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Capital building

The Dollar Defenders vs. The Bitcoin Believers: The Blockchain Battle on Capitol Hill

Capita hill.

What a time in history!

Whether it is the United States House talking about Satoshi Nakamoto or seeing the President tweeting about cryptocurrency, it feels like blockchain has finally gone mainstream. If we were surfers, it’s like we’ve all been on our surfboards for the past few years, just waiting for the perfect wave—and in 2019, it finally came rolling in.

We also witnessed U.S. Senate Banking Committee, as well as the House Banking Committee, grill Facebook executive David Marcus on the plans for Libra, the new digital money hatched at Facebook. Marcus endured hours of relentless interrogation, and he held up like a champ.

The government’s concerns boil down to one central problem: digital currencies threaten the global power of the U.S. dollar.

This is a new era in U.S. politics, with both parties coming together to either support or oppose digital currencies. Both the far left and far right believe in individual and personal freedom: they are largely bitcoin believers. Those who want to maintain the existing system – conservatives, liberals, and moderates – are largely opposed.

Finally, we have found a cause that unites our political parties. (Is there anything blockchain can’t do?)

Let’s divide United States politicians into two new “supergroups,” which we’ll call the Blockchain Believers (in support of decentralized digital currencies), and the Dollar Defenders (who want to maintain centralized control).

Here’s a sampling of their thoughts as they put the new Libra digital money under the microscope.

The Dollar Defenders (Opposed to Digital Money)

Congressman Blaine Luetkemeyer

It was Missouri Congressman Blaine Luetkemeyer (R-MO) who most clearly defended the status quo: “You said that the current [financial] system is not working … I think the current system IS working. The system right now works because it’s like traffic control.”

The key word in this sentence is “control.” Centralized governments want to control a centralized currency. The question is how centralized governments control a decentralized currency, which Libra ultimately aims to become.

Carolyn Maloney (D-NY) went so far as to say, “I don’t think you should launch Libra at all. The creation of a new currency is a core government function.” She was joined by her fellow Congresswoman Nydia Velázquez (D-NY), who said: “We want to make sure that companies [like Libra] … could not threaten the U.S. financial system.”

The two New York congresswomen called on Marcus to stop Libra until they could figure everything out. “This is not Silicon Valley,” Velázquez pointed out. “You cannot work out problems as you go.” (Did the United States work out all its problems before it launched?)

It was Congressman Brad Sherman (D-CA) who said it most clearly. “America’s power comes from the power of the dollar more than the power of our military … Cross-border transmission? Let’s do that, in dollars!”

In other words: defend the dollar.

The Blockchain Believers (Open to Digital Money)

Congressman Patrick McHenry

Patrick McHenry (R-NC) gave the most impassioned and intelligent response to Libra. “Washington must ensure that it’s not the place where innovation goes to die. Just because we may not understand a new technology proposal does not mean we should immediately call for its prohibition.” He pointed out that the genie is out of the bottle: “The reality is that whether Facebook is involved or not, change is here. Digital currencies exist. Blockchain technology is real.”

“We should not attempt to deter this innovation,” he went on. “And governments cannot stop this innovation. And those that try have already failed. Instead of a kneejerk reaction of banning something before it begins, my colleagues and I want to try to first understand it.”

Sean Duffy (R-WI) called Libra “absolutely brilliant. Innovative, creative … and pretty amazing.” He went even further, arguing that Libra should be open to everyone, just like a $20 bill. It should “behave like a fiat currency,” he proclaimed, holding up a $20 bill to make his point. “The freedom and liberty that comes with the $20 bill,” he went on, “I think you should offer the same freedom and liberty on your [Libra] network.”

Steve Stiver (R-OH) understood the promise of global money: “The value I see in this innovation is cross-border payments, because that’s so expensive today. About 60% of the world’s population lives in a country that does not have a stable currency.” (Not sure about his math there.) “Helping the unbanked and helping people with cross-border payments … I appreciate the innovation.”

Finally, it was French Hill (R-AR) who articulated the blockchain philosophy in just three words: “Trust, but verify.” He even held up a coffee mug with this slogan on it.

Trust but Verify

But it was Andy Barr (R-KY) who actually talked about financial inclusion, which is the problem that Libra is reportedly trying to solve. “I think we should presume that innovation is good, that it presents enormous opportunity for financial inclusion,” he concluded. “I think that the opportunity for financial inclusion with Project Libra is enormous and very positive.”

This is what our elected politicians should be doing: figuring out the biggest problems facing society, and discussing possible solutions. I can’t tell you whether Libra will actually become global money that helps the unbanked. But I can tell you that financial inclusion is a problem – one-fifth of the world is unbanked – and only global money will lead to global inclusion. One money for one world.

Trusting, but verifying. Now that you’ve verified their stances, which side do you trust?

