SWRM Labs Blog

Bubble. Bubble, Toil and Trouble

Nov 29, 2017 3:00:06 PM / by Robert Binning posted in ICO, Ethereum, Bitcoin, Cryptocurrency, Uncategorized, Blockchain

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One of the curious facts about economic activity is that it leads to bubbles, which burst, and then more bubbles. The Great Depression led to many structural changes in both governmental oversight of the US and other large economies through national banks or reserve systems and through the private banking industries, but we still experience economic bubbles and crashes every 10 years or so. Like Tolstoy’s observation about happy and unhappy families, the growth phases all look very similar — accelerating supply and demand, leading to more and more investment in similar categories — but the bubbles and the bursts are all unique. We can observe the characteristics of bubbles and draw insights about what made them happen, but it is very hard to use those insights to predict when they might burst or what remnants will survive to become new industry leaders.

There have been three significant bubbles in the past 30 years, after the Savings & Loan crash of 1985–6: the junk bond crash of 1990–91 that led to a minor credit crunch and recession, the dot-com crash of 2000–2002 that had a major impact on the tech industry but did not dramatically affect the US economy, and the housing crisis of 2007–2009 that led to the Great Recession.

The junk bond bubble of 1989–90 was a supply-side crash against strong demand; private equity has changed a lot in the last 25 years, but the demand for high yield corporate debt and mezzanine financing is more than 10x today what it was just before the bubble broke in 1989–90. The junk bond market of the 1980s was largely created by Michael Milken of Drexel Burnham Lambert (DBL). Milken worked with two main customer groups: executives from high growth companies below the Fortune 500 who did not qualify to issue “investment grade” bonds, but who were substantially better prospects than the typical small business that gets its debt funding from commercial banks, and corporate raiders or private equity firms who were looking for large debt packages to enable leveraged buyouts. For almost ten years, DBL and their peers showed that corporations outside the Fortune 500 could afford very high interest bond packages, with typical yields of 14–15% and only 2–3% default rates. Admittedly, a lot of the yield was caused by the steady decline in inflation and expected interest rates for all classes of bonds — many muni bond funds and traditional corporate bond funds showed 10% annual returns or better across the 1980s as well.

DBL had run-ins with the Securities and Exchange Commission (SEC) and the US Department of Justice (DOJ) across much of this period as well, and Michael Milken, one of the top executives with the firm, was famous for bending and breaking SEC rules. In 1988–9, the DOJ threatened DBL with an indictment on RICO (Racketeer Influenced and Corrupt Organization Act) charges. The company settled the charges, technically retaining innocence while admitting the government could prove guilt. The company crashed and dissolved in 1990; Milken spent almost 2 years in prison. The pressure on DBL led by Rudy Giuliani for the DOJ essentially stopped the high yield bond supply in its tracks for two years. New debt issues fell from $29Bn in 1989 to $1 bn in 1990, but they recovered by 1992. Since that time, the high yield market has exploded, with significant resets happening briefly with each economic recession (2000, 2008).


The Dot-com boom ran from 1995 to 2000, followed by the Dot-bomb crash from mid 2000 to 2003. This bubble had two major contributing factors: an explosion in venture capital financing and IPOs especially by internet technology and communications companies that led to irrational firm valuations, far removed from the Price/Earnings or Price/Revenue ranges seen in the past 50 years, coupled with a change in the tax treatment of capital gains vs dividends that again pushed firms to issue equity and expand through mergers & acquisitions instead of paying dividends.

In early 2000, the telecom industry published statistics that showed that the exponential growth forecasts for internet traffic had turned out to be wrong (some companies were citing capacity growth, not actual traffic growth), and people started to realize that the “new economy” actually worked under the same financial rules as the “old economy.” Within months, venture funding slowed dramatically and a number of venture firms closed or refocused their attention on just their existing investment portfolio.

