Tuesday, 19 November 2019

A Analysis

The pop media is now circling with '"b"itcoin is dead' commentary, prompting me to state yet again, that the value proposition that the "B"itcoin technology represents is grossly misunderstood, if it is even captured by the pop media at all. Remember, Bitcoin with an uppercase "B" is the blockchain, the transport mechanism, the scripting language and the decentralized, distributed trust consensus ecosystem upon which my startup is focused to build solutions upon. "b"itcoin with a lower case "b" is a digital currency and oft times digital payments app, simply early applications (and the most rudimentary ones) in the early portion of this paradigm shifting ecosystem.  

As a matter of fact, the drastic drop in the price of bitcoin serves to highlight the true value of those utilizing the technology behind bitcoin - the blockchain. The drastic drop (or pop) in prices does nothing to alter the business models of these companies. The value proposition lies in the blockchain and programmability, not in the price of individual currencies within a digital currency app - yes, bitcoin as a payment system or speculative currency is an app within an ecosystem, not the ecosystem itself. Until one is able to grasp this concept one will simply be chasing the erratic prices swings of a single cog within a complicated machine up and down - all the while missing the opportunities within.

To proclaim the death of bitcoin due to a drop in the price of components of one of its apps is akin to proclaimng the death of the Internet due to the drop in the price of AOL stock. Yes, it does sound assinine, but that's what the media is proclaiming.

A tightly related, yet tangential story can be used to prove my point (for those that are not familiar with UltraCoin, it is a blockchain-powered Global Macro trading app that allows anybody, anywhere to trade almost anything with any amount of money on a counterparty/credit risk-free basis). WSJ reports: Macro Horizons: Shock Swiss Policy Turn Alters Equation for Other Central Banks:

WRAPThe Swiss National Bank rocked European markets in early trade by abandoning its euro floor. Unable to resist the pressure of euro devaluation against the dollar, and with more likely to come as the European Central Bank prepares to launch quantitative easing, the SNB faced catastrophic losses on its mounting holdings of the eurozone currency if forced to abandon the one-sided peg sometime further down the line. The immediate significance is for people elsewhere in Europe who hold Swiss franc-denominated mortgages, to Swiss corporations which find themselves suddenly 20% or so less competitive against eurozone rivals and to leveraged investors betting that the SNB would hold fast forever. More generally, it reminds people that central banks aren’t invincible. Ultimately, their efforts and intent can be defeated by even stronger market forces and by having to weigh difficult political judgments. Ironically, one of the outside effects over which they have no control are the actions of their counterparts in other countries – which is what the SNB’s will do to others. Poland’s central bank now has a whole new game plan to think about in a meeting Thursday whose decision is due shortly. And a string of earlier central bank decisions in Asia, including a surprise rate cut by India, now have a different meaning for their currencies because the Swiss central bank has just put the franc back into the mix as one of the globe’s safe havens.  (AM, MC) 

SWITZERLAND: Switzerland’s central bank abruptly ended its policy of maintaining a minimum exchange rate of 1.20 Swiss francs to the euro, while at the same time cutting its key interest rate to a negative 0.75% from 0.5%. The Swiss National Bank also said that it was moving the target range for three month Libor to between -1.25% and -0.25% from the current range of between -0.75% and 0.25%.

In what must be one of the most currency market-shattering announcements made by a central bank in recent memory, the SNB ripped the ground out from anyone with an interest in the Swiss franc-euro exchange rate. At one point the euro collapsed to 0.86 against the Swiss franc, from 1.20 immediately before the announcement – a 28% move. That must stand as one of the most dramatic developed market currency moves ever. The SNB justified the move by saying that the 1.20 ceiling had been put in place at a time of serious Swiss franc overvaluation and that while the franc continues to be expensive, it is no longer quite at such an extreme – in part thanks to the dollar’s recent surge. We await fallout among investors holding Swiss equities and macro hedge funds who had taken the 1.20 level to be sacrosanct. (AM)

On that note, notice the trade on this 100% bitocin blockchain powered application. We are going long the Swiss Franc (betting that its spike against the euro will continue past the news event this morning (NYC time) due to its floor decoupling/unpegging from the lagging euro and short the leverlaged oil ETF which had a deadcat bounce up over 7% for the night, where we're assuming it will continue its drop. This is all done in one trade, and this is the power of the bitcoin blockchain. Forget the price of the widgets of that one blockchain app and open your mind to the future of distributed decision making.

