The [Golden!?] Age of Crypto: Q1 2018 Industry Update and Developments for Tokens

Since my last post (six months ago) at the end of Q3 2017, there’s been a massive acceleration of wealth transferred into digital assets, and valuations peaked near $800 billion at the start of 2018, with altcoins diluting bitcoin’s dominance to its lowest in 2017 at the year-end. For more on Q4, see Coindesk’s State of Blockchain report.

While significant amounts of money were invested and created in terms of trading/volume and valuation multiples, Q1 become a mostly bear market as the market capitalization of crypto assets retraced to $200 billion. To date, bitcoin’s dominance is back above 40%, and the value of crypto assets stand near $350 billion, yet these figures only tell part of the bigger developing story, more on that below.

Over $5 billion poured into ICOs during Q1 2018

On the other hand, exuberant valuations as measured by typical market cap metrics has been a partly misleading indicator — if not taking into consideration a crypto asset’s daily trading volumes (and other key metrics such as NVT ratios), as without sufficient liquidity a user cannot exit their position at a fair price — due to causing market impact — or not being exit at all in the worst case.

The growth of #ICO funding visualized over 4 year’s worth data through November 30th 2017, compiled by @elementus_io #blockchain #tokensales #InitialCoinOffering #Cryptoassets #cryptocurrency #bitcoin pic.twitter.com/vOjWpZOGfg

— Steven Hatzakis, Fintech Researcher & Consultant (@shatzakis) March 12, 2018

Crypto development is thriving

Modeling social networks

Source: An Equilibrium Valuation of Bitcoin and Decentralized Network Assets

Extreme Crypto Prices and Bubbles

Diversification challenges

Nonetheless, diversification is not an easy task with crypto assets, and knowing that industry as a whole will survive is not enough to protect oneself from a highly dynamic landscape that could require active rebalancing and very broad diversification to capture long-term winners.

The diversification challenges are made harder by the fact that not all tokens are compatible across wallets, requiring for an example that a user maintain numerous native wallets that may vary in complexity in order to custody a large variety of different tokens.

Key-custody dilemmas

Kroll makes mention of Ian Coleman’s standalone BIP39 web tool that could be used on or offline for key generation, which I was glad to see updated recently to its latest version 0.3.5 as some of the feedback I contributed made its way into the software which remains open-source.

I do expect this process of custody to become easier over time, and already crypto wallet hardware companies like Ledger are implementing more support for new and existing cryptos such as Monero). More on custody and related challenges below.

the key is near-zero probability over what timeframe? my takeaway otherwise is hold a diversified crypto portfolio as we are not sure which is the winner until at least the $10T mark in terms of competing with major fiat currencies.

— Steven Hatzakis, Fintech Researcher & Consultant (@shatzakis) February 15, 2018

Chasing returns

When Harry Markowitz — considered to be the Father of Modern Portfolio Theory (MPT) — wrote his ground-breaking paper titled “Portfolio Selection” in 1952, it was on the premise that the return of an asset should be measured against and fine-tuned for the amount of risk taken. Awesome chart below from unchanged showing HODL waves in bitcoin, as seen in their recent medium post.

Markowitz calculated variance as a measure of volatility to measure potential reward from risk and vice versa. Accordingly, extreme crypto returns seem to be congruent with the extreme level of risk involved, as evidenced by historical price variance.

Report on top policy trends for 2018

The PWC report cited another research paper from Llyods of London that outlined the potential risk — in billions of dollars — that could materialize from massive cyber hacks at organizations such as a massive cloud service provider, and the importance of cybersecurity. An excerpt with various modeled scenarios can be seen below with the upper range near $8b for a single event.

Learning from Nature

Some extra love never hurts 💗
by
https://t.co/DghvuJE0xc pic.twitter.com/XypTiSpgWq

— Life on Earth 🌴 (@planetepics) March 15, 2018

Moving back to a different subject about networks, another interesting finding from a research report titled “Knowledgeable Lemurs Become More Central in Social Networks” lends observations from biology and the primate world that could be applicable to crowd-related metrics in human social networks including blockchain-powered networks.

