One of the hottest topics in the news (besides blockchain related news) is machine learning. The ability to create algorithms and models that have strong predictive power is viewed as somewhat of a holy grail when it comes to computation. This is exactly why the hedge fund offshoot Numeraire is so powerful.
As the first cryptocurrency started by a hedge fund, Numeraire is a product of Numerai. It was founded in 2017, and boasts a unique structure in terms of machine learning. The basic model of the company is to run weekly competitions for data scientists, to see who can present the best prediction models. Smart contracts judge the accuracy (and profitability) of a model, and the hedge fund is able to put it to use accordingly.
Only 1,000,000 coins have been released of this ERC-20 token, and they were specifically distributed to a confidential list of data scientists who would act as participants in the competitions.
How Does it Work?
The competitions are run in a rather unique way. The top 100 competitors – as judged by the live marketplace – receive a reward in the form of Bitcoin in exchange for their efforts, but they also have the ability to stake NMR tokens as a “bet” they are later rewarded for in the form of more NMR tokens and Bitcoin.
This structure essentially allows for them to earn dividends on their tokens, assuming their models are high-quality enough. It also stops fraudulent bets from being made by putting a cost on participating in the competition. As a modification of “proof of stake” the inventors are referring to this as “proof of intelligence”.
The scientists with NMR all receive a proprietary data set that is encrypted so as to not be readable by humans. This prevents frontrunning or other fraudulent practices by the scientists, while also
allowing them to test their models. It also creates an iterative, evolution-like process where the less accurate predictions are destroyed and that scientist is less likely to participate in the next competition.
All of this is interesting, but the true potential here is in the power this model has to change the way employment is structured. Numerai has created a meritocratic system where users are rewarded for their efforts on a performance-based payment scheme, and this can be applied everywhere – not just in the field of machine learning.
Another perspective on this is that Numeraire is creating a global collective intelligence where the whole is greater than the sum of the parts.
Investing in NMR
NMR is currently trading around 0.000899 BTC and is most easily available on Bittrex. It has faced resistance around the 0.00096 BTC mark, but if it were to break through that, this uptrend could yield a good short-term profit.
On a more long-term basis, there are several major fundamental factors that give Numeraire a chance at doing well over the next few years. Assuming these models continue to improve, and the scientists continue to get better, the price will naturally have to go up as demand increases.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.