Report #1: NXT

Welcome to Glassbox.

In our inaugural report, we’ll be digging into NXT. This popular platform falls firmly into “Crypto 2.0” territory; it uses its own code and blockchain, and in some respects, is an impressive evolution from Bitcoin’s “1.0” technology.

NXT is a popular cryptocurrency – judging by market cap, the eighth largest. More importantly, the ecosystem is also teeming with cryptoassets. Many of these assets, created by just one individual, will serve as the focus for this report.

How legitimate are they? Do they create real value for their investors and the overall NXT community? Are they backed by products and services that are truly useful?

Read on…

– The Glassbox Team

 


 

NXT: A Brief Overview

 

On the surface, the origins of NXT are remarkably similar to those of Bitcoin. An anonymous developer – in this case, going by the name of BCnext rather than Satoshi Nakamoto – conceptualizes, builds, and launches the protocol before leaving the project as its lead developer.

It’s here, though, that the two stories sharply diverge; as we’ll see, NXT differs from Bitcoin in many important ways.

NXT’s beginnings can be traced back to the Bitcointalk forums, where the project was first announced last September. Crucially, this announcement was accompanied by an “IPO” fundraising effort which split the currency’s 1 billion units between 73 accounts. Following a brief development phase, NXT was launched on November 24th, 2013.

Reflecting interest in its improvements over Bitcoin and other first-generation altcoins, NXT quickly attracted buyers on the open market, boosting the currency’s market capitalization (market cap) from $20 million to over $80 million within a matter of months. This level was eclipsed when an all-time high was reached in early-June. However, selling pressure has dominated trading since that historical peak. With a current market cap of $16.8 million, NXT ranks as the 8th-largest cryptocurrency.

So – it’s been a rapid rise to crypto-relevance for this 2.0 protocol. However, it’s not the currency price that’s the most interesting aspect of NXT – it’s the assets that are built on the platform.

What are the benefits of using NXT?

As one of the first “Crypto 2.0” platforms, NXT offers several advantages over “1.0” platforms. Rather than building on the Bitcoin platform (thus inheriting its limitations), NXT has its own blockchain and code. It offers a blocktime of 1 minute – a vast improvement over Bitcoin’s 10 minutes. NXT also employs uses a Proof Of Stake (POS) reward system that avoids some of the pitfalls of Bitcoin’s Proof of Work (POW) algorithm – namely, the danger of a mining pool implementing a 51% attack and dominating the network.

In terms of convenience, there is no complex and confusing spending system of inputs and outputs. In NXT, an account’s balance reflects the more common-sense approach of simply summing all transactions. In terms of creating a good user experience, NXT also offers an intuitive and user-friendly interface.

The “killer app” of NXT thus far has been the ability to easily create assets that are built on the platform. These can be traded via NXT’s own built-in decentralized exchange. Building on the concept of colored coins, Asset Exchange allows crypto assets to be easily traded while avoiding the fees and risks that come with using a third-party intermediary.

NXT also has a vibrant and vocal community at both nxtforum and bitcointalk.

What are the potential downsides of NXT?

One of the most concerning aspects of NXT is the way in which the original 1 billion NXT coins were distributed. Rather than gradually being minted into existence via proof-of-work (POW) mining (as with Bitcoin) or being backed by a large crowdfunding effort (as with Swarm and Ethereum), these tokens were simply coded into being.

Without wide participation and actual wealth backing this creation – with the exception of a limited “IPO” of 21 BTC that resulted in the NXT tokens being placed in just 73 accounts – these initial tokens appeared to have have been distributed to a relatively small number of holders. This high concentration of wealth would make it easier to manipulate both the price of NXT, and its underlying assets.

Another potential downside is the lack of known developers. In contrast to the development teams of projects such Bitcoin, Bitshares, and Ethereum, NXT’s developers are anonymous. This removes personal accountability and raises the possibility that developers may act in their own best interests, rather than those of the community and overall NXT ecosystem. Similarly, since NXT’s code is not completely open-source, it is possible that some sort of malicious or unfair backdoor code could be implemented by the unknown developers.

