What Cryptocurrencies Pay A Dividend - Part I
For the sake of this page, I use the term cryptocurrency above this to also include crypto-asset, even though I recognize these terms are confusing. A crypto-asset is similar to a stock, ETF, mutual fund, or token, while a cryptocurrency is like a currency. Sinopec is a stock (asset), while gold is a money (currency). Some crypto-assets may seem like currencies, but they are not – they fundamentally are investments in a framework, idea, or business model. For the sake of this post only, I’ll use cryptocurrency to mean both currency and asset, but outside of this page, I will separate these terms. Like all cryptocurrencies and crypto-assets, all of these are high risk investments; we do not know the future of this entire industry and anyone who invests with money that they cannot afford to lose faces a high probability of failing. In other words, if you’re going to take a chance, invest with money that you are willing to completely lose.p>
What Is A Dividend?
Be skeptical every time you hear this word in the cryptocommunity because many members do not know what one is or how a dividend functions. For an example, one cryptocurrency that I won't name claims it pays a dividend by issuing more shares of the cryptocurrency, which is actually dilution, not a dividend. This means that the supply of that cryptocurrency increases, devaluing an investor's holdings. A dividend is the opposite of this: it is a payout that increases the value of an investor's holdings either independently of the security (like a stock paying currency dividends), or by increasing the investor's holdings of the security, like dividend reinvestment. To save you from financial pain later, let me reiterate the point above this as there are many scams in the cryptocommunity that claim to pay a dividend when they do not: a dividend is not dilution and an increase in the supply is dilution.
Counterparty (XCP)
Counterparty is a crypto-asset that is the smart contract network (its symbol is XCP). Counterparty is built on top of bitcoin’s blockchain and approaches its dividend in a creative manner, through proof-of-stake. The two things you need to know if you own Counterparty or want to own it so that you can get paid dividends is that its supply is fixed and when a smart contract is created, executed, or when spam is posted to the network, the people doing the creation, executing, or spamming must pay Counterparty, which is where users get their dividends. What the Counterparty system does is destroy the currency that is paid, such as destroying 100 Counterparty paid for several executions of contracts and spam. Sounds complex? Don’t worry, let’s dig into a few examples and check out the numbers:
Think of it this way: suppose that we are Counterparty currency investors and a user Bob pays 100 Counterparty for a variety of contracts and spam. The overall supply of Counterparty is reduced by 100. Remember that this cryptocurrency is fixed in supply (currently at approximately 2.6 million XCP). This means that Counterparty becomes rarer and rarer and thus our holdings of Counterparty relative to the overall supply increases. To think of this latter point, let's pretend that there were only 1000 Counterparty in existence and we held 100 - meaning that we held 10% if the supply of Counterparty. If Bob burned 100 Counterparty, then there would only be 900 in the total supply, meaning that our percent of ownership increased to 11.11% from 10%. If two other users - James and John - burned 100 Counterparty each (200 total) that would further reduce the supply to 700, which means our percent ownership would rise to 14.28% from 11.11% (after Bob's 100 Counterparty burn).
Because the dividend we get paid by Counterparty varies by how much is burned, there isn't a fixed return - this may vary. Just as an example of the rate of Counterparty burn - on July 27th there were 2,625,826 XCP and now there are only 2,624,715 XCP (1,111 burned).
DigixDAO (DGD)
At the current time of this writing, Digix asserts that they will pay quarterly rewards to investors in the DigixDAO. I am a large shareholder of DigixDAO and I remain a little skeptical of this claim by Digix, but am eagerly anticipating how this will work. Digix points out that they make fees from the Digix Gold Token (DGX - tokens that are backed 100% by gold) and that these fees from people holding gold tokens are paid to DigixDAO shareholders. In addition, I suspect that if Digix honors this, that they will also pay out quarterly rewards for other ideas they develop that may have trading fees. At this present time, this is all experimental and to my knowledge, no one has received rewards yet. If Digix Gold Tokens become popular, then DigixDAO could be a huge winner.
The major downside to the company Digix in my opinion is that it has chosen to use Ethereum instead of choosing to be platform independent. If I was advising the company, I would suggest that they work with all smart contract platforms as all platforms will benefit from a digital currency backed in gold. This choice may end up limiting DigixDAO's success.
We will continue exploring other cryptocurrencies that pay dividends for investors who want their wealth to grow.
Great article. Beautifully clear. What do you think about Burst Assets?
I've never understood why you would invest in a crypto back by gold. Isn't the whole point of crypto that you don't need this heavy metal that we've decided is precious and worth a lot but has little utilitarian value. Why on earth do we bother with gold now?
Thanks for the suggestion; I'll check it out Burst Assets when I have some time - sounds interesting.
Good latter question. The reason is that gold is money like bitcoin and holds many advantages that cryptocurrencies don't have, such as useful in industry, physical and reputational. Both gold and bitcoin make a great combination since they both complement each other, one being physical, one being digital.
That being written, neither gold nor bitcoin are investments - they are money and that's what they excel at being. A good comparison is the DXY, or Dollar Index; both gold and bitcoin have routed the DXY. Still, neither are investments that earn a return and this series looks at investments that earn a return through dividends.
Very good questions.
An interesting ICO that starts in a few days is also offering dividends: https://bitcointalk.org/index.php?topic=1587736.240
Excellent; will investigate that too.
Just read up about the DXY. It seems a bit arbitrary to use only certain currencies and have them weighted like they are as a comparison tool. I guess it was from back in the day.
When you say Gold and Bitcoin have routed it what do you mean? That it's meaningless because those currencies aren't taken into account?
Are there other indices that measures all major currencies against one another weighted in other ways?
Good questions; those are the traditional currencies measured against the Dollar. I agree it should be updated.
The DXY in 1971 was over 100, but not too far above it. Gold was $35 an ounce. The DXY is lower today and gold is much higher. Gold performs well over time as money - it is not an investment. What you can buy with one ounce of gold today is also similar to what you could have purchased with one ounce of gold in the Roman Empire, that's how well it does through time. I'll leave bitcoin aside as it's very new relative to the DXY. Gold has routed the DXY in that the DXY in 1971 was higher than today while gold today is higher than it was in 1971; one could argue they could earn interest on a savings' account, and that's true except they would be missing on the possible opportunities of pair trading currencies. When looking at money being money, gold is one of the best over time. No one allocates 100% of their wealth to money - most wealth is an investment and thus only a small portion of wealth should be in money.
I'll post someday about various ways of measuring currency values, along with my preferred method - that's a much longer answer!
Thanks bro. I look forward to your posts. They're really interesting and super clear. Often this crypto/finance world is a minefield of jargon and convoluted ideas.
Have you discovered anymore alt coins that gain interest wether it be actual cash or coin itself?
Good points in this article. I fully understand what you're talking about. It always surprises me how people still sell when a crypto goes down. I mean just invest in solid coins and skip the shady ones. Crypto is here to stay. I was researching a way to find more info about the current cryptocoins on the market. Personally I always use: https://www.coincheckup.com This site gives you a complete in depth investment analysis on every crypto in the market.
Good post. Really appreciate you bring this to our attention. The popularity of the cryptos is currently determined by the biggest group of uneducated investors in man kind. It's an interesting world we live in. I really advice people to take a look at: https://www.coincheckup.com They researched and analyzed every tradable coin out there.
Can you do a comprehensive update so that there can be some knowledge regarding crypto currencies that currently pay dividends?