Long Swiss Franc short leveraged oil trade via Veritaseums Blockchain powered Global Macro Trading App

For the more adventurous, here's a long CHF short EUR and GBP trade.

Long CHF short EUR and GBP via UltraCoin

Why is Bitcoin dangerous and of little intrinsic value? Because my local Central Banker Told Me So!

In my last post titled "Come, Journey With Me On An Adventure of Fundraising, Massive Disintermediation and the Confrontation of the Worlds Most Powerful Vested Interests" I told the tale of my trip to the UK to strum up interest in Veritaseum's UltraCoin (see excerpt at end of this post). During the dinner that was arranged for the prospective investors, of which I was the keynote speaker, several of the diners questioned the value of bitcoin as a "virtual' currency. In particular, they asked why should they believe that a bitcoin is really worth $375 or 280 pound sterling. I replied, "Let's look at this way, what is the pound worth?". I got back, it is worth 1.26 euro. Then I fired back, but if you accept that the pound is worth 1.26 euro, how do you have a problem accepting that bitcoin is woth 304 euro, or 371 US dollars? It is that circular logic that is somehow permitted in the evaluation of fiat currencies that is prejudiciously lacking on the valuation of cryptocurrencies. 

The crowd then went on to say, well the pound and other fiat currencies are backed by the government. I said, "Very much like the bank insurance scheme of Cypriot bank account holders, or Zimbabwe currency or Argentinian pesos? Many people oft put too much faith in the 'full faith of the government'!" As you can guess, this really sparked this room of brainy people as I dared them to start thinking outside of the fiat box! Bitcoin is backe by math! The reserve currency is backed by the biggest guns on the globe (yes, it is and it always has been, looked it up if you don't believe me). Other fiat currencies are backed by faith! Faith can be quite fleeting and ephemeral, trust me. As a matter of fact, you don't have to trust me... I'm about to show you.

Friday, the Wall Street Journal ran a piece called Bring On the Currency Wars, of which I would like to quote a few choice lines, to wit:

Central bankers struggling against weak growth and falling inflation have come up with a cunning plan: shift the problems onto someone else. Finding it hard to stimulate domestic demand through cheap credit in a world of rock bottom interest rates, the next best solution central bankers have settled on is to generate growth by boosting net exports. And the way to do that is to devalue their currencies.

Now, the US has performed this stunt like a champion, but over the last few weeks I must admit, we've been outdone!

The Bank of Japan has been the most aggressive at pursuing this policy, driving the yen down 15% against the dollar over the past year. The currency effects have been relatively slow at registering in Japanese trade numbers, but they’ve finally started to show up in the data. Japanese exports jumped 9.6% on the year in October, more than double market expectations.

Other central banks have noticed.

The European Central Bank has announced a number of policies over the past six months designed to boost its balance sheet. The more assets a central bank holds the more liquidity is available to the wider economy and thus cheaper credit–or so goes the theory. But even when interest rates are at rock bottom levels, massive central bank asset purchases by the Federal Reserve and BOJ have “led to a significant depreciation of their respective exchange rates,” noted ECB President Mario Draghi in a speech on Thursday. Implicitly, he was saying: if they can do it, so can we.

Then, on Friday morning, the People’s Bank of China launched its own measures, cutting its one year lending rate by 0.4 percentage points to 5.6% and its deposit rate by 0.25 percentage points to 2.75%. Ostensibly, the cuts were a response to domestic factors, namely falling inflation, a weakening economy and sliding house prices. But it seems clear that the underlying reason was the renminbi’s appreciation relative to the yen.