The ability to easily create and trade cryptoassets – by itself, a powerful evolution from “1.0” technologies – also presents inherent threats for investors. “Pump and dumps” are certainly not unique to NXT. They occur, however, with alarming frequency. Anonymous actors can easily create and promote their own assets, then sell off the shares for a profit, leaving investors with worthless shares.

 


 

 Meet “James”

 

Most everything that happens in the NXT world happens at the NXT forums. Spend a few minutes reading through threads, and you’ll see that one poster is particularly popular: jl777, or “James.”

James’s influence over NXT cannot be overstated; his involvement and influence over the platform is tremendous. As the issuer of 17 assets and the self-proclaimed lead developer on no less than eight projects, his name has become synonymous with the platform itself.

Yet it isn’t development work that’s earned James his reputation; it’s his ability to create and promote cryptoassets that quickly appreciate in value. Leveraging NXT’s Asset Exchange, James has created a veritable menagerie of tradable tokens which are hungrily gobbled up by buyers. Having made many NXT fans money in 2014, the anonymous ringmaster has legions of devoted followers.

The combined market cap of all these assets? Nearly $23 million.

James’s typical approach appears to be as follows:

  1. Create a cryptoasset on the NXT platform
  2. Tie that asset to a NXT service that has yet to be developed
  3. Announce the asset and/or service on a thread at NXTforum
  4. Release the new asset to: himself, key members of the project (if applicable), and holders of NXTventure, SuperNET, or possibly another asset. This asset distribution is not an IPO, but a “dividend.” In fact, there is no initial offering to the public.
  5. Profit (at least on paper) from the rising price of the asset as interested investors – specifically, those who did not receive “dividends” as part of the initial distribution – buy the asset and move the price upward. On the sell-side of this trade are the people who got in at the early stages, without having to pay anything: James, and those who got paid out in “dividends.”
  6. Place the project in someone else’s hands, then move on to create his next asset.

By itself this approach is not necessarily cause for concern. However, upon deeper analysis, many red flags emerge.

Of all the assets that James has released that represent ownership or profit-sharing rights in a service, only one of them – multigateway – is backed by a working service. In other words, there is a great deal of investor money supporting projects that are not bringing in revenue, or even functioning.

The anonymity is cause for concern as well. While the prolific asset-issuer claims his real name is James Lee, there is no way of knowing if this is true; the person controlling the “jl777” account has chosen completely obscure his true identity. While individuals with known identities can certainly act maliciously as well, complete anonymity makes it easy to simply disappear after dumping shares of a worthless crypto-business.

Anonymity or not, there’s no arguing the cult following that James has in the NXT community. Simply put, his asset made many NXTers money in 2014. These “James fans” would argue that while the aforementioned concerns might be valid, he has a track record for creating crypto-business concepts and pairing them with crypto-assets that rise in value.

So – where does the truth lie? Visionary or scammer? Cold, calculating crypto-criminal or mad genius dedicated to helping the entire crypto community reach its full potential?

Let’s dig deeper and take a closer look.


 

The Complex World of jl777

 

Out of the 35 NXT assets listed on coinmarketcap.com/assets, 14 of those assets were started by James 1. Of these assets, seven of them are in the top ten NXT assets listed in terms of market cap.

Let’s take a closer look into these assets, their purported reason for existing, and potential concerns. We’ve omitted assets issued by James that don’t appear on coinmarketcap.

NXTventure: NXTventure is currently valued at almost $1,375,000.. This asset is a venture capitalist fund of sorts run by James. Investors who originally bought the NXTventure assets were providing the funding that he could then use to back projects. When a project is started under NXTventure it is customary that a fixed percentage of the equity created is dispersed to holders of NXTventure. James refers to the distribution of equity for projects started under NXTventure as “dividends,” even though it is only newly created assets being distributed – not actual profits 2. In fact, none of the projects started under NXTventure have had any profits at this point.

