Qtum ICO: Building the first UTXO proof-of-stake smart contract platform

Qtum will be a proof-of-stake, smart-contract compatible blockchain that can natively run both Bitcoin-based and Ethereum-based applications. Following a March 6th interview with the team, S+C has updated this report.

Update 3/20: We would like to offer several observations about the Qtum crowdsale, based on updated information. We typically don’t follow crowdsale developments and offer new analysis on a daily basis. There are too many exciting developments in the blockchain and token sale world.

We’ve commented on Qtum at three distincts points: (1) when we first heard about them months ago (2) immediately after the Patrick/Steven Dai scandal broke out and (3) after an interview with the team over a week ago. At the time, we based our conclusions on the data available.

We have more observations to draw upon at this point. We are now cautious about Qtum, and several things we hoped would happen following our latest conclusions have not happened.

  1. Prominent backers have not come out to publicly endorse the team or the tech. We had hoped the early investors would talk more about their endorsement. It is possible they don’t have the confidence or are simply not as involved as one might think. As we noted previously, even a crowd of investors can be fooled, but the silence of this group of investors is odd.
  2. The rapid raise to almost $10 million in less than 72 hours, in the face of public skepticism in many English-speaking blockchain communities, with the sale entirely through exchanges, likely means some exchanges purchased in bulk to support an IOU trading market. While Qtum doesn’t necessarily have control over this, they could have found ways to discourage this.
  3. We were hoping for a public Qtum-supported third-party review of their technology following a release of their code. We understand that not all projects will release code due to fears of competition. We noted such in our profile. In this case though, if the project was slated to release a code snapshot, with the goal of demonstrating technical progress, then this was an opportunity to make an announcement on their blog and recruit another technical third-party (who could sign an NDA) to comment on the state of the codebase.

Regardless, media in Chinese outlets and forums remains positive. The Steven/Patrick Dai scandal did not seem to register. There will likely still be a China-based smart contracts platform to emerge and rapidly scale. It could be Qtum. But the indicators we were hoping for to instill confidence in investors to wait until late 2017 for their tokens did not materialize like we thought they would.

Update 3/7: This memo has been updated to reflect new information learned during a comprehensive  interview with Patrick Dai and other members of the Qtum team. Smith +Crown asked the Qtum team about the state of their technology, the distribution of the Qtum token, the Qtum foundation, their relationship with BitSe, and their plans for the next year. We also added content noting the risks involved in having the token not released until the mainnet.

Update 3/2: Qtum has announced its token sale dates: March 16th – April 15th. They have also launched a new website, reopened their slack channel, and released several demos of their blockchain, including a technical walkthrough and a demo of a working qtum mobile wallet.

S+C Assessment

Qtum will be a proof-of-stake, smart-contract compatible blockchain that can natively run both Bitcoin-based and Ethereum-based applications. The Qtum team wants to take public distributed ledgers to the business mainstream.

From the standpoint of a potential investor and supporter, here are the key arguments for and against investing.

Key Strengths

  • Qtum is the first to implement a protocol based on both Bitcoin’s and Ethereum’s transaction models. Developers on either chain (or their variants) in theory should be able to port applications easily.
  • It is likely that the Chinese government will tend to support blockchain projects based in China. Qtum boasts technical innovations, a stellar team, and existing support within the Chinese blockchain community. If the Chinese government chooses to discourage blockchains not based in China, Qtum should make the cut–and be a platform of choice for a growing developer community.
  • Qtum has one of the most impressive advisory teams the blockchain industry has seen in awhile. The success of platform technologies like Qtum, especially enterprise-oriented ones, will depend on business adoption. Like Melonport, Qtum’s team has a collective network that touches many of the world’s largest companies.

