Bitcoin to the Moon

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TLDR. Bitcoin, Ethereum, Litecoin and many other cryptocurrencies continue to experience massive growth in price, market capitalization, and mainstream adoption. Cryptocurrencies change and improve the way we do things. It is no longer a question of whether cryptocurrencies are disrupting the global economy. The only question is how much and how fast.

On July 20, 1969 we made history. Two days ago, we had the fiftieth anniversary of the Moon Landing, when man walked on the Moon for the first time.

The Apollo Guidance Computer  was the primary computer for the Apollo mission. It was one of the first computers to use integrated circuits, so instead of filling an entire room, it squeezed everything into a box just a couple of feet in size. Today, the A11 chip in an iPhone X can perform six hundred billion floating point operations per second. That’s a million times faster than the computer that put man on the Moon.

In 1969, a 50 year old man was old and was expected to live another 17 years. But today, being 50 isn’t old. I am expected to be around at least another 30 years or so. I’ve seen my fair share of technology revolutions over the last fifty years:

1969 — Arpanet:  Before the entire world was networked, there was the Arpanet, four computers linked together in 1969. It introduced the concept of “packet switching,” delivering messages as short units and reassembling them at their destination.

1977 — Personal Computer: The Apple II, Commodore Pet and Radio Shack’s TRS-80 are introduced in 1977, four years before IBM, soon to become synonymous with the term “PC,” unveils its personal computer.

1978 — GPS: The first satellite in the modern Navstar Global Positioning System (GPS) was launched. It is not until the year 2000, though, that President Clinton grants nonmilitary users access to an unscrambled GPS signal.

1979 — Sony Walkman: “This is the product that will satisfy those young people who want to listen to music all day,” Akio Morita, Sony Chairman, February 1979.

1983 — Microsoft Word: Multi-Tool Word, the precursor to the Microsoft Word text-editing program, makes its debut as free copies are bundled with the November issue of PC World.

1989 — World Wide Web: Sir Tim Berners-Lee creates “hypertext markup language” (HTML) to make Web pages and the “Uniform Resource Locator” (URL) to identify where information is stored. These breakthroughs form the foundation of the World Wide Web.

1998 — Google: It began as early as January 1996 as a research project, by Larry Page and Sergey Brin, PhD students at Stanford University. Conventional search engines ranked results by counting how many times the search terms appeared on the page. Google developed PageRank,  that determined a website’s relevance by the number of pages, and the importance of those pages that linked back to the original site.

2001 — Wikipedia: A multilingual online encyclopedia, based on open collaboration through a wiki-based content editing system. It is the largest and most popular general reference work on the World Wide Web. It features exclusively free content and no commercial ads, which is incredible.

2004 — Facebook: Harvard dropout Mark Zuckerberg launched “thefacebook.com,” a social network site originally restricted to his fellow classmates, in February 2004. Today Facebook is used by 2.3 billion people around the world.

2007 — iPhone Steve Jobs introduces Apple’s first smartphone with a prank-call order of 4,000 lattes from a nearby Starbucks. The iPhone was also the first U.S. smartphone without a physical keypad, and goes on to become the best-selling gadget ever, with more than 2 billion sold to date.

2009 — Bitcoin: The pseudonymous Satoshi Nakamoto launches the first popular cryptocurrency, an anonymized peer-to-peer encrypted form of cash. Bitcoin uses blockchain, a decentralize ledger to verify payments, that is nearly tamper proof.

“Bitcoin to the Moon” is a term introduced by crypto enthusiasts denoting an extreme spike in BTC rate. It became part of the crypto lexicon in late 2017, when Bitcoin hit $20,000

What will it take for Bitcoin to revisit the moon again?

When you look at the fundamental developments in the space you will realize that what happened back in 2017, when we had Bitcoin’s crazy rally, will happen again. There are potential catalysts that can lead this market to another 10x, potentially 20x over the next few years.

It’s not going to be altcoins, with 100x returns. It’s not going be institutional money or Bitcoin ETF, either. While they will play a huge role and increase the liquidity of the market, it will have to be something much more fundamental for the industry to the reach the next level.

