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Boston.

How to Restore Your Faith in Government

Here’s the announcement of the new blockchain education program with the Massachusetts state government. It’s a big deal.

We have a vision for where this kind of partnership can go, when governments begin educating themselves on the power of bitcoin and blockchain. That vision can be summed up in two words: Kendall Square.

City view
Kendall Square, then.

The Kendall Square neighborhood lies next to the Massachusetts Institute of Technology, stretching along the Charles River that separates Cambridge from Boston. (Here’s a map.) Although you’d think this would be valuable real estate, a series of unfortunate events led this area into decay and decline from the 1970s through the 1990s. Residents avoided the area after dark.

I remember it vividly, because I got my first job there.

When I stepped off the Kendall Square subway line for my job interview as a fresh-faced college student, it was a concrete wasteland. I walked through empty parking lots, the wind whipping whirling dervishes of dust around me. The area felt so desolate and lonely that I expected to see a tumbleweed roll by.

The job, it turned out, was a weird one. Located within one of those crumbling brick buildings in Kendall Square was a company that specialized in telephone-based chat rooms, and they needed college students to serve as operators.

Before the Internet, a phone-based chat room – also known as a “party line” – was a kind of special number that you could call to chat with other strangers. Unlike 1-800 toll-free numbers, “1-900 numbers” were “toll-full,” with a per-minute fee to call in (“20 cents for the first minute, 10 cents for every other minute,” as we had to remind callers several times an hour). Based on what the operators got paid, it must have been a a wildly profitable business.

This line was marketed to teens, so huge numbers of bored teenagers would call in just to chat with other teenagers. The conversation was usually innocuous – in fact, we had strict orders to disconnect anyone using inappropriate language – but some kids would really get hooked on the service, spending weeks on the chat line. Then their parents would get the phone bill, and we’d never hear from them again.

As an operator, I sat behind an enormous digital switchboard, with little LEDs representing each person connected to the chat line. Friday and Saturday nights were crazy, with easily a hundred callers at a time. They were grouped into chat rooms of 10 callers each, and I had godlike powers to disconnect troublemakers, or speak with them one-on-one in a private room.

As college jobs go, it was a pretty good one. I often worked the overnight shift, which paid $1.00 more per hour. It was totally unsupervised, although they hired auditors to occasionally listen in and make sure you hadn’t fallen asleep on the job. (Apparently this was a problem.)

I had a window view of the vacant lots of Kendall Square, and I would stare out at the lonely streetlights as I listened to teenagers talk about Dawson’s Creek, or discuss how awesome they were at doing skateboard tricks. There was another company that ran 1-900 sex lines out of the office down the hall, so occasionally I would hear them through the thin walls. Their job sounded a lot more exciting.

It was a good college job, there in the wasteland of Kendall Square, and I left with my virtue intact. At sunrise, I would clock out, walking back through the asphalt jungle to my dorm room. If a traveler from the future had dropped in and said to me, “In 25 years, this will be the life sciences hub of the world! Genetic engineering! Drug development! Fabulous technology companies!”, then I would have had only one question.

How?

How to Build an Innovation Economy

The story of how Kendall Square went from dystopia to dream world is chronicled in the documentary From Controversy to Cure: Inside the Cambridge Biotech Boom. Long story short: it took a lot of commitment from government – and that commitment started with communication.

The education started at the local level, in Cambridge City Council meetings during the 1970s about the ethics of genetic engineering. Cambridge was seeing MIT researchers and startup companies exploring new frontiers in molecular biology, and a small group of residents became concerned. The city eventually took it upon themselves to regulate this growing industry.

Far from scaring off new biotech firms, that regulation began to welcome this new industry: not only did citizens and government leaders better accept and understand the science, but Cambridge became more attractive for biotech firms to set up their headquarters, since the city had a clear regulatory framework.

(Similarly, today’s blockchain industry is a confusing mishmash of conflicting regulations. The city or country that first develops this kind of regulatory framework will win.)

Thus, city-level government played a big role in rolling out the red carpet that transformed Kendall Square. But so did state-level government: in 2008, Gov. Deval Patrick rolled out a 10-year, $1 billion life sciences plan. It offered tax incentives for startups and established firms. It awarded grants for projects to treat blood diseases, bone grafts, and kidney failure. It made life sciences a “thing.”

Lured by the incentives, not to mention easy access to fresh talent from MIT and Harvard, biotech companies flocked to Kendall Square, which was transformed from a desert of parking lots into an oasis of sleek glass office buildings.

Skyline of a city.

Governor Patrick’s 2008 plan was followed by an additional $500 million from his successor, Governor Charlie Baker, to keep the pipeline of jobs and innovation flowing. Now with the race for a COVID-19 vaccine in full-on sprint mode, Kendall Square-based companies like Moderna may become ground zero for the cure.

Kendall Square is now a leading example of the “innovation economy,” not a zero-sum game of producers and consumers, but a rapidly expanding pie based on continual innovation. And Cambridge is not the only U.S. city: Raleigh-Durham, NC has developed its Research Triangle; Madison, WI has become a hub for tech entrepreneurship; and cities like Denver, Salt Lake City, and Charleston are all growing an innovation economy.

What it takes, however, is government commitment. And commitment starts with communication. Which leads us to the big announcement.

The MIT Stata Center
The MIT Stata Center in Kendall Square, designed by architect Frank Gehry.

How to Build an Innovation Economy

As you can read in the press release, our company Media Shower has partnered with the Innovation Institute at Massachusetts Technology Collaborative to create a Blockchain Education for Government Innovators series.

In plain language, this means we’re meeting with people on the leading edge of Massachusetts government – the same type of forward-thinkers who built the innovation economy of Kendall Square – to discuss how blockchain might offer the next leap forward.

It’s something like those early Cambridge City Council meetings, where everyone got educated on this new field called biotechnology. That understanding allowed a thousand flowers to bloom, digging up those concrete parking lots and planting a thriving biotech hub. It brought life sciences to life.

The need to educate our government leaders about blockchain has never been greater. The coming changes to the global economy will require governments to find new ways of creating and managing money, and blockchain technology offers future-thinking governments a way to think about the future.

It is easy, in these times, to fall into cynicism about the state of our government, to think that no one decent or honest is left in the system. Our experience has been the opposite: we have been encouraged by the smart, thoughtful people working with us in this blockchain education series. They understand a good deal about bitcoin and blockchain, and they’re eager to learn more.

Working with the government, has actually restored my faith in government. That’s good news. And next time you’re in Cambridge, take a walk through Kendall Square. It’s living proof that good government can make a difference.

You can read the full press release here.

The back of a one dollar bill.

The State of the States

The back of a one dollar bill

In the U.S., the states are in trouble.

I point you to the excellent research done by economist Bo Zhao at the Federal Reserve Bank of Boston. He has put together a model that accurately predicts future state income tax revenue based on current unemployment levels.

For example, here’s how his model predicts “low-unemployment” and “high-unemployment” tax revenue for the state of Massachusetts, where I live. (To simplify, I will call these “best-case” and “worst-case” scenarios.)

Actual and predicted value of real adjusted state tax revenue per capita for MA
The three smooth lines are “worst-case” (red), “best-case” (green), and “likely-case” (light blue) scenarios predicted by his model. The chunky dark blue line is what actually happened. Pretty accurate.

Zhao has used his model to predict future income tax revenue for New England, and the results aren’t pretty. (Note to international readers: “New England” is our term for the six states in the northeastern U.S.)

Poor Massachusetts.

This chart only tells part of the story, since the six states have different-sized tax revenues to begin with. So here it is as a percentage loss for 2020:

Poor New Hampshire.

Zhao says this model can be used for other states — and since we know that unemployment is high everywhere except Nebraska, we’ve got a major budget crisis coming. (His 2021 predictions look even more grim.)

As we’ve covered in previous columns, states get most of their revenue from income and sales tax — people earning and spending. When people aren’t working and they aren’t spending, this creates a “debt cycle”:

Physical people can't work, financial, people can't spend, and political governments print money.

If you’re the national government, you can “print money” to cover the shortfall. (As we’ve discussed, this devalues the money that we all hold — see our discussion on Mom Bucks for a funny explanation.)

