Bitcoin Futures, Government Tokens, Enterprise FOMO & Blockchain of Food
The OV November Brief
This is a monthly summary of our daily newsletter — sign up — to receive a short brief on what’s going on in the industry every morning. It’s almost impossible to condense all of November’s action into a readable article, we will inevitability miss the story that was most important to you. But here goes anyway…
It has been a phenomenal time for the token economy with Bitcoin surging over 100% from its *low* of $5500. However, the month has not been all about price action. Start-ups have raised funds, enterprises have been on a patent filing rampage and governments have gone ahead and decided to issue their own tokens. Keep watching the price by all means, but the less headline-grabbing stories are the ones driving industry adoption.
November has been an eventful month for start-ups. Although ICO and VC funding in the space remained relatively low, there has been no dearth of innovation. Some players have raised funding to expand & meet increasing consumer demands. Others have displayed ingenuity in positioning themselves to cash in on the changing trends in the industry. Here’s news from Libra, Bitwala, BnkToTheFuture and Ripe.
Cryptocurrency taxation & compliance start-up Libra announced a recent raise of $7.8 million from investors including Boost.VC, Liberty City Ventures, Lee Linden & liquidity provider XBTO. The new funding will be used towards further developing Libra’s product for enterprise clients. The product currently enables institutional grade clients to collect, standardize and audit market data without worrying about the scale. The start-up also announced the launch of Libra Crypto Office with XBTO and Shapeshift as clients. The product will enable market-makers, exchanges & funds to automate back-end and middle office processes when it comes to reporting. As the token economy surges over $300 billion, start-ups like Libra lay crucial infrastructure required for exchanges & funds to remain compliant.
San Francisco based Ripe (it seems we are moving beyond startup.coin and block.startup, which is long overdue) aims to use blockchains to track food provenance. Leveraging sensory data and the immutability of a blockchain, the start-up aims to increase transparency of the conditions within which a product was raised. Ripe is targeted at restaurants and individuals that would like to provide proof of quality standards. Traditional methods of verifying the source and raising conditions of an agricultural product can take up to a week. With the use of a blockchain-based tracker, this can be reduced to minutes. Both Walmart and IBM have been experimenting with food & drink provenance as have UK-based Provenance. Given the fragmented nature of agriculture and the costs involved in setting up sensors & trackers for produce, it remains to be seen if the blockchain-based solution will be adopted at scale. For now, they remain a noble solution for mass producers and large-scale farms to integrate into their offerings to further instil confidence in what they ship.
Equity-based crowd-funding platform BnkToTheFuture will allow accredited investors to trade equity in curated blockchain oriented start-ups by as early as next year. The move will enable start-ups focused on the sector to raise funds from a global crowd of investors without conducting a token sale. Also, it would also allow investors to have far higher liquidity for the equity they hold in these start-ups. BnkToTheFuture will be competing against the likes of t0 by overstock and Nasdaq’s Private Market. Instant liquidity in the token economy would mean far higher efficiency amongst start-ups. Since investors have faster mechanisms to liquidate their holdings, any malpractice by founders would instantly affect the firm’s valuation. This project and others like it that are combining equity and tokens in innovative ways will be fascinating to watch. Investors and early teams will have instant liquidity thus preventing lock-in and the inefficient utilization of capital and resources. This dynamic would likely lead to startups failing faster and successful startups attracting more capital and more resources faster than ever to attack incumbents and new markets. Disruption theory on steroids?
The FOMO behind missing out on the next disruptive wave is evident by the high number of companies filing patents & piloting blockchain proof-of-concepts. Earnings calls over the last quarter have seen over 400 mentions of the word “blockchains”. We cover Samsung’s work with South Korean government, Mastercard and patents from Verisign.
The government of South Korea has inked a deal with Samsung SDS. The partnership with the electronics conglomerate is aimed at helping the Seoul Metropolitan Government draft its information strategy plan around blockchains. This comes 7 months after Samsung announced it’s enterprise blockchain offering named Nexledger. Although blockchains can help with increasing transparency and accountability in governance, their ability to strengthen democracy remains questionable as long as these functions are on private, permissioned ledgers. Another proponent of blockchains in an administration is Dubai. The trading hub aims to integrate blockchains in many functions ranging from identity to trade settlements by 2022. Government’s around the World are pushing ahead in terms of deployments of blockchains in a rare case of Government’s adapting quickly to technological change.
Payments behemoth Mastercard has announced that it has opened its blockchain APIs to enterprises and developers looking to create blockchain based payments solutions. The service will combine blockchain’s security and privacy with enterprise scalability and speed of transactions Mastercard currently provides. Individuals will be able to set up their own private, permissioned ledgers with distinct smart contracts and speed of reconciliations predefined. The firm has over 35 patents on blockchains and had previously invested in Blockchain start-up investor & incubator Digital Currency Group. Mastercard also joined the Ethereum Enterprise Alliance in July 2017. While private, permissioned and siloed ledgers would never be able to compete with open, distributed blockchains, initiatives like these would pave the way for an increasing number of blockchain based apps to be built in a secure environment.