(For more big, bold, blockchainy ideas, apply to become a member of the BBA).

Blockchain education

A Roadmap Toward Better Blockchain Education

Blockchain

My uncle, now in his 80’s, has been a lifelong value investor. In the style of Warren Buffet (whom he greatly admires), he invests for the long term, in good-quality companies whose stock is trading at a fair price.

Once we were talking about how to build personal wealth, and he impressed the importance of education. “If you weren’t born rich,” he said with a smile, “you better get educated.”

Or as a financial adviser once told me when I was considering graduate school, “The best investment you can make is in yourself.” Or as Benjamin Franklin once said, “An investment in knowledge pays the best interest.”

See a pattern?

Education is not just the key to building personal wealth – more skills to pay the bills – it’s also the key to building the blockchain industry.

I spent this week at Blockchain Expo in Silicon Valley, the largest blockchain conference in the world, and the one theme that kept coming up was education. I asked my colleague and fellow keynote speaker Mike Wise his single takeaway. He texted me back: “Education.”

SEC documents and brochures.

Blockchain education – not regulation – is the biggest challenge facing this industry today. Here’s why.

Blockchain Education for Investors

In 2019, I attended a talk by Jay Clayton, the head of the Securities and Exchange Commission, and I was impressed with the educational materials the SEC had brought with them. Written for investors, they explained the basics of saving and investing, in plain English.

It’s only a matter of time before the SEC begins publishing these materials for blockchain investing. (We’d love to help.) This series will explain what bitcoin and cryptocurrencies are all about, and where they fit in an overall investing portfolio. It will explain how to find good opportunities, stay away from low-quality investments, and diversify risk.

If this sounds familiar, it’s because we’ve already created it. [Download it here.] We use large, easy-to-read fonts, bright colors, and lots of eye candy to make sure that people actually read and retain the information. We’ve handed out over a thousand of these at trade shows; investors eat them up.

Blockchain Education for Government

In order for this industry to move forward, we’ve got to figure out how blockchain tokens are regulated. That requires the participation of government – but our leaders are a million miles up! They’re already expected to be experts on the economy, healthcare, housing – and now this geeky financial technology as well?

Those of us who understand this technology have to lead the way. It is our responsibility – it is our calling – to bring smart, common-sense ideas to the table so that we can have a starting point for discussion. (Not just waiting for regulators to “figure it out.”)

At a blockchain event, I heard Justin Schmidt from Goldman Sachs, who, in just a few succinct slides, explained economic systems, digital assets, and a few smart questions on how to think about these new blockchain investments. What are assets really presentation.

What are digital assets really presentation slide.

These kinds of easy-to-understand slides, framed around simple questions, are actually very difficult to do. We’ve got to make this stuff easy to understand, to reduce the complexity of regulation to a few powerful questions.

Blockchain Education for Businesses

This goes without saying. (I’m saying it anyway.) I’ve heard several people describe blockchain as a “solution in search of a problem,” when actually I think it’s a solution in search of a prophet. We need prophets not just to evangelize the technology, but to explain where it works and where it doesn’t.

It’s why my co-author Evan Karnoupakis and I have partnered with O’Reilly to develop all this great education for business leaders, like our What is Blockchain? primer, and our State of Blockchain report. We’ve made them short and easy to read, perfect for busy executives.

And we’re working on BLOCKCHAIN SUCCESS STORIES, the first book of real projects from real companies, to teach the world what these early pioneers have learned. We’ve just finished up the first handful of case studies, and we’re so excited to share them with you. Stay tuned.

Blockchain Education for Students

Developers, developers, developers. They’re the people who actually build this stuff, and we need more of them. We also need economists who understand blockchain token design, marketers who understand how to build blockchain communities, and user interface specialists who can make blockchain projects that are fun and usable.

Across this new industry, we need a huge, fast-flowing pipeline of talent, and to do that we need teachers. But first, we need teachers to teach the teachers. We need lesson plans for an industry that’s moving faster than lesson plans can be written.

We need more organizations like Blockchain Education Network, which is developing an open-source blockchain curriculum that can be easily launched at universities around the world – not only by faculty but by the students themselves. They’re taking the decentralized approach to teaching, which is paying dividends.

If an investment in yourself pays the best interest, an investment in teaching others pays dividends. That’s a lesson we can all remember.

(For more big, bold, blockchainy ideas, apply to become a member of the BBA).

 

Author: Sir John Hargrave

David Vorick of Sia

Blockchain Project Profile: Sia

Can a Boston-based company give the big tech companies a run for their money (and future cryptocurrencies) in the file storage space? David Vorick, Co-founder of Boston-based Sia is confident public blockchains will disrupt the space. David recently appeared at the Nasdaq MarketSite for this episode of The Business of Blockchain with Jane King.

