Breaking down walls and building bridges: How blockchain could solve the personal finance jigsaw


Consumers have never had so many options when it comes to personal finance. Think back only five years ago and not even Monzo was on the scene. Instead, when it came to where to store your money or where to get credit, you had the choice of either a big bank or...well... another big bank. 

Like many of us, I often need a coffee to start my day. You head out onto the high street to get that caffeine hit and you have a massive choice. Independents offering an exciting blends and roasts. The big chains like Starbucks and Costa. Some offer amazing cakes.  Some offer a place to sit and socialise. Others are just holes in the wall where you can grab a coffee to go. Whatever you want from your coffee house, there are options. On a Monday you might need a quick takeaway before a meeting, on Sunday you can relax and maybe have some lunch so you go somewhere else. Different purpose, different place. 

The same principle applies when it comes to the current banking world. People go to different providers depending on what they need.

Broken Chain

On the surface of it, this sounds all well and good. Consumer choice is surely always a positive thing, and a healthy dose of competition prevents monopolies from forming. However, unfortunately our financial lives are much more complex than our morning coffee choices, and the problem is that the systems in place in our financial landscape currently simply don’t allow consumers to fully maximise the options available to them. 

You might have a savings account with one financial institution for its excellent interest rate, and then a challenger card provider (a Starling or a Monzo) for its online banking offering. And what about your credit card? That’s with a third competitor because they had a better deal. Before you know it you have a personal finance patchwork quilt, necessitating a huge amount of frustrating and time consuming administration should you wish to transfer funds between accounts (and don’t even get me started on the hassle if one of those accounts happens to be abroad!).

The reason for this is that each financial institution is walling itself off in the name of competition, meaning that there is no fluidity or flexibility between banks that would actually help the consumer. Instead of building walls, the financial world needs to be building bridges, offering its own expertise to entice customers, but being willing to work with competitors so that customers can seamlessly access another institution’s expertise in another area. And at the very centre of this brave new world being built sits blockchain technology.

Building Bridges

 I’ve talked about the role of blockchain in a world of ‘inhuman economics’ in previous blogs and how its decentralised, open and apolitical nature means it is the critical financial piece that is missing from current systems. It doesn’t care about profits or have a need to protect itself behind walls. As humans with profit-seeking motives we naturally create silos where to gain access, you need to go through a gatekeeper. But with blockchain we can form digital bridges. Digital bridges that traverse across needless emotions, conflicting motives and unnecessary frictions. By taking away the human element, and the complexities that come with human interference, it will make our choices easier.

Bringing blockchain bridges into the personal finance world would mean a platform to assist consumers to operate their financial lives more seamlessly. Imagine a world where you could move your savings or debts around, depending on which provider is offering the best rates that day. A world where anyone can access any investment opportunities, with no restrictions. A world where you can have multiple pots of capital, scattered and easily access them in one, centralised way. No paperwork, no waiting periods, no payments to yourself. No more limitations.

And all done with a swipe of your phone while having that morning coffee, be it from Starbucks or that new craft coffee house you’ve been meaning to try. Who knows, maybe it accepts bitcoin – but that’s a discussion for another day.

July 2019

Europeans keeping the faith in cryptocurrency - but now it’s all about education

Photo by  Thought Catalog

Barely a day goes by without some sort of debate in the press around cryptocurrency’s capability for longevity. Is it a bubble overdue a burst? Are falling coin prices heralding the end? Alternatively, is it a future mainstream technology simply going through the traditional stages of a hype cycle? Is it the future saviour of the financial health of the developing world?

The theories are endless, but when it comes to what the population of Europe think, the results are in. Research into consumer confidence in cryptocurrencies that we have commissioned at bitFlyer has revealed that two-thirds (or 63% if you would prefer) of Europeans across ten countries believe that cryptocurrency will still exist in ten years time.

This study of 10,000 people across Europe reveals that, in fact, more than half of the population of every single one of the ten countries included in the research believe that cryptocurrencies will stick around for the next decade. In Norway, an overwhelming majority of 73% believe this to be the case, whilst over half (55%) of the population of the country with the least confidence, France, still express belief in the lasting power of the virtual coin.