As one economy devalues, the impact is to force deflation onto its neighbors. With Japan putting downward pressure on the yen, the question now is how long can other Asian economies hold out from their own devaluations.

The currency devaluation game is relative, and its zero sum. If you devalue to increase your imports to another country, you do so at the expense of some other country. Contrary to popular Keynesian math, you really don't get something for nothing. 2 minus 1 does not equal 2, my dear friends. With this concept in mind, let's take a look at the headlines from around the world:

China ready to cut rates again on fears of deflation 11/23/13: This would be the second time in as many weeks.

(Reuters) - China's leadership and central bank are ready to cut interest rates again and also loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses, said sources involved in policy-making. Friday's surprise cut in rates, the first in more than two years, reflects a change of course by Beijing and the central bank, which had persisted with modest stimulus measures before finally deciding last week that a bold monetary policy step was required to stabilize the world's second-largest economy.

Draghi Urgency for ECB Action Gets Final Reality Check: Economy

Mario Draghi is about to find out just how urgent his call for action has become. One week after the European Central Bank president vowed to revive inflation “as fast as possible,” policy makers will receive a glimpse on just how feeble cost pressures are now. Economists forecast euro area data on Nov. 28 will show price growth matching the weakest since 2009, which would add to the drumroll for a stimulus debate at the Dec. 4 meeting. Bond yields from Spain and Italy fell to record lows and stocks gained today on speculation the ECB will buy sovereign debt. Draghi has stoked pressure toward purchases as panels of officials study possible new measures and prepare to cut their economic outlook. 

What is the result of all of this devaluing? Well, the next time someone asks you how much is bitcoin worth, you should just say, "In a Currency War, more than the yen, yuan, pound sterling, and euro!"

Bitcoin vs Fiat

The lasting message from the highly Centralized, Centrally Planned, Central Banks of the World? "We think, so you don't have to!"

As exceprted from "Come, Journey With Me On An Adventure of Fundraising, Massive Disintermediation and the Confrontation of the Worlds Most Powerful Vested Interests""

After a couple of more meetings I headed over to the Cavalry & Guards Club on Piccadilly for the dinner. An interesting, old money club that is steeped in English military history. 

Cavalry-and-Guards-Club

The dinner began with quick tutorial on the history of the club and its importance re: the battle of Waterloo, etc. The dinner included over 40 extremely interesting people. Here's the place setting before we got started - each and everyone of the invtees placed at the table appeared. Standing room only - and all to hear what yours truly had to say about Bitcoin's investment potential.

20141117 185449

The room was packed with brainpower - packed! Since they are big on privacy, I will not reveal names, but I can reveal statistics. Over $35 Billion dollars of assets under management directly controlled by the people sitting in those seats. Over $1.2 Trillion controlled by the corporate entities that they represented. Industries included banking, asset management, insurance, real estate, telecomm, energy, commodities trading and medical. Nearly half were successful serial entrepeneurs in their own right, with several having had their own multiple liquidity events. Even a member from the Bitcoin foundation was present. The vast majority were bitcoin skeptical. As for my presentation??? Let's say there's some big money, some olde money, and some money that many thought would never flow into this space any time soon that is quite anxious to investigate crashing the party.

B2rf9caIEAAlqE11111

On October 17th I penned Reggie Middleton's Open Letter of Commoditization and Disintermediation to Wall Street: Pay Attention Jamie Dimon! Here's an excerpt from the intro of a letter written to the CEO iof a bulge bracket bank included in said missive:

...this is my more fleshed out missive detailing what I see as the inevitable commoditization of your industry. Wall Street in general (and XXXXXXXXXXX in particular) is about to become “MP3’d” (disintermediated), just as the music industry did along its 75% slide in revenues over a 10 year period. Our goal is, in no uncertain terms, to expedite this disintermediation. In essence, our job is to cleave at least 75% of the revenues off of Wall Street banks!

