Below we discuss some of the partnerships the Workshop has entered into with blockchain companies to help meet the demands of the next generation. The essential components of the Workshop are broken up into 4 core segments: Snogistics, ER Management, Sleighportation, and Predictive Naughtylitics.

Snogistics

The complexity of supply chains due to globalization of production has made it more difficult to obtain critical raw materials and other inputs. This dilemma is only made more cumbersome with the addition of incentives to cheat for illegal or unethical practices due to the opaque nature of expanding to new markets. To solve these issues, Santa partnered with a few tech-minded companies.

On one occasion, Santa needed to source soccer balls from Sialkot, Pakistan for children in Mexico City, Mexico. The issues with Asian soccer ball production and sourcing include (i) disputes of transfers between entities, (ii) systems and records management being subject to errors / manipulation, and (iii) the use of child labor.

To combat these obstacles, Santa partnered with Halotrade to improve verification and product tracking. Upgrading their software enabled real-time tracking of goods from production to delivery. The protocol also included an automatic P/O facilitation and financing instructions that automatically trigger at each step of the production process. This reduced burden allows Santa to use that time more effectively, such as training junior elves for the next generation of toy technologies, adding elf-power to help reduce the effect of bottlenecks, and beginning FY19 planning a bit earlier.

Recording the data also improved knowledge of when he needs certain elves to be ready to go. When the junior sized soccer balls were close, he was able to wake up the dwarf elves and optimize the workplace for packaging and distribution. When the professional soccer balls came in, Santa needed to make sure the athletic moon elves were available for additional testing before going to the dwarf elves.

Recording data at each stage also let Santa know where the hiccups were. It informed him of what partners got the job done, if the Workshop needs to diversify production in any one area, and to help identify declines in quality over time.

Santa also partners with Provenance to get a better idea of who the supplies were coming from. Were payments being made to money laundering opium producers? Were certain individuals cheating the supply chain to smuggle illegal goods? Were the diamonds he acquired from the Venetia mine in South clean? Provenance gave the Workshop team additional confidence that they would not ironically find themselves on the naughty list next year.

In the words of the Workshop’s Director of Snogistics Frosty the Snowman, “Our partnerships have improved the transparency of our blockchain and made our operations more predictable. In an industry troubled with elf shortages and increasing demand, our partners give us confidence that the choices we make are founded on the best data.”

Elf Resources Management

As elves began working more and more from their homes around the world, the complexity of implementing efficient payment systems reduced the ability to recruit from emerging markets. Also, as we all know, about half of all elves lie on resumes. The certification of skills was a difficult task. Understanding the range of toy-making abilities is essential in the planning and design of the Workshop’s processes. As the ER Management’s Director Buddy the Elf Jr. notes “capability without strategy and strategy without capability are meaningless. Our partnerships help us bridge gaps in our organization.”

What partnerships? The Workshop recently entered into an agreement with Bitwage to find remote elves all over the world, set up payment terminals for their location, and receive invoices in any currency. The platform gave Santa access to almost 20,000 potential workers with sophistication in all parts of the toy making business.

To make sure they didn’t make the wrong decision, the Workshop also partnered with Vottun to create unique certificates applicable to the toy making world. It made sure they were hiring highly-skilled elves at a fraction of today’s recruiting costs.

Sleighportation

As reindeer gather all over the world to help with global coordination, maintenance of communication infrastructure, and, if they are lucky enough — fly Santa’s sleigh — the challenge of flying to everyone’s house in one night seems daunting. The now-retired Comet said, “you would think Christmas Eve is the busiest night, but setting up information architecture to understand weather patterns, conflicts around the world, condition of the sleigh, etc. are just as difficult.”

Santa recently partnered with the Blockchain in Transport Alliance to create unique solutions to the tasks at hand. Working in coordination together, they were able to create a dashboard of real-time information for Santa to navigate during his night ride. The staff brought unique solutions from some of the top companies in the world — check out the list here — as well as the unique perspective and the technological advantage of blockchain. Safety has always been a priority of the Workshop, having delivered presents without injury for the last 10,000 years.

