professional and social settings. Given names are generally only used by close family members and friends, while professional pseudonyms are often used in business settings. Many people use an English handle when dealing with foreigners. It’s a little unusual for Dai to use multiple English pseudonyms, but not altogether unheard of. Finally, a Coinjournal article has accused Qtum’s “Caspal” of lying about his rubik’s cube accomplishments. Caspal (the current English name for Yunqi Ouyang) has his Rubik’s cube record available here, which backs up a literal interpretation of the claims on his qtum profile. As with all the team bios, Qtum should have linked to it.
The community should not expect this to be a fully decentralized project right out of the gate. Qtum has emphasized a focus on blockchain industry applications and regulatory compliance. The Qtum economy white paper says that, “the design of the Foundation’s governance structure mainly considers sustainability, management effectiveness, and fund-raising security”. The token distribution will be more centralized than other projects. Given that only 49% of tokens will be distributed during the ICO, the team will be able to retain a controlling stake with only a modest investment. The governing foundation also won’t hold elections for two years. This shouldn’t be surprising. Taking a step back, one must acknowledge that this project is backed by many well connected people in one of the world’s most centralized advanced nations: releasing an early-stage fully decentralized project in the context of Chinese political and economic norms is probably not feasible. This could change in the future, but the team seemingly made all aspects of governance predictable and controllable for two years. Perhaps ownership of the network will become more decentralized over time as the foundation distributes its token holdings, but there is no guarantee it will. The revelations about Dai do not change any of these factors.
S+C Assessment
Qtum will be a proof-of-stake, smart-contract compatible blockchain that can natively run both Bitcoin-based and Ethereum-based applications. The Qtum team plans to take public ledgers to the business mainstream.
From the standpoint of a potential investor and supporter, here are the key arguments for and against investing.
Key Strengths
This has one of the most impressive advisory teams the blockchain industry has seen in awhile. The success of platform technologies like Qtum, especially enterprise-oriented ones, will depend on business adoption. Like Melonport, Qtum’s team has a collective network that touches many of the world’s largest companies.
Qtum is the first to implement a protocol based on both Bitcoin’s and Ethereum’s transaction models. Developers on either chain (or their variants) in theory should be able to port applications easily.
It is likely that the Chinese government will tend to support blockchain projects based in China. Qtum boasts technical innovations, a stellar team, and existing support within the Chinese blockchain community. If the Chinese government chooses to discourage blockchains not based in China, Qtum should make the cut–and be a platform of choice for a growing developer community and almost 20%
Key Concerns
While the governance structure is billed as a DAO, coinholders will not have much influence over decisions. Only 51% of the tokens are available during the crowdsale: 49% are held by the development team or initial investors in some way. In addition, the initial governance membership is set for two years, so coinholders will not have a say for awhile. In addition, while the community will elect 50 delegates to serve across all relevant committees, it’s not clear how the most powerful committee is chosen among them.
The ‘capacity’ of the development community to build on yet another platform chain will be tested. Bitcoin and Ethereum have emerged as the primary platforms on which people can build, but more have emerged in 2016 (Waves, Lisk, Antshares) and more are in development (Cosmos, Rootstock). If each becomes its own developer and user ecosystem, there will be large network effects that will leave some platforms niche or mostly empty.
Project Description
What is the project?
Qtum will be a proof-of-stake (PoS), smart-contract compatible blockchain that can natively run both Bitcoin-based and Ethereum-based applications. The protocol uses Bitcoin’s UXTO model of storing transactions, while also supporting oracles and two types of smart contracts. Applications built for Bitcoin, Etheruem, or either of their derivatives, should be able to port easily. The team is stacked with talent and experience, especially in business, and has framed Qtum as a the public ledger most prepared for business dapps.
Bitcoin + Ethereum compatible: Qtum uses many features of the Bitcoin core blockchain, particularly its UTXO approach for storing transactions. This makes individual coins traceable. Qtum has a layer that abstracts the UTXO data into something the Ethereum Virtual Machine can read. This allows it to interact with both Bitcoin-based and Ethereum-based applications. Qtum will actually make this feature open-source, so any UTXO chain can use it to integrate with an EVM.
Protocol Governance: Qtum will have a unique governance approach that is a hybrid of recognizable corporate governance, management models for open-source software, and blockchain-based consensus. The Qtum Blockchain Foundation, a Singapore non-profit, oversees the codebase, helps promote cohesion in the community, and represents Qtum to the external world. 50 people will staff one master committee and four sub-committees, with members serving two-year terms. Initial membership is already defined but the community will elect 50 representatives when their term is over.
Master Contracts: are smart contracts that can execute based on off-chain or on-chain factors. Current designs of smart contracts are limited to checking on-chain data, so sources of off-chain data (oracles) must publish data to the chain itself; then whenever the smart contract is executed and verified, it checks readily-available on-chain data. Qtum has proposed a way for trusted data entities, such as official institutions or organizations, to provide data off-chain that master contracts can access.
Proof of Stake: The team will use Blackcoin’s proof-of-stake consensus model. Their outreach has led them to conclude businesses are not comfortable with a proof-of-work consensus model. Using a PoS model with some semi-trusted nodes would assuage CEOs that a rogue mining outfit or state-sponsored hashpower attack couldn’t disrupt the network.
In the future, Qtum will also have a native identity module that will provide users who register with a special designation that dapp developers and businesses can integrate with their on-chain activities. Some businesses are understandably uncomfortable with the thought of anonymous users. Identity could be solved at the application layer, but a native module would take the burden off developers. Users could still use Qtum without registering.
What is the token being sold?
The Qtum token serves multiple roles on the network. It’s used to pay fees, determine the distribution of newly minted tokens through a PoS mechanism, and grants holders voting rights in the Qtum governance organization.