One potential catalyst is DeFi. Decentralized Finance or DeFi is basically a shared effort to build open source decentralized censorship resistant technology, that opens up financial opportunities to everyone. It tries to cut out the middlemen and provide the best peer-to-peer experience for finance. We are seeing offerings like hedging, shorting, derivatives, and more, without intermediaries, clearinghouses or the need for trusted third parties. Imagine exchanging assets and tokens, opening up markets, for example crypto loans and stable coins, that allow anyone to have the purchasing power and stability of the US dollar. One example is Maker, both a stable coin and a collateralized lending platform. The collateral for the loans, is what stabilizes the Maker stablecoin.

Another important catalyst is programmable applications for Bitcoin. We will have to see Bitcoin adopt smart contracts, that have been so important and successful for Ethereum. Frameworks like RSK are important, because they allow us to lock up Bitcoin in smart contracts and to generate stablecoins like DAI.

Obviously there is more room for adoption. When we look at the most basic metric, ownership, we still have a long way to go. In the last 2-3 months, while BTC has jumped from $3,000 to $12,000, owning some type of cryptocurrency is still so low at 1% global adoption. Even if we just had a moderate jump in adoption, reaching 2-3%, we would see an exponential flow of institutional capital and possible a Bitcoin ETF, that will allow people to access the market in different ways,

Things like this could play an important role for the crypto space overall, but most importantly for Bitcoin’s valuation. These developments would allow Bitcoin to act as collateral, a store of value, and become the backbone for a new wave of stable coins.

The impact of the moon landing is all around us, forever a reminder of spectacular possibilities. Bitcoin is a moonshot. It’s the idea that anyone can be their own bank. It eliminates the middleman, no longer required for authorizing and authenticating any kind of transaction. This is a highly polarized topic, with strong sentiments on both sides of the centralized and decentralized debate. Time will tell how far this revolution will go.

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Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

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Last week in Fintech & Crypto

During the week when American politics became even more toxic, Daily Fintech Experts posted fresh insights each & every day.

Monday from @iliashatzis, our Greece -based crypto entrepreneur, described the strange news of President Trump publicly voicing his negative views on Bitcoin. Read here

Tuesday from @efipm, our Swiss-based Fintech Adviser, analysed why incumbents are beating startups in the robo advisory market which she has been tracking since 2015. Read here

Wednesday from @jessicaellerm, our Australia-based Fintech entrepreneur,  described how a major digital challenger bank, Nubank in Brazil, is moving into the small business market. Read here

Thursday @insuranceeleph1, Patrick Kelahan, our US based Insurtech expert, interviews the author of a study of 194 insurtech ventures with the aim of having a solution box to look in when you have identified what problem you want to solve. Read here

Friday from @karunk, a London based Fintech investor, looked at how AI based credit decisions, while smarter than ye olde FICO scores need to make their algos transparent both to consumers and regulators. Read here

Saturday @lunnbernard, CEO of Daily Fintech,  described the technology from satellites to mesh networks that will power Bitcoin even if the Internet is shut down. Read here

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Blockstream satellites, Locha mesh networking and the Bitcoin domesday scenario

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TLDR. Analog Bitcoin fans (aka Gold Bugs) like to talk about domesday scenarios where there is no Internet and so Bitcoin will be worthless. In the real world (as opposed to the talking heads circuit) it is not Bitcoin or Gold it is Bitcoin AND Gold. However nobody wants worthless Bitcoin. This update to The Blockchain Economy digital book describes Blockstream satellites and Locha mesh networking . These ventures and technologies ensure that you can still use cryptocurrencies even in the domesday scenario.

This update to The Blockchain Economy digital book covers:

  • Domesday Scenarios without Internet
  • Blockstream satellites
  • Locha Mesh networks
  • Context & References

Domesday scenario without Internet

The Chapter entitled Why BTC = USD1 million may be possible, but not desirable even for those with Bitcoin describes 4 scenarios that investors plan for, the 4th being what we refer to as the domesday scenario:

  • Scenario 4. Legacy Finance assets suffer a catastrophic decline and Bitcoin goes to zero. In that awful scenario, shelter, food & physical safety become critical and financial assets become only a distant memory and it is the gold part of your tail risk insurance that you rely upon.

Bitcoin can go to zero because a) it was always just a mirage or ponzi scheme or b) it becomes impossible to use because it requires Internet access and there is no Internet.

There are three ways we can be deprived of Internet access:

  • There is a catastrophic disaster from climate change or nuclear war or economic/societal collapse.
  • Your Government orders ISP’s to cut off Internet access for everybody (possibly to prevent a stateless challenge to their Fiat currency).
  • Your Government orders ISP’s to cut off Internet access for you (because you are viewed as an enemy of the state).