Predictive Naughtylitics

The ability to track and forecast naughty children to quantify the optimal level of coal necessitates advanced computers constantly slicing and dicing data structures. Santa, who takes pride in his leadership at the analytics department, spoke of the importance of applying next generation technology. He said “the complexity of right versus wrong, the impact of coal, and estimating how awesome the gift should be all require a deep understanding of statistics. Using blockchain tech, we get access to better information at an efficient price to run the right models.”

The Workshop recently partnered with the Golem network to increase accessibility to advanced computing power. They also partnered with Filecoin to buy the exact amount of storage units they need and add flexibility to their IT infrastructure in case they need to scale quickly. With all the information they created, a critical component of right sizing operations was establishing the ability to interpret the data and actively monitor when people move back and forth across the naughty/nice equilibrium. To gain further comfort in delivery success, Santa partnered with Chainalysis to make sure they are delivering coal to naughty kids, mediocre gifts to children that were mostly good, and the best gifts ever for nice children.

Summary

While many of these projects are still in their pilot / testing phases, 2019 should be an interesting year as blockchain becomes more normalized as a business tool. The recent blockchain hangover in the media related to the precipitous price declines of cryptocurrencies only masks the value generation we are beginning to see at a micro level.

(Yes, this article is satirical)

Merry Christmas and a Happy New Year!

First Takeaway: The SEC Means Business and is Polishing their Playbook

First, the recent settlement of SEC Registration charges against Paragon and Airfox on November 16, 2018 is likely the first of many civil penalties levied against cryptocurrency businesses. The ruling also represents an important legal precedent where the SEC applied guidance from the 2017 DAO Report of Investigation (Release №81027 / July 25, 2017). The guidance was used to charge both Airfox and Paragon for violating Section 5(a) and 5(c) of the Securities Act by “offering and selling these securities without having a registration statement filed or in effect with the Commission or qualifying exemption from registration with the Commission.” PRG and Airtokens were represented as “Utility Tokens” to present themselves fundamentally as glorified Kickstarter projects rather than securities.

The DAO Report set a framework to predict how the SEC would interpret securities law when applying them to ICOs despite labels as a security or utility token. Below are a few of the foundational principles of securities law from the DAO Report applied to capital raising via cryptocurrency offerings.

1) Determination of whether an investment contract exists. A key item distinguished was that the investment of “money” does not necessarily need to take the form of fiat currency. Using ETH to make investments was specifically cited (such as exchanges involving smart contracts). Tokens that fit the Howey test are determined to be securities.

2) Reasonable expectation of profits. Despite the focus on funding development projects, the tokens were presented and structured in a manner where a reasonable investor would have been motivated by the “prospect of profits on their investment.”

3) Benefit derived from the managerial efforts of others. The responsibility for shepherding the raised capital and generation of profit was assumed to be tied to the efforts of the management team. This increases in importance when considering management teams using cryptocurrencies to compensate employees and contractors.

4) Voting rights are a critical distinguishing factor. Based on the structure of these companies, there are a number of limiting items for the overall control of token holders. In addition, given that token holders are often widely dispersed and lack the ability to communicate with one another, there is an even greater burden placed on management to prove their efforts are not being relied upon for economic gain.

5) Information rights are important. Whether it is an unplanned hard fork or change in monetization strategy, it is important for token holders to have a reasonable amount of information to make an informed decision. This is likely to increase the burden on management teams to effectively communicate their results and general business plans in a more structured manner.

Second Takeaway: No Fraud Charges Levied

The SEC charged the two companies with a $250,000 fine and a cease-and-desist order until they can be properly registered. Notably, no criminal charges were applied in either case. This demonstrates that the SEC is focused on establishing registration requirements and enforcement mechanisms to create a more predictable ICO market. While these rulings may not establish a clear bright line on a number of other securities items pertaining to cryptocurrency markets, the blue prints for ICO compliance seem to be coming together.