If you’re a state government, however, you can’t print money. States have to balance their budgets. (Imagine that.) This means they’re put in the position of waiting for handouts from the federal government.

Although the U.S. federal government has supported states with the CARES Act, this money has come with strings attached: it must be used for coronavirus-related expenses.

But what if the entire economy is impacted by COVID-19?

In other words, states still have to pay teachers and first responders. They’ve got to keep the roads and bridges in good repair. They must support local businesses who have problems of their own. All these things are affected by the CoronaCrisis — it’s all connected.

Zhao makes the case that the federal government should recognize that much more aid will be needed, without all the strings attached. After all, it’s not just like the states can print their own money.

Or can they?

Why Your Groceries are So Expensive

The loss of income tax revenue is one part of the problem. Before I offer the solution, let’s look at the other part of the problem: prices are going up.

In our recent article on hyperinflation, we discussed that one of the first “early warning signs” is rapidly accelerating prices for everyday goods. That’s why we’ve been closely watching the Consumer Price Index for signs this might be happening.

The CPI is compiled monthly by the U.S. Bureau of Labor Statistics, to monitor the cost of everyday goods like food, clothing, energy, and transportation. They poll thousands of stores and retail establishments across dozens of cities, and they’ve been doing it for the last 100 years.

First, the good news: the overall change in consumer prices is just +0.6% over the last year (June 2020 vs. June 2019), which is tiny. But dig into specific consumer goods, and you’ll see trouble on the horizon.

If you’ve been thinking, “Boy, my grocery purchases sure seem more expensive,” this could explain it. Just like the pandemic itself, the pain is unevenly distributed: unhealthy luxuries like tobacco, sugar, and meat are accompanied by a rise in health insurance costs. For people who consume a lot of these items, this is a double whammy.

At the same time, we’ve got other industries that are evaporating, as shown by radical decreases in prices on items like these:

It’s probably common sense that the price of gas, airfare, and hotels is plummeting (no one’s traveling), as well as the price of clothing and jewelry (who needs to dress up anymore?). But think about entire sectors of the economy drying up: so does the sales tax on those items.

So we have second-order effects, as the people in those industries are now out of work (lost income tax), which means now they have even less money to spend (even more lost sales tax).

So states have three big factors at play:

  • unemployment is high (loss of income tax);
  • spending is down (loss of sales tax);
  • prices for basic essentials like food are up (so citizens can buy less with their money).

This is a perfect economic storm. Fortunately, we do have a solution … if we get moving on it now.

Woman wearing a statue of liberty crown on the phone.

The Solution (Again): Blockchain Bonds

Traditionally, states have used bond offerings to raise new funds for major projects — say, a new school or subway. But when citizens are just trying to afford pork chops, who’s going to buy municipal bonds?

If you’re just joining us, a blockchain bond is like a traditional municipal bond, but issued using blockchain technology. (More on blockchain bonds here.) This makes it cheaper (for the state), more transparent (for the investor), and ultimately more successful (because blockchain is sexy).

As an investor, these work just like traditional bonds:

  • You loan your money to a local government (i.e., you buy a blockchain bond).
  • The government uses the funds to invest in some new project.
  • They issue regular payments on the money you’ve loaned them (like interest), using blockchain tokens or “digital dollars.”
  • They repay the full amount at the end of the time period (usually a few years).
  • All this is trackable on blockchain-based digital ledgers, like an “open book.”

These blockchain bonds are already being issued by institutions like the World Bank and governments like Australia and Thailand. (They are also being called “smart bonds,” which makes you wonder what the usual bonds should be called.)

Put simply, blockchain bonds are a way to renew interest in the municipal bond market, and thus cover the financial crisis facing local governments.

The problem, as with everything in blockchain, is regulation.

In the U.S., we have two organizations that need to be leading the charge on this, the Municipal Securities Rulemaking Board (MSRB) and the Securities and Exchange Commission (SEC).

We are calling on both of these organizations to drop everything, cancel their summer vacation plans, and start working on this. At least issue a Point of View, a Research Brief, a Feasibility Study — some kind of roadmap to how states are going to cover their budget problems.

Until now, the states have been pretty much on their own. COVID-19 testing? Figure it out yourselves. PPE supply chain issues? Figure it out yourselves. Reopening schools? Figure it out yourselves.

Finding new ways of generating state revenue? Follow the trend line. Figure it out yourselves.

Why Investors Will Buy Blockchain Bonds

Those who haven’t worked in the digital asset space don’t understand the insatiable hunger for an offering of this kind.

You need only look back at the “crypto mania” of 2017 to see the global demand for blockchain-based offerings. Today, blockchain investments that are backed by legitimate, “real-world” assets are skyrocketing in value — as we can see by the growth of stablecoins like Tether and USDC.

No government has really done this right. The way to do it right is to communicate the bonds as a new type of investment in a new future. Tie it into the great national themes like freedom and opportunity, and the great human themes like resilience and optimism.

Liberty bonds

To sum things up:

  • A “perfect economic storm” is on the horizon for local governments (both in the U.S. and elsewhere);
  • Local governments need to be exploring new revenue opportunities now;
  • Blockchain-based “smart bonds” allow a faster, cheaper way of raising money;
  • The technology is in place, so the MSRB and SEC are the two government agencies that need to pave the way for approval;
  • A huge education and awareness campaign is essential to ensure the public understands these new bond offerings.

Assuming that we explain to everyday investors how they work (in plain language), how to analyze good investments and stay away from the bad ones (remember: not all states will be able to pay them back), blockchain bonds will be a win/win for both governments and citizens.

The more they invest in their local governments, the more citizens will want to see those governments succeed. People will have more skin in the game — which will be a good thing for the economy, and for investors.

The states are in trouble. Fortunately, there’s a way out. This is the road map.

P.S.: Download the Blockchain Bonds ebook from Bitcoin Market Journal.

Victory bonds

How We’ll Advertise and Promote Blockchain Bonds

Victory bonds

Any great war must necessarily be a popular movement. It is a kind of crusade; and like all crusades, it sweeps along on a powerful stream of romanticism. – U.S. Senator William Gibbs McAdoo

During World War I, U.S. Treasury Secretary William Gibbs McAdoo (by far the funniest-named Treasury Secretary) had a choice of three ways to finance the rapidly escalating costs of the war:

  • raise taxes;
  • borrow from the public;
  • print money.

He chose not to print money, because it would hide the true cost of the war.

I’m quoting directly from the Federal Reserve History website, which is ironic, given that the Fed has aggressively printed money since the start of the CoronaCrisis. The Fed’s balance sheet now stands at $7 trillion, which hides the true cost of the Coronavirus.

McAdoo understood something about human psychology: When people pay for something, they’re more likely to believe in it.

Buy a company’s stock, and you’re more likely to become a fan of that business. Pay your own way through college, and you’re more likely to study hard. Buy a book, and you’re more likely to read it.

Most economists are not great psychologists, but McAdoo was an exception. He financed World War I through a combination of raising taxes (#1) and borrowing from the public (#2), in the form of Liberty Bonds. In so doing, he avoided printing money (#3).

By printing money, we’ve already “forgotten” about the true cost of the Coronavirus. The problem is that there are likely a lot more costs to come: everything from restarting the economy to distributing a vaccine. And if we continue to print money, we run a danger of entering hyperinflation.

We can take a page from history, and launch a modern-day “Liberty Bond” ad campaign as a way to not only finance the CoronaCrisis, but to laser-focus public opinion on our need to defeat it.

We need to advertise the blockchain bond.

You buy a Liberty Bond sign.

Everything Old is New Again

McAdoo (heh) insisted on a massive PR campaign to promote the bonds, so the public would have a chance to buy them, protecting himself from criticism that only large financial institutions would profit. In the end, about half the bonds were sold to retail investors (i.e., the public), raising about $16.7 billion.

In today’s money, that would be about $7 trillion. (Or roughly the size of the Fed’s balance sheet.)

The federal government launched a massive ad campaign with billboards, posters, buttons, and stickers. Much of the ad space was donated by patriotic media companies, with leading artists painting the advertisements and top Hollywood stars donating their time to the cause.