The gray nodes (circle in chart below) indicate Lemurs who did not learn the task presented by the researchers, and had fewer direct affiliations with other nodes, compared to the white nodes who were highly social and had learned the task, and who may have benefitted from access to novel information gained from their many connections and access to information.

Kulahci et al., Knowledgeable Lemurs Become More Central in Social Networks, Current Biology (2018), https://doi.org/10.1016/j.cub.2018.02.079

“Look deep into nature and you will understand everything better” Albert Einstein

Winning or Losing in crypto

Hybrid approaches

Q1 2018 culminated in crypto markets moderating following the 2017 year-end peak, and the Chairs of the SEC and CFTC provided testimony to Congress on the applicability of securities and commodities laws in the regulation and enforcement of crypto markets including ICO issuers who could be deemed to be offering private securities.

A matrix table from a Brave New Coin report titled A general taxonomy for cryptographic assets, shows the potential for tokens to have concurrent classifications.

Security vs Commodity?

Such industry feedback helped not only provide spoken testimony on matters at hand — but also included written reports that became memorialized in the records for future potential citations by policymakers and lobbyists.

Proposal to create a National Blockchain Commission by @awrigh01 at hearing to Congress now, among other great testimony from him and other witnesses https://t.co/Ir9xFePBUS

— Steven Hatzakis, Fintech Researcher & Consultant (@shatzakis) February 14, 2018

For example, at one of the hearings, written comments from one of the invited speakers associate clinical professor Aaron Wright — from the Cardazo School of Law were made part of the public record (note: his new book “Blockchain and the Law” was just released on April 9thon Amazon).

Pro-blockchain Politicians and Policymakers

Source: NY Assemblyman Clyde Vanel’s YouTube Channel

Crypto Lobbying

California Bill Would Legally Recognize Blockchain Data: https://t.co/kJAfWE4JTx via @coindesk #cryptocurrency #crypto

— Steven Hatzakis, Fintech Researcher & Consultant (@shatzakis) February 20, 2018

On a similar note, there have been various state proposals for new rules that recognize blockchain contracts and related crypto signatures as legally binding, meanwhile industry associations such as the Digital Chamber of Commerce have responded with comments that there needs to be uniformity across states with regards to interpretations and related rules and how existing contract laws are sufficient for recognizing blockchain-related contracts (i.e. to avoid conflicting interpretations of any new laws applied in that context).

International Developments

Just after the end of Q1, Sixteen regulated bitcoin exchanges in Japan joined to form a self-regulatory group called the Japan Virtual Currency Association. Shortly after Japan, fourteen exchanges in Korea that are part of the Korea Blockchain Association announced their initial member rules, and following report of embezzlement that lead to a cleanup:

Also During Q1, CFTC Chairman Chris Giancarlo earned the alias of #cryptodad and gained wide recognition for being pro-crypto, following his above-mentioned testimony during the hearing and as can be seen in one of the Chairman’s Tweets:

Is #crypto #FOMO your #FridayFeeling? #DYOR at https://t.co/JBWIJbZTo7 #CryptoDad

— Chris Giancarlo (@giancarloCFTC) March 2, 2018

In early April, the US SEC Chairman was quoted acknowledging that tokens can ‘change into securities or away from securities’, helping to reinforce the same collective belief that many in the crypto industry hold.

There were numerous other positive regulatory developments, including from the UK, and Gibraltar, to name a few and as mentioned further below in this post.

Regulated Crypto Brokers

As far as crypto trading, about a third of all the brokers reviewed on ForexBrokers.com offer crypto in one form or another (i.e. as a CFD or derivative, exchange-traded commodity or security, or as the actual underlying psychical asset). Compared to its prior year annual review that I highlighted in my last blog post on medium, last year proved how fast crypto has started to become increasingly adopted by brokers to cater to the growing demand from speculators and investor to diversify their portfolios with this new asset class.

More on the expected capital inflows to crypto from Institutional investors below.

OTC crypto desks and mega-block P2P swaps

However, there is still a need to educate market participants including the large traders (and often numerous intermediates involved) who look to swap significant cash for crypto (i.e. 100,000 bitcoin or >1bln worth, at $10k per btc).