We look at the two technological solutions to this domesday scenario – one from above (satellites) and one from your neighbours on the ground (Locha Mesh networks).

Blockstream satellites

The Blockstream Satellite network broadcasts the Bitcoin blockchain around the world 24/7 for free, protecting against network interruptions and providing anyone in the world with the opportunity to use Bitcoin.

Blockstream is a private venture funded business with a lot at stake in Bitcoin. The theory is that even if the Internet is not available, you can still use Bitcoin via satellites. The problem is that as a centralised venture funded business, they are susceptible to pressure from Government.

Locha Mesh networks

This is a more ground up initiative coming out of Venezuela. The best introduction in the English language is this podcast interview. There is a lot about the political situation in this interview; if you want to skip to the tech, go to around minute 15.

101 on mesh networking: Traditional networks rely on a small number of wired access points or wireless hotspots to connect users. In a wireless mesh network, the network connection is spread out among dozens or even hundreds of wireless mesh nodes that “talk” to each other to share the network connection across a large area. Mesh networks use publicly available radio frequencies.

In short, wireless mesh networking is a decentralized, open permissionless network like Bitcoin ie nobody can shut it down.

This is an example of why this chapter describes The Path To Mainstream Adoption Of Bitcoin Is Not Through Legacy Finance Institutions, It Is Through The Excluded

Context & References

Why #GetOffZero Gets Sensible Investors To Look Seriously At Improbable Bitcoin Based Solutions.

Why BTC = USD1 million may be possible, but not desirable even for those with Bitcoin.

The Path To Mainstream Adoption Of Bitcoin Is Not Through Legacy Finance Institutions, It Is Through The Excluded

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

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FinServ in the age of AI – Can the FCA keep the machines under check?

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I landed in the UK about 14 years ago. I remember my initial months in the UK, when I struggled to get a credit card. This was because, the previous tenant in my address had unpaid loans. As a result, credit agencies had somehow linked my address to credit defaults.

It took me sometime to understand why my requests for a post paid mobile, a decent bank account and a credit card were all rejected. It took me longer to turn around my credit score and build a decent credit file.

I wrote a letter to Barclays every month, explaining the situation until one fine day they rang my desk phone at work to tell me that my credit card had been approved. It was ironical because, I was a Barclays employee at that time. I started on the lowest rungs of the credit ladder for no fault of mine. Times (should) have changed.

Artificial Intelligence, Machine Learning, Deep Learning, Neural Networks and a whole suite of methodologies to make clever use of customer data have been on the rise. Many of these techniques have been around for several decades. However, only in recent times have they become more mainstream.

The social media boom has created data at an unforeseen scale and pace that the algorithms have been able to identify patterns and get better at prediction. Without the vast amount of data we create on a daily basis, machines lack the intelligence to serve us. However, machines rely on high quality data to produce accurate results. As they say, Garbage in Garbage out.

Several Fintechs these days are exploring ways to use AI to provide more contextual, relevant and quick services to consumers. Gone are the days when AI was considered emerging/deep tech. A strong data intelligence capability is nowadays a default feature of every company that pitches to VCs.

As AI investments in Fintech hit record highs, it’s time the regulators started thinking about the on-the-ground challenges of using AI for financial services. The UK’s FCA have partnered with Alan Turing Institute to study explainability and transparency while using AI.

Three key scenarios come up, when I think about what could go wrong in the marriage of Humans and Machines in financial services.

  • First, when a customer wants a service from a Bank (say a loan), and a complex AI algorithm comes back with a “NO”, what happens?
    • Will the bank need to explain to the customer why their loan application was not approved?
    • Will the customer services person understand the algorithm enough to explain the rationale for the decision to the customer?
    • What should banks do to train their staff to work with machines?
    • If a machine’s decision in a critical scenario needs to be challenged, what is the exception process that the staff needs to use?
    • How will such exception process be reported to the regulators to avoid malpractice from banks’ staff?
  • Second, as AI depends massively on data, what happens if the data that is used to train the machines is bad. By bad, I mean biased. Data used to train machines should not only be accurate, but also representative of real data. If a machine that is trained by bad data makes wrong decisions, who will be held accountable?
  • Third, Checks and controls need to be in place to ensure that regulators understand a complex algorithm used by banks. This understanding is absolutely essential to ensure technology doesn’t create systemic risks.