Key Concerns

  • The token will not be distributed until the mainnet launches, slated for Q3/4 of 2017. Investors can’t exit early if progress is delayed or they get uncomfortable with holding the token: there is a real chance of having nothing if the project never reaches a mainnet. They will also need to trust all parties to not lose information about who invested how much and when. If those information are held by exchanges and not shared with Qtum, then investors must hope the exchanges don’t get hacked or shut down. Invested funds will also miss out on any rise in the market price, though increases in the overall size of the cryptocurrency industry could help buoy
  • While the governance structure is billed as a DAO, coinholders are only guaranteed the ability to vote in the staff of the Qtum Foundation. In addition, only 51% of the tokens are available during the ICO: 49% are held by the development team or initial investors in some way, although 29% will be held in transparent wallets until they are spent for various services in support of Qtum. Finally, the initial governance membership is set for two years, so coinholders will not have a say for awhile. When the community will elect 50 delegates to serve across all relevant committees, those delegates will then elect among themselves who serves on the over-arching Judgement Committee. This all matches one of Qtum’s core tenents: businesses want certainty before building on a public blockchain. It’s also not clear whether the 29% being withheld to pay for future services will be used in staking.
  • The ‘capacity’ of the development community to build on yet another platform chain will be tested. Bitcoin and Ethereum have emerged as the primary platforms on which people can build, but more have emerged in 2016 (Waves, Lisk, Antshares) and more are in development (Cosmos, Rootstock). If each curates its own developer and user ecosystem, there will be large network effects that will leave some platforms niche or mostly empty. Qtum’s purported compatibility with both Ethereum and Bitcoin apps could mitigate this, though the team hasn’t released working app ports yet.

Qtum Controversy: Patrick Dai’s exit from Bitbay

On February 21st, information surfaced on Twitter that linked Qtum lead Patrick Dai to the Steven Dai associated with the 2014 Bitbay scandal. Since then, accusations and suspicions have dogged the Qtum project. Click here to read a summary of what happened and Smith + Crown’s five key takeaways for investors.

Project Description

What is the project?

Qtum will be a proof-of-stake (PoS), smart-contract compatible blockchain that can natively run both Bitcoin-based and Ethereum-based applications. The protocol uses Bitcoin’s UXTO model of storing transactions, while also supporting oracles and two types of smart contracts. Applications built for Bitcoin, Etheruem, or either of their derivatives, should be able to port easily. The team is stacked with talent and experience, especially in business, and has framed Qtum as a the public ledger most prepared for business dapps.

  • Bitcoin + Ethereum compatible: Qtum uses many features of the Bitcoin core blockchain, particularly its UTXO approach for storing transactions. This makes individual coins traceable. Qtum has a layer that abstracts the UTXO data into something the Ethereum Virtual Machine can read. This allows it to interact with both Bitcoin-based and Ethereum-based applications. Qtum will actually make this feature open-source, so any UTXO chain can use it to integrate with an EVM.
  • Protocol Governance: Qtum will have a unique governance approach that is a hybrid of recognizable corporate governance, management models for open-source software, and blockchain-based consensus. The Qtum Blockchain Foundation, a Singapore non-profit, oversees the codebase, helps promote cohesion in the community, and represents Qtum to the external world. 50 people will staff one master committee and four sub-committees, with members serving two-year terms. Initial membership is already defined but the community will elect 50 representatives when their term is over.
  • Master Contracts: are smart contracts that can execute based on off-chain or on-chain factors. Current designs of smart contracts are limited to checking on-chain data, so sources of off-chain data (oracles) must publish data to the chain itself; then whenever the smart contract is executed and verified, it checks readily-available on-chain data. Qtum has proposed a way for trusted data entities, such as official institutions or organizations, to provide data off-chain that master contracts can access.
  • Proof of Stake: The team will use Blackcoin’s proof-of-stake consensus model. Their outreach has led them to conclude businesses are not comfortable with a proof-of-work consensus model. Using a PoS model with some semi-trusted nodes would assuage CEOs that a rogue mining outfit or state-sponsored hashpower attack couldn’t disrupt the network.

In the future, Qtum will also have a native identity module that will provide users who register with a special designation that dapp developers and businesses can integrate with their on-chain activities. Some businesses are understandably uncomfortable with the thought of anonymous users. Identity could be solved at the application layer, but a native module would take the burden off developers. Users could still use Qtum without registering.

What is the token being sold?

The Qtum token serves multiple roles on the network. It’s used to pay fees, determine the distribution of newly minted tokens through a PoS mechanism, and grants holders voting rights in the Qtum governance organization.


Qtum tokens will be used to pay fees associated with executing smart contracts (similar to Ethereum’s Gas). Their draft white paper states: “Although Qtum uses the gas model from Ethereum, it is expected that the gas schedule (gas price of each EVM opcode) will significantly differ from Ethereum. This is because in Qtum some operations are more expensive than in Ethereum, and some operations are cheaper.”

