Mergers, mining, token analysis and a regulation update — the March briefingMarch 2018
Spring is here with its lovely blooms and green. The charts seem to have reflected the same. Bitcoin’s price surged from a low of $5.8k to over $11k at the time of writing this. The past quarter may have been a scary one for those that purchased the top in December, but it seems like the ecosystem has been maturing steadily. Keeping price action aside, the month witnessed one of the largest exchanges in the ecosystem being acquired, regulators permitting employees to trade cryptocurrency and well, more enterprises coming through with a token launch. The month has had its share of regulatory “shake ups” but we believe, this will be an interesting contributor to the ecosystem producing more utility than speculation in the years to come.
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Mergers and acquisitions are the biggest indicator of a market maturing in time. They give much needed exit options for founders, liquidity events for investors to re-capitalize themselves and act as “entrepreneur porn” motivating a new generation of creators to build much needed tools for the ecosystem. February has been special for startups as we witnessed one of the most established altcoin exchanges being acquired by Circle. News has also emerged of a new breed of startups looking to legitimize the space and provide alternative means to transact. Between the 3 stories on start-ups, we believe we capture the excitement, passion and increasing levels of maturity the ecosystem has begun witnessing.
- Circle Acquires Poloniex
Over the month, news emerged that US-based bitcoin payments enabler Circle.com has acquired Poloniex for $400 million. The move brings much-needed legitimacy to the token exchange ecosystem and provides an exit option for one of the earliest financial infrastructure providers for altcoins. The acquisition may have come as a result of wanting to keep traditional startups such as Robinhood away from wooing away a large number of users. Given Circle’s banking relationships and regulatory positioning, an acquisition of Poloniex’s user base could lead to eventually acquiring a heavy amount of the market’s share. At close to half a billion dollars, this marks one of the largest exits in the token economy and may pave way for even more acquisitions in the year to come. As markets evolve, mergers become a requisite as firms face the need to join hands to continue holding large enough market share. Expect to see more wallet and exchange tie-ups, as customer-facing apps look to create a faster and easier ramp onto the token economy and get access to liquidity.
2. LoopX Pulls An Exit Scam
Another ICO has decided to go rogue with an exit scam. The project named Loop X had earlier promised investors returns from algorithmic trading. Their ICO had a five-phased rollout, none of which included a working product, a verifiable GitHub or in-depth explanations of how the algorithms functioned. The team was set to launch a “lending” component to the product this month. As patient investors waited for an update, all they were left with were wiped out digital footprints on social media platforms and a now-defunct website. The project’s ability to raise close to 5 million dollars on an empty promise of “returns” shows how vulnerable investors are in the current ecosystem. As was the case with snake oil and junk bonds, every ecosystem goes through a natural growth cycle. Part of that cycle is the “pain” involved in investors turning savvy and aware of the pitfalls involved in chasing quick gains.
3. Tangem Launches Token Based Notes
One could argue that a crucial component in the adoption of cryptocurrencies in a retail context would be the ability to settle payments in tangible notes. Although governments may soon move towards issuing currencies on blockchains, they may not be as decentralised, permission-less and public as existing cryptocurrencies. In such a scenario, creating tangible notes that can be relied upon for payments would make sense. That is precisely what a startup named tandem offers. Advances in chip developments in 2017 are being claimed to have made it possible to store digital assets in what would be something as thin as a traditional fiat note. These notes are then used to store digital assets such as Bitcoin.We are yet to verify how mass adoption of Tangem cards would occur, but the arrival of these chips and the ingenuity in the product leaves us hopeful of a future where digital assets would be changing hands as frequently as fiat notes in the most remote regions of the globe.
“All blockchain, everything” seems to be the motto an increasing number of companies have begun taking. February saw yet another gaming behemoth come forth with the idea of issuing tokens and reinventing its identity. We also witnessed one of Buffett’s companies embracing blockchains as a means to attain process efficiency. Interestingly enough, “innovation” does not stop at blockchains or tokens. The past month witnessed a major publishing house use in-browser mining as a means to create an alternate source of revenue. The approach in general is the same. Enterprises have embraced blockchains as something that is here to stay and have been tinkering with them to find new means to stay relevant and competitive.