Fees
Qtum tokens will be used to pay fees associated with executing smart contracts (similar to Ethereum’s Gas). At the time of writing, the exact fee structure hasn’t been determined but it will be different from both Bitcoin and Ethereum.
Proof of Stake Minting
Token holders will be able to passively collect mining rewards by setting up a minting node and participating in consensus. Like other PoS schemes, validators will be required to stake some ammount of their token holdings to earn rewards. Coin age and the size of the user’s stake will determine the distribution of rewards.
Governance
Many of the most important governance and business decisions will be made by the Qtum Judgment Committee, which serves many of the same functions as the board of directors would at a traditional corporation. The Judgement Committee consists of 9 core members which are elected by token holders. The weight of votes in this liquid democracy depends on the size and age of user holdings.
What are the sale terms?
At the time of writing, Qtum hasn’t released detailed sales terms. However, they have released a list of (primarily China-based) exchanges that will be participating in the crowdsale. Qtum tokens will be available to purchase during the crowdsale from Bizhongchou, Yunbi, Yuanbao, Allcoin, and ICO365, though they say the list might change before the crowdsale start date.
On March 2, they announced that they plan to conduct KYC on all customers (through the exchanges) and will not offer Qtum tokens through a crowdsale website.
Token Distribution
Initially, only 51% of Qtum tokens will be allocated to crowdsale participants. Of the remainder, 20% will be distributed to the founding team and early investors and 29% will be used fund research and development efforts.
Over time, proportional ownership of Qtum tokens will shift towards the community as new coins are minted and the Qtum Foundation sells their share of tokens to finance development efforts. Four years after launch, Qtum estimates that 80% of tokens will be owned by the community.
What is the project status?
Initial seed funding
Qtum has already undergone an initial round of funding. Their earliest backers are an impressive cohort of Blockchain entrepreneurs that includes Anthony Di lorio, one of the original founders of Ethereum; and Weixing Chen the founder of Kuaidi, a ride hailing service that outcompeted Uber and contributed to their decision to leave China.
To date, Qtum has secured at least $1 million in seed funding.
Early projects
Qtum has already has a few significant dapp projects in development. Spring Mail promises to make sending cryptocurrency as easy as sending an email with a new Blockchain integrated Simple Mail Transfer Protocol (BiSMTP). Spring Mail works with existing SMTP protocols to facilitate the transfer of cryptocurrency between users.
In a similar vein, Qtum will also build a wallet called “Qloha” on WeChat’s new “mini programs” platform. The WeChat wallet would allow users to send Qtum tokens to other users as well as purchase products from WeChat store fronts.
Leading up to the crowdsale, the Qtum team has been focused on developing their technology and, as a result, doesn’t plan to announce any other major business partnerships beyond Spring Mail and the WeChat wallet.
Who is the team behind the project?
Qtum has assembled one of the most impressive advisory teams in the Chinese Blockchain industry. However, in light of the issues surrounding Dai, there is obvious reason to doubt the credentials of the development team. The Qtum English webpage does not provide last names, Chinese names, or links to third-party identify verifications like LinkedIn or GitHub; however, full names of team members can be found in the economy white paper. As we note above, we recommend Qtum provide full names, links to previous work, and verification of their involvement in the project. To our knowledge, no one has proven information in the brief team bios was falsified, though Dai’s former involvement in BitBay was not disclosed.
Five team members don’t seem to have easily discoverable online identities, including Neil Mahi, Dong Baiqiang, Mike Palencia, Amelie Zhao, and Time Markov. That being said, many team members do have LinkedIn accounts or personal websites.
It is possible to locate the GitHub repository of Jordan Earls, Qtum’s lead developer. This contains numerous code reviews of other altcoins, though it has not been active for a year. He does not appear to have an easily-discoverable LinkedIn profile.
Caspal was formerly employed at Baidu as a quality assurance developer, China’s most popular search engine, often described as the “Chinese Google”.
Alex Dulub is the CEO at PixelPlex Inc., a Belarus based Blockchain development lab. He has more than 10 years of experience working as a full-stack web developer.
Roman Asadchiy is a Project manager at PixelPlex with a background in business analysis.
Brett Fincaryk has more than 11 years of experience in Linux server management at Userful.
Official Resources
Website
Technical white paper
Governance and Economy white paper
Bitcointalk
Github (at time of writing, holds zero repositories)
Smith + Crown do not know either Zimbeck, Dai, or anyone involved in the BitBay scandal. We have no special or privileged information. Based on what has been posted, there are multiple ways to interpret what actually happened behind the scenes at BitBay. One’s interpretation would color one’s judgement of Dai. One plausible alternative interpretation is that Dai thought he was a minor character in the whole affair, fled when he saw it going south, and didn’t feel beholden to a group of people he met on the internet and concluded he couldn’t trust. Not defending Zimbeck would have been low but not nefarious. It would be undeniably human to feel ashamed of this and want to avoid it. It’s possible we will never get all the facts about what happened at BitBay.
Roger Ver has confirmed his involvement with Qtum in an interview with 8btc.com. Anthony Di Iorio confirmed his through twitter. Bo Shen of Fenbushi Capital signed the letter from the Qtum Foundation regarding issue of Patrick/Steven Dai. Other prominent members the project claims are involved have had plenty of time to deny involvement.
Update: We have also updated this to clarify our earlier statements about the “impressive team” as referring to the advisory team. We also updated our team section to acknowledge that many (non-advisor) team members don’t have verifiable identities, though as we noted, Pascal’s Rubik’s Cube record can be verified and lead developer Jordan Earls does have a GitHub account.