Buyers with fiat looking to acquire such large blocks shop for a discount to the spot price, while the sellers of the crypto who are in need of fiat are willing to provide the discount to avoid directly impacting the market as such amounts are not available even if splitting up such a large trade and sending it to multiple venues, crypto liquidity is scarce by design.

However, these large trades do impact the market in other ways, even if not directly, and moreover there are many touch points and ways things can go wrong during a P2P swap. Nonetheless, these block trading venues are popping up, and the numerous parties who help broker such deals aim to share potentially hefty commissions on such mega-size trades.

Aiding crypto market efficiency w/ Best Execution

I’ve had the chance to work with parties from both the P2P trading world, as well as a group of Harvard quants using an algo-driven approach since last December, and it is an interesting side of crypto markets (especially as regulation kicks in, and the need for dealing with FinCen-reporting entities or Money Service Businesses (MSBs).

And for those looking for more about Decentralized Exchanges (DEXs), here is a list of them that have been compiled on Github.

start shopping 90% of it around for a p2p swap, while chipping away at the other 10% using an OTC desk that specializes in maximizing best execution while minimizing slippage/market-impact, then reduce to 80% if no match on p2p side and repeat process. DM me for details!

— Steven Hatzakis, Fintech Researcher & Consultant (@shatzakis) March 14, 2018

Self-Regulation and Best Practices

Numerous self-regulatory initiatives had been brewing for months already in other parts of the world including in the US with several announced by industry players, including the Brooklyn Project (which the author of this post supports) for utility token projects that would enable financial inclusion for consumers and the greater public.

The Brooklyn Project

BKP also prepared comments to the UK parliament’s inquiry on crypto, as their remains a need for global regulatory harmony with the treatment and classification of crypto assets.

TCRs

Other examples for TCRs that are gaining in popularity include the Ocean protocol where users follow a proof of stake model to keep the community in check where actors are rewarded for accurate curations and penalized when wrong.

This is in some contrast to other consensus algorithms such as Delegated Proof of Stake (DPoS) where there may be no direct penalization for bad actors, where instead master nodes or super nodes (who receive votes from users) act as delegates and are expected to keep each other in check, although could still potentially collude to bribe or buy voters, as argued by Vitalik Buterin in a recent post about Plutocracy.

Self-Sovereignty and Decentralized Identities

At the start of Q2, IBM announced a partnership with the Sovrin Foundation, as the importance of self-sovereign identity, along with Digital Identifiers (DIDs) are becoming recognized as a critical future component across blockchain networks to represent user’s identities.

Source: Evernym

Next-generation stablecoins

Regulatory Reform Feedback

Think-tanks and SROs

The Crypto Working Group (CWG), (the author of this post is a founding member) is another membership-based think-tank consisting of a diverse set of industry professionals who are working on developing best practices for institutional market participants preparing to enter blockchain. CWG also provides feedback and proposals to regulators as well as community education and events. The Security Token Association (STA) was also launched in Q1, and uses a membership-based structure for companies issuing security tokens (i.e. tokens that are private or public securities).

The Digital Asset Token Association (DATA) launched in Q1 and helped lobby and push legislation in Wyoming and other states, and also launched during the quarter was the Virtual Commodity Association (VCA) proposed by the Gemini Exchange owners’ the Winklevoss twin brothers — who would cater to cryptocurrency exchanges with the proposed SRO. Shortly before this article was published, the New York Attorney General announced an inquiry into 11 crypto exchanges, requiring the companies complete an extensive questionnaire before May 1st2018.

Another announcement during the quarter related to SRO developments came from CryptoUK, launched by a consortium of members including prominent names such as Coinbase and eToro, among other notable members. The UK Parliament opened an inquiry into cryptocurrencies due by April 30th2018, in which CryptoUK is preparing feedback, in addition to comments from the Brooklyn Project being prepared as noted earlier.

It’s worth also noting that in Q1 2018 Consensys AG was selected by the European Commission’s Blockchain observatory, in conjunction with the European Parliament, in addition to having been one of the few companies selected for Dubai’s blockchain accelerator program in 2016.