Third Takeaway: Labeling it as a “Utility Token” Means Nothing

None of the defenses based on the label of a “utility token” were strong enough to avoid the categorization of each token as a security. A utility token is issued in order to fund development of a cryptocurrency and future marketplace where the token would be exchanged for a particular good or service. The legal defense of a utility token to avoid the label of a security is tantamount to comparing themselves to Kickstarter projects. However, the SEC determined that the promise and hope of asset inflation creates a fundamental point of distinction.

Fourth Takeaway: Investor Relations is Important

The SEC consistently discussed the promotional efforts on social media, email communications, blockchain communities / chat sites, and white papers in applying securities law. Similar to virtually every other asset class, the overall communication of the opportunity was evaluated in a legal vacuum to determine whether the tokens were securities and if they were exempt from registration.

Summary

While there are likely much more settlements in the SEC pipeline, we are starting to see the development of clear standards for ICO markets. This positive trend will culminate in more clear standards for asset monetization strategies using blockchain technology. Future guidance on the following topics are likely over the next few years:

· Equity compensation rules around distribution of cryptocurrency

· Trading rules surrounding secondary markets

· Liquidity requirements (for instance, escrow accounts held in ETH)

· Information rights

· Voting rights

· Governance structure

· Distributed ledger technology security

· Industry-specific applications (i.e., gambling, gaming, cannabis, etc.)

As investors and entrepreneurs increased attention and resources to trading, mining, and building tangential services around these digital currencies, we have witnessed a bumpy road to stabilization and maturity. A study of market cycles demonstrates the relative boom and bust of any new industry. A particular article in Hackernoon shows a great example of this by overlaying BTC prices on stock market performance during the inflating and pop of the dotcom bubble.

In order to attract capital and accelerate a new growth cycle, trading statistics of cryptocurrencies need to be more in line with traditional asset classes. Evidence of that trend has already been reflected in trading price data. Analyzing the trading data of the top cryptocurrencies (based on market capitalization), a decline in 30-day rolling volatilities and significant compression in the volatility spread between BTC with the S&P 500 and Russell 3000 indices were observed.

While there is certainly a long way to go until the industry begins to “mature” (with respect to long term cycles), the sharp decrease in implied volatilities points to certain tailwinds.

First, there have been a plethora of services and applications built with blockchain tech and successful companies in the space are now emerging. Payment services companies such as BitPay demonstrate various applications focused on consumer and business adoption. Ripple’s partnerships provides further evidence that there are tangible results that will disrupt status quo tech. The Zerocoin project has improved its capabilities and made meaningful progress towards secure transactions.

Second, investors are starting to reap rewards of their early investments in blockchain and recycle capital within the industry. The success of Coinbase illustrates blockchain companies can attract significant investor attention and capital. Prior management teams that have exited these companies have been able to raise money for their own projects; their niches are focused on plugging gaps with current technology offerings.

Finally, large multi-national corporations are beginning to introduce new and specialized product lines for industry participants. For example, Samsung released a new chip to improve BTC mining profits. These new products will reduce the overall marginal cost to enter related markets, just as cloud computing decreased the capability gap between small and large corporations.

While we cannot ascertain where the winners will be (equity investors, miners, coin investors, etc.), there seems to be a long runway for investors and entrepreneurs to figure it out. What we can see is that the railroad is making its way to the wild west, both the numbers and trends point to opportunities for those paying attention.

Today, I sat down with Forrest Marshall (Software Architect) and Mustafa Inamullah (Creative Director) of MIMIR Blockchain Solutions to discuss the current state of blockchain technology and their company. The intent of the interview was to uncover some of the key value drivers of the blockchain industry and separate fact from fiction after the recent popping of the cryptocurrency bubble.

For a quick summary of MIMIR Blockchain Solutions, please view the video located at the end of this blog post.

Intrinsic:
Thanks again for sitting down with us today. Given recent market dynamics (you end last paragraph with same phrase), we wanted to begin today by discussing some of the lessons from the Dot Com bubble and how they apply to blockchain. Could you discuss some of the learned themes that may have influenced your business model?