The description listed for NXTventure on the NXT Asset Exchange states that “NXTventure makes private investments in promising enterprises and adds value to each investment by proactively integrating it into NXTservices to add a valuable new service for the NXTcommunity. NXTventure will pay monthly dividends in the assets it acquires, net of trading activities during the launch period. This means NXTventure asset will generate a stream of new assets as it launches them.3

Upon closer inspection, however, it appears that some of those words as misleading at best – and could be considered outright lies depending on how you view it. On multiple occasions NXTventure has failed to pay out dividends during the month. 45 On the forums when asked about this, James typically responds that it is difficult to put out projects consistently every month. 6 While this may be true, he should be more clear in the description used for the asset as it is not stated. This lack of clarity also applies to the dividends. As mentioned above, these payments are actually a distribution of the assets created under NXTventure. 7 The use of the word “dividend” is misleading, as this term implies the holders of NXTventure will receive a percentage of the profits brought in by these businesses.

InstantDEX: InstantDEX has a market cap of roughly $1,144,000. 8 This project is a layer that integrates with the NXT asset exchange to allow real-time trading of assets. 9 Supposedly it will be used to trade anonymous telepods of different cryptocurrency funds when Teleport is fully operational. 10 In the announcement thread, James writes:

“…the goal of InstantDEX is to offer realtime trading of NXT, NXT assets and other cryptos. It will earn fees from commissions on the trades. By keeping costs low by using a decentralized infrastructure, it is expected to be able to distribute approximately half of revenues to asset holders….InstantDEX will not have any fees for withdrawals and the commissions will be set to 0.1% at first. Keep in mind that this is charged to both buyer and seller so the total revenue will be 0.2%. This will be the lowest in the industry and coupled with the decentralized nature will provide a strong competitive advantage.11

The initial announcement was made on May 14th 2014 and is quite vague as to what InstantDEX actually does, how it does it and what sort of money is needed to bring the project to fruition. When asked to provide more information, James responded that more is to come next month – though “next month” in this case was June. 12 It appears that James has put the project on the backburner for a while while he works on SuperNET. 13

Jl77hodl: Jl77hodl is an index fund of sorts made up of assets that were made by James. 14 Its description on the Asset Exchange states that: “This asset will not pay dividends. It will contain portions of almost all of the assets that I issue, the target percentage is 10%, but actual percentage will vary. Some issues will have more than 10%, some assets I wont be able to put here. Once the assets are in this account they will probably stay there long term, but occasional changes will be made at then current market prices.” 15

sharkfund0: Sharkfund0 is a crypto version of a mutual fund managed by James. Its Asset Exchange description states that “Each purchased sharkfund0 asset represents a proportional share of the fund’s crypto holdings. NXTsharks will actively manage sharkfund0 to maximize its market value. 25% of profits are assetized by the NXTsharks assets, the rest compounds in sharkfund0. The sharkfund0 assets held by NXTsharks are unpurchased assets and are not bound to anything, NXTsharks will never sell unpurchased assets via AE. Initially, the value is set to 10000 NXT per asset. After the initial funding, additions are made at the marked to the market value of all previously purchased sharkfund0 assets. Purchases using non-NXT crypto is done manually on a case by case basis, minimum 10 BTC. It is preferred to make withdrawals simply by selling the asset using AE, but NXTsharks can accomodate requests of larger cashouts manually. please check the NXT forum for up to date details.16

It appears that James does not provide an easy way users to calculate the NAV of sharkfund0. NXTinspect was offering to do a daily NAV calculation of the asset for a fee 17.  Sharkfund0 owns 11 percent of all BTCD and 10 percent of BBR. It also has 20 percent of NXTprivacy, 10 percent of InstantDEX, 12 percent of jl777hodl (JLH), and around 10 percent of the Coinomat asset. 18 More information about the assets making up sharkfund0 can be found here. 19