Charlie Chaplan on stage.
Charlie Chaplin and Douglas Fairbanks headline a bond rally.

McAdoo (still funny) focused his efforts around three big initiatives:

  • Educating the public. They were called “Liberty Bonds,” in part, to make the public aware of the costs of the war, and remind them of the financial strength of the United States.
  • Appealing to the higher good. The government was, in effect, asking people to reduce spending and loan this money to the government—which it did by appealing to their higher nature.
  • Volunteer effort. The entire Liberty Bond campaign was managed by volunteers, eliminating broker and sales commissions, meaning the government was able to keep more of the proceeds.

Most importantly, Liberty Bonds galvanized public sentiment toward the war. When the government prints money (as we’re doing today), it hides the true cost. When we personally make a sacrifice (by saving instead of spending), we all have skin in the game.

The Liberty Bond ad campaign told a great story: “we’re all in this together.” With the Coronavirus, we have no such story. In fact, it threatens to rip us apart.

Blockchain Bonds: How They Work and Why We Need Them

Last week, newsletter subscribers got the first peek at our new brochure Blockchain Bonds: How They Work and Why We Need Them. This week, you get a first look at the new ad campaign.

We’ve taken the classic Liberty Bond posters and updated them for the modern age. These posters can be used for states and governments who need to raise funds in a pinch (caveat: we still need to get the regulatory issues sorted out—but where there’s political will, there’s a way).

Buy Blockchain bonds.

Governments will do well to spend about 8-10% of the total bond offering on advertising. This should be heavily tilted toward local citizens, to give them a “first chance” at a new blockchain bond offering.

The increased media spend will help local economies, especially when buying up unused ad space in local markets (think of all those local billboards and TV stations devastated by the pandemic).

The government needs money

There is a risk. If done poorly, the bonds will not sell well, and this will hurt public morale. Like Liberty Bonds, it is preferable to sell them in a series of “brief but intense campaigns.” If at all possible, try to oversubscribe the offerings (i.e., make sure demand outweighs supply). You want them to sell out.

Ring it again Buy USGOVT Bonds

Governments should be transparent about how the funds raised by their blockchain bonds will be used (for example, supporting school systems or first responders). Appeal to the higher good.

Campaign images should focus on the higher virtues, such as bravery, persistence, integrity, citizenship, and hope. These are the great human themes that resonate throughout all great human movements.

If done well, blockchain bonds will become a movement. They will help us raise money to invest back into our governments, improving our local school systems and keeping our first responders in uniform.

If done well, blockchain bonds will help us see the true cost of Coronavirus, and unite us in our will to eradicate it (it ain’t over until V-Day).

If done well, blockchain bonds will galvanize public opinion: we’re all in this together.

Because we are all in this together. We literally are.

John Hargrave is the bestselling author of BLOCKCHAIN FOR EVERYONE and a founding member of the Boston Blockchain Association.
Ant and grasshopper.

The Ant and the Grasshopper (+ Free Downloadable Ebook)

Ant and grasshopper.

In the classic fable The Ant and the Grasshopper, you’ll remember the ant worked hard all summer to prepare for the winter, while the grasshopper sat around playing jazz violin.

“You gonna store away any food?” asked the ant.

The grasshopper waved him away. “I’m practicing my arpeggios, man,” he said, folding his long legs underneath him and retuning his strings.

Then winter came. The ant was warm and cozy inside his comfortably-furnished ant farm, when he heard a knock at the door. “Who is it?” asked the ant.

“It is I, the grasshopper. I am dying from hunger. Please, do you have any food to spare?”

“Maybe you can go play a few gigs with your jazz orchestra!” replied the ant.

“Please, sir, I am a solo violinist,” begged the grasshopper from outside. “I have no jazz combo.”

“Well then,” replied the ant, “you’ll have to eat your violin.”

The moral of the story: ants are a-holes.

Preparing for the Winter

The good news is that we will make it through the winter. We’re humans, and humans are resilient. “Making it through” is kind of what we do. In fact, we’ve been through a lot worse – war, famine, Achy Breaky Heart – and we turned out OK.

If you look at this time as one big stress test of the human species, we’re passing the test. Sure, we lost JCPenney, but they were going down anyway. All told, this has been very difficult – and it’s difficult for all of us, in different ways – but we’ve pulled through.

That’s the good news. The bad news is this ain’t over yet.

We’re most likely in the second inning of this ballgame, not the eighth. If Coronavirus behaves like other flu viruses, it will slow down a bit in the summer, but it could be back with a vengeance in the fall. Now is not the time to practice jazz violin: like the ant, now is the time to prepare.


Coronavirus Timeline
While pandemics are hard to predict, we’ve laid out a likely timeline of what comes next. Remember: the vaccine is the goal. Vaccine means victory, which is why we are calling it “V-Day.” Then we can clear out the economic wreckage and rebuild a great new society. It will all be worth it.

In the meantime, we must prepare for the winter.

Over the last several weeks, we’ve been laying out a vision for the future, offering blockchain-based solutions to the biggest problems brought about by this pandemic. We’ve mapped these to the three “Acts” of this great drama:

  • Act 1: Blockchain-based supply chains can help us get critical equipment where it’s needed in Wave 2 of the virus, and may be helpful for basic supplies (depending on how bad things get).
  • Act 2: Blockchain “immunity passports” (a.k.a. “FastYes”) will tell us who’s been tested, which will give businesses and consumers more confidence they can start working and spending again.
  • Act 3: Blockchain bonds (also called “digital bonds”) will be a way that states and countries can quickly raise money in the meantime, similar to war bonds.

These times have been tough. But like the fable of The Ant and the Grasshopper, times may get tougher. We’ve got to work hard now to prepare for the future.

Best case scenario: Things quickly bounce back to normal, the global economy snaps back into place, and we all live happily ever after. But “hoping for best case scenario” (i.e., practicing jazz violin) is not really a plan.

This isn’t over until we get a vaccine, which most scientific experts (not politicians) think is 12 to 18 months away. Right now, everyone is just trying to figure out what to do next, but the smart money – like the ant — is planning for the future.

There’s one easy way you can contribute to this effort: spread the word.

Spread the Word, Not the Germ

If COVID-19 is the virus, good communication is the antivirus.

Good communication is explaining:

  • we’ve still got big problems;
  • we’ve also got the solutions to those problems;
  • we need to get moving on them now.

Share this column. Tweet these ideas. Talk about these solutions with your family and friends.

For our part, we’re creating massive communication campaigns around these ideas over the coming months. Like the ant, summer is the time to start preparing for a possible Wave 2 in the winter, when the flu season kicks back in.

Our first ebook is now ready for download. We hope you’ll share it as widely as you can.

Click here to download Blockchain Bonds: How They Work and Why We Need Them. Then share it with a friend.

John Hargrave is the bestselling author of BLOCKCHAIN FOR EVERYONE and a founding member of the Boston Blockchain Association.

Introducing FastYes: The Blockchain-Based Immunity Passport

Amid all the talk about “opening up the economy,” there’s one big question. How?

Imagine you’re the owner of a fitness club. The CoronaCrisis shutdown has nearly destroyed your business, with most of your customers canceling their gym memberships, but you’ve managed to stay afloat. Now you can finally, cautiously open up your club again.

How?

Do your customers wear masks on the StairMaster? Do you sanitize every weight machine after every customer uses it? Do you move all the treadmills six feet apart and hope no one coughs?

As the economy begins cautiously opening up, it’s strange to see pictures of customers in restaurants wearing masks. How do they eat?

Pouring wine
“Ah, yes. The Niner Estates 2018 Cabernet, with a hint of yesterday’s mask. Excellent choice.”

We’ve talked about a #NewNormal, but there’s nothing normal about this. Wearing masks is just not part of the experience at Walt Disney World, or a beauty salon, or a football game. And leaving behind the science and the politics, some people are just not going to go outside without a mask.

There is high anxiety around COVID-19. Even with protection, people are afraid to leave the house. Even if they’re not afraid, they’re thinking twice.

Will some people come to your gym, or your beauty salon, or your football game? Yes.

Will some people feel safe enough to go without a mask? Yes.

But how many? That’s the $80 trillion question.

