Crypto Numismatica Koreana
Sep 7th, Yonsei University Millennium Hall, after the closing of the ISACA Korea and Barun ICT Research Conference focused on the Audit, Control, Privacy, Security of the 4th Industrial Revolution era, a group of four attendants are chatting casually about their programs for the evening and the weekend. They look like ordinary STEM MSc/PhD students, IT software developers, more geeks than nerds, wearing t-shirts, blue jeans, sneakers and backpacks. One of them has an eco-bag with a partly legible logo of a blockchain event or company “Disrupt …”. After starting to discuss about the conference, the seemingly leader of the group, who introduces himself as a venture capital investor in blockchain startups, asks the teammates to start moving to the next event of the evening. They have to attend the presentation of a blockchain startup ICO (Initial Coin Offering) in another part of Seoul, around one hour and half away and invites us to join as well. During the ride on the bus and the subway this group of friends reveals itself as one of many digital or crypto numismatic gatherings in Seoul, sharing information about ICOs and presentations of digital currencies in Kakao, Telegram and Meetup sites.
B0103 and the genesis block
Their chat group and team is called B0103 (Blockchain January 3rd) to indicate the date, when in 2009 the Bitcoin network came into existence and the first Bitcoins (BTC) were released to the public. As a matter of fact the genesis block of Bitcoin (aka block 0) with a mining reward of 50 BTC has embedded in its coinbase the following text: The Times 03/Jan/2009 Chancellor on brink of second bailout for banks. According to a Wikipedia page about the history of Bitcoin, the reference to the headline of the Times newspaper has been interpreted as the first timestamp of the genesis date of Bitcoin and also a derisive comment on the instability caused by the fractional reserve system.
There seems to be probably an unknown but agreed practice not to reveal real identities, names and professions, depending on personalities. In the following recount we will respect this code of conduct. The seemingly group leader, nicknamed Huni Lee (HL), recalls that he has started to research Bitcoin and blockchain around two years ago. With a background in mathematics, memberships in more than eight hundred chat groups between Kakao and Telegram and invitations from new ones coming weekly, he admits that, what started as a hobby out of simple curiosity, has evolved almost in an obsession: pointing to the neon lights of shops in Seoul, he says that they all look like the logos of cryptocurrencies. In the subway another member, nicknamed Andy, whom HL jokingly introduces as the Chief Marketing Officer (CMO) of the group and in charge of public relations, explains that he has been attending blockchain events to evaluate and invest in cryptocurrencies for the last two months. A former store manager of a Starbucks coffee shop in Gangnam, but without possibilities for further career promotions, he decided to quit his job to find new opportunities. On average he attends three or four evenings per week and two or three ICOs presentations per day. Cryptocurrencies are usually released through these informal and currently non regulated crowd sales. After attending many ICO roadshows in Seoul of local but mostly foreign blockchain startups, B0103 members have a very clear understanding of this environment. Another member, CKC (Crypto Knights Club) does not speak to strangers and wears a black anti particlesmask, caused by a light cold.
“Are cryptoassets currencies, securities, commodities or utility tokens?” HL replies that they may be all of them of course, but at the moment the best application of blockchain seems to be currencies as Bitcoin. “How can you evaluate these crypoassets?” HL explains that there is not yet a proper way or mathematical formula to assess the value of cryptoassets and also blockchain startups, given that the technology is still at its inception. He is however convinced that widespread adoption is only five years ahead. ICOs and new cryptocurrencies can only be evaluated verifying their use case, reading the whitepapers (notwithstanding how badly written they might be) and directly meeting the team. In these respects the B0103 team is basically functioning like a mini venture capital firm. “What do you think of these mushrooming ICOs?” the reply is razor sharp “Mostly scams”. There is a thin line that separates genuine ventures destined to failure from fraudulent operations or paper startups. In this exploratory and unregulated phase of blockchain history there are many promises made by crypto startups in whitepapers and ICOs, that not only will not but can not be fulfilled later in the distribution of these cryptocurrencies, tokens and coins. “How are you investing or why are you attending these events?” CMO is very honest: “For airdrops, bonus sales and other promotional benefits for early adopters, with free food, drinks and gadgets such as t-shirts”. The reward system is a clear mechanism, but at its core is also a sad one. A MIT research once studied how to persuade individuals in organized groups: their result was in extreme synthesis either through fear or greed. Even the ISACA and Barun ICT Conference, which is not usually a sold out event, was almost full that day, because there was a lucky draw with digital gifts at the end. The time spent attending the event is rewarded with the possibilities of winning more than simply knowledge and networking. This concept can really undermine the core of the advertising industry. Beam Wallet, a digital and blockchain solution for the retail industry, is built exactly on that reasoning: why companies should invest money on promotional campaigns that are ineffective, because of the banner blindness of consumers in saturated websites and newspapers? Why not just simply give cryptocurrencies, tokens or digital coins to users and followers, willing to adhere to certain behaviors (e.g. reading or watching advertisements) or mutually beneficial conditions?