Note: The author of this post supports the Brooklyn Project, and is also a member of the ICO Certification Committee of Financial Commission, an independent member-driven self-regulatory organization that caters to international and offshore companies.

Social Networks and Crypto Marketing

At the end of Q1, Twitter followed with a similar ban on ICO ads as it takes measures to combat the visible thefts occurring as imposters who cleverly impersonate crypto personalities on Twitter and then attempt to solicit donations or funds sent by unsuspecting victims to the phony imposters.

Almost Ironically and direly, Facebook suffered an alleged data breach of user information via its partner Cambridge Analytica, coinciding with the growing importance of sovereign identity and user-controlled information in public networks. The incident drew global attention from regulators and resulted in numerous hearings.

While the industry pivots on best practices for crypto marketing, many industry leaders provided feedback in The Decentralized Marketing Handbook, talking about the power of community empowerment as well as common crypto challenges with marketing. An excerpt from the report can be seen below:

It’s worth noting that project teams need to be careful to balance messaging and be cautious with any forward-looking statements, as well as not to omit any facts (i.e. not disclosing some of the biggest risks that the team is aware of that could cause the project to fail, for example) when it comes to marketing and communications with the public, for the sake of potential regulatory compliance and keeping token holders truly informed of what they are in for. For tips on what NOT to do, see Savedroid’s recent PR stunt gone wrong.

Regulatory Actions and Scams

In addition to outright frauds, the potential for thefts by hackers remains one of the most pronounced risks due to the nature of digital assets, although it is important to note that best practices are also evolving with regard to how companies safeguard digital assets.

It is worth saying that those new to crypto should understand that the modern encryption algorithms and cryptography that — help run bitcoin and other popular altcoins — have never been hacked or broken (i.e. 256 bit security) and is widely used on the internet. Of course, researchers and academics (and hackers) continue to try to develop novel ways to find potential attack vectors causing the industry to developing newer classes of encryption algorithms.

Below is an example of how cryptography is used to secure each step in the creation of a bitcoin wallet that supports hierarchical deterministic (HD) wallets using Bip32, and backed up by mnemonic codewords using Bip39.

The National Institute of Standards (NIST) is one of the agencies tasked with ensuring that these standards are safe to use even at the Federal level, and NIST came out with a crypto report about blockchain during Q1, in addition to participating in one of the aforementioned senate hearings.

Accordingly, nearly a dozen new encryption algorithms are being considered by NIST for the next-generation of quantum-resistant encryption algos, where key sizes could potentially double in length and the use of zero-knowledge proofs could help obfuscate trails that hackers (and Quantum computers) could try to compute to break/guess the codes. An example below from a research report by cryptographers shows various collisions for a portion of key strings.

Distinguishing Crypto Thefts from Crypto Encryption Cracking

Although we have highlighted the difference between two type of hacks, namely crypto thefts (which are a recurring problem and unlikely to go away as masses enter the space) and crypto cracks (which have yet to ever happen to modern encryption algorithms), these two risk seem very similar but they are profoundly different risks that are often mistakenly by lumped together by the media (especially in headlines).

All crypto “thefts” or “accidental losses” are due either to human intention or error (whether manually or automated in code, as in the Bitgrail incident in the above Tweet), and not a fault of the math and underlying security afforded by cryptography (and at least so far, and for the foreseeable medium-term future, according to institutions such as NIST, in terms of risks of Quantum computers breaking modern encryption algorithms).

Bottom line, education about safeguarding oneself against cybersecurity risks are critically important when dealing with crypto assets and something the crypto community is in dire need of, as many crypto assets are some of the most complex financial products and applications ever created — challenging even savvy tech users.

One helpful infographic I revert to from Q4 of last year, in order to highlight crypto asset custody complexity and tips — can be seen below, courtesy of Twitter user @Jennicide:

Crowdfunding Pathways for ICO issuers

Excerpt from a sample ICO project survey offered on Earn.com

Other examples exist for ICO structuring depending on the classification of the token, and which also affects its potential tax treatment.

Below is an excerpt of tax structuring complexities, which can be made worse when crypto involved.