From a consumer’s perspective, the explainability of an algorithm deciding their credit worthiness is critical. For example, some banks are looking at simplifying the AI models used to make lending decisions. This would certainly help bank staff understand and help consumers appreciate decisions made by machines.

There are banks who are also looking at reverse engineering the explainability when the AI algorithm is complex.  The FCA and the Bank of England have tried this approach too. A complex model using several decision trees to identify high risk mortgages had to be explained. The solution was to create an explainability algorithm to present the decisions of the black box machine.

The pace at which startups are creating new solutions makes it harder for service providers. In recent times I have come across two firms who help banks with credit decisions. The first firm collected 1000s of data points about the consumer requesting for a loan.

One of the points was the fonts installed on the borrowers laptop. If the fonts were used in gambling websites, the credit worthiness of the borrower took a hit. As the font installed indicated gambling habits, the user demonstrated habits that could lead to poor money management.

The second firm had a chatbot that had a conversation with the borrower and using psychometric analysis came up with a score. The score would indicate the “intention to repay” of the customer. This could be a big opportunity for banks to use in emerging markets.

Despite the opportunities at hand, algorithms of both these firms are black boxes. May be it’s time regulators ruled that technology making critical financial decisions need to follow some rules of simplicity or transparency. From the business of creating complex financial products, banks could now be creating complex machines that make unexplainable decisions. Can we keep the machines under check?


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).


 

 

 

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Have the horse before the cart- problem first, then innovation solution

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TLDR Insurance is not complicated, say compared to sending a man to land on the moon, but it’s big, and its current challenges are like finding the proverbial needle in the haystack.  Innovation, digitization, virtual sales and service, and so on.  Not unlike the elephant in the fable, insurance is perceived differently by each beholder- is it tail, ear, leg, trunk, sales, or underwriting, claims, accounting, actuarial, or customers?  What is to be innovated?

The drum beat of innovation is in some part fashion, but a large part reality- insurers need to evolve with their customers.  But there’s the rub- what evolution is meaningful, useful, profitable, doable, and able to be integrated into a carrier’s strategy, tactics, and admin superstructure?

This week’s discussion- who is useful to consult when you want to do it, or how to tackle it, innovation idea-wise.

I had a very useful conversation this week with an insurance veteran, Joël Bassani, founder and consultant at jinnbee who is now looking to share his knowledge gained over years with the insurance industry.  Our discussion reminded me that there are many aspects to insurance, many lines, covers, regulations, regions, etc. that one must deal with in the globally interconnected insurance world.  And how does one determine what path to take from that which one is on to one that leverages innovation or change?

What Joël told me as a foundational message resonates well- it’s not necessarily knowing the tech to apply, but it’s knowing what problem you have and working from that to what innovation has to help you.  In his opus of an InsurTech study, Joël notes early on, “An InsurTech is a solution, you need to focus on your Problem!”

And how do you know your problem?  Simple- you ask your customers, both external and internal and you strive to #innovatefromthecustomerbackwards .

What jinnbee has compiled for the industry is a compendium of InsurTech purposes:

You have an insurance problem, jinnbee’s analysis can help find an InsurTech solution from organizations that exist, are experts in their fields, and are available.  So you don’t have to create the wheel, you simply need to know the makeup of the wheel and jinnbee will help find a fit.  Do you make the innovation in house, or connect with an InsurTech?  Jinnbee will help lead your decision matrix.

And as comprehensive a study as jinnbee has produced, there are other organizations who have blazed a trail in terms of aggregating InsurTech organizational data, firms’ purposes, an ability to play ‘matchmaker’, and in providing accessible data. The two most prominent examples are Coverager, and Insurance Thought Leadership .

Coverager

I asked Coverage founder Shefi Ben-Hutta what synopsizes Coverager’s business model, what is the ‘elevator pitch’ that would best describe her firm’s approach:

  • Focus on tech, strategy, and alternative insurance distribution
  • Create and curate coverage (news, not lines of insurance)
  • Address the needs of insurance professionals, those who need access to information regarding how to address their unique problems (sound familiar?)