The results of the study demonstrate a welcome backing of the robustness of the concept of cryptocurrency, but nonetheless demonstrate that more education around use cases for the technology is needed. Whilst respondents were, in the majority, confident that cryptocurrency will still exist in 2029, when asked about how, for example, bitcoin will be used in the future, the results demonstrated a high level of uncertainty.

Almost 1 in 10 (8%) Europeans believe bitcoin will be fully ingrained into society as a form of currency in 10 years’ time, whilst 7% believe it will be used as a security or investment. According to the research, men are more optimistic than women with regards to the capability of bitcoin to become a fully fledged additional form of currency; 9% versus just 6% of women.

Geographically, Poland and Italy top the countries who believe bitcoin could become a form of currency with 10% of both countries believing this. The UK on the other hand sits at the bottom of this ranking, with just 6% believing in bitcoin becoming a form of currency in the future.

So what does this all say about where we stand as a cryptocurrency industry? At bitFlyer we believe that the results indicate that the reputation of virtual currency has moved beyond the hype and has become more established. It’s easy to forget just how young the concept of a ‘cryptocurrency’ is; we’ve only just this year celebrated bitcoin’s 10th birthday, so for the majority of consumers to believe in the future of the technology is a significant achievement.

It’s also smart. Without a crystal ball, perhaps we can’t see exactly how cryptocurrency will be used in 2030, 2040 or 2050, but having confidence in the concept shows how insightful the population of Europe is when it comes to tech. When Amazon launched to sell books in 1994 and subsequently lost 90% of its stock value in 1999 there were many people who took the opportunity to buy shares at rock bottom prices. Even these people may not have predicted that Amazon would become an ecommerce behemoth valued (however briefly) at $1 trillion, but their faith in the concept seriously paid off.

The next step for the crypto industry is to continue to inspire faith in the virtual currency concept by better promoting the benefits of and use cases for cryptocurrencies to consumers through education, education, education. Indeed this may need to start from a mainstream perspective by explaining what is really meant by ‘bitcoin’ or any other virtual currency. Only by demonstrating how cryptocurrencies can and will be used in mainstream society and providing a tangible vision for the future can we hope to maintain and increase the number of Europeans keeping the faith in crypto.

April 2019

InHuman Economics Part 1: Finance's Inflection Point

Andy Bryant, March 2019


The future economy will be barely recognisable to humans. Investment and economic decision-making, far from being under our control, will be so advanced in sophistication that human minds will be relegated to mere passengers in a cambrian explosion of novel, automated methods and financial forces. It will be difficult to even grasp the rules of the game. And behind everything, driving a paradigm shift unmatched in its breathtaking speed, will be legions of autonomous programs; evolving, transacting and traversing across a universe of Blockchains.

Reality Check…

Ok, so back down to earth for a second. That’s very different to what the economy looks like now. While today’s user interfaces are certainly improving, investing and transacting is still a very human and manual system. It still takes the same length of time to open a bank account as it did a century ago, and I still make some payments today that would arrive faster if I delivered a bag of cash by horseback. Nothing really happens without real people making instructions, checking instructions, approving and processing instructions, and then waiting...

In this context, my above vision of an unrecognisable automated economy seems a long way off, but I think it’s closer than most believe. Exponential take-off is often hard to spot in the moment, even if we’ve seen it happen before..

Information Explosion

According to a Cisco study, the collective sum of the world’s data will grow from 33 zettabytes in 2018 to 175 ZB by 2025. If a full, 4-drawer filing cabinet contains about 1 gigabyte of text data, that’s the equivalent today of these filing cabinets springing into existence at the same rate that espresso cups of water go over the Niagra falls. At this rate, it would take just under 2 minutes for fresh data to exceed ALL of the data that existed in the world of 1986.