NXTprivacy: NXTprivacy is an asset that has holdings of 2 services, Privatebet and NXTcard. The holdings are 50% and 30%, respectively. It will also have some sort of private server software that users can run to help make transactions private. This would hypothetically allow a user to anonymously send their NXT funds. 20

You register your private account with the privacyServer that you are subscribed to. Now anybody can send NXT (or assets) to your public address, but it will end up in your private account, which nobody other than the privacyServer will know is yours. This means that if you spend funds from your private account, then nobody knows that it is you who is spending it.21 This would ostensibly also allow you to fill the NXTcard without ever showing the money is from your NXT account. James claims the fees will be higher for the anonymity that comes with the card. “Any dividends NXTprivacy gets from the assets it owns, will be redistributed to its asset holders. So with its current >50% ownership of Privatebet, that means NXTprivacy will get the majority of the dividends from Privatebet. Clearly an investment in NXTprivacy will have a significant component from Privatebet, but NXTprivacy also will get NXTcard dividends and will be creating the privacyServer software to help people who host servers. I want to make it so that we dont have to keep subsidizing the servers and privacyServer will hopefully create a way for people to fully pay for a NXT node, maybe even make a little bit of money if they have a lot of subscribers.22

James claims that the NXTcard will be available in September. 23 However, as of this report’s publish date (December 30th, 2014), that is not the case. This is one of many instances in which James has missed a deadline he had previously set.

Tradebots: “So, the outline for Tradebot asset (aka NXTcoinsco) is that it will allow tradebot creators to make and test tradebots and then people can subscribe to their tradebot and pay a percentage of profits that they make. So this creates the ability for people who are good at making tradebots to make an income and also for people who are not able to make them to still take advantage of them.24

As quoted above, the goal of tradebots is to have individuals program bots to trade assets. Other users then subscribe to the bots trades and pay a percentage of the earnings.

FreeMarket: FreeMarket is a decentralized marketplace that utilizes the NXT blockchain to 1.) store information about the products for sale, and 2.) provide the ability to link to off-chain sites where pictures of the items may be stored. Users can sell anything they want on a market that enjoys the decentralization of the NXT blockchain. 25 To put up an item for sale costs 7.77 NXT, or around 20 cents.

FreeMarket launched on October 12th. For the rest of the year, all postings will be free (minus the 1 NXT fee to the miners) in an attempt to build up a large user base of sellers. 26 FreeMarket hopes to be a competitor to the well-publicized Open Bazaar which is not set to launch until sometime Q4 this year.

James’ role in FreeMarket is as more of an advisor than a person working on the project. The lead developer of the project is a forum user by the name of PoofKnuckle. A user by the name of blackyblack1 is handling the non-dev side of things. 27 Both PoorKnuckle and blackylack1 are fairly active on the main forum thread.

Freemarket did launch on its scheduled launch day, though there seem to be some bugs with the platform that people are experiencing. 28

Privatebet: Private bet is a service that allows users to place peer to peer bets privately in NXT. 29 It will also fund the development of gambling games. When new games are created for the service, half of the profits are returned to Privatebet users. 30 James states: “For events with publicly verifiable results, there will be a decentralized mechanism for the payouts. You can even create one shot bets based on anything you can think of, but for this you would need to get someone to agree to be your arbiter in case both parties cant agree as to what the result is.” 31

Privatebet’s creators previously stated their intent was to start the alpha testnet version in August. 32 It is now halfway through December and there is no announcement about when beta testing will start.

MGW: Multigateway is a service that takes in cryptocurrencies that are not on the NXT blockchain – such as BTC, LTC, or Doge – and issues a NXT subcurrency that represents the BTC or other off-chain asset being held by MGW. This allows for the NXT asset exchange to interact with off-chain cryptos, but also means that the user has to trust MGW with to hold their cryptocurrencies and not run off with them. 33

Multigateway has been in service for several months. 34 Overall it appears that the service works and people use it. MGW’s relatively low market cap is curious, given the fact that it’s just one of the two services created by James that is currently operational.