Red, blue and white star candies.

The Principles of Blockchain

Red, blue and white star candies.

One of the things that attracted me to the blockchain revolution was its principles. I’m writing this article so we don’t forget them. It’s important for us to return to these principles, because they represent independence.

On January 3rd, 2009, Satoshi Nakomoto hardcoded this message into the Genesis Block of bitcoin:

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”

That was the day’s headline from The London Times, as the government continued to bail out banks from the 2008 financial meltdown. That bailout represented a closed system between centralized institutions—banks and governments—that had both failed us.

Bitcoin represented a different model: a decentralized system, where the people owned the money. More than that, bitcoin was global money, beyond the reach of any government. Finally, it was private money, protected by cryptography.

The roots of bitcoin go much deeper, to the cypherpunk movement of the 1990s, epitomized in A Cypherpunk’s Manifesto by Eric Hughes. In just 860 tightly-crafted words, Hughes articulated a vision for a world in which privacy was a basic human right.

Privacy, he argued, was not secrecy: “A private matter is something one doesn’t want the whole world to know, but a secret matter is something one doesn’t want anybody to know.” We all have things we’d rather keep private (which is why we wear pants).

The cypherpunk movement, which thrived on mailing lists and message boards, attracted a motley crew of techno-libertarians, who generally valued “personal privacy and personal liberty above all other considerations.”

And the cypherpunk mailing list is where Satoshi Nakamoto first published his white paper for bitcoin.

Principle 1: Everyone Has Private Parts

The cypherpunks were introduced to the world by tech writer Steven Levy in a 1993 Wired magazine cover story titled Crypto Rebels:

“[They] hope for a world where an individual’s informational footprints — everything from an opinion on abortion to the medical record of an actual abortion — can be traced only if the individual involved chooses to reveal them. There is only one way this vision will materialize, and that is by widespread use of cryptography. Is this technologically possible? Definitely.”

I still have an original copy of this issue, which made a huge impact on me. I had never thought about privacy as being something worth fighting for—what did I have to hide? Eventually I realized that most of us want privacy around our medical history, financial background, personal issues, and on and on.

Most of us don’t want Alexa listening in on every personal conversation, broadcasting to anyone who can figure out how to hack in. Most of us don’t want the government peering into our bedroom through our webcam. All this happens, of course, because we have not claimed our right to privacy.

In fact, our privacy is under fire now more than ever. Social media sites like Facebook know everything about you—including algorithms to identify your face. Data brokers like Equifax are still hoarding your financial history, without your permission. And Alexa is listening.

While privacy can certainly be used to hide evil, it can also be used to champion good. The Federalist Papers were written by Alexander Hamilton, James Madison, and John Jay to encourage support for the United States Constitution—but published anonymously.

In other words, privacy is in the DNA of the United States of America.


Federalist on the new constitution.

Principle 2: Power to the Peeps

But the United States is a centralized institution. The founders of this country wisely tried to balance power by creating the executive, legislative, and judicial branches, which serve as a check on centralized control.

One thing got more and more centralized, however: money.

It’s not just a meme: according to Oxfam, the richest 1% have more than the other 99% of us. We need a better financial system, one that lets us send and receive money as simply as sending email. We need to get money to the 7 billion people on earth, including the 1.5 billion that are unbanked.

Money is power. So when everyone has access to money, everyone has access to power. Money for the people means power for the people.

This is why bitcoin is decentralized: a distributed network that anyone can join, making money that anyone can buy. The ultimate check on power is a distributed network, like the Internet. Just as no one “owns” the Internet, no one can “own” a decentralized currency like bitcoin. We all do.

Decentralization, like democracy, is a noble goal. But in the real world, someone has to write the code for bitcoin. Someone has to solve the problems of bitcoin: its poor scalability, rising fees, and outrageous energy consumption. Someone has to step up to “own” bitcoin.

Just as government is the tricky art of managing a democracy, governance is the tricky art of managing decentralized networks. The Internet has developed governing bodies, such as ICANN (which organizes domain names) and the Internet Engineering Task Force (a loosely organized body of smart people). Blockchain will need to do the same.

It’s this spirit of decentralization that we’re after. Open source software, consortiums like Hyperledger, and events like Unconferences capture the decentralized ethos of blockchain technology. (We should look skeptically at “permissioned” or “private” blockchains; why not just use a centralized database?)

The rule of thumb is: the more people we invite to the party, the better the party. (With the caveat that the party may need some bouncers.) What we want is a planetary party, a party for the planet.


Hands holding a model of earth.

Principle 3: Earthlings First

Bitcoin was envisioned as global currency for a global economy. One money for one world. It seems inevitable, doesn’t it?

We can still use our dollars and Euros and rupees, but these will eventually be subsumed by a blockchain-based global currency. Similarly, we can still be proud members of our tribe, but we must first identify with the human race.