One filing cabinet filled as each espresso cup of water falls

One filing cabinet filled as each espresso cup of water falls

We all know what’s changed between 1986 and today to cause the explosion of this information economy. The decentralised Internet has allowed the creation, sharing, and publishing of data and content to proliferate exponentially, without the need for centralised publisher’s approval or printing equipment. Further, beyond blogs and cat videos, an ever-increasing amount of this information is now procedurally-generated, never to be seen by human eyes but instead the prized resource for an impalpable network of algorithms and APIs emerging from the hyper-connected fabric of cyberspace. IT innovation races on, constrained only by the imagination of the architect, be it man or machine.

Back To Bankers

So if the internet is a compelling example of how decentralisation liberated and supercharged the information economy, the financial economy, by contrast, looks positively primordial.

So why haven’t we seen the same with finance?

The traditional financial system is still just like the state of information before the internet. It is centralised, and a top-down system. In top-down systems, objectives start at a  high level, and increase in complexity as that objective is broken down into smaller more manageable units. Most states, corporations, and other man-made systems are organised in this way. They’re easier for us to manage, understand and regulate, but the problem is that the scope and potential of such systems are constrained by early decisions made with limited information. Chance innovation and serendipity are less likely to occur. Actual end user feedback takes time to travel back up to the decision makers. Goals are inflexible and unresponsive to changing conditions.

Most importantly though, top-down systems naturally create silo effects. Everything is partitioned and guarded. Bankers compete with their own colleagues for bigger bonuses. Managers zealously guard their resources and reach to hit their targets even if they no longer make sense. There is little incentive to collaborate, spend time on cultivating new ideas, or spend money on connecting or automating legacy infrastructure. Walls are everywhere in the financial system, between companies but also within them. Little wonder then that in today’s financial system most things work pretty much like they did a century ago. Humans still rule, and even early efforts in algorithmic automation (e.g. trading strategies) are confined to specific sectors and shrouded in secrecy. In finance, then, people generally have got used to meaningful global innovations like ATMs or credit cards taking decades to emerge, and as a result are completely unaware of the impending explosion of exponential change that’s about to occur.

Blockchain’s Dehumanising Detonation

Changes to the status quo that require some painful reversal before moving forward in a new direction don’t happen naturally, and rarely from the top down. It’s why societies undergo revolutions, incumbent companies undergo break-ups, and financial services are still bloated with rent-seeking humans extracting value and building walls. I don’t blame the bankers or rent-seekers; it’s perfectly rational human behaviour given this existing system. But those walls are about to come down.

Blockchain is not a top down system. It doesn’t care about profits. It doesn’t need walls to protect itself. It doesn’t even really need people to work. It is decentralised, open, and apolitical. Essentially, it’s that critical financial piece we were missing; achieving for digital scarcity what the Internet achieved for digital abundance, and allowing for the transfer of value across an untrusted medium without the need for humanised financial silos. Together, these will merge to form a substrate for the emergence of a whole new economy. It will be a fully programmatic economy, compatible with automation, an economy dehumanised by A.I. . Without walls, human gatekeepers will become unnecessary. Machines will transact directly with machines. Data and predictions will be tradable assets. Economic development will be uninhibited by boardrooms or biology. And without these limitations, progress towards dehumanisation of the economy will be a detonation comparable to the Information Explosion that started in the late 20th century. The game will change, InHuman Economics will emerge, and our human needs will increasingly be only a minor parameter in the unfathomable system that emerges. Best we stick up for ourselves...

Connectors and Compounders

In this series I will try to unpack how I see this transformation unfolding. While it’s impossible to predict the exact sequence of developments, I can generally see innovations falling into two categories or dimensions, which I shall call Connectors and Compounders. Connectors will refer to ‘horizontal’ developments that level the playing field; breaking down walls and silos, bridging gaps, increasing velocity and collaboration through connectivity and interoperability. Compounders will refer to ‘vertical’ developments or layers that leverage Connectors to make impossible things possible; brand new capabilities that emerge from this substrate, enabled by the decentralised and inhuman properties of the system.

Through these Connectors and Compounders effects, I expect the pace of change towards a dehumanised economy to be rapid and unexpected. Things are already happening, and while most people focus on crypto prices the foundations of the InHuman economy are being laid.