Like many other projects James has started, in his initial announcement there was no indication that James eventually planned to hand the project off to others and take an advisory role. Recently, however, it appeared that James was “tired” of dealing with MGW; he stated that he was going to stop hosting its servers, regardless of whether or not the people who were going to take over running the servers were ready. 35

Why the lack of focus? James appears to be more worried about his newest project – SuperNET – to bother finishing the previous projects he’s started. Investors, however, bought the asset expecting James to always be involved with the asset and treat it as a top priority. While this particular issue was eventually resolved with the production servers going back into service, it raises the question of how much James cares about his older projects as compared to his new ones.

Atomic: Atomic is a cross-chain trading service. At this point it’s rather unclear exactly how it operates. A rather vague whitepaper did little to clear the water.

The main developer for Atomic describes it as such: “While ATOMIC does make use of blockchain technology is it not a typical altcoin that is mined in the standard way. The most important thing that ATOMIC will introduce into crypto-currency is a single blockchain that can be used to verify transactions between the blockchains of different coins. For example in the past to purchase something at a store that accepts dogecoin, and you only have BTC, you would have to sell the BTC for dogecoin, wait for that transaction to complete and for their to be enough confirmations on the network all before completing your purchase. With ATOMIC you need only wait for the single ATOMIC blockchain to confirm the exchange (this is where POE, proof of exchange) comes in.” 36 “Atomic acts as a ticker tape that records the trades between different blockchains. There is a 5 minute block time for the Atomic blocks.37

It should be noted that James is not the developer for this project; he is just holding an advisory role. The lead coder for the project is a NXT forum user who goes by the name of “CryptAxe.”

NeoDice: NeoDice is a betting game that runs on the NXT blockchain. The service is designed to be very similar to the famous Satoshi Dice, but with a few tweaks. One of those tweaks includes the near real-time processing of wagers. 38 Some of the features enable the game to be played via any NXT client supporting asset-transfer, and does not require any dedicated software or website. NeoDice also processes unconfirmed transactions, making the game nearly instantaneous. The entire betting history is stored on the NXT blockchain, which theoretically would ensure the game’s integrity and fairness. NeoDICE is also advertised to be as anonymous as players’s NXT account number. It does not require any additional registration or authentication. 39

According to James, “100% of revenues will be distributed to assetholders. This was based on my advice and the fact that the developers and maintainers will HODL sizable NeoDICE means the low operating overhead from decentralized architecture will be able to be covered from the dividends. This method perfectly aligns the interests of asset buyers and the developers and removes any issues about what the overhead costs will be.”40

Neodice is currently in the testing phase and can be publicly used with testnet NXT. More information can be found at neodice.com

Skynet: Skynet aims to be a venture capitalist fund that invests in services that combine “cutting edge AI techniques with blockchain technology.” In the announcement thread James appears to crank up the hype an extra notch, referencing articles about Elon Musk and Stephen Hawking warning about the dangers of AI. The announcement thread even comes with a warning about investing in the technology that may end the world as we know it. 41

To date Skynet has invested in one service, FinHive, which aims to combine AI and trade bots to create an ultimate trading bot.

SkyNET/FinHive’s tech will be used for tradebots (NXTcoinsco). The tradebots asset manages tradebot ‘leasing’. The idea is that individuals create tradebots and allow others to invest in them on a profit-sharing basis – if the tradebots are successful, investors will receive a slice of their income. This operates like PAMM (Percentage Allocation Management Module), where investors allocate money to specific traders and share in their successes.