MIMIR (Mustafa):
Our focus in researching the technology bubble was to answer a simple question: what companies survived and why? No matter if you look at the Dot Com bubble of the late 90s, the Railroad bubble of the 1880s or the Tulip mania of the 1630s, the lesson is that the underlying technology or asset still exists. Innovations from the technology bubble still power economic growth, railroads continue to connect and enable businesses, and tulips can still be found at your local supermarket.

The big takeaway was that companies focusing on infrastructure to improve and sustain the internet survived. Think about Amazon, Adobe, IBM, and Oracle. With the benefit of hindsight, we can see that (1) companies focused on short-term gains were severely challenged and many even failed, (2) investors can punish you fast, and (3) infrastructure-focused companies prevailed.

Intrinsic:
How does MIMIR apply some of these lessons to their own strategy?

MIMIR (Forrest):
Since the founding of the company in 2017, we have always focused on how to provide long standing value. Initially, we set out to create a particular decentralized application (a “DAPP”). We soon realized there were serious holes in the ability to create and deploy a successful DAPP. Specifically, the ability for end-users to seamlessly and securely acquire data from the blockchain presented itself as an immediate obstacle to adoption. Therefore, our mission at MIMIR was to solve the obvious infrastructure problem to make blockchain more accessible to everyone, including users of off-chain, edge-connected devices. We have gone to lengths to educate the general public, establish credibility, and form invaluable partnerships wherever applicable.

Not many people really understand the unique strengths and weaknesses of the blockchain security model, or when and how to leverage it effectively. It is our goal to change this.

Intrinsic:
Yes, but at the same time, there are numerous internet and database security companies out there and their services improve year after year. What should companies ask themselves if they are thinking about implementing a blockchain solution rather than today’s alternatives?

MIMIR (Mustafa):
Before answering, we wanted to dispel a certain myth about blockchain technology. It isn’t a silver bullet. This technology won’t fully replace most information security systems, but it can greatly improve security and efficiency for certain mission-critical systems. There are many potential costs to consider including the limited throughput of most blockchain systems, and the limited availability of skilled blockchain developers. A quick litmus test for whether an information system really needs blockchain might be (1) is it handling mission critical information, (2) do the rules around modifying this information need to be strictly enforced, and (3) can you afford relatively low throughput for these modifications? If you didn’t answer yes to all three, there are probably better alternatives.

Intrinsic:
As a valuation firm, one of the focal points of our work is to isolate key performance indicators of a business to determine future performance and risk. One of the difficulties we have seen is that people often conflate cryptocurrency with DAPPs, with blockchain technology, with computer stuff. In addition, the categorization of blockchain technologies is still quite elementary — unless you know the industry, it is hard to understand the competitive landscape. Can you please describe how value is generated in the industry and, more specifically, by MIMIR?

MIMIR (Forrest):
One of the critical discrepancies we often note when discussing blockchain technology, and specifically its application in cryptocurrencies, is that tokens/coins themselves do not generate value. Just like a security, the underlying assets generate value. Ultimately, just as Apple stock is determined by the performance of Apple’s assets, a token or coin’s value is determined by their respective assets (if you discount some of the more behavioral based trading).

We consider ourselves a middle-ware company that adds a second layer of security to enable companies to develop DAPPs and implement them for your everyday end-user. Our mission is to build a DAPP interface to improve the security and scalability of interactions with blockchain services from resource-constrained environments. Today, there are approximately 30 million Ethereum accounts but only about 30,000 nodes serving those accounts (we note that the figures presented include multiple account ownership as well as smart contracts). This illustrates the huge discrepancy between the number of users directly interacting with the blockchain and those using third-party services.

Our system acts as a decentralized blockchain API and content-distribution network, connecting end-users with those who can serve the information they need. We will pay individuals to host blockchain data and supply it via specialized security protocols. The individuals that supply and secure the data buy into our platform via the B2i tokens (written as an Ethereum smart contract), which also acts as a contractual agreement between MIMIR and the individual. Individuals will only be able to ‘work’ up to an amount commensurate with the tokens they secured as collateral. If said individual attempts anything malicious, the collateral can be revoked and redistributed to honest parties.