The dot-com bubble led to a loss of $1.7 trillion in stock value, mostly by the tech companies that dominated the NASDAQ index. Total valuation fell by 78% between March 2000 and October 2002; the index did not reach its March 2000 peak again until April, 2015.



Of the hundreds of firms that started during the Dot-com craze, Google / Alphabet, eBay, and Amazon have proven to be huge winners. During the 2000–2002 correction, Amazon struggled with showing the value of its business model of reinvesting profits into new growth segments; its stock price fell from a high of $106 in late 1999 to a low of $7.20 in late 2001; it currently trades for close to $970 per share. New giants like Facebook learned from the survivors that market dominance in a category segment is more important than broad coverage across many segments with low share.

The 2007–10 housing market crash had a supply side factor as well as a demand factor. The story of the Great Recession has been told over and over again, but for this analysis, I’ll refer to the growth of sub-prime mortgages across the 2000s, with the mortgage paper repackaged from the junk status that they truly were to a false claim of AAA risk level.


This graph shows is the percent of US home mortgages that were subprime or Alt-A. Until 2003, the fraction of mortgage paper well outside of prime interest rate band was only 10% of total mortgages; even with the higher default level from this class, mortgage buyers were not very exposed to default risk, and they had a good understanding of return levels over time under normal interest rate fluctuation levels. But in 2004–7, the number of new risky mortgages exploded, with developers and mortgage companies putting packages together to attract buyers no matter how unqualified they might have been. At the time, they believed housing prices were destined to climb faster than the cost of money, so it really didn’t matter whether the buyer could afford to pay the loan. The mortgage holder could foreclose and resell the property for more than the cost of the loan.

This growth and crash was caused by “irrational exuberance” coupled with fraudulent packaging of risky loans masquerading as trustworthy baskets of loans, driven by an unstable demand level by a huge group of unqualified buyers that distorted the entire mortgage market for 4 years. The crash in 2008 led to several bankruptcies and bank mergers, and eventually to a completely different approach to mortgage issuance. Subprime mortgages essentially disappeared by 2009, and even the most qualified buyers had a difficult time finding banks and other finance companies willing to offer home mortgages.

So is bitcoin in the growth stages of a bubble today?

The bitcoin market has undergone several huge price climbs and collapses in the brief eight years that this industry has existed. There have been several flash crashes with at least 20% value decline, and the value once fell by more than 80% from peak to trough (Nov 2013–Jan 2015), similar to the collapse of the NASDAQ index.

Bitcoin Price in US$, August 15, 2017:


One of the more remarkable aspects of bitcoin is how fast price corrections happen and how fast they can recover. The most recent crash in early September with a 35% loss of market capitalization was almost certainly caused by the decision of the China government regulators to ban new ICOs and to close exchanges that deal in cryptocurrencies. Several projects simply shut down, and many others have been forced to refund coins or fiat currency invested, at least by Chinese investors. Regulators from several other countries have also been aggressive in restricting ICOs, including US and Singapore. Other country regulators are issuing warnings to citizens about the dangers of investing in blockchain projects.

I see the bitcoin price increase and corrections as being similar to the Dot-com bubble more than any other financial episode in recent memory. There is a huge degree of Fear of Missing Out, with hundreds of tokens being issued to take advantage of this once-in-a-lifetime opportunity to obtain funding for blockchain projects. Like the Dot-com era, few people are doing research to investigate whether the project has any chance of success (Sock puppets to sell pet food and accessories?), or whether a blockchain might actually add any value to some hypothetical solution. The NASDAQ index hit its peak with a combined P/E ratio of 175, nearly 10x the ratio that most investors are comfortable with. Few of today’s token-backed businesses turn a profit, and it is hard to correlate the value of a token with the actual or expected future profitability of the project.

Like the internet of 1997–1999, there are some winners hiding in the crowd of undifferentiated token issuers. Some recent ICOs have resulted in unicorn-level valuations approaching $1 billion for their projects (OmiseGo, Qtum, Ripple Labs), and there are a few mega-project consortiums that oversee dozens of blockchain projects, like ConsenSys.