The JOBS Act

Examples of private placements done under JOBS Act pathways include Regulation A (Reg A and Reg A+), Regulation Crowdfunding (Reg CR) and Regulation D (Reg D 506b and 506c) and some of which are administered through regulated broker-dealers (BDs) and filed with the SEC (as well as Regulation S for companies offering private securities to non-US investors under these pathways). Most recently, a Senate hearing about Reg A explored increasing the limit for the tier-two part from $50m to $75m.

Pathways for Token Sales

For example, creating a new pathway for non-security tokens that would be exempted from federal securities law (and perhaps fall more squarely under commodity laws) could be a viable option but would require support from the SEC and CFTC — along with support from industry groups, lobbyists and policymakers — for Congress to pass such new laws.

Related Safe harbors are said to be discussed as per coverage by Nathaniel Popper of the NY Times, and the good news is it is already happening at the state level, more on that below.

With regulators in the US recognizing, even more, the importance of innovation and the need to support it, following a wave of subpoenas issued by the SEC to force dialogue with companies who may have been shy to engage the SEC out of fear of retaliation, there has been positive feedback circulated including comments from the SEC’s Chairman that acknowledge how a token could transfer away from a security (becoming a utility token) or towards a security token.

The SEC (and CFTC) has done a good job policing bad actors, yet the need for clearer guidance would help many good actors continue on their paths to innovation while reducing the risks for inadequate disclosures. Concurrently, the SEC is relying on the many gatekeepers in the industry to help self-regulate or face the risk of more blanketed and draconian measures that would be bad for everyone and not an ideal outcome to help keep the US markets innovative.

Securities Tokens

Accordingly, some SAFT agreements hoping to circumvent securities laws are now facing major challenges, showing that the variation of the SAFE agreement works only on a case-by-case basis and is not a panacea for all token issuers.

For issuers that do however need to stay as security tokens due to potential rights or dividends that they wish to extend to tokens holders, securities laws and pathways are viable and Alternative Trading Systems (ATSs) such as Tzero, and other companies including Consensys who are pursuing or have recently acquired an ATS license, could be ideal listing venues.

Companies such as PolyMath that help companies create securities tokens have partnered with Tzero, anticipating that it will be an oasis of liquidity for security tokens as institutional investors enter the market on a regulated platform for trading security tokens. Early in April 2018, tZero announced that a prototype of its security token trading platform was launched.

Commodities and Utility tokens

https://twitter.com/Melt_Dem/status/985591490662551555

For example, lawyers I’ve interacted with agree that the CFTC has enforcement jurisdiction on all cryptos — in cases of suspected fraud or market manipulation — in physical spot markets (due to their inherent commodity-like features), even if a crypto asset does not have an underlying futures contract or derivatives market that is regulated such as bitcoin futures.

Non-security tokens

The point at which a network becomes operational for its native token to be used — in terms of its utility — is an important distinction from a regulatory context when it comes to secondary market trading, as much of the speculation that happened at the end of Q4 2017 occurred in tokens where the underlying networks had yet to be developed or were non-existent (while their valuations ran wild).

In addition, the manner in which token sales are structured can materially change their status from token into security, based on the SEC’s interpretation of the Howey test when scrutinizing offerings to determine if they are in violation of federal securities laws. Those attempting to sell non-security tokens need to be even more careful not to implicate securities laws in the context of the Howey test (as in the Munchee case from last December, where a utility token caused itself to be deemed a security and its sale was halted by the SEC).

While the Howey test is not law, it does in fact reference case law dating back to a 1946 supreme court case, and as it stands appears to be the de facto litmus test used by the SEC in assessing whether a token is a security or not.

What is money? The rise of crypto credit and non-bank lending

An excerpt from a research report about Bitcoin by Villarreal published by the University of Florida highlights the credit-theory of money as social capital (among other useful diagrams):

Source: Villarreal Robledo, Omar Eliud, “The Ontological Sociology of Cryptocurrency: A Theoretical Exploration of Bitcoin” (2016). Electronic Theses and Dissertations. 5119.