Hopefully, I’ve gotten your attention. Let’s discuss the opportunity - and the threat - to XXXXXXXXXXX in more detail as I present a clearly laid out roadmap to either your firm’s relative failure, or resounding success.

 

The Challenge to Wall Street and XXXXXXXXXXX

“In the next 10-20 years, 58% of financial advisors will be replaced by software robots and AI.”Frey and Osborne, Oxford University

This is not grandiloquence. We can show our venture alone cutting over 3-4% off of XXXXXXXXXXX’s non-interest revenues and up to 30% of net income attributable to common within 8 to 12 quarters of gaining traction. This is accomplished by removing your pricing power in your most lucrative businesses – transactions, fees and commissions.

In Banking Risk, Reward and Demise - The Age of Programmable Currencies, I posted a most telling graphic...

This drop in revenues and profitability is extreme when viewed today. The effect of "robots" (cloud based streaming services powered by algorithms [robots]) as reported by Wired Magazine today, and as excerpted [emphasis added]:

Consider the fact that it takes roughly one million spins on Pandora for a songwriter to earn just $90. Avicii’s release “Wake Me Up!” that I co-wrote and sing, for example, was the most streamed song in Spotify history and the 13th most played song on Pandora since its release in 2013, with more than 168 million streams in the US. And yet, that yielded only $12,359 in Pandora domestic royalties— which were then split among three songwriters and our publishers. In return for co-writing a major hit song, I’ve earned less than $4,000 domestically from the largest digital music service.

The streaming services and their cloud based "robots" are hurting more than just songrwriters. Record companies are forced to see that graphic above, which was exacerbated by streaming services as they usurped control from MP3 download services that started the decline, which was exacerbated by the iTunes business model. Now, even iTunes is facing the heat from streaming services as its margins and revenues are pressured, forcing them to by the Beats music streaming service (along with the headphone/hardware operation for a gross $3.2B).

Veritaseum's UltraCoin is a potent brew consisting of a combination of:

  1. the ULTIMATE CLOUD - the BLOCKCHAIN;
  2. the ULTIMATE ROBOTS - Scripted money and "SMART CONTRACTS"
  3. and the same peer to peer technology that precipitated the fall of the record industry - ALL WRAPPED UP IN ONE PRODUCT AIMED AT WALL STREET!!! 

The letter to that bulge bracket bank CEO referenced at the beginning of this post ended like this:

One simply cannot stuff the technology genie back into the bottle. Even before critical mass in adoption is achieved, the bulge bracket banks (XXXXXXXXXXX included) will witness a structural decline in margins. Despite this margin compression, there will be a small contingent of banks who will emerge as winners because they will cannibalize the revenues of their competitors adopting and embracing the forces behind this paradigm shift. Doing this will require not only sufficient vision, dexterity and entrepreneurial expertise (the type seldom found in multi-billion dollar global institutions), but exceptional execution to be among the first movers. Money center banks can try to figure this out on their own (good luck being entrepreneurial and first movers), or they can team up with us.

We are a startup, and we’re the first movers! To maintain our advantage, and to gain traction quickly, we’re soliciting established distribution partners. Teaming with us can essentially be boiled down to whether you are the disintermediators - or the disintermediated!

Our Advantage

UltraCoin provides, with full transparency, universal access to any publicly traded financial instrument, on any exchange, at a fraction of the cost of bulge bracket and even many deep discount brokers.

Our patent-pending (we are confident that we’re the first to file, meaning the rest of the Street must come in behind us) products provide access to over 75,000 tickers in all major asset classes from exchanges and bourses from around the world in an innumerable combination of pairs and combinations – not merely just the traditional, binary, long and short. This is not an idea, or mere concept, or whitepaper. This is a tangible product that is available right now and already making significant waves in money center bank circles (download here). Below is a screenshot of my active wallet on my tablet as I type this. 

clip_image002.jpg

How do we get started? 

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

I offer you in gift wrapped packaging - the “first mover advantage”!