A new wave of corporate innovators are pursuing blockchain projects as well. While Jamie Dimon of JPMorgan Chase recently disparaged bitcoin as a worthless investment, the firm has been pursuing its own blockchain program called Quorum to enable private but secure transactions among enterprises. Many other large tech companies have similar projects under investigation. It is likely that many of the thousands of projects that are being funded today will disappear within 2–4 years, just as most startups die or are acquired and integrated into other solutions. And it is likely that a handful of blockchain concepts will become category winners and lead to new billion dollar businesses. It’s just a little hard to predict which ones will be the winners right now.

Reference citations:

  1. Wikipedia. Drexel Burnham Lambert — Wikipedia.
  2. Sober Look. High yield debt issuance in 2012 hits an all-time record
  3. Credit Slips. QM Impact on the Mortgage Market
  4. Economist (2000). From dot.com to dot.bomb
  5. Business insider. Here’s Why The Dot Com Bubble Began And Why It Popped
  6. NewsBTC. Bitcoin Price Watch; Here’s How We’re Playing The Correction — NEWSBTC
  7. JPMorgan Chase. Quorum | J.P. Morgan.
  8. Photo by Alexandre Perotto on Unsplash
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Ethical ICO

Nov 22, 2017 11:09:00 AM / by Robert Binning posted in ICO, Ethereum, Bitcoin, Cryptocurrency, Uncategorized, Blockchain

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Way back in the dark ages of the early 1980s, when dinosaurs roamed the earth (at least, according to my daughter, now 19), I took an ethics class in business school. Business ethics is the study of proper business policy and practices with respect to controversial issues. Some are rather clear-cut examples of stopping people from behaving illegally — bribery, discrimination, insider trading. Others involve juggling the conflicting rights and interests of different constituencies — corporate social responsibility, corporate governance, fiduciary responsibilities of executives and board members.

There have been several examples of unethical behavior in the news lately, with Harvey Weinstein as the most recent outrageous example of unethical behavior on the part of business executives that should have known something very wrong was happening under their noses. The tech industry is not immune from unethical behavior either; Uber is facing some heavy headwinds as a result of the behavior demonstrated by its co-founder and ex-CEO, Travis Kalanick.

The blockchain industry has an unfortunate reputation for scams, and for good reason. Up to one-third of the ICOs held in the past year have been little more than donations to the project founders to line their pockets. More than a few ICOs have been hacked, with large fractions of the offered funds siphoned off by hackers. As a result, financial regulators around the world have issued guidelines to restrict either the issuance of new tokens or the participation of residents in new ICOs. And these challenges affect both small and large ICOs. CoinDash lost over $7.5 million in July to hackers in much the same manner that the DAO lost $50 million a year earlier. Tezos, one of the largest token offerings with $232 million raised and now valued at $400 million thanks to the recent appreciation of Bitcoin and Ethereum, is crashing as two leadership factions vie for control over the project.

Protocol Labs took a bold step to create a certified and ethical ICO for its Filecoin token offering, working with Cooley LLP to create a new registration process for funds raising called a Simple Agreement for Future Tokens (SAFT), based on Y Combinator’s Discount/No-Cap SAFE equity fundraising process, balancing benefits to the purchaser based on the higher risk associated with a project stake in lieu of traditional equity with advantages to a broader community that will be using and mining the tokens. The investors or donors guarantee they will hold the tokens for a period of one to three years, and they register by name and tax ID, certifying that they are accredited investors with a high income and net worth, aware of the high likelihood of loss when participating in the ICO. About a half dozen other projects have also issued SAFT agreements to support their ICOs, but this remains a rare and potentially complex legal process that befits some types of projects better than others.