1. Salon Tries Mining
Call it good old “hustle” if you may, but a renown publishing house has found an alternative approach towards monetizing. Salon now welcomes users with certain ad-blockers on with an option to either disable the ad blocker or give into allowing the website to use “unused” computing power towards mining cryptocurrency. The system they are using isCoinhive — a plugin that allows website owners to “use” their visitor’s computing power towards mining Monero. The project first came into prominence last year when The Pirate Bay enabled coinhive as an alternative means to monetize the torrents site. Although one appreciates the ingenuity of the publisher in finding a new way to monetize content, the approach is by no means “free” for the user. Users have reported instances of their computers overheating and increased electricity consumption owing to the miner running via their browser. Instead of paying Salon directly, they are now paying their utility provider indirectly and reading with an illusion of “free” content. The Group’s CEO, suggested that
“ Right now, this is a better than nothing strategy…but down the line, we will get there. We just need more information to build the product.”
It is interesting to see large publishing houses experiment with blockchain tech to find new ways to monetize. We only hope their MVP does not result in someone’s house catching fire. Also, perhaps they should look at what folks atSteemit and Yoursare doing.
2. Atari Launches A Token
Remember Atari? The creators of games like Pac-Man and Space Invaders? Well, it looks like they will soon be “invading” the blockchain ecosystem too. The company announced their interest in launching a token in a recent press release and saw its shares jump by up to 60 percent. Atari seems to be joining the likes of Kodak concerning finding relevance through keeping up with what’s in the trend. In 2016, Nintendo saw its shares jump by upwards of 200% around the launch of Pokemon Go. An AR based app that involved capturing fictional creatures in different locations. That was a fun experience, albeit user-counts on the app have since drastically diminished.
Atari has been trying some “innovations’ for a while. Some of which may have helped the company escape from debt and attain profitability. Most recently, the company launched a console with some classic games on it by the name of Atari box and set up a crowdfunding campaign for the same. Although gaming and the token economy have a lot to mutually benefit from each other, this simply seems like another enterprise cashing in on the boom in interest in the space. One wonders if it would serve gamingenterprise interests better to simply focus on shipping great games over launching tokens nobody wants. Grand Theft Auto, for instance, created revenues of over $2 billion for Rockstar Games.
3. BSNF Moves To Blockchains For Efficiency
BNSF Railway, which is owned by Buffett’s Berkshire Hathaway Inc., has said that it has joined the Blockchain in Transport Alliance, a group of over 200 freight and logistics companies exploring the use of distributed ledger technology (DLT) in their industry. The effort is still in its early stages, but with big players from every industry now adopting the technology, more players become attracted. Already, companies including United Parcel Service Inc., FedEx Corp., and Schneider National Inc. have joined the alliance, likely with more yet to join. BNSF has been the first of the major U.S. and Canada s onlrailroads to join the alliance (there are seven in total). The move is an interesting example of corporate entities taking the “blockchain, not cryptocurrency” route. By using a distributed ledger that is immutable and verifiable by every entity in the supply chain, companies would soon be able to save time and resources in terms of settling documents at places where shipments are offloaded. The question remains — would an evolutionary leap in how supply chains are handled result in value reaching the end user? Will we see more affordable pricing on shipments or will this only lead to higher profit margins for enterprises? One would think it is the latter considering Buffet’s portfolio company’s inclination towards focusing on business economics to increase their profitability.
Remember the “When an unstoppable force meets an immovable object” line from Batman? Well that’s what’s going on with blockchains and governments right now. It is becoming increasingly evident that the revolution is here, and it is here to stay. Governments around the globe have been finding means to protect the best interest of citizens whilst providing ample space for innovation. Finding the balance between the two can often be a tango between coming off as strict enough to dissuade the bad actors and flexible enough to encourage the good ones. Considering it took us over 5 centures to have a solid grasp on how existing fiat based systems work, it is only fair that we permit our “governing” brethren sufficient time to explore, experiment and come through with a framework that works in the best interest of the people going forward.
1. CFTC shows support For cryptocurrencies in USA
Chairman of the Commodity Futures Trading Commission (CFTC) J. Christopher Giancarlo presented a written testimony before the Senate Banking Committee. The document addressed cryptocurrency and distributed ledger regulation, and suggested Giancarlo’s support for the technology:
“Virtual currencies mark a paradigm shift in how we think about payments, traditional financial processes, and engaging in economic activity. Ignoring these developments will not make them go away, nor is it a responsible regulatory response.”
Giancarlo’s suggestion of a ‘do no harm’ approach towards cryptocurrencies echoes the sentiment of SEC chairman Jay Clayton, who said in his own written testimony:
“I believe that initial coin offerings — whether they represent offerings of securities or not — can be effective ways for entrepreneurs and others to raise funding, including for innovative projects.”
While neither the SEC nor CFTC are officially on board yet, this represents a positive outlook for America on the token space. If American regulators come to officially advocate the technology, it would encourage the formation of American technology clusters and innovation hubs. This could contribute towards accelerated innovation, and even see other countries seek to capitalize on the opportunity. Small, but important steps.