Will eighty percent of your gym members show up? Fifty percent? Twenty percent? The implied reasoning is that if some of your gym members show up, others will too. Then the virus magically goes away, and business bounces “back to normal.”

Hoping the virus magically goes away is not really a great plan for the future. Fortunately, blockchain provides a better solution. We’ll call it “FastYes.”

Introducing FastYes: A QR Code on Your Phone

Before you go in the fitness club, you scan a QR code on your phone, and the scanner turns green. You’re safe. Inside the gym, things really are “back to normal.” No masks. No weirdness. Unlike the days before Coronavirus, people are actually diligent about wiping down the equipment.

Cell phones

Behind the scenes, it’s a blockchain-based technology that is checking:

  • Safety: whether you have been tested
  • Privacy: without your personal information being revealed

This is important, especially in America, where safety and privacy are the two great concerns.

Safety and privacy on an even scale.

These two values – safety and privacy – must be kept in balance, and FastYes neatly solves for both. Here’s how it works.

  • You get tested: You go to your doctor to get tested for Coronavirus.
  • You receive a health file: Your doctor gives you a clean bill of health. Or more accurately, a clean file of health, since this information is stored in a digital file that you hold. (Think of this like a doctor handing you a photocopy of your immunization records.)
  • We check that your file matches your doctor’s file: Imagine we now put your immunization record in a file folder, and confirm that it matches the file in your doctor’s folder.
  • We store a record of this “match” on the blockchain. This is not your personal information, just a record that the two files match. (For blockchain geeks: we’re storing a hash of the record, not the record itself.)
  • When you scan your QR code, it verifies the match: When you go into the store or restaurant, the FastYes app is just confirming that the two files match – without the file itself ever changing hands.

Another way to think of this: imagine that you hold a key, and your healthcare provider holds a key. Both keys have to fit the lock.

Match don't match

The FastYes record can be set to expire in a day, a week, or ten years. It can be issued by any qualified healthcare provider. And it’s totally free to use, anywhere in the world. (Though you will need programmers to help you set it up.)

This technology is ready to go. There are several tech companies that have a working solution in place today. For example, check out the open-source Blockcerts platform, which creates trusted blockchain-based “credentials” without compromising privacy.

Dwight Schrute Has Questions

What if someone fakes their test results.

Your file won’t match your doctor’s file. That’s a FastNo.

What if someone loses their health file.

Your healthcare provider still has a copy on hand. (Just like your immunization records.)

What if no one downloads the app.

In North Dakota, they tried rolling out their own COVID-19 tracing app (without blockchain), and only about 4% of state residents have downloaded it. We’ll give North Dakota an A for effort, but a D for teamwork.

We can do better than this. How?

  1. Working together: We will pull together a broad coalition of states to use the same solution (rather than everybody inventing their own solution);
  2. Using blockchain: The technology really will protect citizen privacy, avoiding the concerns of being tracked by Big Brother;
  3. Communicating well: We will have a massive PR and media campaign to simply explain the benefits of FastYes, while explaining the benefits of citizen privacy.

When it's green then it's clean.

This isn’t just a short-term solution to get us through the next few months; it’s a 100-year solution for the future. Here’s why.

“Laying the Pipes”

In times of great crisis, we often build our greatest infrastructure. We “lay the pipes” for future generations.

The Great Depression led to the Works Progress Administration, which built some of America’s most enduring schools, viaducts, and highways. World War II created new global infrastructure through organizations like the United Nations and the International Monetary Fund. And 9/11 created a new Homeland Security infrastructure, which is an example of how to do it wrong. (More on that below.)

The CoronaCrisis is our opportunity to create a new kind of healthcare infrastructure, and this will have not just short-term benefits to our local economies, but long-term benefits for the months and years ahead. Think of this in three waves:

Basic Testing: For now, all we’ve got is tests that tell us whether you have COVID-19. So for now, critical workers (teachers, daycare workers, medical professionals) will get a weekly test so we can all feel safe. (This is similar to how sex workers are required to get weekly STD tests in places like Nevada.)

Antibody testing: While we do not yet have an antibody test that is 100% accurate, the FastYes platform will be able to track antibody test results, if and when we get a reliable test that shows us who’s already had the virus.

Vaccine: But the main event is the vaccine. We are not out of the woods until we get a vaccine. And once we have reached V-Day, then we need a way of knowing who’s received the vaccine, just like we require immunization records for children on their first day of school.

Construction.
Blockchain will “lay the pipes” – the critical healthcare infrastructure – for the next 100 years.

In short, FastYes is a much-needed upgrade of our entire immunization recordkeeping system to something that is digital, portable, and citizen-owned. (Parents: no more tracking down your children’s immunization records when they switch schools.)

Best of all, FastYes does all this while still maintaining your privacy.

Like TSA Pre, But Without the Big Brother

The experience of going through airport security is pretty terrible.

In the aftermath of 9/11, the United States moved airport security away from third-party contractors to a professionally-trained branch of federal government: the Department of Homeland Security. It might have made things safer, but it definitely made things slower:

  • Take off your shoes.
  • Take off your belt.
  • Take all the metal out of your clothes.
  • Put your laptop in a separate bin.
  • Drink all your water.
  • Throw out all your liquids.

Even then, you could be pulled aside for a manual check. Or a random inspection. Or they might hand search your luggage, because the X-ray scanners might nervously flag anything from a Bluetooth speaker to peanut butter.

And they did this for Every. Single. Passenger.

Airport security
The fastest way to get through airport security.

Frequent travelers made use of TSA PreCheck, which is the government’s equivalent of Disney’s FastPass+. Compared to the usual airport experience, it was a dream: you didn’t have to take off your clothes, you went through a regular metal detector, and the lines were generally shorter.

TSA precheck sign.
The tradeoff between privacy and convenience.

Here’s the problem: TSA Pre™ requires you to give up your privacy. (They should call it TSA No-Pri.)

To get approved for TSA Pre™, you go to an enrollment center, where they do a background check and take your fingerprints. Fingerprints! You also pay an $85 membership fee (even criminals get fingerprinted for free).

According to the TSA, over 10 million people have gone through this cumbersome, expensive, time-consuming process—all to save a little time at the airport. We can do better than this.

Imagine if we made the FastYes virus tracking process as easy as downloading an app.

Then imagine if we made it free.

It’s Not an Immunity Passport; It’s a “FastYes”

Some people have floated the idea of a COVID-19 “immunity passport,” which is a terrible name. Both words are wrong.

  • Immunity: There’s currently no test that can guarantee you have immunity from COVID-19. (Unless you’re dead, but then you don’t need the test.)
  • Passport: It’s not a passport. Passports are used by border control or policemen. They’re used to keep people out, or let people in. Bad optics.

Imagine if Walt Disney World had named their “FastPass” technology “MousePort.” Now you’ve got people with MousePort who are somehow better than people without MousePort. Instead of featuring the benefits (faster wait times), you’re creating divisions: those with the passport, and those without.

Long line of people vs very short line.
Faster wait times, shorter lines, and no checking your temperature at the door.

Remember: businesses and customers can still operate without FastYes, just like you can go to Walt Disney World and wait in the normal line with everyone else. But if you want the faster experience, to get more out of your day, you get the FastPass.

Same with FastYes: it’s not only safer, it’s faster. It’s not just about peace of mind; it’s about convenience.

Most importantly, it’s about privacy.

This is Not Big Brother; It’s Little Sister

You’re not being tracked. You’re being checked. Big difference.

If you don’t want to be checked, you don’t have to be checked. Go to a gym that doesn’t use FastYes, where you can breathe in the aspirated droplets from all the sweaty, panting customers you like.

FastYes is 100% opt-in – for both businesses and their customers.

You want to go to a nail salon without FastYes, and gossip with your manicurist, so close that you can smell her breath? Great! Maybe your nail salon can find enough customers who are willing to take that risk and stay in business.

Again: FastYes does not track your personal information. Only you and your healthcare provider have the record. All that’s being checked is that your two files match. That’s way better than TSA Pre™, because it protects your privacy and your security.

Safety vs privacy

Privacy vs safety

You will still have to scan your phone to get into businesses and schools that require it. Some people won’t like that. But for the economy to recover to 100% participation, for schools and daycares to reopen with 100% confidence, for churches and shopping malls and gyms to return to 100% occupancy, people have to feel safe.