Rewinding back to ancient times, commodity trading in Mesopotamia accelerated thanks to the use of clay pots which not only helped facilitate the physical medium of exchange (literally) but also standardized the units of account in terms of measuring the commodities that each pot held. In those times, the clay pot technology helped to facilitate trade and commerce, including credit, and as assets became fungible and tradable like hard cash, it enabled bartering and commerce supporting socioeconomic activity and growth.

Money is social capital

Blockchain can help provide fully collateralized loans and transparency and self-enforcing smart contracts to help remove systemic risk such as the type used with leveraged derivatives that caused the Great Financial Crisis (GFC).

Post-Financial Crisis & the Rise Alternative Technology/Investments

It may sound easy on the surface and as the use of the word, #blockchain went from buzzword to becoming sort of a misnomer as the word becomes arbitrarily attached to nearly everything as a proposed panacea to solve all world problems, which is somewhat far from the truth. Rather, it is the fine details of each crypto project where companies are trying to differentiate themselves with potential applications and their proposed usefulness now and in the future.

Post-bitcoin challenges

Nonetheless, substantial progress has been made, yet it is clear that many projects are inherently centralized — even if launching via the open-source permissionless network route — from their initial starting phases and may take years to reach the level of distribution that bitcoin has achieved to become “more” decentralized (and thus hardened against attacks).

On a different note, there were a number of prominent acquisitions made recently including Circle buying Poloniex, and Coinbase buying Earn.com (I’ve been using Earn.com for months already and think it’s great for lists and anti-spam, sign up here and I earn $1 in BTC for every registered user: earn.com/shatzakis/referral/?a=vylp0vatr5qzgf4f).

Latest #Crypto acquisitions:

–@circlepay buys @poloniex for $400m

@coinbase buys @CipherBrowser

@coinbase buys @earndotcom for $100m

@BitGo buys kingdom trust

The times are changing.

— Adam Draper (@AdamDraper) April 16, 2018

Staking & Loans

In full disclosure, the author of this post is currently advising a payments-related project called Digits, as part of its plans to build its Hedge Lending Network to support payments technology that it has created (note: the payments side of the project is already in Beta and contains blockchain components under development) that aims to enable users to turn any debit card into a crypto-spendable card.

Digits aims to let users spend fiat without having to sell their crypto, by staking their crypto as collateral in the Hedge Lending Network in return for a real-time fiat micro-loan to pay for their card swipe transaction.

Crypto Payments

In the meantime, I look forward to the launch of Digits and enabling it with my solid gold Aurae Lifestyle MasterCard!

Side note, I believe every holder of significant crypto (i.e. founder, whale, crypto millionaires, and billionaires etc..) should have an Aurae Lifestyle solid gold card.

Why? Because it’s a debit card made out of solid gold with substantially high limits such as $150k per swipe, $20k ATM, and can convert seven figure fiat amounts from crypto into fiat using institutional rates, and comes with perks such as additional concierge and butler services depending on membership tier, including access to exclusive sporting and other events such as the White House correspondents dinner.

In addition, the card grants access to 950 airport lounges worldwide, another vital convenience for busy executives and those that need to recover when en route on busy world-travel tours.

Yes, this is a solid gold debit card (roughly 2oz/50 grams of 14k)

Another cool point about the Aurae gold card that I am proud to share is that each one is custom made based on the personality of the cardholder, so for mine we used my astronomical art for the card design inspiration, and the resulting lines and stars (which consist of over 70 stars that make up a half a carat of real diamonds, by the way) look like blocks on a blockchain!

https://www.instagram.com/p/BhTNP1xjerJ

QR-code scanning and the future

Using blockchain in a network like Craypay to help build a community-driven economy around its token could help reward users in a number of ways including with discounts and other token-driven economics that incentivize usage and adoption.

Bye bye pen signatures, hello key signatures

#AI replacing #retail store checkout, #payments and re-stocking. @MikeQuindazzi hashtags #ai #computervision #machinelearning #deeplearning #fintech pic.twitter.com/6EDutIF7tM

— Mike Quindazzi ✨ (@MikeQuindazzi) April 17, 2018

Converging trends across payments and fintech

For example, I read recently that nearly a third of all apps purchases on Google Play and iOS devices in 2017 were game-related, and even financial markets trading apps are increasingly becoming gamified in terms of streamlining the signup process and creating incentives and rewards when users solve problems such as passing initial training or completing steps to register in order to receive some benefit.

Games, gaming, gamification, gamified, got game?

source: Twitter

Gamification and Rewards points in the real world

Priatek has a patent on its rewards-based advertised gaming applications and already provides non-cryptographic tokens as rewards points that are redeemable for special offers and events, in addition to the discounts and perks that users can receive at national retailers.

Transitioning its existing reward tokens to a cryptographic-based solution will help Priatek grow its ecosystem in a number of ways as blockchain can help unify its network with dedicated fungible and non-fungible crypto assets.

Near-term versus longer-term applications

While there are many different projects each may be important in its own way, and thus every project should be evaluated on its own merits, even in cases where there is no other viable comparison whether due to experimental technology or unique approaches.

As game theory converges with crypto economics, and political governance in the search to build sustainable token economies, driven by distributed app users and token holders, much work remains including experiments with on-chain and off-chain governance.

Idiosyncratic governance models: Plutocracy, Isocracy and beyond

Source: Twitter

Research from other related fields in computer science and math, aim to tackle decade-old challenges such at the Asymmetric Traveling Salesman Problem (ATSP), where novel approaches could help make computer algorithms more efficient in the next generation of apps.

source: arXiv:1708.04215v2 [cs.DS]

The Chop Algorithm

For more on A.I, machine learning and IoT, checkout this Podcast from Q1 from Amazon’s Alexa division:

Beyond the household, Alexa for business has also made it’s way to wall street (and there are a few apps for crypto that fetch related headlines) as can be seen in the Tweet below from Dave Isbitski:

JPMorgan Brings Amazon’s Alexa to Wall Street Trading Floors https://t.co/NpbBKIqXRx #AmazonEcho #IoT #VoiceFirst #DigitalBanking #Finance pic.twitter.com/R0L7WEwyYZ

— Dave Isbitski (@thedavedev) April 15, 2018

Moving back to crypto, as ambitious projects aim to tackle the longer-term challenges of discovering infrastructure protocols that will enable companies to build upon, such as Dfinity, there is also non-blockchain financial technology (Fintech) companies with existing businesses that are ripe to implement blockchain at the application layer.

This trend has led to the rise of hybrid projects, blending aspects of private and public blockchains, although the most value appears to be longer-term in the public blockchain projects which often require years to mature and become more fully decentralized (i.e. Bitcoin, Ethereum).

Challenges ahead despite development progress

For example, in one instance with a lightning app called Éclair, a user closed the channel prematurely not realizing that the seed phrase does not backup the channel funds, as per a comment on Github, showing that users still face UI/UX challenges and a steep learning curve. Nonetheless, beta products are often better than no product at all, as real user feedback is crucial.

Scaling

source: etheresear.ch

The challenges that investors faced last year appear to have transposed in a positive way as the industry has evolved and self-regulates, yet research and education remain important tools especially as the speed of information and development in crypto appears to move faster than in any other industry.

Fake news and privacy

For example, the application of Zk-SNARKs, used in cryptos such as zCash, were noted by MIT Technology Review as one of the top ten technologies of 2018.

In addition, the integrity of news and other information sectors (i.e. voting) are ripe for disruption in a positive way, and as the ability to even decipher what is real is becoming harder as new technologies let users easily manipulate things like a video, as can be seen in the clip below:

GIFs and short video clips are also being manipulated with text to change the context of the original content (i.e. fabricated news) and shared amongst users, often comically, yet could also be misconstrued as real.

One company bringing blockchain to the newsroom is a project called Civil, which uses a TCR-style method of keeping content in check by the community so that readers receive curated and vetted news.

On the topic of infrastructure protocols both existing and future potential ones from crypto, major hosting provide Cloudfare announced on the first day of Q2 it’s launch of a speedier and more robust DNS service called 1.1.1.1 (the literal server address for the news service: https://1.1.1.1/), noting that it was not an April fools joke. Bottomline, the next generation of the internet is being developed and blockchain will be (is) a big part of it.

Nicely put @fredwilson: “Internet One was an open network, open protocols, open systems. Internet Two is closed platforms that increasingly dominate the market and own and control our content and us. We need to get to Internet Three where we take back control of ourselves…”

— Steven Hatzakis, Fintech Researcher & Consultant (@shatzakis) January 18, 2018

Social-Impact Potential

In addition to banking the unbanked and the theme of financial inclusion, which technology aims to help solve, I think social-impact blockchain projects are right up there on the importance scale.

ixo Foundation

ixo: the Blockchain for Impact from ixo foundation on Vimeo.

Blockchain technology is expected to help support such initiatives through social-impact projects, such as the ixo.Foundation (and its IXO token) which this author supports as an ambassador. Here’s a great blog that cover’s ixo, written by a fellow ambassador, called Startcryptosmartly, which I recommend reading for those interesting in learning more about ixo and the potential for social-impact projects on blockchain. Stanford just came out a report about social impact that featured ixo.

On a related note, here is a copy of the book cover of the “Animal Internet” that I picked up a few weeks ago, which highlights how technology will help us connect with the animal kingdom in ways previously unthinkable and which could help serve positive social-impact.

And shortly after buying that book, I watched a documentary about an app called Topher that is helping monitor illegal logging in rainforests, using upcycled mobile phones running the Topher app and with the use of mini solar panels. Such projects could be one of many potential use-cases for ixo, for example, as the company has helped sequester over 6 million metric tons of CO2, using a data-driven approach that is measurable.

Women in Blockchain

The “Women on the Block” conference dedicated to diversity in blockchain, and supported by the CKR Charitable foundation, is set to take place on May 13th2018 in Brooklyn, NY, and with a diverse array of sponsor and supporters (Twitter hash tag #womenontheblock).

There have been numerous local campaigns to help increase awareness of the many women who have helped make a difference in both society and business, for example, this was an ad shown on a panel at JFK airport that I saw last week, featuring some prominent female scientists that have helped make a difference in the world.

Diversity and beyond

For example, the need for more thought to be given to gender diversity in the organization of such public forums, in addition to the gender ratios at the founder and executive level of startups and existing companies, is rising and also resulting in Women-Owned Business Enterprises (WBE). Or on a more subtle level such as the application layer when a programmer designs a video game to include female characters and not just male ones.

Bottomline, we have to look out for each other, regardless of gender, and even outside of crypto. I happened to have stumbled across an article about celebrity Ben Affleck who appeared to have been bullied in a very subtle yet powerful manner in a blog post, and I called out the publication on it and Tweeter seemed to agree:

You tell em @BenAffleck! I couldn’t help think that article was a sophisticated form of subtle bullying by its author despite her attempt to report on developments. Keep your head up ~

— Steven Hatzakis, Fintech Researcher & Consultant (@shatzakis) March 29, 2018

Beyond gender and race, humans come in all shapes and forms, and it is my hope that blockchain will help further connect us and the otherwise fragmented global communities, foster diversity and inclusion, and create a supercluster of interconnected communities for both the global economy, social interaction and our future.

Best regards,

Steven Hatzakis

Disclosure

In full disclosure, the author of this post holds financial interests in the following companies or tokens as of the date of publication (board advisory roles denoted by an asterisk *). The below names and symbols are not an endorsement nor recommendation of any kind:

ADA,ARK, AST, AUG, BAT, BCH, BLX, BTC, BTD, BTG,*Craypay, DASH,*DIGITS,DGB, DNT, ELEC, EOS, ETC, ETH, GAS, GNO, GOLEM, ICX, IGNIS, IXO_Foundation, KNC, LTC, MONERO, NEO, NXT, OMG,*Priatek, QTM, SALT, STX, TRX, VIU, XEM, XLM, XNN, XRB, XRP, ZEC, ZRX

Originally published at stevenhatzakis.com on April 19, 2018.

Global Director of Online Broker Research for ForexBrokers.com, StockBrokers.com, CEO StevenHatzakis.com, Fintech/Blockchain Consultant, Developer, Advisor, CTA

Global Director of Online Broker Research for ForexBrokers.com, StockBrokers.com, CEO StevenHatzakis.com, Fintech/Blockchain Consultant, Developer, Advisor, CTA