Insight On CryptoCurrency From Distinguished Thought Leader — Steve Eliscu
I had the pleasure of interviewing Steve Eliscu of DMG Blockchain Solutions, Inc. Steven Eliscu is a brilliant thought leader in the crypto space and he shared with me his take on the future of cryptocurrency.
- by Gene Swank, On the bleeding edge — Tech Interview Series
I had the pleasure of interviewing Steve Eliscu of DMG Blockchain Solutions, Inc. Steven Eliscu was most recently Head of Finance at Bitfury, a leading blockchain and cryptocurrency company. Prior to Bitfury, Steve had his own consulting business, during which he was part of a corporate development team that executed a half-billion- dollar acquisition. Prior to that Steve was an equity research analyst at UBS for 9 years, during which he covered semiconductor companies with an aggregate market cap in excess of $200 billion. He has also worked in executive marketing and business development roles in the semiconductor and network equipment sectors. He holds a Masters of Business Administration from the Booth School of Business, University of Chicago (with an exchange program at London Business School) along with a Bachelors of Science at Rensselaer Polytechnic Institute and
Gene: Thank you so much for taking the time to speak with me. Please give us a brief overview of your background and how you got started in this industry.
My dad worked at Bell Labs and the early days of the computing industry, which inspired me to do similar. I started in the tech industry in the late ’70s as a student when digital TV was science fiction, and I’ve been involved in tech my entire career. I’ve watched Silicon Valley evolve from the time the Japanese dominance in the chip market was peaking to the early battles of the Apple Mac vs IBM PC to it becoming the powerhouse it is today in Internet, Cloud, Social Media, Artificial Intelligence, Security and Blockchain technologies.
Gene: Can you please tell us more about what your company does? I love learning in the crypto space, so please feel free to geek out with me on this.
DMG is a diversified cryptocurrency and blockchain platform company that is focused on the two primary opportunities in the sector — mining public blockchains and applying permissioned blockchain technology to address the fraud and friction that plagues the movement of value through supply chains. DMG has accomplished a great deal in its short amount of time as a company, having secured significant amounts of power for expanding its large-scale industrial mining operations, engaged on numerous blockchain platform opportunities, with some projects already underway and forged numerous strategic partnerships including Element Fleet Management announced in late 2017. With a view to our market opportunity as a whole, bitcoin mining could generate upwards of US$10B of revenue for the industry in 2018, so clearly this is a big market, let alone the revenue for mining other (Proof of Work) cryptos that collectively are worth a similar amount. Additionally, as fraud worldwide potentially consumes 5% of global GDP, which would equate to US$4T, assuming blockchain platforms could capture 10% of that as revenue, the total available market could ultimately be an order of magnitude larger than mining. DMG’s strategy is to become domain experts in supply chain verticals across many industries — not only agriculture but also pharmaceuticals, energy, precious metals, transportation, financial services and manufacturing — that allows us to be a broad market leader. DMG will utilize permissioned blockchains such as Hyperledger and Quorum to address these applications given we can tailor the solution to meet the market requirements with far few constraints on key performance metrics such as throughput. Also, let me give a few words about blockchain technology itself. Optimists look to Blockchain technology, which provides an immutable truth, as a force for good in the world. However, I have lived through the early Internet days when optimists thought it would enable everyone to become walking encyclopedias; if anything, we’ve become more reliant on Google (we now keep search terms at our fingertips rather than actual facts), and we are more susceptible to biased and fake news that has made our society more divisive. Blockchain is technology and it doesn’t care if people use it to do good or bad — it’s like the honey badger.
Gene: Who are your competitors in this space? What makes your company stand out?
DMG has numerous competitors, some of which are pure miners and some of which address various blockchain platforms, mainly for financial services. DMG stands out because of its diversification and commitment to be a technology leader that can drive long-term sustainable value. Diversification is evident by our strategy of mining public blockchains and providing platforms on permissioned blockchains. Longer-term, we plan diversification within those areas more cryptocurrencies, more blockchains, more vertical applications. Additionally, there is also an opportunity to synergistically combine AI and blockchain technologies, but we’ll save more on that for a future interview.
Gene: What sort of traction have you guys gotten so far? Are you a well known brand? Still in the startup stage? Or somewhere in the middle?