Tradebot creators can choose to pay for SkyNET data, and SkyNET itself is expected to be behind many, many different bots. Investors will look at the historical performance of a bot, meaning that the best strategies rise to the top; unlike normal forex markets, the tradebots will only make a charge to investors if they produce profits.42

Pangea Poker: Created under SuperNet, Pangea will be a decentralized poker app that uses provably random numbers. 80% of revenues will be distributed to asset holders. 43 Pangea Poker will be coded by an individual going by the handle of “Valarmg” and the project will be lead by a user under the handle “5000bitcoins.” 44 As the project has just started the completion date is currently “unknown.” 45 The delivery date was stated as being a “long way off.” 46

SuperNET: As of this writing, SuperNET is the “James asset” with the highest market cap, at nearly 4 million dollars. 47 SuperNET is a fund that will purchase or help fund the development of assets that are useful to the cryptospace. In the description of SuperNET, James states that the goals are to “Unite disparate cryptocurrencies by fostering collaboration, reward innovation, talent and active coin communities, share resulting benefits with core members and extend advantages to all cryptocurrencies, and bring value to long-term SuperNET participants.” James also states that “The idea behind SuperNET is simple but powerful: to create a mutually beneficial network of coins that offer real innovation. It will take the form of  a basket of key cryptocurrencies and revenue-generating services….SuperNET aims to hold 10 percent of the market cap of its core cryptocurrencies: those which offer genuine innovation and strong potential. ” 48

With a current market cap of over $3.6 million, SuperNET has attracted legions of investors who believe it has game-changing potential for the crypto world. SuperNET is phenomenally successful from an investment standpoint – as well as phenomenally complex, as shown by this diagram from thesupernet.org:

A diagram displaying SuperNET's complexity

One of the tried-and-true axioms of the investment world, popularized by Peter Lynch, is “invest in what you know.” SuperNET is so mind-bogglingly complex that it makes this impossible; there are assets tied to assets, all overlaid a complicated system of integrated crypto-services. A deep analysis of SuperNET is beyond the scope of this report. However, those interested in digging into the project further can visit the SuperNET Newsletter.

 


 

The Glassbox Perspective

As described above, James is involved in an astonishing number of projects. It’s no exaggeration to say that if everything he says is true, he’s the most prolific crypto-entrepreneur to date. He claims to have been a broke coder prior to NXT, but is now “…managing half a dozen operating assets (like a virtual company) while continuing to write cutting edge decentralized software.” This rags-to-riches story is extraordinary.

Are his claims true? Is he a disorganized genius, hopping between projects as fast as he can invent them? We can’t say for sure. However, there are a number of areas where a lack of transparency and asset-issuing best practices has raised red flags.

With respect to James and his assets, the following facts give us pause:

1.) “James” is anonymous; he has zero accountability, and could liquidate his holdings and vanish without a trace.  Even attempts by an exchange – Poloniex – who wanted to list one of his assets failed to produce verification of identification. As the exchange stated, “…one of our ICO (Initial Coin Offering) requirements is identity verification; this requirement exists to protect investors and to lend credibility to the ICO. Despite several attempts to convince James the importance of revealing his identity, we were ultimately unable to reach an agreement that satisfied both parties.” 49

2.) The majority of his projects are not live, functioning services bringing in actual profits.

3.) James sets up most of his projects, from their inception, to disproportionately benefit his own financial interests . For example, SuperNET is set up specifically to deliver 10% of profits to himself, as well as “performance bonuses” based on the cryptoequity’s market cap.

4.) Similarly, ownership of the James assets is dramatically skewed in his favor. This stems from the fact that when he creates an asset, he gives himself a large chunk of the outstanding shares. The following summary of jl777 assets – courtesy of nxtreporting.com – shows just how skewed this ownership is:

The distribution of jl777 shares in NXT

In other words, the full amount of all jl777 assets is roughly $22.5 million. Subtract the value of the “issuer account,” and there is only $7.3 million left. Thus, James appears to own 2/3rd’s of all his assets’ shares. With ownership so heavily concentrated in the hands of James, there is the possibility that he could leverage his disproportionate influence to quietly manipulate the market to his advantage.