March 2019

Yield of dreams: Why proof-of-stake could drive the next big wave in crypto investing


Rollercoaster memes aside, lets face it; bitcoins value methodology is still a black box. I’m not saying that there’s a question that bitcoin has value - of this there is no doubt in my mind. The question of course is what is this value? What should it be now? Is it undervalued or overvalued?

Although it occasionally experiences what some might call ‘price stability’, it’s clear to any observer that the price of bitcoin and other cryptocurrencies fluctuate. A lot. Comparing against any other asset class against any reasonable time frame shows a price volatility that stands out.


Now, the pundits wax lyrical about what currently drives crypto prices. Examples abound of all sorts of chart wizardry and/or novel fundamentals analysis involving new-fangled metrics around network stats and mining economics. I’m sure to some (limited) extent, these methods to establish value can be useful. But remembering how even a broken clock is right twice a day, I’m still skeptical that any of these valuation methods have proven to be consistently correct, even if sometimes they appear to be. 

Let’s be honest with ourselves; any asset that is subject to multiple 100’s (or 1,000’s) of percentage points gains, followed by a 50-95% retracement in just the space of a few months, is clearly still undergoing price discovery. And i’m not just talking about the 2017-2018 bubble - this has happened several times now:

Cycle Start Base Peak Max. Gain Pull Back
Jun 2011 $0.95 $32 3,370% 94%
Jan 2012 $2 $7 250% 49%
Apr 2013 $13 $260 1,900% 83%
Nov 2013 $200 $1,242 521% 88%
Nov 2017 $750 $19,777 2,537% ???

It’s clear to me that these types of price movements are the fractal vacillations of a brand new asset class with the powder-keg combination of extremely high technological potential and little to no compatibility with existing mature valuation methodologies. As a result, as far as I have observed price action is dominated by the only applicable model: human fear and greed.

What else do we expect? There surely cannot be consensus on value when there isn’t even consensus yet on exactly what bitcoin (or other cryptocurrencies) actually is. Of course fear and greed becomes the default when nothing else we have fits this paradigm. Even the term ‘crypto-currency’ is a misnomer that 10 years after bitcoin’s launch still continues to constrain the mainstream financial press into assessing it as nothing more than an alternative / inferior currency. But who says bitcoin is competing with currencies? There are already several schools of thought on how to regard bitcoin as an asset class, with no consensus (ironically) as to which is most suitable. Consider these several common narratives :

  1. bitcoin is a currency. Its value arises from comparing its market cap against the M1 money supply of other fiat currencies / countries.

  2. bitcoin is a payment network.  Its value arises from comparing its transaction volume against other payment networks like Visa.  

  3. bitcoin is digital gold. It’s value arises from sharing the convenient monetary properties of gold (portability, divisibility, fungibility, store of value) without the inconvenient ones (storage, transportation).

  4. bitcoin is a capital-intensive utility. It’s value arises from the economic cost of securing the network through PoW mining.

  5. bitcoin is a protocol. It’s value arises from being the missing piece of the decentralised internet; introducing digital scarcity in a world of digital abundance.

So which is it? Some or all of the above? None of them? One of the underlying issues is that there doesn’t yet seem to exist a suitable model for most analysts or investors to benchmark bitcoin or other proof-of-work coins against existing asset classes. It’s just not compatible with their frameworks, and as a result I think we’ve seen hesitation for most big funds to allocate some of their portfolios to this (relatively) new asset class, as crypto largely remains excluded from modern portfolio theory.

But that could be about to change…

The importance of Yield

Yield in investing describes, in essence, the income that an asset produces. Yield is typically considered separately to the price increase (capital gain) which is another method of making a return. In stocks/equities, the yield comes in the form of a regular (we hope) dividend paid to shareholders. In real estate, the yield is the rent you can charge. The yield is the interest you can make on your cash deposits, or the coupon on your bonds.