Proof of Stake Minting

Token holders will be able to passively collect mining rewards by setting up a minting node and participating in consensus. Like other PoS schemes, validators will be required to stake some amount of their token holdings to earn rewards. Coin age and the size of the user’s stake will determine the distribution of rewards. Initially, Qtum tokens will be emitted at a rate of 1% a year. However, that rate may change in order to support a growing number of minting nodes.


Many of the most important governance and business decisions will be made by the Qtum Judgment Committee, which serves many of the same functions as the board of directors would at a traditional corporation. The Judgement Committee consists of 9 core members. Every two years token holders will vote to elect 50 delegates. The delegates will then choose members to serve on the Judgement Committee. According to the economy white paper, the weight of votes will depend on the “quantity and age of Qtum tokens possessed.”

What are the sale terms?

At the time of writing, Qtum hasn’t released detailed sales terms. However, they have released a list of (primarily China-based) exchanges that will be participating in the ICO. Qtum tokens will be available to purchase during the ICO from Bizhongchou, Yunbi, Yuanbao, Allcoin, and ICO365, though they say the list might change before the ICO start date.

On March 2, they announced that they plan to conduct KYC on all customers (through the exchanges) and will not offer Qtum tokens through a ICO website.

Token Distribution

Initially, only 51 percent of Qtum tokens will be allocated to ICO participants. 20 percent will be distributed to the founding team and early investors and 29 percent will be used fund future research and development efforts.

Research and Outreach (9%): The 9 percent allocated for research and outreach will used to support the development of blockchain labs at universities in Asia. Outreach funds will also be used to foster relationships with Ubuntu, Linux, Firefox and other members of the opensource community.

Business Development (20%): At least 10 percent of business development tokens will be used for third-party development on Qtum, with the exact programs to be developed and managed by the Qtum Foundation. Up to 10 percent of the tokens allocated for business development will be used to facilitate coin swaps with other blockchain networks, which the Qtum team hopes will encourage interchain collaboration. The swap will work like this: up to 10 percent of Qtum tokens will be used to obtain an equal proportion of tokens on another network, such as Ethereum. Qtum tokens will be distributed to all Ethereum users based on the size of their token holdings. Likewise, Qtum token holders will receive an allocation of Ether based on the size of their token holdings. Assuming that the leading communities of different blockchain networks could come to an agreement, this type of coin swap could benefit users on both networks.

Team and Early backers (20%): By the end of the ICO, early backers will control 7-8% of Qtum tokens in return for their combined $1 million dollar seed investment. The founding team will control the remaining 12-13% of tokens.

Over time, proportional ownership of Qtum tokens will shift towards the community as new coins are minted and the Qtum Foundation uses their share of tokens to finance development efforts. Four years after launch, Qtum estimates that 80 percent of tokens will be owned by the community. The 29 percent that will be used for research, outreach, and business development will be held in wallet addresses anyone can view. The Qtum Foundation will determine how and when they get spent.

The Qtum token will be released with the mainnet, tentatively set for August / September 2017. Qtum doesn’t plan on distributing an IOU token, but individual exchanges may issue them and allow trading on Qtum redemption tokens to begin before the mainnet launch.

What is the project status?

The State of Qtum Technology

Development of the Qtum core began in March of 2016. Since then, the Qtum team has expanded from a team of three developers to a team of more than a dozen developers with diverse backgrounds and specializations. In a recent interview with the Qtum team, Patrick Dai confirmed that they have a completed but “buggy” internal test net that isn’t public. A video of  a demo of the Qtum core test net was made available on the Qtum website. The video demonstrates how Qtum might be used by business to improve their supply chain management. Another demonstration video shows how Qtum has developed mobile applications that make it easy for developers to design smart contracts using an android smart phone, make payments using an apple watch, and manage accounts from a phone.

According to Jordan Earls, the lead developer on the Qtum project, the mainnet will go public by the end of summer 2017. The testnet still needs to undergo significant debugging, stress testing, and optimization. Prior to the official release, around June 2017, a public testnet will be launched along side a bug bounty campaign. On Monday, March 13th, two days before the ICO begins, Qtum will publish a snapshot of their core code on Github. Patrick Dai and Jordan Earls say that the snapshot will prove that the team has made significant progress developing the Qtum network.

The Qtum team has been criticized for not making their code publicly available on github. In an interview with Smith + Crown, the Qtum team gave three reasons for delaying the publication of their core code.