5.) He actively promotes the “past performance increases the odds of future results” fallacy: “my track record of having tripled a small 1500 BTC sharkfund0 in 3 months and that 8 of my 9 assets have on average gained 2.5x and 125 million NXT and the BTCD went from 100K marketcap to $8 million marketcap in month and a half.” 50

6.) He makes forward-looking projections, with certainty, about future results: “Most people here are probably attracted to the ROI profile where the downside is probably -20% in any sort of realistic worst case…the early birds can get a 25% gain over 4 weeks in this minimal case.” 51

7.) He applies different rules about risk and reward to crypto-assets – seemingly obviating the need for due diligence.

8) He arbitrarily abandoned multigateway without notifying investors, indicating that he doesn’t care about long-term success of his projects. 52

9.) The lack of White Papers and prospectuses. Potential investors lack a clear source of information about assets and their business model; oftentimes it’s all presented on a forum thread. The typical announcement thread for his assets features a dearth of solid information about the service, mixed in with flashy financial terms and difficult-to-understand lingo. Furthermore, the assets don’t have a prospectus, and the funds do not make it clear what their holdings are. Instead of having all this information in one place, investors have to spend hours looking through forum posts and other sources to get the information they need to make a better-informed decision.

10.) His modus operandi  is to issue an asset, then start the project. He subsequently oversees the project and has other members of the NXT community do the coding. As outlined above, he often eventually steps away from – our outright abandons – the project. This lack of commitment and focus presents a sizable red flag.

11.) The use of “dividends” – commonly understood as a form of profit-sharing – for projects that are not yet actually profitable (or in many cases, even functional). While it appears James has never claimed to issue dividends in the profit-sharing sense, potential investors unfamiliar with this distinction could easily be misled. The fact of the matter is that the only “dividends” he issues are new assets being given to those who hold nxtventure or SuperNET.

So – where does the truth lie? Here are the three scenarios:

He is a genius – and quite possibly, the next Elon Musk.

One thing you can’t deny is that James has been very busy creating a lot of assets. His vision of all these different apps working together has been a huge boon for the NXT ecosystem – and if these projects come to fruition, James and the broader NXT community will be hailed as crypto-heros. If you disregard the worrying aspects of his actions and just focus on the good parts, James looks like a well-intentioned champion of decentralization trying to take NXT to the new frontier.

He’s a disorganized genius who is in over his head.

Though James has a history of starting assets and moving on to new ones before completing the project, one could argue that he is simply trying to gain exposure to as many projects as possible. The assets he leaves behind purportedly have other people working on them, driving them toward an actual profit-generating future.

He is a malicious actor. 

Here’s an interesting fact: The James assets have a combined market cap that is larger than the market cap of NXT. As of right now NXT has a market cap of nearly $16.6 million, while all of James’ assets have a combined market cap of nearly $23 million. It’s amazing – some would say, downright unbelievable – that one individual created so many assets with such a large market cap, while at the same time giving himself the majority of these assets.

If James is pulling a con, we believe his approach is something along the lines of:

1.) Create, out of thin air, assets related to a particular project – say, Skynet.

2.) Give a large amount of these assets to himself, and to other people who are part of the project.

3.) Also provide assets to holders of NxtVenture and/or SuperNET in the form of “dividends.”

4.) Because these dividends are actually new assets created by James, what he’s really doing is creating asset holders who have an incentive to promote the project – and in turn, drive the price up.

5.) Meanwhile, James and the other early holders of the asset sell out at an inflated price.

James has a history of creating assets, giving himself a large chunk of those assets, and then releasing the asset for public trading. After seeing the price increase, he then moves on to other projects before finishing the project he sold assets for. As all of his assets are driven by speculation and not actual, profit-generating services, it’s possible that James is trying to unload as many assets as he can before the scheme hits its inevitable limit.

How can James be more transparent?

Given the facts we’ve examined, it doesn’t take a wildly imaginative brain to envision a scenario where James is operating a highly sophisticated scam or ponzi scheme. Under the light of close scrutiny, there are many aspects that don’t – to use the tried-and-true phrase- pass the smell test.