The income you can receive on a financial asset is a very important part of establishing the its value. It is the assets income, as well as the the probability/risk of receiving this income, that underpins most investment decisions of today’s financial markets. Essentially it is the one common anchor that helps asset managers benchmark different assets against each other, and establish a preference for how much of each they want to own. Even cash fits into this framework, and investors who choose to ‘not-invest’ by preferring cash over other higher-yielding investments are making just as much of an active investment decision as the most ruthless Wall Street wolves.

Bankers and investors often use the income generated by an asset to establish it’s price:

Person A: “I’ve got a magic machine here that will print $10 per week, forever. Wanna buy it for $25k?”
Person B: “Sounds good! That same $25k in my 1.5% savings account only makes me a little over $7 per week”
Person A: “… Did I mention that the machine breaks down 30% of the time?”
Person B: “No Deal! Too risky…”
Person A: “Ok, ok. How about I give it to you for $20k”
Person B: “Deal.”

Ok so I glossed over some technicalities here like compound interest, but you get the idea. As you can see, yield allow investors to better understand how they will be compensated for taking on various levels of risk, and thereby benchmark different assets against each other. This is price discovery in action.

Mining rewards are not yield

Proof-of-Work (PoW) blockchains such as bitcoin are fascinating because they align self-serving interests with shared interests. The mining community, by participating in the race to to solve the block solutions and enrich themselves, also secure the network and provide consensus and authority over the “true” history of transactions. Miners also receive demand-side rewards in the form of discretionary transaction fees.

But even though this is a financial return / income for miners, this is not the same thing as yield. For in the case of yield, investment returns should flow to the holder of the asset whereas mining rewards are essentially a return on the capital equipment used to provide the mining work. As such mining rewards are ‘earned’ exclusively these days by the owners of specialised facilities with millions of dollars of equipment. Gold investors know the difference between buying bullion and buying shares in gold miners, and while those mining shares might pay a dividend yield, it is not a yield being earned on the gold itself.

Gold, like bitcoin, doesn't earn a yield either (a common criticism of gold as an investment asset). This is probably why gold is frequently lumped together with other industrial ‘commodities’, even though industrial commodities (like iron or grain) have completely different valuation proposition: generally as inputs to value-adding processes, while gold for 6,000 years has been very differently regarded as a safe-haven, or store of value, or hedge against inflation. Gold is (mostly) a financial asset and doesn’t have (real) intrinsic value like industrial commodities, and yet is categorised in the same way - Why? Because it can’t be easily benchmarked against typical, yield-producing, financial assets such as bonds or equities. This I believe is the same problem suffered by bitcoin and other proof-of-work cryptocurrencies, and, given they don’t enjoy the 6,000 year history of gold valuation, why price discovery in crypto is still fraught with volatility as bulls battle bears in a relentless, algo-pumped, social-media amped, primal Battle Royale between greed and fear.

Staking is yield for crypto

People of course still invest in bitcoin and all of the other Proof-of-Work coins because of their expectation of price increases and capital gains. Same goes for fine art, vintage cars, unoccupied properties and so forth. But the types of investors who look for yield have largely had no palatable investment options in the crypto sphere.

That is, until now.

While Nakamoto-consensus and the Proof-of-work paradigm is responsible for kicking off the crypto currency industry, there are other alternatives for securing and maintaining blockchain integrity. The most popular alternative mechanism you may have heard of is called Proof-of-Stake (PoS). As I mentioned in my earlier post 5 Blockchain Industry Predictions for 2019 :

Unlike PoW chains (such as bitcoin), where these days mining rewards are exclusively the purview of specialised facilities… with PoS chains rewards become obtainable to anyone and everyone who owns coins. In such a scheme, the average Joe need only offer up his coins as a sort of collateral, and they can participate in the verification process needed to add new blocks to the chain. In this way, they can receive fresh new tokens as a ‘reward for being honest’, and they can do this while remaining in full possession of their funds; they don’t need to lend them elsewhere. In turn they can earn compounding interest.

We have our yield!