We are Americans second, humans first. Britons second, humans first. Indians second, humans first.

This is a different story than we hear in today’s political climate, which is increasingly 2D, increasingly black and white: us vs. them, one party vs. the other, isolationists vs. immigrants.

With blockchain, we’re moving out of 2D into 3D. Living in the third dimension isn’t just about seeing things in shades of grey; it’s about unlocking another dimension of possibilities. Politicians are playing checkers; we’re playing chess.

Isn’t it ironic? Here we are, the decentralized blockchain community, wasting the last year waiting on permission from centralized government institutions like the SEC. Permission! Did the American colonists wait on permission from the King before declaring their independence?

Those early Americans thought in another dimension. They thought about something outside the 2D world of subjects and King. They thought about independence. They thought in 3D.

To think globally is to think about being a part of something much bigger than our country. That’s what’s happening now: a wave of human emotion, bound together by the Internet, financed by a new kind of global money.

Humans first. Earthlings first.


The Blockchain Investor's Manifesto cover.

The Fist of Justice

Our Blockchain Investor’s Manifesto has been distributed to thousands of blockchain conference attendees worldwide (you’ll get a copy when you sign up for our newsletter). We cannot print enough of them: people devour them like free cake in the office break room.

On the cover is this illustration of a fist. It is not a fist of violence, it is a fist of justice. A fist of solidarity, to bring wealth to where it is most needed, to open the floodgates of money around the world — and when the world prospers, so do we.

Money for everyone. Blockchain for everyone.

I’ll close with a funny story: I was stopped by an airport TSA agent for a random bag check. When he unzipped my luggage, a hundred of these manifestos sprang out. After he dried his pants, the TSA agent asked, “You’re into blockchain? I just started mining Ethereum.”

Even a centralized government is getting swept up in the wave of decentralization. No one can stop the wave of freedom that’s coming. All we can do is ride it.

(For more big, bold, blockchainy ideas, apply to become a member of the BBA).

Group of people sitting around a large table clapping.

Does Your Company Need Blockchain? The 5 Question Quiz

Group of people sitting around a large table clapping.

What are the human motivators to get companies to invest in blockchain? This question lies at the beating heart of blockchain. How do we get centralized institutions excited about a decentralized technology? In other words, why blockchain?

There are five good reasons for your company to adopt blockchain technology (with some help from MIT’s excellent brief Blockchain: How to Position Your Company for the Inevitable). Here they are.

Efficiency Improvements

The central question: where is your business slowed down by middlemen?

An obvious example is international payments. If you’ve wired money to another country, you know it’s slow and expensive. New blockchain companies like Ripple are making cross-border payments faster and easier—which is both an opportunity and a threat for old-school companies like Western Union.

Any time there are multiple parties involved with reconciling or validating transactions, that’s an opportunity for blockchain. As an analogy, think about the days when you had to manually sign for package delivery—now it’s handled behind the scenes, so everyone gets their packages sooner.

Efficiency improvements mean cost savings, which is a pretty good reason for companies to invest—but it’s hard to get the IT department excited about saving money, especially if they have to invest in the cost savings up front. Which brings us to reason #2.

New business models

The central question: which parts of your business can be decentralized and disintermediated?

An example will help. Steve Ballmer, Microsoft CEO during the 2000’s, was famously centralized: Microsoft software should work on Microsoft systems. When Satya Nadella became CEO in 2014, he radically opened up the company, with the goal of getting Microsoft on one billion devices (and he’s 80% of the way there).

Another example is Red Hat, which has made “enterprise ready” versions of popular open source software packages, like the Linux operating system. This business model offers the benefits of decentralization, with the security of centralization. (Your head of IT wants to know, “Who can I call for tech support at 3 a.m. when my blockchain breaks down?”)

Better products and services

The central question: How does this solve a real business problem, or better serve your customers?

As an example, Uber blew apart the taxi industry by delivering a much better customer experience: friendlier drivers, easier payment, faster rides. That required a certain amount of decentralization, allowing anyone to become a driver. But it required a “blockchain mindset.”

Another example is the company LO3 Energy, which is allowing Brooklyn residents to buy and sell solar electricity from their neighbors, bypassing the traditional utility companies. The obvious recommendation: electric companies should create independent business units (or buy these startups) to experiment with these models, or else it’s lights out. 

Hands.

Having a seat at the table

The central question: Would you prefer to drive your industry, or watch from the sidelines?

As an example, the Hyperledger consortium is a collection of big tech companies—from IBM to Intel, from American Express to Accenture—who are working together to develop enterprise blockchain solutions. If orange is the new black, then consortiums are the new companies.