Beyond the economy, this is just simple human psychology. People have to feel safe.

A government-controlled database like TSA Pre™ is Big Brother. A blockchain-based solution like FastYes is way better. We’ll call it “Little Sister.”

TL;DR (Too Long; Didn’t Read)

  • The CoronaCrisis is not over until we get a vaccine (V-Day).
  • Until then, the economy will not recover to 100% until 100% of people feel safe to resume daily activities.
  • A smartphone-based “immunity passport” can tell us who’s safe, but that’s a terrible name. (There’s currently no test for immunity, and it’s not a passport.)
  • To make this idea work – especially in America – we must balance security with privacy. Blockchain technology can offer us both.
  • The FastYes model is similar to TSA Pre™, but better. Citizens can choose whether to opt in — but they will, because it’s more convenient.
  • Businesses do not have to use FastYes — but they will, because it will make it easier for employees and customers. (More safety = more spending.)
  • States would be wise to buy into the same solution. If you try to go it alone, you end up like North Dakota.
  • FastYes will help keep the economy afloat until we get to the vaccine. And then it will help us track who has the vaccine.
  • Then we can finally begin the #GreatRecovery.

John Hargrave is the bestselling author of BLOCKCHAIN FOR EVERYONE and a founding member of the Boston Blockchain Association.

Empty shelves

Blockchain and the Supply Chain: They Even Sound the Same

Empty shelves

In a nutshell: Blockchain will streamline and simplify our supply chains by making one global ledger — like a shared spreadsheet — that will track everything. Here’s how it works.

One of the many mystifying parts of the pandemic: why are we running out of toilet paper?

It’s not like people are using the toilet more frequently, right? The typical answer is that people are panic-buying toilet paper, erecting giant fortresses of toilet paper in their basements and sheds. But even after stores limited sales to two packs per customer, toilet paper is still sold out.

Two words: supply chains.

Yes, supply chains, the thing that no one cared about before the pandemic, and everyone now appreciates so much. (You don’t miss supply chains ‘til the shelves run dry.)

There are two markets for toilet paper: residential and commercial. The commercial product, as we all know from our time in Starbucks bathrooms, is sold on bigger rolls, and it’s generally terrible. It gets manufactured on different lines, stacked on larger shipping pallets, delivered on different trucks. It’s bought and sold through different channels. Two different toilet papers; two different supply chains.

Person installing a commercial toilet paper roll.
Two types of toilet paper: residential and commercial.

 
When people are home 24/7, they are going to use more toilet paper, so there’s a crushing demand on the residential supply chain, and very little demand on the commercial supply chain. Here’s the poop: people are using more toilet paper at home, and almost none at work.

Rule of thumb: Whenever you see shortages, it is rarely because there’s a problem with supply. It’s usually a problem with supply chain.

Toiletpaper on pallets
“We got plenty of toilet paper, it’s just sitting in the warehouse.”

 
When it comes to our supply chain problems, toilet paper is just the beginning of the roll.

When Will This End?

This is the question on everyone’s mind, but Coronavirus timelines are hard to predict. Still, we can make some approximate guesses, combining past pandemics with current technology trends, and be “roughly right.” (As they say, better to be roughly right than exactly wrong.)

There are likely three great acts to the pandemic:

  • Act 1: Slowing the spread
  • Act 2: Testing and New Normal
  • Act 3: Vaccine and recovery

In all likelihood, the movie’s not over until the end of Act 3, which involves a) finding the vaccine, b) producing the vaccine, and c) convincing everyone to get the vaccine.

The vaccine is the key. Then we can roll the credits on the CoronaCrisis, and begin the sequel called the #GreatRecovery.

Again, it’s tough to predict timelines. Most vaccines take five to eight years to develop, but experts think we could have a vaccine in about 12 to 18 months. There are promising developments that may get us a vaccine even faster than that, but here’s the problem in two words: supply chain.

We’ve got to get the vaccine produced in massive quantities, faster than anything that’s been attempted before, to every corner of the globe. That is a massive supply chain challenge. In many ways, the vaccine is like toilet paper — everyone needs it — but far more complicated and difficult to produce.

One solution is to decentralize it: make the vaccine open-source and royalty-free, then allow a decentralized network of local producers to create and distribute it. This certainly seems better for the future of humankind than if Pfizer patents it.

(Note: even if the vaccine is open-source, producers can still pocket a profit for producing it. They just can’t prevent others from producing it.)

Centralized vs decentralized
Read more in the World Economic Forum post on this topic.

 
Best case scenario: we’ve got an open-source vaccine, and we’ve got a way to quickly produce it at scale, using local manufacturers (who should be planning now). Then comes the problem of distribution: we’ve still got to get the vaccine to hospitals and healthcare workers.

We need the supply chain.

Map of USA
 
Let’s say that Cambridge, Massachusetts – where you can’t swing Schrodinger’s cat without hitting a biotech firm – is able to produce vast quantities of the CoronaVaccine. We’ve got to get those vaccines from Cambridge to Atlanta, and Minneapolis, and Detroit, and on and on.

But the problem is much more complicated. The vaccines need syringes. The syringes need springs. There is this entire network of parts and supplies that need to be produced, a complicated ballet of buyers and suppliers working behind the scenes.

“We’re thinking about the vaccine, but what if the vials it is stored in, or rubber stoppers in the vial or the plungers in the syringes become the constraint?” – Prashant Yadav, health care supply chain expert, Center for Global Development

This is the vaccine supply chain, and smart people are thinking about it now. This goes way beyond the vaccine: it’s also the antibody test, which (if we find one that works) will tell us who is safe to restart society. As the recession wears on, the supply chain may become essential for essentials like food, drink, and yes, even toilet paper.

It’s all about the supply chain. And here’s where blockchain comes in.

Blockchain: It Even Sounds Like Supply Chain

Imagine one big, shared, Google Sheet that lists all the critical healthcare supplies.

COVID-19 supplies
A shared Google Sheet that lists all the critical healthcare supplies. (Much bigger than this.)

 
That’s the vision in one sentence. (Read it again.)

Of course, you can’t literally use Google Sheets to track vaccines: it’s not built for sharing on a global scale. You can’t even share Google Sheets with two team members before everyone adds colors to all the rows and makes it unreadable.

COVID-19 supplies update
All Google Sheets eventually devolve into chaos.

 
If we don’t find a global solution — and fast — then everyone’s going to create their own patchwork quilt of solutions, and we’ll end up with a sea of useless Google Sheets. It will be the same mess we’ve had with masks, and respirators, and tests.

This is our chance to get it right. But we need to act now.

An eBay for Healthcare Suppliers

One way to solve this is a blockchain-based healthcare supply network. The simple way to think of this is like a giant eBay for healthcare supplies.

Buyers vs suppliers
 
Picture a huge marketplace with buyers on one side (think hospitals and governments) and suppliers on the other (masks and gowns now, vaccines later). But it’s better than eBay, because suppliers are carefully screened, with their info stored on blockchain.

If possible, we want a single marketplace. We don’t want everyone building their own marketplaces, any more than we want a thousand eBays.

The marketplace that saves the day will depend on how many governments, companies, and healthcare organizations they can sign up, and how quickly they can do it. Like any marketplace, as you get more buyers and more suppliers, you get more traction, and then suddenly you’re eBay.

Blockchain-Based Supply Chain Do It Yourself
Global marketplace BLocal marketplace
Technical experts Local talent
Best in the world Best in your state
Sell anywhere Sell locally
Possible vendor lock-in Possible messy roll-out
Ready now Needs to be built

Let’s say you’re the governor of Wyoming. You don’t have to use the leading marketplace, of course. You could build your own marketplace. But why would you build another eBay?

Plus, there are benefits to Wyoming joining the largest marketplace. Wyoming suppliers will now have a national market for their goods, which is good for the Wyoming economy. States that move first will be first to reap the rewards.

This will likely be a marketplace built by a private company (just like eBay), not a marketplace built by a government. States just don’t have the resources, especially in a time of crisis, to build their own blockchain-based marketplaces.

Like everything else about the Coronavirus, when we work together, we win.

