A note about ZrCoin’s ROI

ZrCoin offers ‘only’ 100% ROI. For some, this seems too good to be true. For others, it’s not enough. What’s the reality?

Every investor knows there is a balance between risk and reward. This principle is basic to all investment, and those who do not grasp this can better be described as ‘speculators’ or — more accurately — ‘gamblers’. It’s not a point of ideology; risk and return is about simple maths.

Risk and return 101

The risk/return principle applies to all investments, from the safest of assets through to the riskiest speculative plays. High-risk investments have to offer a high reward in order to make them attractive; if they do not, investors will naturally opt for alternatives that have the highest rewards for the same risk — or the lowest risk for the same rewards. In the overall marketplace of investment opportunities, this is bound to happen. (The real opportunities lie where there are misconceptions about risk, or reward. These asymmetries of information between investors who do their homework and those who do not can be highly worthwhile.)

And so it is that the safest possible opportunities offer the lowest returns. Government bonds are generally accepted to be super-safe, at least for major governments. As we’ve seen in recent months, bond yields are ultra-low; institutional investors are flocking to the safest of havens to preserve capital. Some yields have even gone negative, which is remarkable: investors are paying to hold these bonds. That reflects the fact there is little else so safe on the market. Central bank interest rates are also at rock bottom, generally around zero to one percent and even sub-zero in some countries. Retail banks similarly feature very low interest rates at present, typically a fraction of a percent. But these, too, are considered super-safe. All funds are insured. It’s low, low risk, but very low return. The maths stacks up.

Blue-chip stocks are higher risk, but the returns are greater — generally around 8 percent in the long term, after inflation. But that’s the long term, over a period of 5–10 years, and on a day-to-day and month-to-month basis, values can fluctuate significantly. That is also factored into the price.

Crypto, of course, is one of the riskiest investments out there. But the rewards can also be very high. Again, it’s just maths. Some people have been very badly burned, speculating on bitcoin — those who bought at the high of over $1,200 back in November 2013 would have seen their investment sink to around 15% of its dollar value before recovering — if they held it that long. The reality is that most would have sold and booked a heavy loss.

ICOs, too, are risky. Some collect hundreds of thousands and even millions of dollars — but for what? Some of these projects are extremely promising. Others are ill-conceived, or vapour, if not outright scams. Countless people have been burned after participating in an ICO that turned out to be run by someone who could not come up with the goods. Things are getting more professional and transparent now, but the rewards are decreasing with the risks. Anyone who was around for 2014’s ICOs will know that. You can’t assume anything will immediately go 3x or 10x with listing on an exchange nowadays.

A handful of ICO projects do extremely well. Ethereum is one. Having raised 30,000 BTC (then around $15 million) in its crowdsale, it hit a market cap of around $5 billion — a remarkable ROI. However, it was never a dead cert. There were concerns and scepticism from an early stage, about both the viability of the technology and the health of the company behind it. They proved unfounded, in the end, but the risk was surely there. Those who held through everything gained their 300x ROI because they took on that risk. They could have lost everything, but they reaped the rewards of their foresight or confidence.

Part II: ZrCoin risk and return

This is the context within which ZrCoin’s crowdsale must be seen: one of risk and return. ZrCoin will sell options for 1kg of zirconium dioxide from $1.40 each, buying them back once production has started at market rates (around $2.80). That’s an ROI of up to 100%.

Within the world of conventional investing, a 100% increase in value over the course of a year or 18 months is impossibly high. We have had people suggesting we are a scam because they say no ordinary investment can deliver this. In a world of zero and sub-zero interest rates, and 5–10% long-term returns on stocks, this is understandable. But for the crypto crowd, who are used to 300% or 1,000% returns on ICOs, it’s low — we’ve had complaints that people could make more elsewhere.

This might be true in some instances, but it fundamentally misunderstands the nature of risk and return. Crypto investors might make more elsewhere, but the higher returns come with higher risks that they will receive back less than they invested, or nothing at all. There is no certainty here or in any form of investment.

Real-world blockchain investment

ZrCoin’s ‘modest’ 100% ROI projection reflects the mathematical realities of investment risk and return. To some investors, it will seem too good to be true. To others, it appears limited. The difference is a matter of risk appetite.

Crypto investors are used to huge returns — and huge risks. Those who invested in bitcoin in its early days could not have known it would succeed; there are any number of reasons it might have failed, almost did, and still might. It’s a new and emerging technology, after all. Most mainstream investors, however, do not expect these returns — and they have a much lower tolerance for risk. It’s simply unacceptable to most investors to stand a chance of losing 50% or even all of your capital. (Imagine the news headlines if a pension fund took this kind of write down.)

Moreover, blockchain technology is now hitting the mainstream. This is where the mismatch in expectations probably lies. Blockchain technology used to be a crypto-only phenomenon: the only blockchain projects were crypto coins of one kind or another, that were launched primarily to the crypto crowd, even if they did have an eye on mass adoption (most of them unrealistically). But blockchain is more than this. It’s a toolkit that can be applied to so many more situations and ventures. That is what ZrCoin is doing.

Instead of creating a crypto-only and online-only application, we are using blockchain technology to raise funds for a real-world manufacturing use case. The risk here is not the use of blockchain technology, or the adoption of a crypto coin per se. It’s simply the — much lower — risks around the deployment of a new kind of manufacturing technology. It’s a real-world, relatively low-risk project that happens to use the blockchain as a crowdfunding mechanism. Understanding ZrCoin through the same risk-return lens as a crypto ICO is a fundamental category error.

Our manufacturing partners recognise the value of our process and product, even if the blockchain is a new way of doing things for them. The crypto world does not necessarily understand our green zirconium process, but does grasp the power of blockchain. We are one of a small but rapidly-growing number of projects that spans the gap between the crypto world and the physical industrial world. Once there are more of them, the real and crypto worlds will start to overlap more too.

For more information, visit www.ZrCoin.io. Our crowdsale starts on 11 May and will last for 30 days.