Yesterday, I attended (and apparently partially disrupted) the Bitcoin Law: Regulatory and Transactions Symposium at the New York Law School yesterday morning. See pics below, and make no mistake about it... the world is putting serious intellectual capital into the bitcoin economy now. There's no turning back!

20141021 100709

20141021 095354

This panel presided over a discussion of payments and transactions...

20141021 095358

Needless to say, the topic of Apple and Apple Pay came up. All of a sudden... BOOM! The RDF appeared out of nowhere and filled the room. Apple is this, Apple is that, Apple is so great as compared to Google. My regular readers and followers know the routine.

My regular readers and followers also know that I couldn't just sit back and let the Apple RDF simply disrupt everything true, factual and real, so I stepped in and... well, I disrupted :-). Unfortunately, I didn't get video of it since I was the one disrupting so I decided to put a little home made video in after the fact. Enjoy!

Those who wish to try our new trading platform to go long or short Apple or Google, or both - simply download the client and the quickstart guide, and let 'er rip! Remember, this is the only place you can trade at this level - peer to peer, without banks, brokerages or exchanges and the counterparty/credit risk and privacy issues that they introduce.

aapl trade

The following is a reacted letter that I just sent to a rather influential person in one of the bulge bracket banks of Wall Street.  I decided to simply be frank and tell it like it is. AFter all, why play games or beat around the bush. It is what it is, right?

 

(Name redacted for the sake of privacy and professional courtesy), this is my more fleshed out missive detailing what I see as the inevitable commoditization of your industry. Wall Street in general (and XXXXXXXXXXX in particular) is about to become “MP3’d” (disintermediated), just as the music industry did along its 75% slide in revenues over a 10 year period. Our goal is, in no uncertain terms, to expedite this disintermediation. In essence, our job is to cleave at least 75% of the revenues off of Wall Street banks!

Hopefully, I’ve gotten your attention. Let’s discuss the opportunity - and the threat - to XXXXXXXXXXX in more detail as I present a clearly laid out roadmap to either your firm’s relative failure, or resounding success.

 

The Challenge to Wall Street and XXXXXXXXXXX

 

“In the next 10-20 years, 58% of financial advisors will be replaced by software robots and AI.”Frey and Osborne, Oxford University

This is notgrandiloquence. We can show our venture alone cutting over 3-4% off of XXXXXXXXXXX’s non-interest revenues and up to 30% of net income attributable to common within 8 to 12 quarters of gaining traction. This is accomplished by removing your pricing power in your most lucrative businesses – transactions, fees and commissions.

Drilling Down On XXXXXXXXXXX’s Unique and Particular Vulnerabilities - or-  Why You Should Be Paying Attention

XXXXXXXXXXX derives more than 95% of its total revenues from non-interest earning transactions/businesses. This comprises revenues from Investment Banking, Asset Management & Investment, Brokerage Commissions & Fees. Let’s analyze the percentage of business that could be impacted the year after traction of our value transaction system by assuming a certain percentage reduction in fees. We have assessed the potential impact on the bank’s annual revenues and profitability as follows:

  1. XXXXXXXXXXX could see around 3-4% decline in its non-interest income. The bank’s net interest could fall by 7-8% off compression in its net interest margin.

  2. Now, the firm could very well see lower expenses on account of compensation benefits for employees (due to decrease in variable pay, reference the “58% of financial advisors will be replaced” quote above from Oxford), however, this impact is not going to be significant enough to offset the likely decline in revenues. On a more personal level and more to the point, it represents a ~58% chance of you getting fired. The compensation heavy Wall Street culture is ill fitted to battle the disruptors we are bringing to bear during a major technology paradigm shift!