We’re beginning to see blockchain consortiums for banking, insurance, healthcare, and so on. Let’s say you work in these industries, and you decide blockchain is not a priority. Meanwhile, these new industry groups grow in size and power, and the train leaves the station—leaving you running to catch up.

By joining (or leading) industry consortia now, you have a seat at the table. You have influence. The “blockchain mindset” is about collaboration, not going it alone. Collaboration, not competition.

Staying relevant

The central question: where will your business be in five years?

As an example, IBM continually reinvents itself by going after higher-value, more profitable markets. You may remember IBM once produced low-cost commodity PCs, but now it specializes in high-end consulting services. This is how IBM continually makes more money: by swimming upstream.

Technology moves fast. The only thing that companies can know for sure is that our world will look much different in five years. Blockchain offers the ability to stay relevant as the world moves from centralized services to decentralized systems. The time to experiment is now.

Why should your company invest in blockchain?

To recap, here are the five questions to ask:

  • Where is your business slowed down by middlemen?
  • How can these parts of the business be decentralized or disintermediated?
  • How will this solve a real business problem, or better serve your customers?
  • Would you prefer to drive your industry, or watch from the sidelines?
  • Where will your business be in five years?

The better our answers to these questions, the more companies will jump on board, and the more our blockchain investments will grow. Now we’ve got some answers.

Young girl whispering to her teddy bear.

How to Make Money in a Blockchain Bear Market

Girl whispering secrets to her teddy bear.

Even in a blockchain bear market, you can make money.

In the traditional economy, there are “recession-proof businesses” that still make money regardless of how the stock market is doing. Service businesses do well, as people still need accountants to do their taxes and barbers to cut their hair.

The same holds true in the blockchain economy: there are “recession-proof businesses” that still make money when the price of bitcoin falls. During the Great Crypto Winter of 2018, we watched carefully for businesses that were still thriving, even in a blockchain bear market. Here’s what we found.

Digital Exchanges

Even when people are selling, they need a place to sell.

Digital exchanges, the marketplaces where investors buy and sell bitcoin and cryptocurrencies, are not just alive, they’re thriving. True, trading volumes are greatly reduced during bear markets—investors are not manic, they’re depressed—and fewer trades means less revenue. But this can be a good thing.

First, it means a thinning of the herd, as many of the fly-by-night exchanges close up shop. Power consolidates into a handful of “legitimate” exchanges, as laid out in this excellent report that Bitwise prepared for the SEC.

According to this analysis, the top 10 digital exchanges today include Binance (which trades an Average Daily Volume of $110M), Bitfinex ($38M), Kraken ($31M), Bitstamp ($31M), Coinbase ($27M), bitFlyer ($14M), Gemini ($8M), itBit ($6M), Bittrex ($5M), and Poloniex ($1.4M).

These are the healthy ones, and they’re still making money—a percentage of every trade. When the market turns around, they’re likely to be the ones gushing cash.

Of course these are not publicly-traded companies, but many are issuing their own tokens, which investors can buy right now.

More reading: See our list of Best Cryptocurrency Exchanges for 2019, and How to Buy Binance Coin.

Market Making

Let’s say you own an imaginary token called ThinCoin, and you sell some of your ThinCoin on one of the digital exchanges listed above. You’re not actually selling to another investor, who’s sitting there waiting to buy from you. You’re selling to a market maker, a middleman or middlewoman.

Of course, the blockchain is supposed to do away with middlepeople, but they are necessary in trading platforms. The market maker is the one who places all these “buy” orders at different prices (let’s say around $1.00), so that you can instantly “sell” your ThinCoin whenever you want.

Simultaneously the market maker is placing “sell” orders across the board at slightly higher prices (let’s say around $1.05), so other investors can “buy” ThinCoin whenever they want. The market maker makes money on the spread.

Just as digital exchanges still make money in a down market, so do market makers—maybe even more. As the volume of trades decreases, thinly-traded tokens (like ThinCoin) may need market makers to prop them up—and that may mean larger spreads.

More reading: See our list of Best Crypto Market Makers, Rated and Reviewed.

Staking

A host of companies are now offering crypto staking services. By buying digital assets based on Proof of Stake (like Tezos), then storing it with these companies, they allow you to earn “dividends” or “interest” on your tokens—like storing your money with a bank.

It’s still early days for these services, which are claiming anywhere from a 5% to 100% annual return. (Coinbase Custody, which seems to have the lead in this market, estimates a 6.6% annual return, or a little less than the average return on the overall stock market.)

Investors need to be careful that they’re dealing with a reputable company, and that their tokens are fully-insured. This is a new type of product, but expect to see it making a lot of money for investors in the years to come—like an interest-bearing account.

More reading: See our article on Best Staking Services.

Crypto Fund Administrators

Let’s say you want to open a hedge fund that specializes in digital assets like bitcoin and cryptocurrencies. You think you can beat the market, you just need the investors to put money into your fund.