Finally, in terms of categorization, you are correct in terms of the difficulty given the plethora of facts and fiction out there about the blockchain ecosystem. There are current projects aiming to figure out categorization. We recommend reviewing Tech Crunch’s classification framework as an example.

Intrinsic:
Touching more on the topic of value drivers, can these technologies contribute to an enhanced bottom line? How can companies utilize blockchain technology to improve operational efficiency?

MIMIR (Forrest):
We are positioned to capitalize on the rapid expansion expected in the DAPP industry. As the industry matures, we expect for specific applications to be developed that can enhance value. The key driver of value for this industry will be the ability for users to acquire the right information and secure it as well. Specifically, there will be large growth in IoT based devices, Decentralized Applications, and secure platforms needed for a digital identity. All of these could benefit greatly from blockchain technology, most importantly infrastructure.

Another example can be found in industries with complex supply chains. For example, let us assume an aeronautical products company like Airbus. Given the specialized requirements for each of the components that goes into building an airplane, they must be sourced from all over the world. The length of time it takes to build and ship components, risk in transporting the components, and order of units received will all play into how quickly a company can build their airplane. Also, this information goes into planning for the project, such as hiring the necessary number of workers and other financing decisions. This is a scenario where the accuracy and auditability of information is paramount, and the latency of a blockchain is inconsequential. Given the number of moving parts, the inherent fault-tolerance of blockchain data stores is a plus too. This has applicability to many global industries.

Intrinsic:
Taking a step back, could you explain how and why blockchain technology is the future? There can so much buzz about new technologies that it becomes difficult to isolate true disruptive potential from ephemeral investment fads.

MIMIR (Mustafa):
In a world facing greater digital identity security needs, we believe that the blockchain technology offers enormous upside. This not going to happen soon given the lack of infrastructure (as well as security of that infrastructure). That is why this has become our primary focus to help create this “Netscape moment” — opportunity that brings about massive adoption through better user experience. Our goal is to help facilitate this Cambrian explosion of new Decentralized Applications, by providing the necessary tools and infrastructure needed.

To say it another way, we can relate this next technological wave to the advent of the internet. Initially, the internet was not as useful for commerce because you could not trust the other party. The advent of HTTPS added an extra layer of security. You could now securely verify the identities of the entities you interact with online. If the entity was reputable, you could choose to trust the information it gave you. Blockchain technology is the next step in the process. Where HTTPS allowed you to verify the identity of an entity, blockchains allow you to verify the state of a system. If we imagine a digital chess board, HTTPS can tell you who you are playing with, and blockchain can tell you where the pieces are.

Using another example, in Healthcare there is a known gap in electronic medical records and their ability to communicate with software across other clinics. If a patient wants to track their own records, it is a nearly impossible task to first aggregate the information and then store it for future use. Furthermore, these records are a form of intellectual property, but the value may not be fully realized given the information is often disorganized and incomplete. Adding a blockchain service to verify and secure this information would save time and hassle for both patients and businesses.

We are certainly looking forward to the vast possibility of blockchain infrastructure to be used in facilitating secure growth across industries. Some industries we are particularly excited about include: advertising, fintech, compliance, auto, voting, P2P markets, and more. Collectively it’s the vast potential for the use of blockchain infrastructure that MIMIR is excited to be a part of.

Intrinsic:
Mustafa and Forrest, thanks again for taking the time out of your schedule to talk with us. It was great to hear your insight into an early but rapidly growing field.

For readers, please feel free to reach out to Mustafa or Forrest with any questions about MIMIR Blockchain Solutions. We have left their information below along with theshort introduction video.