  3. Net Income could drop by a significant percentage ~ 30%.

Who We Are and What We Are Doing

Our core product, UltraCoin, is at the intersection of the Bitcoin protocol software, robotics, and financial services. It is already recognized as a driving factor in the full scale disintermediation of Wall Street:

“The disintermediation caused by Middleton’s UltraCoin has the potential to disrupt the brokerage industry.” AlleyWatch

“… a direct threat to fiat merchant banking.” Fortune

“… the perfect storm of disruption, as it renders trading fees, brokerage fees, and those infamous Wall Street bonuses obsolete. The sheer scale of disruption this technology brings with it makes it something to watch.” The Hash Report

 

The Bitcoin blockchain threatens to dramatically reduce the ability of financial services companies to charge for transactions - all transactions. We have, through our UltraCoin wallet,  enabled synthetic versions of nearly all of the financial assets XXXXXXXXXXX deals with, and enabled them to be traded peer to peer (meaning without an exchange or broker) via the blockchain. These new age tools look very similar to what XXXXXXXXXXX currently sells to its clientele at a significant, and now, ephemeral premium. Our stuff looks no different from your stuff, yet is dramatically cheaper, more flexible and more capable. As a result of being blockchain-based, we’ve also reduced the default/counterparty/credit risk to effectively zero.

 

XXXXXXXXXXX’s Opportunity - a partnership where you benefit from our rapid development tech and we benefit from your distribution network

Let’s be frank and upfront. The banking hegemony as we know it is about to undergo a dramatic, disruptive structural change. Pretending you are immune simply guarantees you to be the one stepped on in lieu of the one doing the stepping. The same is true in taking too long to act, or acting by moving in the wrong direction. I referenced the record industry and MP3s as a prime example. The assertion that regulation will protect banks from technology where it didn’t for the record industry is a straw man’s argument, at best. Try as they may, at the end of the day - regulators cannot, should not, and probably don’t even want to regulate software and prototcols. It’s a new day and age.

One simply cannot stuff the technology genie back into the bottle. Even before critical mass in adoption is achieved, the bulge bracket banks (XXXXXXXXXXX included) will witness a structural decline in margins. Despite this margin compression, there will be a small contingent of banks who will emerge as winners because they will cannibalize the revenues of their competitors adopting and embracing the forces behind this paradigm shift. Doing this will require not only sufficient vision, dexterity and entrepreneurial expertise (the type seldom found in multi-billion dollar global institutions), but exceptional execution to be among the first movers. Money center banks can try to figure this out on their own (good luck being entrepreneurial and first movers), or they can team up with us.

We are a startup, and we’re the first movers! To maintain our advantage, and to gain traction quickly, we’re soliciting established distribution partners. Teaming with us can essentially be boiled down to whether you are the disintermediators - or the disintermediated!

 

Our Advantage

UltraCoin provides, with full transparency, universal access to any publicly traded financial instrument, on any exchange, at a fraction of the cost of bulge bracket and even many deep discount brokers.

 

Our patent-pending (we are confident that we’re the first to file, meaning the rest of the Street must come in behind us) products provide access to over 75,000 tickers in all major asset classes from exchanges and bourses from around the world in an innumerable combination of pairs and combinations – not merely just the traditional, binary, long and short. This is not an idea, or mere concept, or whitepaper. This is a tangible product that is available right now and already making significant waves in money center bank circles (download here). Below is a screenshot of my active wallet on my tablet as I type this. 

clip_image002.jpg

How do we get started? 

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

I offer you in gift wrapped packaging - the “first mover advantage”!

 I sat down with about a dozen or so (legal, executiuon, KYC and AML) higher level executives of one of the world's largest banks today. It was a fruitful discussion. The following is the document that was given to serve as a guide to the discussion.

