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Many crypto-related projects have been launched but some do not follow everyday trends. Numerai is one of those with a different approach. It comes with a model that says: if you think you will do well, you stake on it. If you do, you get your original stake amount as well as a reward. But if you don't, you will lose your stake and the amount get burnt forever.
Numerai is a prediction-market platform using the Ethereum smart contract feature. Its crowdsourced approach seeks to prove the intelligence of the machine learning model. It incentivizes cooperation in groups through an artificially-intelligent with a staking mechanism. Predictions are used to build the platform's metamodel to trade as a hedge fund in a Wall Street-like environment. This real life use case seeks to facilitate more people's interaction with the blockchain.
NMR is Numerai's native token. As a hedge fund that manages the money of institutional investors, NMR could best be defined as a token for the financial technology sector.
Numerai distinguishes itself by only accepting institutional investment with a $1m minimum. The project had no public ICO and its token was on exchanges 24 hours after its launch. While the project was funded internally, it also had a working platform before launch.
Numerai built a protocol that connects machine intelligence to the stock market. It will allow others to build on top of it. The decentralised hedge fund platform now has over 19,000 statisticians who bet on their own models' ability to forecast the future.
These statisticians—data scientists—sort of put a collateral for their beliefs. They stake models with NMR based on their predictive power or risk losing it. Their NMR staking is to express confidence in their models. Numerai wants to create the best model to predict the stocks. Participating data scientists work together to improve the predictions' accuracy and earn rewards.
Aside staking, NMR is also used to pay out data scientists who participate in Numerai's weekly competition. Its use helps get a more accurate assessment of the data scientists' predictions.
Since NMR was not sold via ICO, available tokens were those earned by data scientists. The scientists tend to determine at what prices they are willing to part with the token.
The easiest way to buy NMR is on a cryptocurrency exchange. The main exchange listing NMR at the moment is Bittrex. NMR cannot be bought directly with cash like USD or EUR or credit cards. Rather, it could be traded for major cryptocurrencies like Ether (ETH) or Bitcoin (BTC). After buying ETH or BTC, the coins would be sent to the user's wallet on the exchange and trade them for NMR.
NMR can also be bought from someone through the Numerai community (https://community.numer.ai). The arrangement would be based on agreeing on a price before the exchange proceeds between parties involved.
Some NMR sellers post smart contracts on the trustless/decentralised CryptoDerivatives.Market exchange. NMR could be exchanged with ETH deposited on them based on the rate displayed on the site.
The price for NMR is determined by the market. It is not tied in any way to the performance of Numerai. However, when Numerai does well, the staking competition payout is increased. When that happens, NMR's value is driven up as there will be more demand to use it in staking.
Data scientists holding NMR can choose to cash it out or hold onto it for staking if they believe they can earn more. The decision is tied to the algorithm's' success. Successful algorithms get rewarded while unsuccessful ones have their NMR burnt.
To turn NMR into cash, the token has to be exchanged for major cryptocurrencies like BTC or ETH. It will follow the process used to purchase the coins but in reverse. The BTC or ETH could later be sold or converted into other currencies or liquidated into fiat for cash like USD or EUR.
Cash can be withdrawn at an ATM—automated teller machine—in two ways. One could be after the conversion to fiat and its transfer into a bank account. Some exchanges allow direct conversion to fiat currencies like USD or EUR. The other way is by withdrawing cash with a crypto-backed debit card.
NMR is neither for investing in Numerai nor have anything to do with their core business. It will have no value to anyone outside the platform who does not participate in their data science competition.
Buying NMR is not investing in Numer.ai as a company. The hedge fund deals with recognized investors. To own NMR without participating in Numerai's competition is to depend on the pure speculative trading nature of any crypto token.
NMR's value increases when more tokens are bought for staking to earn more rewards. The value of the token is also somewhat linked to its total supply (about 1.2 million NMR in circulation was released to data scientists in June). NMR's token has one of the smallest supply amount (2,248,632 NMR total supply so far).
A little change in its market cap is going to bring about huge swings in the token's price. Considering its $155 price at debut in June, NMR is somewhat cheap at its current $11 exchange rate.
While Numerai holds weekly tournaments that pay out in NMR, payout is also made in ETH (BTC got phased out in September). Cryptocurrencies are used to ensure coherence in payment to their international community of data scientists. Using NMR enables data scientists gain additional bonus to earn more.
NMR can be stored on any Ethereum wallet that supports ERC-20 tokens e.g. MyEtherWallet. The offline storage method lowers the tokens' exposure to hackers. It lets users create a paper wallet (with the private key) which can be printed out. Hardware wallets such as Trezor can also store it.
NMR is considered mined by data mining Numerai’s data, and submitting predictions as the proof of work. About 1.2 million tokens have been issued. About 14,000 new coins are issued every week or about 700,000 per year to reach a 21 million maximum cap.
NMR is deflationary in the sense that overfitted algorithms can have their NMR burnt. So data scientists have an incentive to stack the confidence in their predictions with actual tokens, put skin on the game. Its user base will grow as more NMR gets created weekly as rewards—a hard cap of 21 million tokens stands though.
Built on Ethereum, NMR is expected to scale at faster transaction processing rates. Ethereum's smart contract handles the generation and award of NMR. It also enables staking and the destruction of NMR based on the ranking outcomes.
Numerai also structured the distribution of NMR to grow in value. At some point, the team had to reduce NMR pay outs. It is to preserve the long term value of NMR held by data scientists and NMR to be earned in the future. It is also to make more NMR available for staking as there is less incentive to move it into the open market. There will be less pressure on NMR since lower payouts will discourage winners from selling their NMR after each round. The reduction will be supportive of a higher NMR price.