If the reader has yet to access the Coverage website (or better yet, subscribe to Coverager’s daily email), rest assured you will not be disappointed by a simple blast of information.  Coverager approaches information sharing with a wry tongue in cheek, occasional snark, but always best in class, topical information.  The firm’s web splash page gives an indication of the depth of coverage and information:

Everything from an encyclopedic source of insurance company information, a searchable database of InsurTechs, hosting of industry events, and to the latest marketing scheme or the scoop on a company that has gone off path.  As Shefi recounted, their purpose is:

  • Learn from the past
  • Understand the present
  • Better bet on the future.

Insurance Though Leadership

Take Coverager’s avant-garde approach to InsurTech assistance and look to a somewhat organizational opposite, and one finds Insurance Thought Leadership (ITL).  ITL approaches InsurTech advisory services with more of a formal suit, but with no less breadth of information as Coverager.  ITL has developed through the efforts of its founder, Dave Dias  into a premier source of innovation source/need connections, and a premier host of innovation education.  And the firm is the home of the man with a knowledgeable grasp on the innovation world, Guy Fraker, AKA the man with a thousand sneakers (runners, athletic shoes).  Insurance company C-Suites are encouraged to subscribe to the matchmaking service, and the organization’s excellent editorial staff keeps the industry appraised of the latest concepts.  A look at the Innovator’s Edge page of ITL website provides the searcher an idea of what the firm can offer:

Three very good sources to search and consider, and there are other InsurTech informational resources, e.g., GR Capital’s recent summary article, Why Next Year Can Be a Turning Point for Global Insurance Innovation, and industry influencers who can make connections from personal experience, including those in this list, or this one, or even this one (companies).

 

But it still requires the asker to know what innovation problem needs to be solved, what the customers are expecting (maybe it’s no change?), and how efforts are to be focused.  Innovation is not fashion, it’s strategic application of resources and there are good resources at hand.  And in most cases it’s not part of the elephant, but consideration of the whole beast.

 

Patrick Kelahan is a CX, engineering & insurance professional, working with Insurers, Attorneys & Owners. He also serves the insurance and Fintech world as the ‘Insurance Elephant’.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

 

 

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Latin America digital banking giant Nubank to add business accounts to its line-up

Asia seems to be where many fintech investors’ eyes are turned these days, however there are plenty of other underbanked markets that hold just as many opportunities, possibly more, for the savvy global venture hunter.

South America is one of those markets, and its stand-out performer to date has been Nubank.

The online bank started out life wooing personal banking customers, and now counts 10 million of Brazil’s 209 million residents as customers. While its bread and butter has been a slick digital experience for retail customers, the company is now looking beyond personal banking to business banking for SMEs.

Complementing its current base of personal account holders, the new line of products will focus on self-employed professionals and individual micro-entrepreneurs, otherwise known as MEIs. Their needs are not that different to a retail account holder, and the move will no doubt increase average revenue per account holder, plus entice new customers. Around 800,000 of Nubanks clients are reported to have already requested the bank move into business banking, no doubt helping sharpen the decision around product prioritization.

This announcement from Nubank shows an understanding of the growing global trend around flexible work, and how financial services are so central to empowering this trend.

It therefore comes as no surprise that the likes of SoftBank Group are reported to be sniffing around. It’s rumoured that any financing deal Nubank undertakes, would value the company in the realm of $8 – $10 billion. According to Vox, that would make it the second most valuable fintech in the world, behind Stripe.

If Nubank can conquer Latin America (the company has just started expanding into Mexico), it seems like that valuation will be well justified.

Daily Fintech Advisers provides strategic consulting to organizations with business and investment interests in Fintech. Jessica Ellerm is a thought leader specializing in Small Business and the Gig Economy and is the CEO and Co-Founder of Zuper, a new superannuation startup in Australia.

I have no commercial relationship with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join the 25,000 other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

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The US President tweets about Bitcoin

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TLDR. Last year, when Steve Bannon, Donald Trump’s adviser praised Bitcoin as “disruptive populism” and revealed he was working on his own cryptocurrency. It was evidence of something many people had long suspected: The forces driving the growth of anarchic, get-rich-quick digital tokens are very similar to those buoying Trump and his imitators.

Ten years ago, if you claimed that the President of the United States would be talking about digital money, people would think you were crazy. Well it happened. Last week the President Trump tweeted about Bitcoin and other cryptocurrencies:

The President expressed his opposition to cryptocurrencies, specifically about Bitcoin and Libra. He doesn’t think cryptocurrencies are real money, because their “value is highly volatile and based on thin air.”