StreamSpace is preparing to conduct its ICO in early 2018; we are engaged in a token pre-sale today. We are doing everything we can to show that we are conducting an ethical ICO, showcasing our founders and other team members, with links to our bios and LinkedIn resumes, a detailed white paper, extensive details about the fundraising process that we are using with price tiers based on the amount raised over specific time periods from the first 6 hours to 48 hour segments over the 28 day ICO period. We have been active in engaging our primary market, independent filmmakers, across several industry conference events and other sponsorships and speaking engagements. We published our project architecture and target development timetable, showing the progress toward beta and commercial offerings over the next year. We are building our industry credentials with help from executives with deep roots in the film and television industry. We are also building website resiliency to help make the ICO harder for hackers to attack us, either hijacking the site or hitting us with a DDoS attack. While no network is ever completely safe, we feel we are prepared for all of the likely points of attack.

If there is any doubt, please feel free to call or engage us directly through other means. We are here to make a difference in the world, and we are starting now. Come join us in Austin if you can.

Peace to you all.

Photo Credit: Annie Spratt from Unsplash

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Black Swans and Other Common-Rare Phenomena

Oct 19, 2017 3:41:50 PM / by Robert Binning posted in Token Sale, ICO, Ethereum, Cryptocurrency, Uncategorized, Blockchain

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In 2007, Nassim Taleb wrote a ground-breaking book about a common investing fallacy: Banks and trading firms are vulnerable to hazardous and infrequent events and are exposed to loss risk far greater than their usual probability models would predict. Because rare events are very difficult to predict and quantify, most models simply assume that catastrophic losses will never happen. This philosophy works well most of the time, and as a result, many financial planning models work well using traditional risk-return valuations based on standard deviations from expected mean levels.

Unfortunately for the financial market (but luckily for Taleb’s reputation and book sales), the banking crisis and stock market collapse one year after he published the book showed the importance of scenario planning to include rare catastrophes. Taleb’s thesis is not that people should try to predict such rare events — after all, market collapses of that magnitude not due to war have only happened a few times. Rather, strategists should build robustness against potential catastrophic events and prepare to exploit the advantages that might come from an unexpected windfall event.

The recent hurricanes that hit Texas, Florida, and the island territories of Puerto Rico and Virgin Islands got me thinking again about Black Swans. Hurricane Harvey dumped more than 40 inches of rain on Houston, Beaumont, and other Texas Gulf communities, making this storm the most extreme single rain event in the United States. Over 80,000 homes were flooded beyond 18 inches, and almost 800,000 households applied for assistance from FEMA. Shortly after this catastrophe, Puerto Rico and the US and British Virgin Islands all suffered double hurricane damage from Irma and Maria, both Category 5 hurricanes, over a 2 week period. Thankfully, none of the major hurricanes this year resulted in heavy death levels, but the islands will probably be struggling to rebuild their infrastructure and recover their economies for the next several years.

The blockchain world may have just seen its first Black Swan event — ICOs have been banned in two countries where most blockchain innovation has been happening (China and South Korea) and the United States Securities and Exchange Commission has recently been publishing guidelines that suggest a much more restrictive regulatory environment. Several other countries have also announced plans for tighter regulations.

Blockchain innovators are not the first industry segment to receive extraordinary attention from regulators; the US SEC published similar warnings about marijuana “microcap” stocks in 2014, and the recreational alcohol and drug industries remain highly restricted by national and local regulations around the globe. Technologies like radio and nuclear medicine faced similar birthing pains due to safety concerns. However, this is possibly the first time that a new technology has faced such strong financial regulation in so many country markets at once.

How to deal with this challenge? As Taleb suggests, it is not worthwhile to try to predict any specific crisis — they are too rare and too varied. Rather, the best thing for an organization to do is to build up resilience to accommodate the impact from the rare negative event and to seize the opportunity from a rare positive event. Over the past year, hundreds of projects have raised over $2 billion through ICOs. A common current accounting treatment, recognizing the proceeds from ICOs as prepaid revenues against future service deployment, is clearly not a good representation of reality, as it signals that the project could be a Ponzi scheme, especially if there are promises made about the return levels that investors might expect. Another solution would be to craft a new funding mechanism that did not rely on speculation on value for private tokens; there are at least two blockchain tokens that feature fixed value tokens intended to facilitate blockchain transactions without the potential of extraordinary investment returns.