Internet security services provider Verisign has filed a patent that leverages a blockchain to enforce domain name security. Fundamentally, the product redirects users to the right website they intended to visit instead of being subject to phishing scams from third-party sites. According to the application, “A relying party can look up the information from the public ledger by specifying the hash value, and validate that the information so obtained is correct by comparing the received information’s hash value to the specified value.” DNS Security Extension (DNSSEC) projects can be crucial in building the next layer of the web as it works towards ensuring individuals interact, retrieve and share data with the site they initially intended to visit. The need for solutions that avoid individuals interacting with the wrong kind of data can be seen in recent mishaps amongst ICOs. Coindash lost over $10 million of its investor’s funds with a hacker merely replacing the address in the website during their token launch. Active phishing through slack and email-based attacks have lead to Enigma losing over half a million dollars too.
Governments have had mixed reactions to the token economy over November. On one hand, they fear the possibility of tokens being used for criminal endeavours and on the other they embrace the possibilities blockchains bring towards improved governance. Key news for the month came from Vietnam, India and the United Kingdom.
The state bank of Vietnam has issued guidelines about cryptocurrencies for payments. According to the notice, individuals are prohibited from using tokens for payments within the nation. The ban does not mention mining or active exchange of tokens for trading. Taking cues from China, the country has imposed a fine of $9000 on anyone accepting Bitcoin as payments. This is a considerably hostile stance for the nation to be taking considering that the average salary of an individual in Vietnam is as low as $145. Nigeria had earlier issued a complete ban on the utility of cryptocurrencies in the region. The same resulted in bitcoins being traded for up to 70% premium for a short while. An increasing number of developing economies struggle to regulate distributed tokens. Part of the struggle is equipping their personnel with the skill sets required to enforce regulations. However, start-ups such as Bitpesa and Coins stand testimony to the fact that tokens can fill in the gaps traditional banking institutions have failed to cover in developing economies.
It seems as though India will soon be following Russia’s footsteps in deploying its own state-backed blockchains for handling administrative functions. Proposed in collaboration with “NitiAyog”, a government think tank, the system is aimed at reducing fraud, enforcing contracts and boosting agriculture as per sources. The primary implementation of the blockchain would initially be towards storing soil quality & land-related records. It would then be scaled towards identity and loans for SMEs. While no official announcements have been made to date, the media has already declared it the “largest governance” blockchain in the world. As much as this seems like a bull case scenario for blockchains in the region, considering the larger ecosystem it might not be as effective as it is touted to be. For instance, the regional identity solution titled “Aadhar” has not yet attained massive adoption in light of security concerns. Combining this with the rampant corruption and difficulty of doing business in the nation, a blockchain alone might not suffice to solve the rampant issues in the region
Venezuela’s President Nicolas Maduro has announced a digital currency for the trade of oil, diamonds and other precious resources within national boundaries. The president aspires to find a way around the blockade of money from and towards the nation. Since tokens require no financial intermediaries, the move will allow the inflation-ridden nation to capitalize on its resources. The opposition in the government did not welcome the idea readily. It remains to be seen who buys these resources from the government and how the funds will be used. This usher in a new era for token-based monetary policy. Although individual nations have declared launching state-backed tokens, this is the first time a president has relied on cryptocurrency to ensure its financial sovereignty.
We have been covering the most interesting pieces on the token economy, providing guidance on the most pressing issues in the industry. Here are some of our favorites from the month.
Byzantine Political Economies
What makes blockchains a powerful medium for disrupting multiple sectors is it’s ability to combine principles of economics with cryptography to create trustless systems that scale. Thought leadership around the same has given rise to a new field of economics, commonly referred to as crypto economics. A recent piece by an Australian group (Cryptoeconomics) sheds light on how blockchains combine cryptography, decentralisation, incentives and distributed governance to produce a paradigm shift on how economies function. The article runs you through how economists and cryptographers have been defining the same problem through different angles and then proceeds to explain byzantine’s general’s problem and distributed capitalism. It would be a gross injustice to offer more teasers to piece without linking you to the piece itself, so read the article in its entirety here.
Fred Ehrsam, co-founder of Coinbase lays down his thinking on blockchain governance in this excellent 17 minute long read. The core of his argument is that governance is the most critical issue in the blockchains space today. He explores governance of Bitcoin & Ethereum; touches on on-chain governance experimentation with Tezos and DFINITY; and outlines potential future approaches such as Robin Hanson’s Futarchy, liquid democracy and quadratic voting. We completely agree with Fred’s conclusions and we have been actively investigating network incentives and governance with our crypto-economics team and our partners at Imperial College London. It’s exciting to be involved in an industry that can A/B test governance and economic policy!