In this model, income flows to the holder of the asset and not to the owner of expensive mining equipment. So we have a form of crypto asset investment that is compatible with the existing mindset and methods of typical investors in financial assets. One caveat is that the yield itself is denominated in crypto, not fiat. Depending on how you look at this, it could be either an unwanted source of volatility, or a huge plus if the yield you were earning was also subject to capital gains (as well as the principal) without prejudice. It would be similar to if owning Apple shares meant receiving a fixed dividend not in dollars but in more Apple shares, except that Apple was contractually obliged to pay the shares every time (i.e. not discretionary) and it paid the same number of shares each year regardless of their rising (of falling) share price.

While Proof of Stake is not a new concept, the first generation PoS blockchains encountered various flaws that were unexpected and difficult to remedy retroactively (inc. so-called ‘weak subjectivity’, ‘long range attacks’, or ‘zero opportunity cost’ problems). It is only recently that relatively large projects are emerging that are deploying it successfully. Projects such as Tezos (live since 2018 Q3), Cardano (coming 2019), and Decred are all examples of well-designed Proof of Stake systems. Even Ethereum, the second largest PoW blockchain (at time of writing) is soon planning to switch over to PoS when it launches the network upgrade known as Constantinople.


Cryptocurrency Market Capitalisation by Consensus Type (Top 25 Coins)


Cryptocurrency Market Capitalisation by Consensus Type (Top 25 Coins)


Staking rewards are a big deal. For most investors, whether retail or institutional, they will be the first taste of yield in the crypto domain. My expectation is that as people begin to understand and experience investment yield in crypto, this will spark a new wave of interest in Proof of Stake blockchains. The main beneficiaries will likely be the new generation of PoS projects that make it very easy for non-technical users to stake or delegate their funds. For many of these projects, the staking rewards are just a by-product of their consensus design, with the main mission being a whole new blockchain ecosystem enabling new types of smart contracts and capabilities. Nevertheless, with a design built around Proof of Stake, the holders of the token may be more likely to hold on to their coins (taming volatility), more incentivised to participate in consensus (boosting decentralisation) and reduce the need for PoW mining, which is more energy-intensive.

The big prize, however, will be to bring cryptocurrencies a step closer towards being accepted as a serious investment asset class. By going beyond capital speculation, bringing mathematically enforced, predictable yields with no counter party risk, investors and institutions will finally be able to start wrapping their heads around how to price crypto properly. That means more disciplined valuation, better risk models, disciplined investment, and a higher readiness by big funds to deploy capital into crypto as part of established diversification strategies. I would expect price discovery to strengthen and volatility to decrease, even though many investors will still expect capital gains in addition to yield (perhaps like in real estate). Crypto capital markets will start to take form.

In an era when most investors are starved of yield, I see no good argument for why crypto yield will be any less legitimate than income-investing in any traditional asset class. Indeed, some investors may even prefer to take the additional risk of price volatility in exchange for mathematically-guaranteed payouts. The notion of a 0% default rate could become a very interesting proposition indeed when the next cycle of government debt crises begin to emerge. In any case, crypto-yield is an important development and it seems clear to me that Proof-of-Stake blockchain assets will continue their march into the world of traditional financial investing.

February 2019

5 Blockchain Industry Predictions for 2019

Vertigo3d | Getty Images

Vertigo3d | Getty Images

I can highlight five main themes that I think will start to take hold this year.

  1. Securitizing tokens and tokenizing securities

  2. Institutional involvement in the cryptocurrency market

  3. The halo effect of industries being built around blockchain

  4. The future of stablecoins

  5. The rise of Proof of Stake

1. ‘Securitizing tokens and tokenizing securities’

While most people agree that the 2017 ICO boom was largely frothy exuberance and speculation (most ICO projects never delivered what they promised) one good result was that it catapulted blockchain-based tokens to the front of people’s minds and awareness. Fundamentally, the nature of token-based assets holds a lot of promise; with benefits including reduced complexity of transactions, improved settlement times, democratisation of venture-stage investing, and greater liquidity for early investors who aren’t locked into their decision for 5–10 years. But of course, regulators are never far behind and what we can expect now is a greater amount of scrutiny and regulation of this new fundraising mechanism, to help ensure that investors (particularly consumers) don’t get burnt.

