Digital currency investment capital firm Placeholder VC has invested in Decred, a digital currency that works on the hybrid of proof of work and proof of stake consensus. Chris Burniske, who was the author of cryptocurrency valuation book ‘Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond’ is a partner at Placeholder VC. Although the investment firm did not reveal the exact holding in Decred, it confirmed its investment in the cryptocurrency. Decred had seen the price of its coin rise significantly from $1 when it was launched in February 2016 to the current trading price of $113.38 as of May 22, 2018.
Investment Ideology Behind Decred
The venture capital firm, in a blog post, revealed why it invested in Decred and not any other cryptocurrency. Bitcoin, the largest and most well-known cryptocurrency has been at the center of a decentralization debate. The bBtcoin community has, as a result, argued whether it is correct for a small group of miners to have a majority of the computing power of the total network. The chances of a 51 percent attack also rise significantly if a single miner or a pool of miners end up with the most share of the computational resources.
Decred, on the other hand, works on the proof of activity consensus mechanism which is a hybrid of the Proof of Work (PoW) and Proof of Stake (PoS) consensus mechanisms. The consensus mechanisms ensure that both miners and users have an equal say in the operations of the network. Whenever a new block is mined on the Decred blockchain by the miners, it is also verified by five randomly chosen ticket holders who have staked their DCR coins.
Anyone can buy a ticket for the network to select any such ticket holders randomly. For a block to be successfully verified, it is mandatory that three out of five ticket holders must also prove the transactions of the block. Verification ensures that no rogue miner makes alterations to the main chain by verifying a malicious transaction or splitting the blockchain and create a side chain.
The blog post also mentions the appearance of ASICs on the Decred network, with the total hashrate of the network increases by a factor of 19 just in 2018 and that the percentage of staked coins has doubled since the launch in 2015; these two factors taken together imply a strong path going forward for the price of DCR.
Chris Burniske’s Thoughts on Investing in Crypto
Speaking about his early days in cryptocurrency investing, Chris said:
“The first time I attempted to value bitcoin was at ARK Invest, where I started as a buy-side analyst in 2014. ARK became the first public fund manager to invest in bitcoin in September of 2015, and to do so we had to have some basis to justify current prices ($200’s), or at least quantify the potential for significant asset appreciation.”
He noted that since cryptocurrencies lacked cash flow, it was impossible to value them using the discounted cash flow method. He gave the equation MV=PQ to arrive at the valuation of a cryptocurrency. “A crypto asset valuation is largely comprised of solving for M, where M = PQ / V. M is the size of the monetary base necessary to support a crypto economy of size PQ, at velocity V.”
His thesis is in line with the investment thesis of Placeholder. If Placeholder is an early investor in Decred, it could have a top player in its portfolio as the digital coin has risen over $100, with a market capitalization of over $757 million.
At the time of its launch, the company behind the development of ‘Decentralized Credit’ – also known as Decred – mined eight percent of the total 21 million coins. The reward for mining the remaining 92 percent coins is split in 60-30-10 with 60 percent of the reward going to the miner, 30 percent to the staker and the remaning ten percent going towards the Decred development pool.