Banking Risk Reward and Demise - The Age of Programmable Currencies Page 03

It is interesting to notice how many truly competent individuals and companies truly believe that new technologies are what disrupts industries and markets. Trust me, it is not! Broad disruption occurs at the hands of astute operators that manipulate new (and often not so new) technologies to leverage an innovative business model that strikes at the weakness(es) of the extant market leadersBanking Risk Reward and Demise - The Age of Programmable Currencies Page 04Banking Risk Reward and Demise - The Age of Programmable Currencies Page 05Banking Risk Reward and Demise - The Age of Programmable Currencies Page 06Banking Risk Reward and Demise - The Age of Programmable Currencies Page 07Banking Risk Reward and Demise - The Age of Programmable Currencies Page 08Banking Risk Reward and Demise - The Age of Programmable Currencies Page 09Banking Risk Reward and Demise - The Age of Programmable Currencies Page 10Banking Risk Reward and Demise - The Age of Programmable Currencies Page 11Banking Risk Reward and Demise - The Age of Programmable Currencies Page 12Banking Risk Reward and Demise - The Age of Programmable Currencies Page 13Banking Risk Reward and Demise - The Age of Programmable Currencies Page 14Banking Risk Reward and Demise - The Age of Programmable Currencies Page 15Banking Risk Reward and Demise - The Age of Programmable Currencies Page 16Banking Risk Reward and Demise - The Age of Programmable Currencies Page 17Banking Risk Reward and Demise - The Age of Programmable Currencies Page 18Banking Risk Reward and Demise - The Age of Programmable Currencies Page 19Banking Risk Reward and Demise - The Age of Programmable Currencies Page 20

 

An Op-Ed piece penned by Veritaseum Chief Contracts Officer, Matt Bogosian

This past weekend (despite American Airlines' best efforts), Reggie and I made it to the Second Annual North American Bitcoin Conference in Chicago. While there were some very creative (and very ambitious) ideas on how to try to realize the disruptive Bitcoin protocol, one of the predominant topics of discussion was New York Superintendent of Financial Services Benjamin Lawsky's proposed Bitcoin regulations (the BitLicense proposal) - percieved by many participants at the event as an apparent attempt to regulate Bitcoin out of existence.

Even assuming that the entities sought to be regulated under the (seemingly draconian) BitLicens[ing] proposal qualify as "financial services institutions" (which I think is tenuous and highly debatable), to say that the proposal is in violation of New York's statutory mandate, "[t]o encourage, promote and assist ... other financial services institutions to effectively and productively locate, operate, employ, grow, remain, and expand in New York state ... [and] ... [t]o establish a modern system of regulation, rule making and adjudication that is responsive ... to the needs of the state's consumers and residents," (NY Fin. Svcs. Law, § 102(a)emphasis mine), is not only an understatement, it's probably totally irrelevant. Courts typically (and perhaps frustratingly) don't second guess legislators and regulators on whether their laws have any correlation to any stated goals, even if those laws have the exact opposite effect of what was alleged as intended. Instead, courts leave that to the voters, effectively saying, "If you don't like the law, change the legislator," and we all know how effective that is.

In other words, Orwell was (and still is) right. The stated purpose of BitLicenses is not corollary to the apparent purpose, which is to maintain the status quo. The status quo doesn't contemplate disruptive innovations like the blockchain. Unless and until a higher authority intervenes ("higher authority" perhaps referring to you, the consituent, or the particularly the avid and concerned social media user), Lawsky's proposal, if achieved, will quite likely end (or at least drive underground) the most significant economic and technological breakthrough known to this century, not only in New York, but very likely the United States.

Imagine if Lawsky had been Superintendent in 1994. Imagine that (for whatever reason) Lawsky felt compelled to frustrate the dissemination of another set of disruptive innovations known as the Internet Protocols.

 

World Wide Web timeline

By analogy, imagine that he proposed a regulatory scheme known as "PacketLicense", wherein anyone routing IP packets that arrived at or passed through devices located in or belonging to residents of New York had to acquire a PacketLicense (unless they were a New York bank, or a retailer incorporated in New York), which (in small part) involved fingerprinting everyone employed by the owner of the device, or any affiliate of that owner. In retrospect, we would laugh at its absurdity, and likely recoil in horror imagining the economic Armageddon such a regulation would cause.

World Wide Web timeline as per Lasskeys Vision

But that is precisely what Lawsky is trying to do with the blockchain. Others have provided extensive treatment on various parts of the proposal. Over my next few posts, I will add my voice to that chorus by providing detailed analysis (and possible fixes) for some of the requirements that I find particularly bothersome. Stay tuned.