Ankr Network
To enable Distributed Cloud Computing (DCC) on trusted hardware built on a blockchain platform is in essence the mission of Ankr Network, a crypto startup that came to Korea after presenting in eight cities in different countries around the world, before leaving for Shanghai and Beijing. Lacking the technical background to assess in details the validity of this solution, we remember however the screensavers running on Win98, using idle computing power and time to help NASA astronomy projects. The idea to apply DCC with blockchain and the PoUW (Proof of Useful Work) seem really brilliant, the credentials of the founding and advisory teams are impeccable, the whitepaper, website and SNS channels are very curated. So why are they having their roadshow in a wedding convention center in Songpa, far from Gangnam, where posh startups offices are located? Why in front of only twenty attendants, when in Vietnam and Russia allegedly they gathered an audience of four hundred people? Why do they have to change interpreter in the middle of the presentation? Why does it take ten minutes to solve a glitch in showing their demo video of the application in action? Why does the co-founder COO has to ask the audience, which cloud computing company is the market leader in Korea? No time to prepare before coming and is it the eighth time?
But above all is technology only driving innovation? Shouldn’t powerful daring bold ideas try to solve similarly heroic problems in our society through the means of technological advances? Why spend two third of the presentation on technology and really little time on the problems, the customers needs, the addressable market, the incumbent competitors, the strategy, the possible problems in execution, the inherent risks, etc.?
At the end of the presentation scheduled to be two hours long (synthesis lost in translation), HL asks smiling “Isn’t it interesting to be here? Isn’t blockchain really fun? Is it?”. The Ankr presenter is now down the stage, distributing himself from a wicker basket the physical steel tokens with an anchor logo in front and a QRcode in the back, which can allocate four hundred USD of value, if subscribing to their website. The meetup ends with a group picture and before going to the stage, HL wears the Ankr t-shirt exclaiming: “Yes, we came for this!”. He ignores in how many group pictures he might be on Facebook, Twitter, Telegram, Medium, Kakao, but a face recognition software can probably find that he is one of the most recurring attendants in these blockchain presentations in Seoul. Three other members of B0103 have joined the meetup: Paul, the literature professor turned crypto investor, who diversified most of his investment portfolio in virtual currencies and tokens; the reverse ICO expert and a cloud computing IT manager. The group is now moving to the last event of the evening in Gangnam for a party hosted by a foreign crypto startup for the community of blockchain enthusiasts in Seoul. Before leaving, the Professor and the ICO expert explain the origin of the name of the group and predict a natural death of ICO crowd fundings in Korea early 2019. In their view less and less investors seem to be willing to fund these extremely risky projects, which are very difficult to evaluate, while reverse ICOs (when already established, funded and/or listed companies run an ICO to distribute a cryptoasset or token in their ecosystem) may be the new trend in blockchain funding.
Crypto market capitalization
During a Beyond Block Summit Seoul panel discussion themed “Entering the Korean Market (a 101 Insight)”, the moderator, Alex Shin COO of Hashed, mentions that by the end of 2017 Korea accounted for seventy seven percent of daily transactions for Ripple, eighty eight percent for Quantum, forty five for Ethereum, sixty five for NEO, Stellar, Eos and other major coins. In that same panel Sinhae Lee, partner of Block72 and GBIC, confirms that Korea is an important global market for retail crypto investors, having had at some point the highest transaction volume per capita (six times the US and thirty times of China), while the forty five percent of global Ethereum transactions in Korea was traded at “Kimchi” premium prices (i.e. thirty percent higher in Korean exchanges than in other countries). She also lists several reasons behind these figures: 1) Korea is a hyper connected society with fastest internet connections, very high mobile penetration and 24/7 banking systems; 2) when the first futures and options were introduced in the country, Korea was a financial global leader in transaction volumes and still today remains one of the top world markets for derivatives transactions (according to Statista.com in 2017 Korean derivative exchanges ranked tenth in the world by number of contracts traded); 3) Korean investors are very open to new asset classes and new financial products (as Korean consumers are early adopters of high tech products and solutions). Korean savers are focused mostly on investing in real estate and domestic securities, now saturated markets, and the ban on gambling leaves few alternatives for risk tolerant investors.