Contact Us

Forrest Marshall
Chief Technology Officer
Forrest@MIMIRBlockchain.Solutions

Mustafa Inamullah
Creative Director
Mustafa@MIMIRBlockchain.Solutions

Telegram: https://t.me/mimirblockchain
Website: MIMIRBlockchain.Solutions

MIMIR Blockchain Solutions

— — —

Daniyal Inamullah
Vice President
Daniyal@Intrinsicfirm.com

Telegram: https://t.me/Intrinsic_Daniyal
Website: www.Intrinsicfirm.com

In order to understand this risk, investors typically analyze the trading history of publicly traded stocks and form ratios (e.g., beta, volatility, etc.) to compare. Analysts can then split risk into various categories based on size, geography, industry, and so forth. These ratios are often compared against benchmarks such as the S&P 500 and the Russell 2000 to gauge relative risk of each position. Also, in theory, high risk of a particular stock can be ‘diversified’ through the addition of uncorrelated stocks in the context of a portfolio.

Unfortunately, investors in cryptocurrency assets and companies lack a strong public market to assess these industry and operating risk factors that have been traditionally embedded in the trading prices of public stocks. Since the volatile end of 2017 to the beginning of 2018, investors rushed into the asset class to share in the promises of finding the Treasure of Lima. Comments like “Ethereum and Bitcoin seem to be safe given the attraction of institutional money” or “I’m going to take a shotgun approach and see what sticks” built a guise of both stable and rapid growth, both of which have not played out over the last year.

Rather than focus on the drivers of the market, the intent of this post is to analyze publicly traded companies to better understand risk. We analyzed 29 publicly traded blockchain-focused early-stage companies (Exhibit A) that were primarily pre-revenue in the blockchain industry; the companies trade across various international exchanges such as the TSXV, Nasdaq, and CNSX and on the pink sheets. We then calculated a market capitalization weighted index and observed the Crypto Currencies Index[1] to compare traditional ratios against these two benchmarks. It’s important to remember that these two indices represent different estimates of performance. The average market cap method measures the performance of the 29 selected companies. The CCI 30 index represents performance of cryptocurrency assets. While we would assume the indices to be highly correlated during sharp up and down movements, one area of focus was to see whether there was a decoupling effect between the two asset classes (like the relationship between gold and gold-mining companies) in performance after the recent drawdown of cryptocurrency asset values.

The first chart shows the risk-to-reward ratios (based on calculated weekly performance and volatility since the beginning of 2014) of the 29 companies and the indices. The indices also show greater risk-to-reward ratios, indicating potential benefits of diversification. A majority of the positions illustrate a weekly volatility range of 10 to 30 percent. This implies annual industry volatility of approximately 70% to 200%.

Chart 1 — Plot of Publicly Traded Companies

The second chart illustrates the growth of the market cap weighted index and CCI 30 index compared to the total IPO values (calculated as the market cap on the first trading week) over time. The area chart represents the gross invested capital of each position but ignores and fluctuations in the underlying stock. The indices (represented by the line charts) demonstrate the strong performance of cryptocurrency assets through the beginning of 2018, followed by a sharp fall.

The analysis reveals a few items. First, the trend of asset inflation likely contributed a almost $800 million of new IPO money flowing after the new year. Second, we calculated volatility ratios since the beginning of 2014 (or since inception of the other companies). Calculated off weekly performance, the implied volatility figures were significantly greater than those calculated for general market indices such as the S&P 500 (Exhibit B, at the time of this post the VIX index was trading around 19). In addition, we observed differences in risk associated with business strategy. For example, Hut 8 Mining Corp. represents a relatively recurring revenue type business model. On the other hand, Blockchain Technologies, Inc. is an early stage R&D company focused on applications to IoT. As the industry matures, we expect additional differences and sub-industries to emerge. However, for the most part, it seemed that the two asset classes were fairly correlated over the last 1–2 years.

Chart 2 — New Blockchain Companies

Finally, we wanted to note the obvious shortcomings with the analysis, which include (i) the short trading histories above the different companies, (ii) we ignore invested capital from large strategic companies such as IBM or Oracle, (iii) the private capital markets are substantially larger, and (iv) the initial focus for retail investors has been the currency rather than the underlying equity. Over time, we expect new innovations and industry maturity to allow valuation professionals and investors to increase reliance on traditional valuation tools.

Footnotes:

[1] CCI30, Source: https://cci30.com, Represents a barometer of cryptocurrency asset performance by analyzing the top 30 market cap cryptocurrency assets (index methodology is located on their website).