We’re a start-up, but one with significant customer traction, revenues, and assets already. DMG has raised $35.1 million (CAD) in two funding rounds, and we are already profitably mining bitcoins for a group of Japanese bitcoin investors. Given our access to the capital markets and the strategic relationships that our founders have, DMG has skipped so many stages in the traditional VC development chain. Cryptocurrency mining currently generates about $20K of revenue per megawatt of mining capacity, every day, so it is easy to see how a mid-sized mining farm of 10–20 megawatts can grow quickly to be a very big business. While DMG’s business model is largely about providing hosting mining services on behalf of third parties, we have a diversified business model that will include blockchain software development as well as blockchain forensics and cryptocurrency data analytics services for Wall Street.
Gene: What is the most innovative project that you have ever worked on?As I worked on Wall Street for 9 years during the mid-section of my career, I’ve had the chance to observe lots of innovation, but clearly the crypto industry market cap explosion in 2017 from well under $100 billion to a level that rivals Apple is something that is unrivaled in the history of technology. While many have called it a bubble and some even a fraud, I feel privileged to be a part of this industry and to now be in a position with the DMG team to help determine its future direction. With respect to the technology, what has accompanied Blockchain is a type of democratization of technology development. Even in a less sensationalized version of Brotopia, Silicon Valley is a very insular place with respect to who invests and who gets invested. What makes crypto stand apart from recent prior technology waves is that none of the major cryptocurrencies were directly funded by the major Sand Hill Road investors (with Coinbase as the only notable major VC crypto success to date), while many of the newer projects are being funded from winners in the earlier cryptocurrencies. This virtuous circle has big implications not only for the development of new crypto ideas but technology at-large. Technology has been a winner-take- all business exactly because of the historical efficiency of centralization — i.e. businesses are natural monopolies that become more efficient as they crowd out competitors. Blockchain technology can fundamentally disrupt the incumbent behemoths Google, Amazon, Uber — as this breakthrough now can result in cost-effective decentralized models, as now the trust function becomes completely automated. As an indicator as to how this could play out, PayPal has about one-third the market cap of bitcoin, yet for 2017, it will have about $11 billion of operating expenses versus about $1 billion for the Bitcoin network. Even as Bitcoin’s network operations cost will rapidly rise in the next few years, it will still be less than this one single closed payments company for the foreseeable future.
What are some up and coming coins that we should keep on our radar?Litecoin is certainly one that has been overlooked with all of the excitement over the past year but it still remains in the top 10. With Litecoin inventor Charlie Lee helping to lead the charge on technology improvements, we are likely to see Litecoin adopt new technologies ahead of Bitcoin and light the path for Bitcoin to improve with advances in scaling, smart contracts and privacy. Thus the early days’ view of the technology as digital silver (to Bitcoin as digital gold) was prescient and will likely remain as the two technologies complement each other. Cardano certainly looks interesting as an Ethereum 2.0, but Ethereum is not standing still, and Cardano has yet to deploy. Alternatives to utilizing a blockchain such as IOTA and RaiBlocks are interesting development projects, but could easily be eclipsed given outdoing the basic blockchain database structure is non-trivial. Solving the big public chain’s problem of high-cost transactions may be more readily solved with layer 2 technologies such as Lightning (at least near-term). What is most interesting about all of these solutions is that they attempt to solve real- world problems for recording and transferring value in the most cost-efficient, secure manner in a decentralized fashion. Unlike centralized tech projects, it’s not necessarily a winner take all business, and we may see more fleeting protocol transitions, as so much value creation is going to beg for disruption of the disruptors.
What is your opinion on bitcoin? Is it still a good investment?
Yes. I recently was quoted in the press that Bitcoin could increase in value 5–10x in the next 5 years. Bitcoin has increased in value every year since inception except in 2014. However, past performance is not an indicator of future returns, so the key issue is if there will be applications that drive further appreciation. Immutability and the inability of governments to control bitcoin are killer applications in themselves. As the network grows more immutable via more computational power being added, in turn it drives more value appreciation, which powers the virtuous circle. Immutability is not an end in itself but rather can be applied to ensuring the security of the highest value transactions as well as assuring immutability of permissioned blockchains.
What sort of regulations do you think we can expect to see in 2018? How will it impact the industry?
