#3 - A Sober View on Crypto

A Sober View on Crypto - Adam Ludwin, the founder and CEO of Chain, and Patrick O’Shaughnessy, Invest Like the Best | @untethered.email

Must [Fun] Watch this week:

Cryptocurrencies: Last Week Tonight with John Oliver”, well researched Show - the Good, the Bad, and the Ugly on Cryptocurrencies.

Cryptocurrencies: Everything you don't understand about money combined with everything you don't understand about computers - John Oliver

#Bitcoin #Blockchain #ICO #HODL # FUD #FOMO #MOON #REKT #LAMBO #HODLGANG #Dogecoin #EOS #Bitconnect #Ponzi


In this edition, let’s try to exercise the ability to hold two opposed ideas in mind at the same time and still retain the ability to function. - F. Scott Fitzgerald. Holding your own beliefs, as well as be skeptical about what is happening in the ecosystem.

Blockchain technology is not the answer to all problems, but rather a tool like many others that should be applied where relevant. - Adam Ludwin

TL; DL (Too Long; Didn't Listen)

“In order to retain a decentralized model, you should manage your own private keys. If you stick it with an online wallet or exchange, it’s actually back to a centralized method

The winner’s curse - If you are lucky enough to raise significant amount of funds via ICO, you’ll feel great for a short period of time. When there are market correction(s), people who invested in your ICO will act like an angry mob on you and may lead to lawsuits.”

The harsh reality is tokens’ market are the people who wants to get rich quick and the product is the way to potentially get rich quick.”

Hard to justify when it feels like most of these new tokens are created by teams who are trying to justify a need for one in an effort to just raise capital that is neither equity or debt”

“Even though there are no killer Dapps (Decentralized Apps), if one emerges, Facebook wont be able to it”

“I think a lot of the gold bug mentality and the anti state mentality carries over and is prominent within the Bitcoin community”

Power v.s. Accountability - “If you want to spend bitcoin and remain in a decentralized mode, you’ve got to maintain your own private keys and it’s really hard to do

Fintech in the pre-crypto era is like a thin layer of new UI (user interface) that built on the same underlying banking and technology stack and infrastructure.

Confidential computing where the data is encrypted in a way where they can still do computational work over data without even seeing it.


Insights:

Use cryptocurrency in the real world at a large scale?

  • So far, the evidence is that very few are using cryptocurrencies.

  • People are investing & speculating, but they are not spending it to purchase something.

  • The purpose of Bitcoin is to have commerce on the internet with more seamless experience.

Decentralized apps

  • There are different issues with decentralized apps:

    • Decentralized applications are worse by virtue of their design than their centralized counterparts

    • Scalability issues

    • Usability issues

  • In order to retain a decentralized model with Bitcoin, you should manage your own private keys. If you stick it with an online wallet or exchange, it’s back to a centralized method e.g. Paypal.

Why decentralized apps can’t be acquired

  • Decentralized apps can’t be acquired because by definition it’s not created by an acquirable company

Limits to the growth of decentralized technologies

  • The greatest challenge for decentralized applications is that they’re decentralized.

  • Bitcoin works because it maintains global shared state meaning every node in the network has a roughly consistent view with every other updated every 10 minutes with every new block.

  • We just can’t see yet the breakthroughs that will enable these network to decimate the competition and that’s possible.

Struggle with early adoption of blockchain

  • At the beginning of another paradigm shifting technologies like internet, people were not making the “you can’t see it yet” argument.

Fintech and tech Stack

  • A friend of Adam who runs an information security firm sent him Bitcoin’s white paper in 2011 and he was a venture capitalist at a firm that invests a lot in fintech like Venmo, Braintree, etc.

  • After reading the whitepaper, it struck him because there’s nothing like it before in fintech.

  • Fintech in the pre-crypto era was like everything on the top of the existing stack. Fintech is like a thin layer of new UI (user interface), that built on the same underlying banking and technology infrastructure

  • He started meeting companies like Coinbase and ultimately decided to be more involved in the space leading to the creation of Chain. 

Reasons for not investing in ICOs:

  • Red Flag: A lot of ICOs are trying to shoehorn a token into a normal company

  • Decentralized applications are worse by virtue of their design than their centralized counterparts

  • The ICO is NOT usually the “initial offering” anymore. There are often several rounds that happen before ICO. When you buy into an ICO, oftentimes you don’t even own the token yet

  • It’s hard to justify when most of these new tokens are created by teams who are justifying the need for one in an effort to just raise capital that is neither equity nor debt

  • It doesn’t have the traditional startup type of “Product-Market Fit” which is people actually want to use the coin for their stated purpose.

  • The harsh reality is tokens’ market are the people who wants to get rich quick and the product is the way to potentially get rich quick.

Why you shouldn’t just create an ICO?

  • The winner’s curse - If you are lucky enough to raise significant amount of funds via ICO, you’ll feel great for a short period of time. When there are market correction(s) , people who invested in your ICO will act like an angry mob on you and may lead to lawsuits.

  • You should only do an ICO if you are trying to create a decentralized application that needs one.

On Chain

  • Chain has products that are essentially modern ledger software for tracking and managing financial instruments inside traditional financial applications.

  • They have ledgers for different use cases in the world. The breakthroughs that are coming out of Bitcoin & Cryptoasset world on how to create a secure authenticated logs of transactions are very applicable to financial infrastructures that sits within a financial institution.

Cloud, Ledger and Sequence

  • A lot of Chain’s customers are fintech companies that are already using the cloud for basically everything and wants to run their ledger in the cloud as well.

  • The challenge is that the data in the ledger are the most sensitive data you’ll have in the organization.

  • Chain offers a ledger in a cloud called ‘Sequence’. They can take the burden of managing the ledger without also taking the control to transact resulting to cost savings and efficiency. More about Sequence.

  • Sequence can also do confidential computing where the data is encrypted in a way where they can still do computational work over data without even seeing it.

Be an early investor in cryptocurrency

  • The interesting thing about crypto assets is it’s leapfrogging all traditional capital market infrastructure and processes.

  • The institutional investors are now the last in investing instead.

Link to the Episode: