Bullish on Bitcoin
Great day yesterday at the small Placeholder / USV / BlueYard event in NYC.
There were three 90 minute open forum discussions with an intimate group of super sharp entrepreneurs, lawyers, developers, and investors. Though it was streamed live on Rize (YouNow’s app), I don’t know if there is a playback or when they’ll circulate a link to the audio.
In the meantime, here were my key takeaways (to the best of my recollection):
1) Role of the state / regulation — There was a lot of love for the Brooklyn Project (dropped some major updates yesterday…more below the fold) and Messari. A couple of exchanges that stood out:
+ Aaron Wright from Cardozo / ConsenSys and Christian Catalini from MIT had a good exchange regarding whether utility tokens can transmute from security to utility over time. Aaron’s primary argument has been that networks should only launch tokens when they are fully functional commodities given the SEC’s guidance, especially since there is no legal precedent for securities magically converting to non-securities (ahem, SAFT). fwiw, the ConsenSys legal team seems to have been on the correct side of its SAFT assessments from day one, and their Ventures team has avoided direct token investments as far as I know.
+ I’m not sure the best long-term logic on the part of regulators, is to shut down the prospects for this type of transformation, given the risk more innovators move to friendlier jurisdictions. Neither does Christian, who countered with data from his recent research that showed less than 25% of tokens were actual frauds. He and his co-author argued the ICO mechanism is a valuable tool to reveal consumer willingness to pay for a given service and generate early buyer competition for a scarce token. The issue, everyone seemed to agree is that pre-sale discounts to insiders tend to distort those price discovery mechanisms.
+ I made the point that bridged the gap between Christian (5–25% of ICOs are frauds/unregistered securities) and Aaron (almost all ICOs are unregistered securities), by pointing out that few ICOs are actual frauds, but many are indistinguishable from frauds because of the preferential pricing, fast liquidity, and rapid flipping many of them have offered insiders. Antithetical to the industry’s ethos and the spirit of existing securities laws.
+ Fred Wilson agreed. And offered a candid assessment where he said that many promising projects completely botched their distributions, and looked like scammers in the process. “We even invested in some of them. We warned some of them not to distribute tokens the way they did.” Now the industry needs a sort of “mea culpa” for some of 2017’s excesses and the fast and loose sale processes that have hit the market.
+ Two of the more thoughtful and well-intentioned recent token sales we’ve seen recently have been Blockstack (backed by USV), and ZeppelinOS (backed by Placeholder and BlueYard). (These two were on the short list of projects that I’ve considered investing in, but I ultimately stopped investing once we started Messari.)
2) Social & tech scalability — I was less engaged for this one, as I had to step out for a call.
3) Re-centralisation vectors — There was a lot of discussion about “re-centralization risks” — mining (the ease at which Venezuelan mines were shut down), core developers (how do we replace leaders), exchanges (get listed or die), regulation (black lists or white lists drive adoption), but my first reaction was “before we worry about recentralization, don’t we need to actually get decentralized first? I was thinking back to Jackson Palmer’s site that I posted yesterday.
1) It seems we’re going through the same philosophical exercises of reinventing governance as our Enlightenment forebears did. Time to re-read The Republic and The Federalist Papers.
2) There was little talk about bitcoin governance during this segment…a bit of a head-scratcher. Lots of discussion around Ethereum and its developer lock-in, coming competition from projects like EOS, Dfinity, Cardano and others in PoS systems, but bitcoin seemed like mostly an afterthought. That struck me as a bullish signal.
Everyone is so preoccupied with the next shiny objects that they’ve forgotten bitcoin:
+ survived a highly contentious fork in August and several Q4 spam attacks
+ beat back a coordinated effort to brute force a scaling compromise behind closed doors (Barry Silbert’s New York Agreement)
+ launched two major network upgrades with the launch of SegWit and Lightning
+ has attracted Samsung to the mining chip manufacturing game to compete with Bitmain
+ naturally seen some of its geopolitical concentration problems resolved via China’s expelsion of many miners to new jurisdictions
+ is in relatively steady developer hands in contrast to Bitcoin Cash, which seems to be imploding with its continued affiliation with Craig Wright, a living, breathing negative catalyst.
It’s the most bullish I’ve been on bitcoin in a long time.
One last thought on Ripple for the week, and then I’m going to shut up about them until we’ve had a chance to discuss our Messari disclosures framework with them. (Cardinal rule is that if you bitch about something, you should propose a solution.) This comes from a series of smart comments I read in a private chat (posted with permission):
“I would assume Blockchain Capital invested in Ripple Inc, the SaaS company, twice. Now Ripple Inc. is using Blockchain Capital to effectively wash (in the sense of giving value to something that has no value) its impossibly large and illiquid balance of XRP that has no real value to Ripple Inc.
If XRP were valuable, Ripple Inc. and insiders (Larsen + CTO) wouldn’t be spraying it around as LPs, into offline storage rental companies and for large-scale philanthropic donations. Not too mention that XRP Arrington Capital was capitalized w/ $25MM+ of XRP that is being washed in a similar way.
How many early to mid stage SaaS companies have the resources to be a) running a SaaS business b) a large scale LP c) Series B-level investor and d) huge philanthropic giver? Ripple Inc. seems to think it’s at peak Microsoft / Oracle level of success. Then again, if I were sitting on many billions of monopoly money, I’d probably do some very weird shit, too! Can’t fault them for that.”
More questions than answers. Still.
Have a great weekend, and thanks for reading these first 10 days!
I Like Pictures
Of course, I had previously written about the threat from Bitcoin Cash. While it’s premature to write the project off given the support it has from Bitmain, and several large holders, it’s slowly fading by at least one metric: github watchers. BCH sits four spots below dogecoin on a list of 11 currencies.
Surprisingly weak showing from Stellar on this metric as well, which is second to last if you consider the number of watchers relative to its market cap.
(Data from @onchainfx.)
The volunteer army at Messari is building a free, open-source library that anyone can use as a resource, so you can go down the crypto rabbit hole a bit more efficiently.
Download our newest tear sheet on Bluzelle, another distributed storage project attempting to build a database service for DApp developers.
Compare Bluzelle to yesterday’s tear sheet on Storj, and let us know what you think.
These briefs and their curated “further reading” resources will help you grok distributed storage in less than an hour. We’ll have ones for Filecoin, Sia, and Tron soon, as well as a tools to help you compare and contrast that sector’s top projects.
Interested in joining our volunteer analyst community? Apply to Eric Turner (firstname.lastname@example.org).
TBI’s Compression Algorithm
ConsenSys released a first draft of the Brooklyn Project’s Digital Asset Taxonomy. The framework maps closely to the Swiss framework outlined last month, in which the authors argue for three broad categories of tokens: payment tokens (cryptocurrencies like BTC, LTC, XMR, ZEC), consumer tokens (utilities, and “skin-in-the-game” coins), and investment tokens (cryptosecurities). The group outlines a number of subclasses of consumer tokens that confer a) ownership rights (cryptokitties), coupon rights (filecoin, golem), and activity rights (augur, numeraire). Messari broadly endorses this categorization, and we are working with the Brooklyn Project and Global Digital Finance group on this framework. ConsenSys
Secret mining operators arrested in Russia. A plot for the next big thriller: Russian police arrested two people for running an illegal cryptocurrency mining operation. The operation consisted of more than 6,000 pieces of mining equipment in an abandoned rubber factory. The two stole 8 million kW/h worth of electricity at an estimated cost of about $1 million USD. CoinDesk
Ripple says XRP isn’t a security. Ripple’s Chief Market Strategist Corey Johnson went on CNBC to defend Ripple’s status as “absolutely not a security.” Coinbase, in their testimony before the Senate last month, explicitly stated they will only trade assets that have been determined by regulators to be a virtual currency. We’ll see if the SEC looks at the form or the function of XRP when it makes its assessment, but I would be shocked to see XRP listed at Coinbase any time soon. The risks seem to outweigh the benefits. For comparison, Grayscale currently has a paltry $5.8mm in AUM in its XRP trust, putting the asset on par with its Bitcoin Cash product. CNBC
Russia moves to ban Telegram. A Moscow court ordered telecommunications companies to block Telegram in Russia after the chat app refused to grant intelligence authorities access to users’ encrypted messages. Putin signed anti-terrorism laws in 2016, which included a requirement for messaging services to provide the authorities with means to decrypt user correspondence. Telegram currently has 200 million users worldwide, 9.5 million of which in Russia. Bloomberg
Quick Bits (Don’t read that, I read it for you)
Choke Points (Exchange news)
+ OKEx announces that it is expanding to Malta and participating in Malta’s Government sponsored DLT Delta Conference in October 2018.
+ Two unlicensed cryptocurrency exchanges in Japan suspended their operations. A total of nine crypto exchanges have now either voluntarily withdrawn or received a business suspension order from the Japanese Financial Services Agency.
+ Coinsecure, the largest crypto exchange in India, had over 3 million dollars worth of bitcoin stolen and are blaming their Chief Scientific Officer.
Startup Signals (ICOs, Cryptos, and Startups)
+ On the heels of a previous $2.25 million SAFT sale that was announced in January, Kadena announces this week that another $12 million has been raised through a SAFT.
+ Cryptocurrency startup Carbon, a “stablecoin”project, has raised $2 million in seed funding from investors that include General Catalyst and Digital Currency Group.
The Powers That Be (Legal/Reg/Policy)
+ Mason County’s Public Utility District, a county in Washington state, implemented a freeze on crypto mining operations. This comes less than a month after Chelan County, other Washington county, implemented a similar freeze.
+ According to the Latvian Finance Ministry, 20% tax can be imposed on capital gains from deals with cryptocurrencies. This means that the Latvian government will actually have to acknowledge that cryptocurrencies are a legal form of tender.
+ The New York Department of Finance defends the controversial BitLicense, saying it has boosted innovation in NY State. LOL.
BigCo Noise (Enterprise initiatives)
+ Chinese tech giant Baidu launches Pic-Chain, a blockchain-based stock photo service, to fight copyright infringements in China.
+ Santander Group is launching a blockchain-based application called OnepayFX for cross-border foreign exchange on Friday. Initially roll out will be in Spain, the U.K., Brazil and Poland.
+ Mastercard is hiring blockchain specialists in an effort to further develop their experimental blockchain-based APIs.
+ R3 wants to expand its Corda platform beyond financial businesses.
+ Bank of America may be looking to replace some of its existing data sharing systems with a permissioned blockchain.
+ Chris McCann from Greylock Partners latest post, State of the DApps, is worth a read. (h/t to Tokendaily for the find)
Did I miss something big?
Send me the link, your twitter handle and your best imitation compression algorithm write up. If I really whiffed, I’ll include your bit tomorrow (with attribution).
Hit me up when I’m in your city!
+ Boston (4/25–4/27 — Pillar VC’s Unchained)
+ SF (5/1–5/3 — private event)
+ NYC (5/10–5/17 — Fluidity, Ethereal, Consensus, Token Summit)
+ Asia (Japan, Korea, Hong Kong early through mid-June)
My company, Messari, is hiring:
+ Front-end developer, blockchain engineers, data engineers
+ Volunteer analysts and summer interns
+ Content curation lead (compression algo tinkerer)