2. Israel proposes ban on trading shares of cryptocurrency companies
In case all those stocks skyrocketing on the mere mention of a blockchain has caught your attention, here’s more on it. Regulators in Tel Aviv, Israel may soon ban stocks involved in close association with cryptocurrencies and Bitcoin. It seems the regulators solely wish to contain small-cap companies that might exploit the recent hike in investor interest to see massive gains. The ban will not affect companies with equity of more than $29 million. The move may have been triggered by the sharp rise of the stocks of a local company that declared it would move from mining gold to mining Bitcoin. Interesting considering the number of people that strongly believe Bitcoin is digital gold. Given the incredible rise stocks routinely see on the mention of a blockchain, it is only fair that regulators turn anxious and take precautionary steps. For now, we wait and watch what Israel Securities Authority finally decides upon.
3. China is the leading country for blockchain patents with Alibaba and PBOC on top
A recent report (Chinese) shows that 49 of the top 100 companies of blockchain patenting worldwide are Chinese. This places China as the leading country for corporate blockchain patents, while America comes second with 23. The report demonstrates how many of the top companies have shot to the top, with Alibaba, for example, filing 43 of 49 patents in 2017. With blockchain accelerators being propped up by market leaders, this trend is likely to continue. This report comes alongside recent intellectual property filings which demonstrate similar enthusiasm among top-tier Chinese Universities. The new data published by the China State Intellectual Property Office (SIPO) highlights the efforts by institutions such as Zhejiang University, Shenzhen University and Chinese Academy of Sciences to obtain blockchain-related patents. With most patents being filed since 2017, the collective picture demonstrates China’s strive to leap ahead of the world as the leader in blockchain technologies. Companies are already working to introduce AI into Chinese classrooms. If the rest of the world doesn’t want to fall behind, they’d better get a move on: Developers! Developers! Developers!
Last bits on the monthly brief. Handpicked bits of awesomeness from thought leaders in the space on the state of the industry, its future and key
1. A personal look at the early days of Internet vs blockchain today
It hasn’t been long since the web came into being and saw massive consumer adoption. Many of the millennials that are active in the token economy now were probably toddlers back then. However, a lucky few have had the fine fortune of being proactively involved in the early days of the web. Although we see many comparisons of the “dot-com bubble” with the current token frenzy, it is rare we get an insider’s view on the similarities between patterns in consumer adoption of the internet and that of the token economy. Pelle Braendgaard, engineering lead at uPort recently penned his thoughts on how the ecosystem would evolve in the years to come, and its strong resemblance to what he noticed during the early days of the web. Drawing a strong parallel to existing interest in hyping up token prices with the most absurd of news:
“You could easily say that the primary business model of the Internet industry from 1995 to 2000 was IPO’ing and raising stock price through press releases about partnerships with other internet startups.”
However, the hype did not only lead to an increase in wealth for the fortunate few that managed to cash their stocks. It also gave birth to current day behemoths such as Google and Amazon. What truly mattered was a team’s ability to stay genuinely focused on their vision and the willingness to execute upon plans. The piece gives excellent detail on the author’s experiences in the pre-2000 era and draws parallels to what he witnessed in 2013. History rhymes and this piece might just be a cheat sheet as to what we will see in the next 2 years.
Token distribution models are perhaps one of the most argued upon aspects of the ecosystem currently. With an increasing number of ICOs giving “sweet deals” to a handful of early investors regarding great discounts in their pre-sale, it has become necessary to reconsider how individuals obtain tokens. A new model by Simon Rouviere suggests the possibility of curved token bondings in curation markets. According to the article, the basic functioning of the system would involve:
“… a specific token (eg ETH), you can buy a new token (eg #projectToken) through a smart contract. The ETH is kept as deposit within the smart contract. It’s not disbursed to any particular person or team. The buy price is determined by the current supply of the new token (#projectToken). The buy price is hardcoded according to some algorithmic curve. At any point in time, someone can sell back their #projectToken into the communal pool and get out an appropriate reward that is set by a sell curve.
This would basically disincentivize individuals looking to make a “quick flip” on a token sale and encourage individuals to hold tokens for longer. The challenge lies in finding a balance between the “hodl” hypothesis and the model suggested. In a hodl economy, supply is effectively reduced leading the price of the token to increase as adoption surges. In the model suggested it is primarily individuals that add value to the network that has an incentive to hodl. Ocean (an Outlier investment) follows a similar model. Individuals staking tokens towards data sets they serve in the network earn more rewards. An interesting read for those intrigued by token economics. Read it here