  1. Maintain a competitive edge: Qtum’s innovative accounts abstract layer, the technical solution that enables proof-of-stake consensus to work with an UTXO account model, could potentially be implemented on any blockchain using an UTXO model. The Qtum team wants to avoid competing with forks of their own technology before their products are market-ready.
  2. Delaying management of developer communities: Once the code is public, the Qtum team will need to devote resources to managing a comprehensive bug bounty campaign. For the time being, they are prioritizing development of the testnet.
  3. Market-ready approach: The Qtum aims to deliver a “complete product” at the time of code release. This will ultimately reduce the time required to complete the bug bounty campaign and third party code auditing, allowing the team to launch a mainnet as soon as possible.

Initial seed funding

Qtum has already undergone an initial round of funding. Their earliest backers are an impressive cohort of Blockchain entrepreneurs that includes Anthony Di lorio, one of the original founders of Ethereum; and Weixing Chen the founder of Kuaidi, a ride hailing service that outcompeted Uber and contributed to their decision to leave China.

To date, Qtum has secured at least $1 million in seed funding in exchange for 7-8% of Qtum tokens, giving a rough valuation of $12 – 14 million.

Early projects

Qtum has already has a few significant dapp projects in development. Spring Mail promises to make sending cryptocurrency as easy as sending an email with a new Blockchain integrated Simple Mail Transfer Protocol (BiSMTP). Spring Mail works with existing SMTP protocols to facilitate the transfer of cryptocurrency between users.

In a similar vein, Qtum will also build a wallet called “Qloha” on WeChat’s new “mini programs” platform. The WeChat wallet would allow users to send QTUM to other users as well as purchase products from WeChat store fronts.

Neither of these Dapps will be operational until after the launch of the mainnet. The Qtum team doesn’t plan to announce any other major business partnerships beyond Spring Mail and the WeChat wallet.

Who is the team behind the project?

Qtum has assembled an impressive advisory team from the Chinese Blockchain industry. However, in light of the issues surrounding Dai, there is obvious reason to doubt the credentials of the development team. The Qtum English webpage does not provide surnames, Chinese names, or links to third-party identify verification like LinkedIn or GitHub; however, full names of team members can be found in the economy and technical white paper. As we note above, we recommend the team provide full names, links to previous work, and verification of their involvement in the project. To our knowledge, no one has proven information in the brief team bios was falsified, though Dai’s former involvement in BitBay was not disclosed.

Connection to BitSe

The development team has close ties to Bitse, a Chinese based blockchain project targeting business applications. The idea for Qtum reportedly grew out of Patrick’s work as CTO at BitSe. Patrick, Neil Mahi (BitSe’s Chief Blockchain architect), and Jordan Earls decided to create Qtum based on their experience working together at BitSe. BitSe developer Time Markov is also now a developer for Qtum. Patrick Dai is still listed as the CTO at BitSe, and Neil, Time, and Jordan are all still listed on the BitSe website as team members. DJ Qian, the CEO of BitSe will be a member of the Qtum Foundations Judicial Committee, which was made transparent in the economy white paper. Based on Smith + Crown’s interview with the Qtum team, it seems like Qtum was incubated out of BitSe and has its full support for developers to work full-time on Qtum.

Team member identity

Five team members don’t seem to have easily discoverable online identities, including Neil Mahi, Dong Baiqiang, Mike Palencia, Amelie Zhao, and Time Markov. However, Time and Neil are listed as members of the development team at BitSe.

It is possible to locate the GitHub repository of Jordan Earls, Qtum’s lead developer. This contains numerous code reviews of other altcoins, though it has not been active for a year. He does not appear to have an easily-discoverable LinkedIn profile.

Developer Caspal was formerly employed at Baidu as a quality assurance developer, China’s most popular search engine, often described as the “Chinese Google”. He was also the target of accusations that Qtum faked his Rubik’s Cube record, but those claims were debunked.

Alex Dulub is the CEO at PixelPlex Inc., a Belarus-based Blockchain development lab. He has more than 10 years of experience working as a full-stack web developer.

Roman Asadchiy is a Project manager at PixelPlex with a background in business analysis.

Brett Fincaryk has more than 11 years of experience in Linux server management at Userful.

Official Resources

Update: We have also updated this to clarify our earlier statements about the “impressive team” as referring to the advisory team. We also updated our team section to acknowledge that many (non-advisor) team members don’t have verifiable identities, though as we noted, Pascal’s Rubik’s Cube record can be verified and lead developer Jordan Earls does have a GitHub account.