This is an intro to an immensely successful, professional, and in business terms, a valuable company that I initially invested in at ICO time, HIVE. I didn’t invest a significant amount of money but still asked an excellent whale friend what he thought first. He told me how stupid it was and how they would fall apart. I explained how this business model and the case is already in use, but lacks an adequate creditworthiness tracker and also doesn’t have the flexibility. He told me to go ahead if I didn’t mind throwing away the money. A little beaten down that I would fall for such a bad idea. Well, I did it anyway, and I couldn’t be happier.
You may be wondering what prompted me to disregard the advice of a long-time friend and individual who made millions from their intellect in crypto. I followed the rules.
#1 Never expect to make money when using emotion.
#2 If the White Paper explains mid-level technical details and is well written, look deeper.
#3 Do the admins respond to questions on their chat channel? (Telegram, Slack, etc.)
#4 Is there an existing Business use or a solid case for them to work?
#5 Is the team real? (Check their LinkedIn profiles, are they real people?)
#6 Is their project achievable? (I don’t care what you’ll get done in 10 years, businesses need a profit now, not when we’re all half android.)
#7 Can I keep the token in a real wallet, or does it require some unique, potentially non-secure custom wallet?)
Following my first rule, I threw all that emotion out the window and moved with a project that I saw legitimate value to the retail business community in Invoice Financing. I analyzed the White Paper; seeing all the technical material in there and understanding about half, I felt pretty good and was able to read it. Readability is essential as it goes to show the project owners dedication. The admins were incredible when I reached out on Telegram and Slack. International credit for retail outlets is routine business. As a sporting goods store needs to get its winter line-up of gear and clothing, they have 3–4 months to pay for that equipment from a factory, probably in China. This payment must be made as companies aren’t in the business of loaning their product, they need to buy more materials and pay their employees. There are times when the factory needs the money faster, 3–4 months on a significant order just isn’t going to cut it. Now, they can sell that invoice, get paid right now, in exchange for a little bit of interest, and the invoice buyer then makes a profit when the retailer pays. With HIVE, now anyone can lend that money, and the store’s credit is easily tracked with all previous transactions, payments or missed payments included. This all goes into a credit score, which isn’t so easily manipulated like typical businesses. Now the people behind the companies are tracked as well. No more changing names behind a failing business, the world is watching.
So what is HIVE made of?
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What is HIVE?
A blockchain based invoice financing tool that facilitates the relationship between retail businesses and investors in a decentralized manner.
Invoice — The bill a store gets for a product they have purchased, with the intent to pay, with interest, over a period of 3–4 months.
Invoice Financing — The factory that produced the product will accept payment over a 3–4 month period, with a little interest added on.
Invoice Factoring — The factory needs money to pay employees, buy materials, pay off their corrupt prefecture governor, etc. They sell the invoice, technically a liquid asset, not a loan, for a small fee. The factory will typically receive 70% — 95% of the invoice value up front, followed by the remaining 5% — 30% once the retailer pays the invoice.
SME — Small and Medium Sized Enterprises. I only spelled this out because it is regularly referenced throughout the white paper with minimal context.
Behind the scenes work is, as expected, insane. The invoice needs to be checked to ensure a creditworthy retailer has it. No way you want to buy an invoice for some con-artist company that changes ownership every six months and never pays its bills. Don’t buy bad debt. Then we need to verify the product was delivered. There are so many places for corruption and poor practice, which is why so few companies are taking on this niche, it’s tough. We also need to be aware of some clients not allowing invoice factoring because they had been burnt so many times. Imagine paying a quarter million USD$$ for an invoice, and it ends up being paid to the wrong account because of all the ridiculous amounts of paperwork on the back end, and one piece was misplaced, or one number mistyped. HIVE solves all of these problems.
HIVE focuses on small business, avoiding a massive battle with the big financing firms. They’re also focusing their initial efforts in Eastern Europe where many financers haven’t yet seen the potential. In this relatively untapped market, they have leveraged a proprietary risk algorithm to provide accurate predictions for invoice buyers to use in determining rates to charge or whether to buy an invoice.
The Technical Details
HIVE works on the Ethereum blockchain, utilizing smart contracts and encryption to ensure all sensitive information put on the blockchain is accessible to those with the need to know. They protect the privacy of the companies involved and provide security through blockchain’s immutability. This platform allows everyone to participate, from the little sandwich cart in your neighborhood to the national supermarket if they desire.
Problem/Concern #1 — All permissions to a company’s encrypted, private info resides with the group and HIVE. This is practical, however, leaves vulnerability as the company is such a central point of failure for all contract they hold.
Business Problem: Factories may create fake invoices, or submit duplicates in hopes of defrauding the buyer.
HIVE Solution: ERP Connectors. A history report of all previous validations of invoice submissions, delivery of quantity and quality of goods, and excellent delivery practices.
Business Problem: Useless financial data. A lot of small companies submit old financial info due to ease, and nobody cares. They typically have no benefit of transparency. This unknowingly increases the risk factor for invoice buyers.
HIVE Solution: HIVE knows this and has incorporated that data age into their algorithm to provide a holistic score and break down for buyers to make a fully educated decision. This allows buyers to make decisions based on risk factors they find most important, or just rely on the score.
Business Problem: Data formatting. Everyone has their preferred way of presenting information which makes it incredibly difficult to interpret and make a decision on. Often in business, this is a result of the desire to skew perception or mislead.
HIVE Solution: XBRL, the Open International Standard for Digital Business Reporting is used in more than 50 Countries and is being utilized to modernize outdated, paper-based business reports. This isn’t just adding technology; this is creating a clear framework for reporting with pre-defined terms to mitigate false or misleading information.
XBRL is like a barcode in the formatting and ability to change particular attributes to reflect specific changes. These reports also allow new information to be easily integrated into an existing report because of the tagging. Further Risk and Performance Reports just plug right into that section, without the need to generate a new report or spend 2 hrs reworking and formatting the entire report. Finally, technology being used to save people time and energy instead of treating it like digital paper records!
Business Problem: Calculating the Cost-Benefit and Risk are incredibly complicated and time-consuming with a great deal of room for error.
HIVE Solution: Calculations are the core of HIVE. Anything less and they would be another useless token claiming to do something.
Calculation Breakdown (AKA, Mathematician/Economist stuff. Feel free to skip)
Opportunity Qualification and Risk Assessment
The Risk Factor assessment is made with something called the Altman Z-Score Formula. This is composed of 5 points, profitability, leverage, liquidity, solvency, and activity. All of these points paint a picture of the company’s ability to pay their debts and succeed.
Z — Score = 1.2V + 1.4W + 3.3X + .6Y +.999Z
V — Working Capital/total assests
W — Retained earning/total assests
X — Earning before interest & taxes/total assests
Y — Market value of equity/total liabilities
Z — Sales/total assests
— — — — — Pretend numbers of a typical newb trying to start their “Dream” business — — — — — —
Variable — #/# Resultant # of variable — Actual Value in equation
V — 1000/10000 = .1 — .12
W — 100/1000 = .01 — .014
X — 1600 / 10000 = .16 — .528
Y — 8000/21000 = .38 — .228
Z — 1400/10000 = .14 — .139
For a small, “Dream” business, this is a score you do not want to get behind. 1.029
Anything below 1.5 is flagging some danger. Some more pointed examples provided in the white paper:
1. Original Z-Score for public manufacturing companies:
Above 3.0 Bankruptcy is not likely
1.8 to 3.0 Bankruptcy cannot be predicted-Gray area
Below 1.8 Bankruptcy is likely
2. Model A Z-Score for private manufacturing companies:
Above 2.9 Bankruptcy is not likely
1.23 to 2.9 Bankruptcy cannot be predicted-Gray area
Below 1.23 Bankruptcy is likely
3. Model B Z-Score for private general companies:
Above 2.60 Bankruptcy is not likely
1.10 to 2.60 Bankruptcy cannot be predicted-Gray area
Below 1.10 Bankruptcy is likely
Predictive Behavior Credit Scoring with Artifical Intelligence
Worry not; all will be scored. Not only are the retailers and factories being graded, but also the invoice buyers. Have they defaulted in the past, been late paying, conducted unethical business? HIVE is integrating a series of algorithms to automatically run analytics on large data sets to create scores for ALL parties involved in a potential transaction, while also masking their identifying info.
Problem: You may have some info about a particular company and don’t want to buy their invoices. Because of this masking, you don’t know exactly whose invoice you’re buying.
Smart Contracts are the assurance that the terms of the agreement are honored and that any unfortunate behavior is immutably recorded. This creates some potential for a problem when a misunderstanding occurs.
After the HIVE network is established with a robust customer and investor base, they will be able to begin building the liquidity pool to start benefiting investors. HIVE is encouraging more transparency in the business world by increasing the speed of scoring and financing. The transparency is the best way to spur on stronger investments and support, through ease of use. The option to allow transparency to selected 3rd parties ensures a delicate transition, keeping companies confident in their data, far more so than with centralized servers, email clients, and drop boxes. Automatic auditing and accounting features on blockchain will allow total transparency, far less human time and energy, and also immensely greater confidence in the company.
HIVE continues working toward the future, regularly making updates and gathering community feedback. In early February 2018, they decided to stop making the platform open-source because of all the work they’ve put into making this a cutting-edge technology. They’re doing their part as a business to ensure that we as investors have a solid asset that won’t be undermined by unscrupulous competition. The work they have done one trigger events and smart contracts is industry leading. I know I as an investor appreciate the due diligence.
HIVE is ensuring maximum usability, developing the first on-chain search function to ensure documents aren’t lost between the InterPlanetary File System and Ethereum storage locations. User roles are also being created, just like a normal file system with Admins, Vendors, Buyers, and Lenders or Investors. Each will have the ability to Read/Write/Execute only specific portions, ensuring maximum security, but total transparency for involved parties.
Referenced White paper — https://www.hive-project.net/whitepapers/Hive_Project_Whitepaper.pdf
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Originally published at Building Crypto Today.