A greater challenge facing the blockchain industry today is the lack of skilled developers. The number of blockchain projects has exploded by about a factor of ten in the past year. While we continue to recruit experienced programmers as best we can, we are also committed to training young programmers to become skilled blockchain coders. That means that we face a modest ramp before the new staff become highly productive, but that makes more sense than waiting for months for rare experienced talent to walk in our doors.

Acknowledgements:

Photo by Gehlert Michael on Unsplash

References:

  1. Taleb, Nassim. The Black Swan: The Impact of the Highly Improbable, 2007. https://en.wikipedia.org/wiki/The_Black_Swan:_The_Impact_of_the_Highly_Improbable . Accessed Oct 5, 2017.
  2. Samenow, Jason, Washington Post. https://www.washingtonpost.com/news/capital-weather-gang/wp/2017/08/29/harvey-marks-the-most-extreme-rain-event-in-u-s-history/?utm_term=.7476e850094e . Accessed Oct 5, 2017.
  3. US Securities and Exchange Commission. https://investor.gov/news-alerts/investor-alerts/investor-alert-marijuana-related-investments . Accessed Oct 5, 2017.
  4. Coindesk ICO Tracker. https://www.coindesk.com/ico-tracker/ . Accessed Oct 5, 2017.
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Tokens vs Cryptocurrencies

Sep 20, 2017 2:23:59 PM / by Robert Binning posted in ICO, Ethereum, Bitcoin, Cryptocurrency, Uncategorized, Blockchain

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People ask me frequently about investing in the blockchain ecosystem and which investments I would recommend. Most have heard of Bitcoin and Ethereum, and they might have read an article that promoted a new coin, promising to be a phenomenal investment. In the past few weeks, the US Securities and Exchange Commission has become more vocal about regulating many new Initial Coin Offerings or ICOs, claiming that most represent securities; non-security “asset” offerings would still be permitted, but it can be difficult to show whether your offering qualifies for added oversight. The first category is called a cryptocurrency or coin; the second category is called a token or digital asset.

On first glance, the hundreds of coins available seem overwhelming, the equivalent of opening up the stock pages in the Wall Street Journal. And also at first glance, all of these coins appear to be very similar. But there are some important differences between currencies and tokens, and it is important to examine the two classes differently.

First, let’s take a look at cryptocurrencies. The oldest and largest of these is Bitcoin, launched in January 2009. Currently, there are 16.5 million of these coins in circulation, and the price of a bitcoin has fluctuated between $4000 and $5000 over the past month, for a total market value of about $70 billion as I write this post. Ethereum is the second most important cryptocurrency, with 94.5 million coins in circulation and a market price of about $300, for a total market capitalization of about 28 billion. There are nine other coins with market values over $1 billion, 23 more worth between $100 million and $1 billion, plus several hundred more with lower capitalization levels.

The key attributes of a currency include:

  • The currency is tied to an open and publicly accessible blockchain.
  • Anyone can send, receive, and earn (mine) coins or fragments of coins through participation in the blockchain.
  • The owner has full control at all times, helped by a public and private key system tied to the cryptocurrency wallets.