Is fiat any better?

Cryptocurrency is volatile. Cryptocurrencies are based on thin air, but so are all the fiat currencies in the world. Bitcoin cannot be debased due to its limited supply, but the US dollar can and continues to be, as large quantities are printed. Cryptocurrencies can be used for illegal things, but so can cash. But on the other hand, Bitcoin transactions can be tracked by authorities, US dollars used for illicit purposes, are often impossible to track.

Trump’s statements about Libra, were along the same lines of other governments. France also appears to be opposed to Facebook’s cryptocurrency plans. An official at France’s finance ministry said the country would not allow a private entity to set up the equivalent of a national currency. China’s central bank is reportedly developing its own digital currency in response to Facebook’s Libra, as it could pose a threat to the country’s financial system.

The market barely reacted after Trump’s tweets. Bitcoin and cryptocurrency markets were completely unaffected by the comments The price of Bitcoin slightly rose, as investors bet that Trump’s mention of Bitcoin will bring greater awareness to crypto and push prices up.

This is possibly, the largest bull signal for Bitcoin, ever. The President’s tweets coupled with the growing institutional adoption and investment, spell out a clear message “buy Bitcoin”.

Trump’s tweets come one day after Federal Reserve Chaiman, Jerome Powell, told lawmakers that Facebook’s plan to build a digital currency called Libra could not move forward unless it addressed concerns over privacy, money laundering, consumer protection and financial stability.

Bitcoin had a huge week. Some in the crypto world have interpreted Trump’s series of tweets as an endorsement of Bitcoin’s growing importance. Trump turned Bitcoin into a hot issue for the upcoming presidential election in 2020.

It looks like Trump is hammering potential threats to the dollar’s status as the world’s reserve currency. But, this doesn’t matter, because the value of Facebook’s coin is also pegged to the value of a dollar, they are essentially just dollars on a blockchain. For me, that’s more interesting. Not that long ago, the world’s reserve currency was gold, where the value of a dollar was pegged to the value of gold. But one day the US decided to unpeg the dollar from gold, paving the way for the dollar to replace gold as the world’s reserve currency. Could Libra or another cryptocurrency, do the same thing to the dollar? It’s possible.

But, I think the dollar and crypto can coexist, and will coexist for a long time. Currency competition is inevitable, but the dollar doesn’t need to fail in order for Bitcoin to succeed.

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Ilias Louis Hatzis is the Founder & CEO at Mercato Blockchain Corporation AG. He writes the Blockchain Weekly Front Page each Monday and has no positions or commercial relationships with the companies or people mentioned and is not receiving compensation for this post.

Subscribe by email to join the other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research)

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Last Week on Daily Fintech

During the week when hurricanes headed for America and the awful drought in India got worse, our Experts posted fresh insights about Fintech each & every day.

Monday from @iliashatzis, our Greece -based crypto entrepreneur, celebrated America’s Independence Day by describing how Bitcoin shows that a community of people can create a currency system on their own, just like the Colonials did. Read here.

Tuesday from @efipm, our Swiss-based Fintech Adviser, questions why the variety of  `anything Fintech as a service` is helping BigBank more than SmallBank today. Read here.

Wednesday from @jessicaellerm, our Australia-based Fintech entrepreneur,   continued analysis of the red hot India Small Business Fintech market by looking at TenCent’s investment in NiYo. Read here.

Thursday @insuranceeleph1, Patrick Kelahan, our US based Insurtech expert, curated & analysed the most important news items in Insurtech globally during the last week. Read here.

Friday from @karunk, a London based Fintech investor, describes how in India, the third most active innovation ecosystem in the world after US and China, most Blockchain projects are driven by Government initiatives for financial inclusion. Read here.

Saturday @lunnbernard, CEO of Daily Fintech,  is surprised that the SEC Crypto regulation gets it almost right with the Reg A Blockstack token offering and opines that this may define a new innovation capital market. Read here.

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Amazingly, the SEC may have got it almost right with the Reg A Blockstack token offering and this may define a new innovation capital market

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TLDR. Napster blew up the music business with free and illegal. Then we had low cost and legal like Spotify, Pandora and iTunes. The same is happening to innovation capital. The summer of 2017 ICO, kicked off by Bancor, was the now illegal way to raise a lot of money easily and at virtually no cost. That was a lousy deal for investors and naturally then regulators jumped in.   