Enter a new type of company called the Crypto Fund Administrator. Think of them as handling all the back-end work like fund accounting (calculating the asset value, deducting management fees, reconciling cash balances, etc.) and investor services (doing KYC checks, managing the paperwork, etc.)

These fund administrators make money in a bear market, in the same way accountants make money even in a depressed stock market: investors still need to do their taxes. While a bear blockchain market may mean fewer people opening hedge funds, these companies still make money on existing clients.

In fact, a bear market may provide additional opportunities for crypto fund administrators, who can come up with new services to offer to their hedge fund clients, to soothe the sting of poor returns.

Blockstocks: Traditional Stocks Investing in Blockchain

One thing we’ve learned in the past year is that blockchain markets and traditional stock markets are not highly correlated: while we’ve been enduring “crypto winter,” the stock market has had a terrific run.

Another strategy, then, is to look for high-quality, publicly-traded companies that are investing heavily in blockchain. In other words: Move money out of crypto, and into stocks that have a blockchain component (which I will call “blockstocks”).

One of the best places to start your research is fintech companies who own a lot of blockchain patents. According to patent research firm Envision IP, the public companies with the most blockchain patents are Bank of America, followed by IBM, Mastercard, TD Bank, and Accenture.

Blockchain patents graphical chart.

More reading:See our article on Best Blockchain Stocks, and the public companies with the most blockchain patents.

Buy and HODL

It’s difficult not to be swayed by emotion, but you can always buy bitcoin (or a basket of the top altcoins) and simply hold. Let’s say you invested $10,000 on September 1, 2015, and held it for three years. Here are three ways you could have invested it:

  • Stocks/bonds only:50% stocks/50% bonds (i.e., total stock market and total bond market)
  • Stocks/bonds/bitcoin:65% stocks/25% bonds/10% bitcoin
  • Stocks/bonds/altcoins: 65% stocks/25% bonds/5% bitcoin/2.5% Ethereum/2.5% Ripple

Here’s a comparison of those three investing strategies after just three years:

Investing strategies compared chart.

More reading: Order my book Blockchain For Everyone, where I lay out these investing strategies in much more detail.

Study

Just as bears hibernate during the winter, you can use a bear market as a time to hunker down, do your research, and plot your next investing moves. If you can think for yourself—not think like everybody else—these times can be richly rewarding.

Bear markets separate the wheat from the chaff, the blockchain pros from the crypto bros. They test our commitment, and they allow us to position ourselves for the next wave of investor excitement.

These are a few of the opportunities we’ve found in a blockchain bear market, but this industry is still young and many more will follow.

(For more big, bold, blockchainy ideas, apply to become a member of the BBA).

Graph showing performance improvement over time.

Crypto Staking: How to Earn Dividends While You Sleep

Graph showing performance improvement over time.

Courtesy Staked

There’s a new way to make money with your crypto assets, and that is to do nothing at all.

Everyone knows the magic of compounding interest, where you’re earning interest (say, for letting a bank use your money), then earning interest on that interest. As the interest accumulates, it gets automatically reinvested, and earns even more interest.

The blockchain investor’s equivalent is the idea of staking, where you’re earning tokens for holding tokens. To understand how this works, let’s briefly review how certain blockchains use Proof of Stake.

Side by side comparison of Proof of work and Proof of stake.

Courtesy CoinTelegraph

In a blockchain running on Proof of Work (like bitcoin), the system requires “miners” to maintain a huge network of computers performing heavy math to validate the blockchain. This consumes enormous amounts of energy and makes Earth sad.

In a blockchain running on Proof of Stake (like Tezos), the system requires “bakers” to simply own the token. The more tokens they hold, the more “votes” they have in validating the blockchain. No energy-intensive computer setup required.

Why would someone want to own tokens in a Proof of Stake model? Because you can earn income—like dividends—on the amount that you “stake.” Think of it like putting your money to work—and it is work, as the process of validating the blockchain is technically complex.

For those who don’t want to go through the hassle, there’s an even simpler way: you can now delegate these assets to someone else, and earn between 5 and 25% annually. Think of it like putting your money into a savings account: the bank puts that money to work, and you split the profits (i.e., interest).

In plain English, here’s how crypto staking works:

  • You buy a bunch of Tezos (or some other Proof of Stake token);
  • You trust it over to a staking service (like the ones listed below);
  • They do the work of staking for you;
  • The two of you split the “interest”;
  • Rinse and repeat.

Crypto Staking Providers

Several companies have begun to offer “staking as a service,” outlined in the table below.