TL;DR (Too Long; Didn’t Read)

Supply chain is one of the biggest problems we’re facing during the Coronacrisis, and humanity needs a solution. We need a supply chain solution to not only move critical healthcare equipment, but ultimately to deliver a vaccine. Depending on how bad things get, we may need it for essential items like food.

This is not a local solution: states can’t go it alone. We’ve got to band together, creating a shared marketplace of critical healthcare supplies. This will also be good for our local economies, because we’ll have access to more buyers and more sellers, more cheaply and more efficiently.

The Coronavirus has given us plenty of problems, but also a magnificent opportunity for smart solutions. This is a once-in-a-lifetime chance to upgrade our supply chains, making them fully digital, using blockchain technology.

Like highways or healthcare, that’s an investment in critical infrastructure that will pay off for decades to come.

John Hargrave is the bestselling author of BLOCKCHAIN FOR EVERYONE and a founding member of the Boston Blockchain Association.

Health and wealth portfolio

The Coronavirus Stock Portfolio

Health and wealth portfolio

Today we’re proud to introduce THE HEALTH AND WEALTH PORTFOLIO. It’s four companies that we think will do exceptionally well in the coming years, in the aftermath of COVID-19.

In brief, these four companies are The Clorox Company (CLX), Amazon.com (AMZN), Zoom Video Communications (ZM), and Netflix, Inc. (NFLX).

We’re all about blockchain investing, not stock picking. But you’ll recall that our Blockchain Believers Portfolio (which is looking better than ever) has the majority of holdings in stocks and bonds.

As the stock market implodes, there is more opportunity than ever — provided you are willing to buy and hold for the long term. (It’s going to be quite a while before the smoke clears.)

As we continually preach, you’ve got to zig while everyone else is zagging. Right now, everyone is zagging for the exit. Time to zig.

To beat the market, you must bet against the market. This is common sense. Here are four bets you might want to consider.

The Coronapocalypse

First, a quick story. I was due to speak at several events this week as part of Boston Blockchain Week, including the Boston Fed. All canceled.

Next week, I was scheduled to speak at the Global Blockchain Expo, the huge technology event in London. Canceled.

From there, South by Southwest in Austin … you get it. EVERYTHING IS CANCELED.

So I had an inkling this was coming before everyone else. And I see a bigger picture: It’s not that the cancelation of these events will hurt the local economies. It’s that without those events, deals don’t get done. No new connections. No new sales leads. No new business investment. Everything slows down.

Now we’re all going to be working from home for the foreseeable future, and — let’s be honest — worker productivity goes down when people telecommute. On top of that, all the kids are home from school and college, so parents have to babysit.

All this against a backdrop of uncertainty: no one knows how long the Coronavirus pandemic will last, and our nationalistic approach to solving it means we don’t have a good global response. So spending slows down, demand slows down, productivity slows down – all the makings of an extended recession.

I say this all this with no trace of fear. I’m not afraid of the virus. I’m not afraid of recession. I’m not afraid of death. I’m not afraid of losing my job, my business, or my home. I see opportunity everywhere.

SMART INVESTORS SEE OPPORTUNITY EVERYWHERE, ESPECIALLY IN TIMES OF CRISIS.

Note I said “opportunity,” not “opportunistic.” Our mission is to find investing opportunities that bring “health, wealth, and happiness,” as I’ve been signing off every one of my columns since Bitcoin Market Journal began.

I hope the impact of COVID-19 is short-lived. But I believe this is an economic tidal wave that will hit us in stages. So as everyone is fleeing to get out of town, let’s start laying down some sandbags and looking at companies that are not only likely to survive — but to thrive.

The Clorox Company (Stock Ticker: CLX)

Two words: Clorox Wipes.

Every building I enter now has a container of Clorox Wipes and an industrial-sized squirt bottle of Purell hand sanitizer. How can we possibly estimate the sales growth these two companies are going to see this year? There’s one big difference: Purell is a private company. Clorox is public.

(For new investors, that means you can buy shares of Clorox stock using any online brokerage like E*TRADE – but know that we do not provide investing advice, only ideas. Do your own research and never invest more than you’re willing to lose.)

34 Percent

Courtesy Clorox Annual Report

We spent some time digging through the Clorox business, which encompasses a number of household brands — from Glad trash bags to the magnesium supplement Natural Calm (which people are also going to need).

But it’s Clorox-branded products that make up a third of their sales: bleach, spray, wipes, disinfectants, and even the Total 360 System, which looks like something they’d use to disinfect an alien spaceship.

Way back in 2014, the company put together a 2020 Long-Term Strategy, with a 3-5% annual growth target. As of 2019, they were at 2.4%. Given the vast quantities of Clorox that will be consumed in the fight against COVID, I’ll let you decide whether the company will make their goal by the end of 2020.

My vote: Clorox is going to clean up.

Netflix (Stock Ticker: NFLX)

People are being sent home by the millions. Workers. Students. Adults. Children. Babies.

They’re going to get bored.

Parents need a way to babysit the kids? Netflix.

Students finished your three hours of study? Netflix.

Adults trapped at home, can’t go out to eat or the movies? Netflix.

Sure, there are plenty of other streaming video options, not to mention videogames and plain old broadcast TV. But Netflix has a streaming product unlike any other, customized to your viewing preferences, with an enormous amount of quality original content. They’re the leader.

We also looked at other streaming companies, including Disney (whose streaming Disney+ memberships will likely take off), but the closure of Disney theme parks may offset these earnings. Netflix is a pure play: although they still have a small legacy DVD-by-mail business, the real business is streaming.

Netflix’s streaming memberships have increased year over year for the past 3 fiscal years, and so has their average membership fee, as you can see here:

Global streaming

Courtesy Netflix annual report

Netflix also reports strong seasonality: when customers buy internet connected devices, they watch more. That’s why Q4 (when everyone is buying new devices for the holidays) and Q1 (when they’re continuing to watch them) are their strongest seasons. Expect that trend to pick up during COVID.

Finally, Netflix is even stronger internationally than it is in the U.S. International memberships make up about 50% more than domestic memberships, making it a great company to capitalize on the international audiences staying at home during COVID-19.

(Funny how the virus doesn’t recognize national or political borders. It just sees one human species.)

Zoom Communications (Stock Ticker: ZM)

There are plenty of videoconferencing systems out there. In my experience, they all suck, except Zoom.

We do a lot of video calls with clients, and we’ve found that most videoconferencing software takes forever to install, doesn’t connect you properly, loses the connection randomly, and just generally provides a terrible experience.

Zoom, in our experience, just works.

As the company said in its offering prospectus, this causes a kind of “viral enthusiasm” among its customers. (If only they knew how literally that phrase would come true!) Over the last week, I have heard so many people — from churches to schools – say, “We’ll Zoom in.” It’s becoming a verb.

Yes, Zoom is a newly-listed company. But it has had a 5x growth in three years:

Zoom annual report

Courtesy Zoom Annual Report

It’s the only pure-play videoconference company in the Gartner Magic Quadrant, where it ranks with industry behemoths Microsoft and Cisco. And it has the highest user ratings on the aggregator site G2Crowd:

Stars

Courtesy Owl Labs. (Note we also looked at Slack, but found it too young and unproven.)

The Zoom business model, like the Netflix model, is a subscription-based service. The SaaS model means more predictable revenue, since you can look at their number of subscribers, subtract their estimated churn (i.e., lost subscribers), and project their future growth.

Everyone is going virtual. Some people will try to use Google Hangouts or GoToMeeting. But when they get frustrated, guess where they’ll Zoom to next?

Amazon.com (AMZN):

If you think of Amazon as an e-commerce company, you’re wrong. It’s a logistics and infrastructure company. And now is Amazon’s time to shine.

Amazon has one of the most advanced warehousing and distribution networks in the world, not only of physical goods (the stuff you get delivered to your door), but also of data (the stuff you get delivered to your computer).

I know, you thought Amazon had already conquered the world, but you haven’t seen anything yet.

  • Think about how com sales will grow, as they deliver millions of packages to people who are staying indoors, electing not to go to the store.
  • Think about how Amazon Prime will grow, as people see the opportunity to save on delivery by joining Amazon’s membership service.
  • Think about how Amazon Video will grow — like Netflix — as people rent more movies and get access to Amazon’s library of original content.
  • Think about how Amazon Web Services will grow with all the videoconferencing, streaming, and online meeting traffic. (For some context, both Netflix and Zoom use AWS.)
  • Even Whole Foods, Amazon’s grocery chain, may see a lift, as consumers opt for healthier food options (though the coming economic recession may mean a hit for higher-priced groceries).

The big question is: can Amazon handle the demand?

Year ended

Courtesy Amazon.com Annual Report

For years, Amazon has invested heavily in logistics and infrastructure. Think about the Amazon lockers in your neighborhood, the Amazon Web Services business (which owns about half of the cloud infrastructure market), the endless stream of Amazon packages you see delivered to your neighbors.

Amazon, perhaps more than anyone else, is positioned to profit. They’ve built the pipes that are going to bring us all the essential goods — both physical and virtual — over the coming months and years.

Health, Wealth, and Happiness

This is a time of rare opportunity.

While everyone is running around with their pants on fire, we can calmly assess the market and look for great buying opportunities – either as part of our Blockchain Believers Portfolio, or just as standalone investments.

These are not get-rich-quick opportunities; these are ideas for long-term investments. The full economic effects of the Coronavirus are going to have a “lag factor.” They’ll take a while. Things will likely get much worse before they get better. But eventually things will change: they always do.

Markets are moody. It’s their nature. But we can use reasoned analysis to profit from the market’s moods.

In putting our money into the companies that will help us get through the Coronavirus, we’re also doing something good: we’re investing our money where it’s needed. We’re putting our money to work. And we’re signaling long-term confidence in the stock market.

Of course, the easy way of holding stocks is to simply buy an index fund that tracks the entire stock market (such as VTSMX). But if you’re interested in finding a few winners — especially in times of rare opportunity like this one — then this gives you a few ideas to get started.

I wish you health. I wish you wealth. And above all, I wish you happiness.

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

Forest

How to Build a Healthy Blockchain Ecosystem

Woman walking on a downed tree trunk.

One of the many hats I wear is serving as a board member of the Boston Blockchain Association. This is an industry group that is dedicated to creating a healthy blockchain ecosystem — first in Boston, then the world.

It’s hard to do blockchain in a vacuum. Even though it’s a technology, all the real work gets done face-to-face — which is why our group meets every week, and holds public Meetups every month. This is where we make the connections to build a vibrant blockchain community.

Building a Blockchain Ecosystem

During a quarterly planning meeting, I realized that what we’ve been building could be drawn as a diagram:

Healthy blockchain ecosystem.

This diagram applies at the local level (your city or region), but it also applies at the national and the global level. For blockchain to thrive, we need the strong cooperation of four partners:

Education

The first need is simply explaining what blockchain is. Those of us who are passionate about this technology need to explain to the world what it can do, from your boss to your co-workers to your parents (feel free to use our report, What is Blockchain?).

The second need is to better educate our students. Most colleges don’t even have a blockchain curriculum yet, much less professors who understand the technology. We need a “roadmap” that teachers can follow, then we need people to “teach the teachers.”

One worthy organization is Blockchain Education Network, which has set up 60 local college chapters around the world. At one of our blockchain events, Erick Pinos and Mel Vera from BEN explained how they empower college students to start their own blockchain clubs by providing them with ready-made training programs, from “Blockchain 101” courses to “Build Your Own Bitcoin Mining Rig” activities.

Government

While a friendly regulatory environment helps (meaning government officials who understand and support the technology), a local government can do a lot to support blockchain, as the state of Wyoming has shown. It hasn’t waited for the national government to get its act together; it has acted now, by creating blockchain-friendly legislation to attract more industry resources and talent.

Because blockchain literally represents the future of money, an investment in the technology now is likely to pay handsome dividends in the future. Take the region of Zug, Switzerland, which made an early investment in blockchain (it was one of the first municipalities to accept payments in bitcoin): it’s now the fastest-growing tech hub in Europe.

Governments around the world would do well to remember: A bitcoin invested is a bitcoin earned.

Companies

In his excellent article How New York Become a Tech Town, journalist Steve Lohr tells how New York was playing catch-up to Silicon Valley during the early 2000s. A turning point came when the city (pre-fueled with government and educational support) lured Google to set up a New York office.

New York was playing to one of its strengths: the advertising business. Traditionally centered on Madison Avenue, the ad industry understood it needed to go digital. Google understood it needed a strong advertising infrastructure. Thus a partnership between New York and Google was born.

But you don’t have to be New York. As I’ve traveled around the world giving talks about this strategy, I always ask the audience, “What strengths does your city have?” There’s always an existing industry that can benefit from blockchain, and it’s the support of those companies that innovators must build.

Investors

Finally, a strong blockchain ecosystem needs a strong flow of capital (read: money). This is what enables new companies to try new things. Early investors help fuel the startups and entrepreneurs that help fuel the ecosystem.

This is what we saw during the ICO boom of 2017, as investors poured capital into the blockchain ecosystem, with the hope of getting a rich payout on the value of their “tokens” (which were essentially like shares of a blockchain project). That explosion of capital fueled an explosion of innovation.

Expectations were ahead of reality, and when the innovation failed to materialize as quickly as investors hoped, the market crashed. But smart investors (like you) continued to patiently watch the market, digging through opportunities until they struck gold.

Today, we see more sophisticated investors — angel investors, family offices, even some hedge funds — making bigger investments in blockchain, from seed funding to buying cryptocurrencies. These are paving the way for the big money: institutional investors.

Which Comes First: Chicken or Egg?

Blockchain word made from white blocks.

There’s a strange chicken-or-egg phenomenon at play: investors can’t wait until companies get on board, and government can’t wait until education gets on board. It all works together.

If you’re overwhelmed by this model, remember that it happens in baby steps. In Boston, we’ve been plugging away a little bit at a time on each of these four areas:

  • On the education front, we’ve pulled together professors and students from schools like MIT, Harvard, Boston College, Northeastern, and Babson to share curriculum and best practices.
  • We’ve had fruitful discussions with government officials, building support for blockchain development.
  • We’re lucky to have top-tier blockchain companies like Circle and Algorand headquartered here, as well as financial giants like Fidelity.
  • And we’ve built a strong network of investors, like New England Venture Capital Association and Chain Reaction, which focuses exclusively on blockchain startups.

For blockchain innovators, this is the model to use. For blockchain investors, this is the model to look for. Whether you’re building or finding the cities, regions, and nations that are likely to thrive and prosper in blockchain, it all starts with a healthy ecosystem.

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

Born is the USA

The SEC Safe Harbor Blockchain Proposal (+ Downloadable Guide)

Born in the USA

Big news on the blockchain front: The U.S. Securities and Exchange Commission has made a proposal that would allow blockchain projects to once again thrive.

Hester Peirce, the most forward-thinking SEC official on blockchain, put forth a proposal outlining a three-year “safe harbor” for new blockchain projects that would give them “run room” before worrying about securities law. Her proposal would also create “best practices” that new projects would need to follow, ensuring more rigor for project creators and more protection for investors.

You can read the full proposal here, but below we’ll explain the proposal in plain language, and why it benefits both blockchain investors and blockchain projects. First, let’s explain why it’s needed.

The ICO Boom

Blockchain project diagram

2017 was the year of the Initial Coin Offering. Entrepreneurs saw they could fund new blockchain projects by issuing “tokens” (i.e., blockchain-based units of value) that investors could buy and sell, as a startup company would issue shares of stock. Importantly, these were not shares of stock: you didn’t own a piece of the company, just a token.

As new digital exchanges emerged to trade these tokens, and the price of many tokens begin to reach stratospheric heights, this formed a hype cycle. Entrepreneurs saw an easy way to raise money for a new project; investors saw an easy way to make money, because so many token holders were getting rich. Fueled by a lot of hot air, the bubble began to rise.

In 2018, at the height of blockchain mania, regulators and lawyers began to indicate that maybe these tokens really were like stocks, and should fall under the same laws. And with that, the bubble popped.