A key part of this trend will be the increasing prevalence of security tokens. However, I believe there are two sides to this coin; the tokenisation of existing securities and the securitisation of tokens.

In the former (tokenising securities), we would expect to see an increasing willingness of institutions and issuers to take existing securities and ‘wrap them’ in a blockchain-based token. This allows them to access some of the benefits mentioned above, but also allows for new and interesting capabilities such as divisibility (fancy owning 1/1000th of a Picasso or Berkshire Hathaway Class A share?) or new access (e.g. private REITs which currently have multiple rules preventing most investors from being able to participate in them).

Meanwhile, for the newer and more cutting-edge blockchain projects, we will see increasing clarity from regulators as to what constitutes a so-called ‘security token’ and under which rules they should/will be regulated.

In general those that are speculative and purchased with the defined expectation of returns will be classified as security tokens, while those that simply allow access to a new network as a type of ‘fuel’ for that network will be classified as utility tokens (albeit probably still with speculative potential). I predict more exchanges will appear that are built from the ground up as explicit security-token exchanges, with all the regulatory measures and controls that will entail. I also expect many existing tokens to increasingly fall under the definition of securities, as well as new projects and tokens being created with adherence to these new definitions.

The legal ‘grey area’ in which many unlicensed exchanges are still happily (and profitably!) operating will continue to shrink.

2. Institutional involvement in the cryptocurrency market

There is already plenty of institutional interest in the market; a lot is happening in the OTC market behind the scenes, for example, and the day trading space is becoming increasingly automated by specialist hedge funds. Now that it’s clear that crypto is here to stay, we will increasingly see larger pools of money beginning to get involved. Whether pension funds or asset managers, endowments or family offices, in the future I expect the question will not be a matter of ‘who is’ investing in crypto, it will start to become a question of ‘who isn’t’ investing in crypto. While the risk-reward profile of bitcoin and other blue-chip cryptocurrencies remains asymmetric, I think it will increasingly become seen as irresponsible of a fiduciary or fund manager to not put at least 1–2% of allocation into this emerging asset class. The arrival of ever-more instruments such as futures, ETFs, Security Tokens, and even fixed-income crypto-securities will accelerate this trend.

3. The halo effect of industries being built around blockchain

Just as the protocols of the early internet (TCP/IP, SMTP, FTP) were the building blocks for a wide range of emergent applications and uses — ultimately the global internet phenomenon that we see today — so is blockchain forming the building blocks for the next revolution.

While existing familiar industries are busy (and wisely) trying to understand, pilot, and adapt applications of this technology to their empires, meanwhile brand new industries are quietly starting to emerge. This is what I call the ‘halo effect’, whereby the world starts to realise and develop applications of blockchains and distributed ledgers that were previously not possible, and whole new concepts begin to rise and capture our imagination.

In the short term, we can expect to see emerging industries directly spouting from existing ones: new hardware wallets, custody solutions, insurance solutions, KYC technologies, tax companies, escrows, professional services etc. However, looking further into the future, the potential second-order developments could change the way in which we operate.. What about robot forensic detectives? Smart-contract auditors? Self-sovereign charging stations? Machine-to-machine marketplaces? Mesh-networks (WiFi by-the-second)? Micropayment processors? Smart-economies? Crowd-sourced hedge funds? The list is endless.

To quote Bill Gates, we tend to overestimate what will happen over the next 2 years and vastly underestimate what will happen over the next 10. No-one anticipated in 1995 what sort of new paradigms would be enabled by decentralised knowledge. Now we have decentralised value to add to the mix.

4. The future of Stable Coins

Whilst Stablecoins aren’t a brand-new addition to the Crypto ecosystem, I do predict they’ll solidify their place in the market in 2019.

There’s a lot of discussion around their usage and future within the market and in my opinion, a lot of people simply do not understand why they exist. Some even invest in stablecoins erroneously expecting crypto-level returns, which completely misses the point.