 Tokens supportedEst. annual returnProtection
Coinbase CustodyTezos 6.6%Coinbase claims zero risk, as tokens stay in fully-insured cold storage.
Battlestar CapitalDash, Qtum, Decred, Horizen, Tezos, PIVX, GINCoin, Enigma, Green Bitcoin, Cardano, Zcoin5% and up“A unique and secure form of asset custody.”
StakedTezos, Dash, Decred, Livepeer, Factom and EOS5% and upNon-custodial staking (you don’t hand over your private keys), plus extensive “internal controls.”

While some of these services claim returns of up to 100% annually, let’s be conservative and say that most investors can expect to see returns in the 5-10% range—on par with the stock market, which averages about a 7% annual return.

So let’s say that you invest $10,000 in this blockchain investment strategy to start, with a monthly contribution of $100, reinvesting your gains back into your staking account. With the magic of compounding, you will double your initial investment in about five years:

Chart showing estimate of how much initial savings will grow over time.

Courtesy Investor.gov

Like any investment scenario, this carries a lot of assumptions: blockchain remains a viable investment class; Proof of Stake systems continue to grow; staking providers continue to thrive. There are risks involved, but there’s also the risk of holding onto tokens without ever putting them to work.

Staking is like putting your blockchain portfolio to work. And when your blockchain investments are working hard, maybe you can rest a little easier.

(For more big, bold, blockchainy ideas, apply to become a member of the BBA).

Blockchain blocky

Meet the New Blockchain Mascot

Blockchain blocky

A few months ago, the board members of the Boston Blockchain Association were talking about how to make blockchain more user-friendly.

“What we need,” I said, “is a mascot!” As a joke, I ran up to the whiteboard and sketched out a block, with a chain for a tail. “We’ll call him BLOCKY McBLOCKCHAIN!” I shouted.

That idea sat on the burner for a while. When I was invited to this year’s South by Southwest, the enormous interactive festival in Austin, to do a reading from my new book Blockchain For Everyone, I knew it was time for Blocky to become a reality.

Behold! I present to you the new mascot of the blockchain revolution: Blocky McBlockchain!

Blockchain Blocky

As soon as Blocky stepped onto the street, people wanted to take selfies with him. There were two types of people: those who knew about blockchain and wanted to talk about it, and those who only got the joke after we explained it. “Oh, a block-chain. Blockchain!”

This may seem like a silly exercise—and it is—but it’s also important to put a friendly face on blockchain. Most of the discussions about blockchain are so technical and theoretical that people need a way to connect. Even though it’s digital, people long for something physical.

I realized this as I’ve visited blockchain trade shows over the last year. The booths that get the most attention are the ones with a physical product: hardware wallets, bitcoin jewelry, minted coins. Even though this stuff is virtual, we long for the tangible.

It’s also important that people see that blockchain is nothing to be afraid of. (We built Blocky with a huge goofy grin on purpose.) By taking selfies with Blocky, they’re making themselves part of the blockchain ecosystem. Blockchain for everyone.

Blockchain blocky

Later in the day, I hosted a blockchain panel, where we planned to bring out Blocky as a final surprise for the audience. As I introduced the new mascot of the blockchain industry, I saw that BLOCKY COULD NOT FIT THROUGH THE DOOR. This was unbelievably funny to me.

One of the blockchain developers on the panel deadpanned, “The block size is too large.”

Blockchain blocky

Many thanks to the team at CoCreateX—who also helped us create the “Blockchain Bus” for last year’s Boston Blockchain Week—for putting together this hilarious costume. Special thanks to Mac Cameron, who endured several hours inside the costume and countless selfies.


Blocky. Maybe someday he’ll be as big as Mickey.

(For more big, bold, blockchainy ideas, apply to become a member of the BBA).

Winklevoss twins.

The Bitcoin Brand Campaign

Winklevoss twins.

Where is the bitcoin brand campaign?

Tyler and Cameron Winklevoss, co-founders of the crypto exchange Gemini, recently launched an ad campaign in New York City. With slogans like “Crypto Without Chaos” and “Crypto Needs Rules,” the idea is to educate the public on the need for regulated exchanges in the blockchain space.

It’s terrific that they’re bringing these issues into the mainstream. But where is the bitcoin brand campaign?

What we need is a big, bold, branding campaign for bitcoin. I’m talking big-time TV spots, bus wraps, and billboards. Why?

  • Advertising drives awareness. For blockchain to hit mainstream, people need to understand what it is.
  • Advertising builds trust. For better or worse, people tend to trust what they see on TV. (“If bitcoin’s on TV, it must be true.”)
  • Advertising changes minds. If people are exposed to the same message enough times, it sticks. (See: political advertising.)

Here are a few classic ad campaigns that give you the flavor of what a bitcoin brand campaign could look like.

Mac vs. PC

This iconic campaign made technology cool, by showing how PCs were actually quite uncool. You could easily see a campaign that turns bitcoin into a funny, relatable character who explains how easy it is to send digital money.