Regulations are always a wild card. We have seen China and now more recently Korea regulate exchanges and the trading of cryptocurrency. The price of cryptocurrency has historically recovered from setbacks whether it be regulation or uncertainty related to protocol development. 2018 could see real development of a national cryptocurrency, whether it be Venezuela or Estonia. We think this could actually benefit Bitcoin, as a national cryptocurrency is an oxymoron of sorts — single entities don’t control public cryptocurrencies, as no one controls public cryptocurrencies — that’s the whole point. Ultimately regulation will always be an overhang for the sector, but as it matures and becomes a larger part of our economy, regulators will be forced to focus on consumer protection and security rather than figure out how to control technology that cannot be centrally controlled.
Gene: Who is your hero (In your business or personal life)? How have they inspired you to become the person you are today.
Much of my career has been in the semiconductor industry, and two CEOs by far have helped created the most value in the past few years — Hock Tan, Broadcom CEO and Jen-Hsun Huang, NVIDIA CEO. As I was an equity research analyst, I know both personalities and the respective companies. Both companies now have in excess of $100 billion market cap and grew to that size based on totally different strategies. NVIDIA largely did it organically, as it is not only riding the cryptocurrency mining wave, but also its products have seen rapid growth in artificial intelligence and automotive applications. Broadcom, and its predecessor company Avago, largely grew through the most skilled set of acquisitions ever executed in the semiconductor industry, which had shown a very poor track record for acquisitions prior and hence was ripe for rapid consolidation.
Gene: If you could jump into a time machine, go back in time, and change one aspect of your past, what would it be, and why?
I personally had the chance to go to Columbia University as an engineering undergrad, and I was turned off by the rampant crime that was present in NY during that time. Even as New York has become a much safer city, it was always a great city, and I know it would have been a great experience. I enjoy great cities, hence it is fantastic that DMG has a presence in both the San Francisco Bay area and Vancouver.
Gene: How will the work your team is doing impact humanity in the future? For example, bringing people closer together, creating more jobs, create killer robots that will destroy all of humanity (joking), etc.
Our focus is to be a key enabler for the new great trust machines — Bitcoin and potentially other public blockchains — as well as to make legacy supply chain systems work better using permissioned blockchains. The technology has the opportunity to greatly reduce fraud and friction as value moves from one hand to another, and ultimately, the efficiencies created should result in more wealth creation. We have seen that slowing GDP growth has been a result of slowing productivity gains, especially over the past decade, and just as we saw in the personal computing evolution take hold in the 1990s, it took a while for a critical mass of that technology to build in order to realize meaningful productivity gains.
Gene: Throughout our careers, we have all run into a few roadblocks. Can you please tell us about a time that you failed? How did you motivate yourself to keep going?
For your readers, I would much rather focus on key enablers for success. I believe much of what it takes to succeed is recognizing that it is a numbers game — so much is out one’s direct control that it is virtually impossible to get an idea right on the first go. The opportunity for success is to quickly learn and revamp that strategy — much like applying “The Lean Startup” principles to one’s own career. The other key issue is to be able to project oneself with confidence. This means being properly prepared ahead of any conversation, no matter how minor (even if it is only 60 seconds of mentally reviewing key points) and stating those points in a way that commands the conversation.
Gene: What are your 4 tips that you would give to an inexperienced investor?
1) Start investing at a young age.
2) Manage risk through diversification and owning a spectrum of investments with various risk/reward profiles. It’s okay to invest in bitcoin as long as it’s not a major part of an overall portfolio. And even within crypto, active investors should have a core amount in bitcoin and ethereum, with some minority portion in other cryptos such as Litecoin, Dash, Monero and even speculative cryptos such as Cardano, the markets are willing to value new cryptos with very limited track record, providing the opportunity for much more upside in a shorter period of time versus traditional investments. My rule of thumb for crypto and technology investing in general is to go where the developers are flocking.
3) These days, to invest in the traditional markets, often it is best to own an index fund, ETF or invest via a robo-advisor, all of which can provide diversification almost for free. For investing in individual stocks, find good advice by reading and listening to various points of view. Wall Street analysts can give good perspective into what is driving a company’s business model (e.g. new product cycle, accelerating growth, increasing margins), but it is often difficult to know as an individual investor if that is already priced into a stock.
4) Consider one’s career as an investment. For example, working in the crypto space makes one much smarter about the value creation opportunity and some of the new opportunities. While bitcoin may have more limited appreciation going forward than it has had historically, blockchain technology is nascent, and there are potentially new very important projects that have yet to be imagined. Being early in nascent technologies is a way to directly realize on making smart investments.