However, crypto is a world where the unbelievable is often actually true. For evidence, look no further than the improbable rise of Bitcoin – an experiment and proof-of-concept in decentralization that is altering the contours of global finance.

So – while there are many reasons for concern, there is also reason to provide benefit of the doubt.

If James is in fact operating legitimate businesses, there are quite a few things that he can do to provide transparency and ease investors’ minds. These include:

Verifying his actual identity.

While knowing an asset’s owner identity is no guarantee of a legitimate investment, ID verification build a stronger foundation of trust. In its absence, investors must rely solely on what James has told them. “He” could be a “she,” for all anyone can tell – or even part of a larger team, orchestrating a coordinated effort to siphon funds from innocent individuals.

Contrast this approach to that taken by the Counterparty, Bitshares, and Ethereum development teams – all of whom operate in the clear, under known, real-world identities. As shown by the progress made by those projects, blockchain assets and known identities are not mutually exclusive.

Without a verified identification, investors must confront a simple fact: if James were in fact a malicious actor, he could act with complete impunity. The actual individual (or individuals) behind the name could misrepresent the state of the various businesses and manipulate the price of the related assets with no fear of real-world reprisal.

Providing prospectuses and detailed information sheets on each of his assets.

As mentioned above, James does not offer a prospectus or centralized repository that holds information about his assets. Users, in turn, are forced to scour the forum for disparate sources of information. A centralized prospectus, clearly spelling out the asset’s business model, holdings, key players, and other crucial information. In the case of funds, such as Jl777hodl and superNET, the documentation should spell out which assets its holds, and at what percentage.

On a similar note, a glossary for all the terms and acronyms used by James should be included in the prospectus. The NXT world in general – and especially the James menagerie of assets – is loaded with buzzwords and acronyms that are unfamiliar to new investors. This makes it more difficult for investors to make an informed decision.

Disclosing the amount of each asset he holds and the wallet he holds it in.

James holds a very large percentage of each asset he has created. While many may argue that is perfectly fine for the creator of the asset and corresponding service to hold a large percentage of the overall shares, it also gives the creator the power to manipulate the market in many ways. Knowing the public wallets of his funds carry two primary benefits:  1.) users will know if James is selling out of his assets quietly, and 2.) users will know if he is leveraging his assets in order to manipulate the market.

Regularly disclosing the revenue of each project that is tied to an asset.

As we’ve pointed out, the lack of actual profit-generating ventures is disconcerting. One way to allay these concerns is to provide a public address where money coming into the project can be tracked and squared with stated earnings. Regular earnings and a solid business model would make for a less risky investment. If any given project has no clear route to monetization and no revenue streams, this would be a clear indication for investors to steer clear.

Conclusion:

In many respects, NXT is a utopian vision of unbridled capitalism. Free from the constraints of regulation and the strictures of legacy fiat systems, individuals, groups, and businesses are able to raise money with blistering speed. These funds are purportedly raised for innovative projects which leverage the NXT blockchain and helps crypto evolve from its 1.0 roots. One only needs to look at the enthusiastic community and multitude of projects to see the vast potential of this ecosystem.

Unbridled, unregulated capitalism is exciting. But with it comes the need to self-regulate and safeguard the community against the inevitable malicious actors that seek to part unsuspecting, well-meaning individuals from their funds. While the ultimate responsibility lies in the hands of investors – who are free to invest in whatever they choose – the onus also falls on issuers of crypto-assets to provide a clear, transparent viewpoint for those prospective investors.

From the fact that James hides his identity, to the lack of services that are up and running, to the fact that his assets combined have a higher market cap than NXT itself, to the general lack of transparency and clarity, there is no shortage of reasons for investors to proceed with caution. Caveat Emptor is the watchword here.

Outlined above is a clear path for how the transparency of these assets can be improved.

We look forward to reviewing these assets in these not-too-distant future.