Since the primary purpose of a coin is to enable commerce, it is logical that there is a strong network effect driving bitcoin to higher market valuation and eventually higher market share. The more people accept a specific coin, the more popular that coin becomes, creating a virtuous cycle of growth. Most of the popular alternatives to bitcoin emphasize different characteristics that make them useful for people with secondary objectives: Monero features transaction anonymity and privacy beyond bitcoin. Dash provides transaction privacy and is accepted by over 80 online merchants around the world. IOTA emphasizes a new ecosystem concept of Internet of Things interactivity; in this ecosystem, billions of sensors will communicate with each other and with controllers with a new standard based on micropayments without relying on today’s centralized network owners. Ethereum’s primary purpose is to enable smart contracts and distributed applications (or dapps), rather than a traditional commerce ecosystem; an ecosystem of dapps can be considered a commerce solution at a more abstract level. Waves is a platform for issuing, trading, and managing digital assets securely and easily; more than 4,000 tokens have been issued based on the Waves platform. Ripple emphasizes transaction utility and is used by several dozen banks and nonbank financial institutions (although Ripple has some unusual properties and is centrally managed).

In the past year, dozens of organizations have created new coins as part of managed cryptocurrency investment funds. These range in value from $1 million to $500 million or more. The funds are focused on the blockchain ecosystem, taking advantage of the recent explosion of new projects that approach the magnitude of the level of traditional venture investment.

In contrast, a token is a digital asset for dapps within a blockchain ecosystem, usually Ethereum or Waves. The tokens have no inherent value by themselves, but represent the value of the dapp. Unlike currencies, tokens are held inside the project network. Also, where many currencies have been capped at some fixed number of coins or loosely fixed with a small inflation factor associated with the reward system for that coin, there is nothing preventing an organization from issuing more tokens.

Tokens, like currencies, exist in binary form and are stored on digital appliances like computers and smartphones, but the control for access and exchange of these assets is not on a public blockchain but rather on private ledgers maintained by individual companies or project teams. For example, BurgerKing Russia launched a new token called the Whoppercoin. Consumers who purchase Whopper sandwiches in certain restaurants receive one token for every ruble spent; they can redeem 1700 tokens (earned after purchasing five or six burgers) for one free Whopper. There is no public exchange for Whoppercoins; the value varies only with the price of the hamburger, and the token will cease to have any value whenever BK Russia decides to cancel the “frequent buyer” promotion.

Initial Coin Offerings or ICOs for cryptocurrencies and digital asset tokens have exploded in the last year, as shown in this chart from Smith & Crown (published September 8, 2017):

Note: Smith & Crown considers all blockchain offerings to be “tokens,” regardless of the intent for monetization of the project asset.

It seems likely that the industry will slow down over the next several months as projects come to grips with the recent decisions by regulators in the US, China, and many other countries to rein in the excesses and scams that make this segment look like Florida land investment schemes from the 1920s or silver mines in the 1880s.

Our own project, StreamSpace, features two blockchains. StreamShares are the currency used for transactions on the network. They are a currency for which we are planning an ICO, launching October 23rd, 2017. The other blockchain, called SpaceCredits, rewards contributors to the cloud storage network. These tokens will be issued and mined, but there will not be a financial event where the project attempts to raise money to support this aspect of the network. Still, we would consider these to be currencies as well, and it is possible that the coins could be traded for other currencies through one or more exchanges.

The blockchain industry is evolving rapidly, and there will be new ideas and business models that may change the conventional industry structure assumptions within another year or two. The Waves platform has opened up distributed blockchain applications to thousands of project teams that would never have considered launching their own coins or tokens in the past. And hundreds of large technology companies are experimenting with blockchain development projects under Ethereum and other protocols; these will be centralized applications under the control of the parent tech company, with the tokens acting as tools to support the application rather than as funding mechanisms in their own right.

References:

Downes, Brant, Smith + Crown. “Trends in Token Sale Proposals,” https://www.smithandcrown.com/trends-token-sale-proposals/. Published September 8, 2017. Accessed September 11, 2017.

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Business Risk and Cryptocurrencies

Sep 11, 2017 1:35:56 PM / by Robert Binning posted in ICO, Ethereum, Bitcoin, Cryptocurrency, Uncategorized, Blockchain

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One of the questions people ask about our blockchain project is “Why are you building your small company using blockchain? Isn’t it risky?” That got me thinking about different dimensions of business risk and the behaviors we have adopted to address these risks.

Platform risk:

The ERC20 standard interface has been around for just 20 months and is the basis for more than 100 currencies, including 81% of the top 100 value asset tokens (i.e., not currencies, like bitcoin). That is an amazingly rapid penetration for a new technology, showing the power of this standard in enabling distributed applications (“dapps”). There are a few usage areas that still need to be addressed, such as transferring tokens to a token’s contract, and there are likely some scale efficiencies that will need to be addressed as the smart contract databases grow over time. All standards evolve over time, and eventually someone will come up with a scheme that works better, faster, or more efficiently. There are challenges associated with blockchain overhead compared with traditional centralized databases, but these issues are well recognized and are being addressed by many development teams.

Asset market risk:

One of the interesting characteristics of tokens is that they nearly all become traded commodities on one or more public exchanges within a week or two after an Initial Coin Offering (ICO). The market for most tokens fluctuates with the main cryptocurrencies, Bitcoin and Ethereum, which make up 2/3 of the total capitalization of all cryptocurrencies. The Bitcoin, Ethereum, and Litecoin volatility indices tend to fluctuate between 4–8%, or 3–7X the price volatility of gold (1.2%). As a comparison, most major fiat currencies have volatility indices of 0.5–1%. Since most tokens are traded much less frequently than bitcoin, the volatility index for tokens will be even higher. Financial planners usually recommend that a high net worth individual might place between 1–5% of assets in more volatile investments, but I have never met a corporate investment manager who ever recommended holding company liquid assets in anything riskier than money market funds. Corporate venture funds are treated differently, but they too are limited to a tiny fraction of overall assets. My answer here is to limit the amount of bitcoin or Ether retained by the company to just the volume needed to deal with suppliers and customers that engage with those currencies, about 1–2 weeks of “coin flow.” That way, no hedge is necessary against the inherent volatility of cryptocurrencies.

Black hat risk:

Cryptocurrency ICOs are a magnet for hackers and thieves. There are dozens of examples of token offerings that have been hijacked, with some agent replacing the official ICO website with one that appears genuine but with a token address that points somewhere else, defrauding the investors. Other cases involve theft from a company’s wallet during the sale period, draining funds from the newly funded project. It is now common for the principals of new companies to change all of their passwords to protect identities, because personal identity is often a weak point in a small company’s security profile. All you can do is to be extraordinarily diligent and aware.

Development schedule risk:

There is nothing fundamentally different about software development on the blockchain versus any other platform architecture. New innovation development is always extremely risky, with many false paths that need exploring until the chief architect is satisfied that the plan of record can be accomplished. Yes, there is a dearth of skilled developers, and we face manpower shortages on almost all of our development projects, but almost all highly innovative small companies are in the same boat. All a good leader can do is to set a vision that attracts and retains the top talent and make sure the culture celebrates and rewards creative advances and getting the job done.

Market risk:

To date, it seems that half of the blockchain projects address fintech applications, competing with traditional financial clearinghouses with a distributed peer-to-peer model by using cryptographic trust factors instead of relying on the reputation of the central entity in today’s typical corporate business model. The other half include a large number of projects that aim to use this distributed marketplace model to serve a huge range of potential marketplaces, including the Internet of Things (IOTA), patient electronic health records (Patientory), personal genome data (Encrypgen), and cloud storage (Sia and Storj). It is easy to see the direct financial advantages associated with a fintech transaction on the blockchain, with visibly faster transaction turnaround times and lower fees associated with the transaction. Very few of the non-financial applications have achieved traction with real customers, but as mentioned above, this industry is less than two years old, and it takes time to find and close sales with the early adopter segments.