Korea is also one of the biggest market for global luxury companies and even uber luxury (the non plus ultra in the industry). Sales of Bentley and Maserati in the country overcame Japan sales in 2015 and 2016. Emulation is so strong that new trends spread virally online and through social networks very fast. Another reason behind the easy acceptance of crypto currencies in the Korean society is the popularity of videogames at every age groups. Video games and online gaming are now a huge industry from software development to main stream entertainment. Many blockchain entrepreneurs and personalities have a background in videogames, where token economy has seen one of the first real applications.
To put it in context, however, global crypto markets represent only a very small fraction of global financial markets in terms of market capitalization. During a casual discussion there was a hint that Micheal Novogratz, the Ceo of Galaxy Investment Partners, former partner in Goldman Sachs and Fortress hedge fund, said that crypto markets are the size of a fly compared to an elephant of traditional financial markets. We could not find a written reference or the video of this citation, but a visual rendering of that comparison can be found in The Money Project in Visualcapitalist.com infographics site.
The whole infographics is very powerful in giving a perspective of the differences between digital asset markets and incumbent financial markets in valuation and dimension.
Déjà vu?
In 2000 at the climax of the Dot.com bubble, stocks of companies with name sounding like Internet, were suddenly increasing, because the hype was so strong, that retail investors were buying impulsively without checking the underlying business operations, in fear of missing out an almost sure stock rally. The satirical HBO show “Last Week Tonight with John Oliver” run an episode on cryptocurrencies and blockchain last March, describing the same situation for companies with names including blockchain.
Numismatics is a niche hobby in Korea that seems to be growing in popularity. Although local communities of collectors are small and not developed as in Europe or US, there are regular auctions and even a YouTube personality. It is likely that the digital crypto numismatics outnumber the collectors of old and rare Korean coins minted in the history of the country. It is simply too easy to install a crypto wallet app in your smartphones and start investing or collecting digital currencies through exchanges, ICOs, airdrops, private/bounty/bonus sales, etc. The high weight of transactions originated in Korea is also not a certain indicator of a mania or bubble, but it cannot but remind of the irrational exuberance term, former Fed Governor Alan Greenspan used during a speech in 1996:
“But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”
The possibility of a contagion from a crash of crypto currency markets to real economies seems to be remote and limited for several reasons: digital currencies are only a small fraction of global financial markets and real economies; crypto asset evaluations have decreased significantly in recent months; connection from digital to real economies are not straightforward (e.g. bitcoin billionaires cannot convert so easily their fortunes in less volatile crypto currencies or USD or EUR); financial markets have become more resilient after the Lehman Brothers default. Many investors explain that crypto assets are uncorrelated with other investment products and diversifying in cryptocurrencies can improve the risk return profiles of portfolios, but it is not clear where the underlying risks of crypto assets originate from: the community of users, the customers of use applications or other aspects inherent in the specific token economies?
There are many Telegram chat groups, where communities of early investors in cryptocurrencies are left with losses of more than 80% of their initial investments. They are constantly discussing with the moderators of these groups to find any reason to sustain their hope to recoup one day their savings. In the meanwhile pump and dump schemes, as explained by John Oliver in Last Week Tonight, are candidly advertising online: market manipulation or insider trading being irrelevant in the cryptocurrency realm, notwithstanding the SEC decision to consider securities all cryptocurrencies except for Bitcoin and Ether. Blockchain consultant and writer Michael Spencer also writes in a Medium article entitled “How Crypto Airdrops suck”:
Just be aware, most ICOs will die a coin death, and most will do so fast. These aren’t just startups failing fast, these are often criminals doing their fraud fast. How many altcoins will ever see mass adoption? Certainly less than 0.01%. Maybe even none, depending on what you call mass adoption.
All major incumbent institutions and corporations in a wide range of sectors from Goldman Sachs to Maersk are currently researching the impact and the use blockchain may have in their respective industries. According to Bloomberg, IBM has more than one thousand five hundred employees working on blockchain, while other tech giants such as Microsoft, Amazon, Oracle, Facebook, Baidu, Tencent are currently preparing or lining up their offering in blockchain services, a CBInsights report reveals. They are also using more polished terms such as Distributed Ledger Technology (DLT) and hybrid permissioned network (centralized platforms with secure distributed databases) to avoid any potential negative sentiment. As John Oliver said in his show, we do not know if Bitcoin or Ether will HODL in the future, but we agree that for the moment consumers must be extremely CRAEFUL when investing or considering to invest in any cryptoasset.