Stablecoins are trying to harness the ‘best of both worlds’; relative lack of volatility of government-backed (fiat) currencies, coupled with the technological benefits of crypto-currencies, which include speed of settlement, ease of transfer, and notably,circumvention of sticky, legacy banking infrastructure. This presents some interesting applications. On the one hand, Stablecoins allow those exchanges without a license to handle government (fiat) currencies to nevertheless implement pseudo-fiat markets, with crypto-stablecoin trading pairs (e.g. BTC/USDT) acting very much like crypto-fiat pairs (e.g. BTC/USD). This allows traders to trade in and out of crypto markets entirely even if the exchange they are using doesn’t support non-crypto assets, because it allows them to hold balances of traditional cash assets like dollars or euros in the form of digital stablecoins.

A common question then is what’s the point of going to all this trouble to use stablecoins when you could just use a licensed exchange which supports balances of actual dollars or euros?

The answer is that stable coins are blockchain-compatible and therefore able to be used in smart contracts. Smart contracts allow for flows of funds to be automated based on business logic and triggers that can be coded and decentralised, running without the need for expensive solicitors or trustees. While this opens up a whole new world of automation, it’s a safe assumption that we won’t see the first widespread smart contracts transacting in bitcoin or ether. People will seek to harness the potential of ‘programmable money’ smart contracts without the unpredictable volatility of the underlying assets or funds, and this is the fundamental value proposition that will put stablecoins on centre stage as a base layer for the next wave of blockchain innovation.

One interesting development will be whether the several existing projects for stablecoins of the same denomination (e.g. USD) will eventually consolidate, continue to fragment, or be re-monopolised by Central Banks who are also looking at stablecoins very closely (see IMF Report).

5. The Rise of Proof of Stake

A common criticism of Bitcoin is the energy it consumes. The sink of this energy consumption is an unbounded global arms race to feed computation (or hashing) power to Bitcoin’s consensus mechanism (known as ‘Proof-of-Work’) by miners that compete to find the elusive block solution and hence newly-created bitcoins.

Proof-of-Stake (PoS), as opposed to Proof-of-Work (PoW), is an alternative consensus mechanism that isn’t based on hash-based mining, and as such is greatly more energy-efficient, resulting in PoS being widely argued as a good alternative model for securing cryptocurrency blockchains.

Typically PoS blockchains haven’t been widely adopted due to their own different inherent flaws (inc. so-called ‘weak subjectivity’, ‘long range attacks’, or ‘zero opportunity cost’ problems). Recently however, a new generation of Proof-of-Stake projects have appeared, which build on previous lessons to be more carefully and elegantly designed in order to resolve or iron out most of these issues.

Projects such as Tezos are a good example, which not only seems to have considered and fixed the main objections to PoS, but it has already awakened investors to the wonders of staking rewards. Unlike PoW chains (such as bitcoin), where these days mining rewards are exclusively the purview of specialised facilities with millions of dollars of equipment, with PoS chains (such as Tezos) rewards become obtainable to anyone and everyone who owns coins. In such a scheme, the average Joe need only offer up his coins as a sort of collateral, and they can participate in the verification process needed to add new blocks to the chain. In this way, they can receive fresh new tokens as a ‘reward for being honest’, and they can do this while remaining in full possession of their funds; they don’t need to lend them elsewhere. In return they can earn compounding interest (Einstein’s ‘8th wonder of the world’).

Moreover, users can earn this compound interest denominated in crypto, not fiat. This means if the price of the token goes up in fiat terms, so does your regular income. This delightful reward scheme is a powerful incentive, as now we can own cryptocurrencies that earn a yield, which is just another step towards acceptance as a serious asset class.

My expectation is that as people begin to understand and experience investment yield in crypto, this will spark a new wave of interest in Proof of Stake blockchains, with main beneficiaries being the newer generation PoS projects that have been elegantly designed to address some of the earlier flaws.

(disclaimer: I am an individual small investor in the Tezos project)

December 2018

The Chaotic Mechanisms of Scientific Revolution

It is the aim of this article to discuss the nature of scientific revolutions, and propose that not only are revolutions inevitable but that the direction of human development is no clearer now than it ever was in history. Thus is the chaotic nature of progress.

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