Regulatory risk:

In late July, the US Securities and Exchange Commission issued a ruling that suggested they would take an active role in evaluating larger ICOs, over $1 million, since many appeared to have characteristics of private securities. This has forced several projects to delay their offerings and scramble to ensure they comply with US law, and it has forced many projects to stay away from US investors; almost one third of all current ICOs listed by Smith & Crown do not allow US residents to invest. This is a challenge for blockchain companies, but has made very little impact on the pace of new token offerings.

All of these challenges are things that we in the blockchain industry have accepted as part of the cost of doing business in this exciting industry. There is so much potential to disrupt today’s accepted industry value chains, applying a new decentralized business model against traditional “winner take all” centralized profit pools. We see the opportunity to dramatically expand hundreds of markets and change today’s accepted business rules. This is Schumpeterian activity at its greatest, and I am excited to play a part in making it all happen.

Photo by Tony Webster on Unsplash

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In Search of Eyeballs

Aug 4, 2017 9:59:16 AM / by Robert Binning posted in Filmmaking, ICO, Film, Cryptocurrency, Uncategorized, Social Media Marketing

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When a tree falls in the forest and no one is around, does it still make a sound?

If a filmmaker creates a work of art and no one sees it, is it still a work of art?

The performing arts are different from other forms of art, in that they are experiential — what makes them works of art are the feelings they leave with the viewers, whether those feelings involve peacefulness, anger, fear, relief, or awe. There is always something that the filmmaker is trying to convey to the audience. Otherwise, why spend thousands of dollars (or hundreds of thousands), when you could just sit down at your computer and type a short message on Facebook or Twitter?

Unfortunately, more than half of all film projects are never viewed by anyone other than the team that made the movie. For this, we can blame the studio distribution industry structure, whereby only a few hundred films each year go through the staged release process from theater to TV broadcast to DVD and digital release. Thousands of films are posted on the major digital content distribution portals, often for a year or some other limited period of time, but without any way to make it into someone’s recommendation algorithm, they do not attract significant numbers of viewers. And thousands more don’t even make it that far.

StreamSpace is designing a new platform for filmmakers to self-publish their work, with a creative social media set of channels so the filmmaker can promote his work broadly. Unlike Netflix or Amazon, filmmakers control their own destiny, and StreamSpace acts as a networking facilitator to attract viewers and other filmmakers with similar styles and followers.

StreamSpace does not set the price for viewing or “owning” a license for perpetual viewing of the content; the filmmaker sets his own price list. And unlike the major centralized digital content publishers who have minimum thresholds for payout and commission levels of up to 30%, StreamSpace has no minimum threshold and charges less than 10% commission on each transaction through its marketplace.

StreamSpace plans to launch its Initial Coin Offering (ICO) in late August of 2017, with a target launch date of 1Q18 for its commercial platform service. Filmmakers will see all of the following elements in this novel platform:

  • A secure wallet to store the payments associated with every viewer transaction, along with an immutable record of transactions associated with each film project
  • Metadata and similarity scores that help drive the viewer recommendation engines, but also can help the filmmaker network with peers about current and future projects. The metadata will also be shared with Amazon’s IMDB project to help boost awareness of the film.
  • Secure distributed storage of the content itself. The StreamSpace patented method for storage using blockchain technologies allows the filmmaker to be confident in the integrity of the content itself and to control his ability to delete the content if so chooses.
  • A social network tool that helps filmmakers publish channels for their projects on all of the major social media platforms, including Facebook, Twitter, Instagram, Snapchat, and Reddit. We offer design tools that make it easy for a filmmaker to self-promote, using still shots and trailer videos, audience reviews, and rating scores.

As a filmmaker, you know that the most important part of making a movie is making an impact of the daily lives of your audience. StreamSpace helps you reach your potential audience and build the social buzz to turn your film project into a success.

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The Filmmaker’s Dilemma

Jul 28, 2017 2:38:04 PM / by Robert Binning posted in Filmmaking, ICO, Film, Cryptocurrency, Uncategorized, Blockchain

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The Filmmaker’s Dilemma

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