This update to The Blockchain Economy digital book covers:

  • What is broken in the legacy innovation capital business
  • Why the ICO went too far in the opposite direction
  • The news about Blockstack and Reg A
  • Reg A Basics
  • Blockstack Basics
  • Jurisdictional competition will continue
  • Context & References

What is broken in the legacy innovation capital business

In March 2017, in Crypto equity via ICO and the other innovation chasm we wrote that:

“Most entrepreneurs understand the chasm between MVP (Minimum Viable Product) and PMF (Product Market Fit). The low cost to build MVP increases supply, but real demand does not change that fast, so lots of MVP ventures fall into the chasm (i.e. they fail).

The next chasm is less well understood. This is the chasm between PMF and Liquidity (via an IPO on the Public Markets and failing that via trade sale).

Today, we don’t see this chasm so clearly because there is a very expensive bridge across it – in a few locations. The very expensive bridge is provided by the big PE/VC Funds.”

Why the ICO went too far in the opposite direction

In 3 hours that shook my world: the Bancor ICO in June 2017 we described Bancor raising over $150 million in 3 hours in an ICO that kicked off the ICO craziness in 2017 when ventures could raise huge sums on not much more than a “minimally viable white paper”. The ICO went too far in the opposite direction – good for the entrepreneur and bad for the investor.

The news about Blockstack and Reg A

The news as reported in many media outlets was that the SEC gave Blockstack the go-ahead to conduct a $28 million digital token offering under Regulation A (which enables smaller companies to raise money from the public with less strenuous accounting and disclosure standards than a traditional IPO).

This is big news because the SEC is creating a new protocol for token offerings under Reg A. This is tokenized early stage crowdfunding. While neither  tokens nor crowdfunding are new, this the first time they have been combined in a global market that US public investors can participate in.

America has been losing ground in crypto as it was not perceived as a friendly regulatory environment. This news is a big win for American entrepreneurs and investors.

Reg A Basics

Regulation A as per the SEC:

“is an exemption from registration for public offerings. Regulation A has two offering tiers: Tier 1, for offerings of up to $20 million in a 12-month period; and Tier 2, for offerings of up to $50 million in a 12-month period. For offerings of up to $20 million, companies can elect to proceed under the requirements for either Tier 1 or Tier 2.

There are certain basic requirements applicable to both Tier 1 and Tier 2 offerings, including company eligibility requirements, bad actor disqualification provisions, disclosure, and other matters. Additional requirements apply to Tier 2 offerings, including limitations on the amount of money a non-accredited investor may invest in a Tier 2 offering, requirements for audited financial statements and the filing of ongoing reports. Issuers in Tier 2 offerings are not required to register or qualify their offerings with state securities regulators.”

Blockstack Basics

Blockstack describe themselves as the” easiest way to build decentralized apps that can scale” and claim over 120 independent developer teams that have built apps on Blockstack.

Like Ethereum and many ICOs, Blockstack is a developer-focussed open source platform. It is the sort of innovation that the crypto community needs.

Jurisdictional competition will continue

In Some Governments Want To Shut Down Bitcoin But They Don’t Know How we wrote that:

“For a long time, entrepreneurs faced competition and regulators sent them the rule book. Regulators were government employees who thought about competition only in the abstract;  competition was something that other people had to worry about.Today, the environment is more fluid as governments recognize the economic return on innovation in terms of jobs and GDP growth. The regulators now face real competition because their political masters have to keep citizens happy and citizens care about jobs and GDP growth. Both Fintech upstarts and incumbent global banks are increasingly mobile; so jobs can disappear fast if regulators get it wrong. Plus, innovation is the primary driver of productivity which drives GDP per capita. Pity the poor regulator who must balance that with protecting citizens from fraud and enforcing existing laws.”

This jurisdictional competition is a good thing because while, the SEC may have got it almost right with Reg A and the Blockstack token offering, there is still room for improvement. If you look at the details, you will see that accredited investors get in early and the public get in later. The public gets in earlier than they do in a traditional IPO, but this is still a two tier market. In a global market with jurisdictional competition, expect big moves by Singapore, Hong Kong, UK, Switzerland the EU and other tech/finance centers.

Context & References

3 hours that shook my world: the Bancor ICO in June 2017.