Geico

You’ve heard their slogan so many times that you may have forgotten Geico is an INSURANCE COMPANY. If the most boring industry in the world can make funny commercials, then surely we can make bitcoin entertaining.

https://www.youtube.com/watch?v=rFEpGiWhoUU

Coca Cola

This classic Coke ad was years ahead of its time, showing global citizens bonding over a soft drink. In today’s political climate, a bitcoin anthem—sung by people around the world—could explain to a global audience the power of a single source of digital money.

There’s only one question: who will pay for it?

We’ll need an award-winning creative agency to create the bitcoin ads, and then we’ll have to pay for the ad space. (Apple, Geico, and Coke each spend around $1 or $2 billion per year on ad spend).

I think we can decentralize this, with everyone who owns bitcoin chipping in. It’s in the best interest of bitcoin investors, because the more people trust bitcoin, the more your investment grows. All we need is a strong volunteer to lead the fundraising effort. (I would do it, but I’ve got this newsletter to write.)

The bitcoin brand campaign. We only need to raise a billion. Any takers?

(For more big, bold, blockchainy ideas, apply to become a member of the BBA).

404 error message

Stop the Adness: How Blockchain Will Replace Advertising

404 error Houston we have a problem

In his final column, New York Timestech columnist Farhad Manjoo stated, “The Internet ad business lies at the heart of just about every terrible thing online.”

Ads interrupt your experience, slow down your computer, and crash your browser. Ads install spyware, in the form of tracking code called “cookies” (itself a deceptive term, because cookies are delicious). These companies track your every move, which is how ads follow you around the Internet.

Foreign governments buy Facebook ads to influence voters. When your favorite celebrity tweets about a product, it’s probably an ad. Many websites will give you more coverage if you buy their ads. We don’t trust the media, in part, because we don’t know what’s editorial and what’s advertorial.

All these problems come down to ads.

It wasn’t supposed to be this way.The original architects of the World Wide Web thought that micropayments—payments less than a dollar—would be how the web was monetized.

You’re probably familiar with the “404 error,” when a page is not found on the Internet. The “402 error” was the error you’d get when a payment was required. The 402 predated the 404.Have you ever seen a 402 error? No, because we didn’t get micropayments. We got ads.

Plenty of micropayment systems have been tried and failed, because of what bitcoin pioneer Nick Szabo calls “mental transaction costs.” If it costs 25 cents to continue reading a New York Times article, you have to mentally compare it to other articles, other websites, what you could buy with…forget it, I’ll just check BuzzFeed instead.

The more we have to think about paying for something, the less likely we are to pay for it. That’s why Amazon invented 1-Click. Doesn’t get any lower-friction than that. Until Bezos invents the 1-Thought, which is an Internet-connected hat that will buy cheesecake as soon as you desire it.

Today, subscriptions work better than micropayments, because they eliminate that mental friction. One price: all you can eat. New York Times: all you can read. HBO: all you can watch.

But blockchain can make micropayments work, by making them invisible. I will explain this simply, using fairy tales.

Masspike toll booth.

Take the Massachusetts Turnpike. This is the main highway leading in and out of Boston, and it’s a toll road. Back in the day, you had toll booths, which snarled up traffic and made everyone resentful. You’re already commuting in rush hour traffic, and now you’ve got to pay to use the road.

The toll booth collectors had the worst job in the world, dealing with grumpy commuters every day, so they got grumpy as well. In fairy tales, you know the troll who guards the bridge and says, “THREE GOLD COINS.” Why is he always grumpy? Because he has to deal with all the commuters!

Green grumpy guy.

Then a few years ago, they tore down the toll booths. Gone. Now you have this little device in your car—a transponder—that automatically charges your account. I’m not talking about an automated toll booth. There is no booth.

It’s as if they removed the troll, and replaced him with a robot with a radar. You don’t even know that it’s happening. You’ve got this online account that you load up with 50 bucks, and it just draws down against that account. Zero friction. It’s invisible. It’s incredible.

That is brilliant engineering. And that is what blockchain-based micropayments can look like.

Cars driving on a highway.

Let’s imagine a project called ContentChain, that lets you buy a token called ContentCoin. You load up your ContentCoin account with $50, and as you browse the Web, it seamlessly pulls ContentCoin from the sites you visit most, paying it back to the publisher.

This is similar to the Basic Attention Token, with one critical difference: the BAT still relies on ads. Advertising is a failed business model.

To make these ideas work, we need an open-source blockchain that’s easy for publishers to use, and easy for users to install as a browser extension. Most importantly, we’ve got to have great content. This is how Netflix, Amazon, and HBO have built great networks without advertising: by producing content that people are willing to buy.

At the Boston Blockchain Association, we’re building a blockchain ecosystem that people will be willing to buy. To learn more,  apply to become a member.

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