The Crypto Winter of 2018

Blockchain project diagram

Blockchain innovation became a confusing morass of obscure securities laws overseen by poorly-informed lawyers. To make things worse, securities laws vary between countries. Imagine creating a website where only residents from certain countries could access the site. The model doesn’t work.

What’s more, blockchain evolves quickly. So a token may start out with one purpose (funding the project), then evolve into something else (becoming a payment for using the network).

In fact, this is what happened with Ethereum. Originally, ether was used to raise funds to create the Ethereum network (which is pretty clearly a security, like a stock). But then ether became the “payment” for using the Ethereum network, like the in-game currency that powers the network.

Because of this “regulatory uncertainty” (two words we hope to never hear again), the torrent of blockchain innovation slowed to a trickle, and that trickle slowed to a freeze. Thus followed the great Crypto Winter of 2018. Blockchain projects went into hibernation. Startups huddled together for warmth, foraging for food and enduring the bitter weather.

Then came Hester Peirce’s proposal.

The New Proposal

Blockchain project diagram

Like all good ideas, it seems obvious when you hear it. Allow U.S. blockchain projects to have a three-year safe harbor, at the end of which they will be classified as securities (or not).

In plain language, this means that entrepreneurs can launch new blockchain projects—with best practices in place, explained below—without worrying about whether their new token is a security. They can focus on building the network, building the community, building the blockchain.

Investors can buy into these new tokens, without worrying about whether they are breaking an outdated securities law. They can buy, sell, and trade these tokens for three years, after which their holdings will be classified as securities (or not).

In this three year “grace period,” a few things might happen.

The token might become a security. It might look like a stock, in which case the investors in the token would be investors in the project, and receive similar benefits as, say, a corporate shareholder.

The token might not be a security. Like Ethereum, it might become something more like an “in-game currency,” a means of payment for using the blockchain network, in which case it would still be tradeable via digital exchanges, but not legally classified as a security.

The project might not go anywhere. Most blockchain projects, like most startups, are not going to get traction. So early investors—like early investors of any company—might have tokens that are essentially worthless. This is the risk of being an early investor.

Peirce’s proposal elegantly solves a number of problems:

  • It allows blockchain innovation to flow again. New projects now have a way to raise meaningful financing—and some room to run.
  • It allows the U.S. to take the lead. By creating a three-year “sandbox” for innovation, the U.S. can get a rapid head start among major countries on building out its blockchain ecosystem.
  • It buys the SEC three years. The legal frameworks for clearly defining securities vs. non-securities won’t have to be decided for another three years.
  • It helps solve the chicken-or-egg problem. Blockchains are built around network effects. That means you need a lot of people using the token for it to have value—but if you’re limited in who can own the token, you can’t get a lot of people using it. This proposal allows entrepreneurs to “kickstart” the network with an early burst of investors, allowing entrepreneurs to begin building a community, thus solving the chicken-or-egg problem.
  • It begins to define blockchain best practices. Pierce also outlines some common-sense rules that new blockchain projects will need to follow:
    • SEC compliance. This is not “launch a crypto project from your bedroom.” Entrepreneurs will still need to follow the standard SEC legal framework for new offerings (think a Regulation D offering).
    • Team disclosures. Blockchain projects will need to list “the names and relevant experience, qualifications, attributes or skills” of the initial development team—all welcome details for users of our Blockchain Investor Scorecard.
    • Project transparency. Projects will need to be open source, with a publicly searchable transaction history, including disclosing how many tokens have been paid to founders. Importantly, the project website will need to explain how the “tokenomics” work, providing transparency on token supply and mechanics.

Download Our Guide to the SEC Proposal

With the help of our Boston-based blockchain community, we have put together a guide to Commissioner Peirce’s proposal, filling in some of the details and helping define whether a blockchain project is decentralized.

It is our pleasure to offer you our new guide, Born in the USA. Download it here.
S Korean flag

10 Reasons Why South Korea Is Leading Blockchain

South Korean flag.

In September 2019, Bitcoin Market Journal hosted a delegation of blockchain leaders from South Korea at our monthly Blockchain Investor Meetup (join our events here). When I visited South Korea earlier this year, I was struck by how far blockchain has evolved in this tech-forward country.

Whenever I see success, I try to reverse-engineer the factors that led to that success, so the rest of us can learn – and profit. Here’s what I found.

Navigating the next industrial revolution chart.

1. A shared national vision. Klaus Schwab, the founder of the World Economic Forum, coined the term “Fourth Industrial Revolution” to describe the period we’re living in now, where technologies like AI, IoT, and blockchain are changing the nature of what it means to be human.

In South Korea, the idea of the Fourth Industrial Revolution looms large. I saw a real unity around this idea, something like a sense of national destiny that South Korea would lead the world in this new age where humans begin to merge with machines.

World's most innovative economies

2. A culture of innovation. According to Bloomberg, South Korea leads the way in the world’s most innovative economies. While the country started off by reverse-engineering foreign technology, that rapidly led to improving on these technologies.

Today, the country is a global technology powerhouse, investing heavily in R&D and new patents. The terrific Samsung phone that’s in my pocket is just one proof point of the country’s commitment to technology innovation.

3. An emphasis on education. Higher education is an extremely serious issue in South Korean culture (some students would say too serious). It is a point of national pride, with the South Korean education system widely praised around the world.

The country’s enormous education budget is a big success factor in how it has risen from a war-torn country to a tech powerhouse: a highly-educated workforce means that South Korean workers are in high demand, especially in new technologies like blockchain.

4. A national blockchain curriculum. Building on this commitment to education, the South Korean government has invested 100 billion won (about $90 million) into blockchain-focused training, creating a pipeline of talent for the next decade.

Blockchain Technology.

This is a page out of New York’s playbook: during the 1990s, the city invested heavily in tech education, partnering with New York schools and universities to develop a technology curriculum, training workers to make it a global technology leader.

5. A forward-thinking government. A Korean proverb says, “If you don’t walk today, you will have to run tomorrow.” In other words, get started early.

To this end, the government of South Korea invests heavily in R&D and emerging technologies. This year alone, nearly $1 billion has been earmarked to spend on blockchain development, with the city of Seoul also developing a blockchain incubator with room for 200 companies.

6. Regulatory sandboxes. Busan, the second-largest city in South Korea, has been declared a “regulation-free zone” for blockchain startups, making it easier for entrepreneurs and investors to freely build blockchain businesses.

Government officials expect that $25 million in investment will follow, with everyone from Korean banks to Hyundai experimenting with blockchain projects. This type of “regulatory sandbox” is an emerging model in South Korea, and it allows innovation to flourish.

7. Seoul reward token. The city government of Seoul is creating a citizen reward token (we’ll call them S-coins) that can be redeemed for goods and services within the city. It’s like an “in-game currency” that will let you pay for your food, parking, or transportation with S-coins.

Importantly, Seoul does not plan to charge merchant commissions when citizens pay with S-coins. As a small business owner, it offers the convenience of credit card or mobile payments, but with zero fees. Officials hope this will make S-coin, and thus the city of Seoul, prosper.

8. Blockchain tax breaks. Another way the government encourages early-stage R&D is providing tax incentives for experimenting with new technologies. Businesses that develop blockchain technology can get a 20-40% tax deduction for their pioneering work.

Samsung stock information.

9. The Samsung effect. The technology giant has begun rolling out the first blockchain functionality in mainstream mobile phones, with crypto wallet functionality built into the S10.

More significantly, Samsung has put together a consortium of industry players to develop a blockchain-based mobile identity system. Imagine logging onto your smartphone with a fingerprint or face ID that is stored using blockchain technology. It’s happening.

10. A love of crypto assets. The great crypto boom of 2017 took the nation by storm, prompting the government to ban Initial Coin Offerings. Still, a large percentage of South Koreans have crypto holdings: an astonishing one-third of investors hold an average of $6,000 in digital assets.

It’s our observation that once investors own digital assets, they not only understand them better, but they fall down the rabbit hole. (Bitcoin is the gateway drug.) Expect more digital assets to come out of South Korea: Once you’ve got skin in the game, that changes the game.

To sum up: South Korea has a highly-educated and highly-experienced workforce, a deep technology infrastructure, and widespread government support. Blockchain is about to go Gangnam Style!

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