Crypto equity via ICO and the other innovation chasm

Some Governments Want To Shut Down Bitcoin But They Don’t Know How

Bernard Lunn is a Fintech deal-maker, investor, entrepreneur and advisor. He is CEO of Daily Fintech and author of The Blockchain Economy.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join other Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).

The post Amazingly, the SEC may have got it almost right with the Reg A Blockstack token offering and this may define a new innovation capital market appeared first on Daily Fintech.

The Rise of India Blockchain, Cryptos lagging – Mistake or Opportunity?

It’s an emotional week for Indians – for most of them atleast. It’s a week when India crashed out of the cricket world cup, that they were favourites to win. While I was looking for “India news” to cheer myself and my family up, I spotted an important trend worth talking about.

The rise of Blockchain in India doesn’t come as a surprise to me. It is the third most active innovation ecosystem in the world, next to the US and China. 2018 had $35 Billion of PE/VC investment in the country, and that has risen over the years at a rapid pace. However, with Blockchain, most of the initiatives have a public sector organisation driving it.

Blockchain-India-Infographic

Image Source

Most Indians would admit  that public sector organisations in India are super dysfunctional. So, this is indeed a sign of new times. Perhaps, the state governments are taking inspiration from the centre’s initiatives with payments and other technology innovation. Let us look at the three key trends that we have identified across the states.

  • Land Registry – This is such a critical use case for Blockchain in India. The real estate industry is fraught with corruption, and a system to bring integrity to the value chain is most welcome. Blockchain could add so much value to this space.

 

  • Farm Insurance – I am quite glad that this is a key trend. Less than a year ago, I wrote an article asking for exactly this. A violent storm that hit my home state, affected coconut farms and many farmers lost their 10 years of hard work. A smart contract based insurance mechanism is critical for farmers to protect their livelihoods. In a country that depends on two monsoons for agriculture, a flood or a drought could kill the crops.

 

  • Digital Certificates – There is a saying in India – You can’t go wrong with a food or an “education business”. Education has been commoditized in the country so much that, every year there are 1.5 Million engineers being produced. It is also a market where counterfeit certificates and CVs are not uncommon. Blockchain based digital certificates to maintain the integrity of the education process is yet another useful application.

The map also identifies several other use cases like Organ transplants (as the black market in India is thriving), IP Protection and Cybersecurity. I am surprised that there is no line item for Self Sovereign Identity. India has the world’s largest citizens’ database in Aadhaar. Loading it up on a permissioned Blockchain, and providing citizens the ability to share their data in a controlled fashion would be a major building block.

But that initiative needs to come from the central government. It cannot be a state government driven agenda. Also, despite all these developments, the action from the central government around Blockchain initiatives is missing. The central government needs to intervene to standardise state government based initiatives across the country.

The other elephant in the room is the cryptocurrency ban in the country. I believe, this has pushed India behind its global competition by a few years when it comes to Blockchain innovation. The country has a buzzing startup ecosystem. The centre has taken several steps even in the most recent budget to support innovation.

But when it comes to cryptocurrency, the Reserve Bank of India has taken a very binary approach. I spoke to Lizzie Chapman (CEO of ZestMoney) a few weeks ago on lending fintechs in India. During that conversation, she mentioned that the Indian regulators have been quite collaborative in setting policies for the industry. That approach seems to have been lost somewhere with Cryptos.

The challenge that India has is that of talent. With lack of innovation happening in this space, Blockchain skills will start running out pretty soon. Yes, the big tech consulting firms looking to build Blockchain skills can do so. But that doesn’t necessarily translate to leadership within Blockchain innovation.

The other challenge is global competition. China and other top economies have allocated $ Billions towards emerging technologies such as AI, Quantum computing and Blockchain. China and US fight it out for the top place in the world’s patenting charts across these technologies. India is only in 6th position in the world for the number of Blockchain patents, and without private sector innovation, will soon risk being left behind.

In essence, the centre needs to wake up to this new era in the country. It’s time for leadership at the top, much like they did with payments. They should get initiatives kicked off on Blockchain and its standardisation across states. They should ensure that the regulations are clear for the crypto community.

With just those two steps, the country should be back on the map in a much bigger way with Blockchain. The mistake (crypto ban) could be turned into an opportunity. Onwards and Upwards!! Cheer up India!!


Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on Inclusion and a podcast host.

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

Subscribe by email to join Fintech leaders who read our research daily to stay ahead of the curve. Check out our advisory services (how we pay for this free original research).


 

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