In the meantime, if you don't want the natural evolution of the Internet to look like the graphic above, I strongly urge you to voice your own opinions to Superintendent Lassky.

Wednesday, 04 June 2014 00:00

Bitcoin Myth Busting 101

Yesterday, I did a radio interview with Benzinga. In it I busted myths about Apple, Bitcoin and Coins in general (ABCs). Listen to the interview below and the info sheets afterwards and let me know if you knew this stuff was possible with today's tech - and Apple! 

As for Apple...

And more on http://Ultra-Coin.com...

Why am I so bullish on Bitcoin? Note: this is not an offer to buy or solicitation for securities and is presented for illustrative purposes only.

Veritaseum Executive Summary page one

Veritaseum Executive Summary page two

As we roll out Veritaseum's UltraCoin ZeroTrust Smart Contracts, I'll be posting much more on "the new way of doing business".

Media Exposure

  1. Reggie Middleton Intro
  2. How Reggie Middleton's Start-up Patented The Future of Global Finance!
  3. Reggie Middleton on Wikipedia
  4. Who is Reggie Middleton?
  5. Bitcoin is not just digital currency. It's Napster for finance.
  6. Reggie Middleton's UltraCoin @ NYC CryptoCurrency Convention
  7. Reggie Middleton Wins CNBC Stock Draft for the 2nd time in a row - with the same stock

After an interesting discussion with those in my laboratory, I've decided to apply the forensic analysis team from BoomBustBlog to the privately funded companies in the Bitcoin space. See my post from yesterday for much of the reason why.

As clearly predicted yesterday, the better funded of the payment processors will initiate a pricing blood bath they'd likely kill for...

From PayPal's subsite on Mass Payments:

Paypal Mass Pay Site Screenshot

 As you can see, PayPal has already imbued its service with much of the attributes that are being offered by the Bitcoin payment processors. They also have a material advantage as of right now, a massive installed base.

I also cannot emphasize enough how damaging the all too necessary customer service option is to margins. You see, the problem is most service companies don't put enough into customer service and handholding of the customer. From an optimal perspective, this should actually be part of the marketing and sales process, but it's often either non-existent or implemented as an after thought after enough customers start bitching and complaining, or worse yet (and likely most often the case) leaving!

As a company with mature management, it appears as if PayPal is trying to head this off at the pass as it attempts to change consumer behavior and prod them into adopting its new electronic currency payment system...

Paypal Mass Pay Site Support Screenshot

 Now, let's compare PayPal to the newly funded Bitcoin payment processors...

Bitpay

Funding Rounds (3) - $32.50M

- See more at: http://www.crunchbase.com/organization/bitpay#sthash.yvlqpNtr.dpufBitpay prices

An interesting departure from the per transaction/fee model, Bitpay implemented a subscription system which benefits those customers who perform a large quantity of relatively small transactions moreso than those who process large orders.

I calculate Bitpay's most recent $30 million series A round to have been at around 9.2x sales, valuing the company at $160 million. This is a guestimate, of course, since I do not have access to internal numbers.  

Next we have Coinbase...

Funding Rounds (3) - $31.70M

- See more at: http://www.crunchbase.com/organization/coinbase#sthash.CD8IPTp6.dpufCoinbase 

There's also Circle, founded by Mr. Allaire of Coldfusion fame (sold to Adobe Systems).

Funding Rounds (2) - $26M 

- See more at: http://www.crunchbase.com/organization/nfc-direct#sthash.dd0DaxHc.dpuf

Circle has not publicly launched yet but promises to bring a new level of simplicity and user-friendliness to the bitcoin payment ecosystem, concentrating more on a banking paradigm then the technical bent that bitcoin is known to represent. This is all you need ot know about the Circle business model as it relates to this discussion of impending margin compression...

Circle

Free=Margin Compression!

Let's see how this plays out for customers. The most lucrative segments for this industry is the SME (small and medium business enterprises) who process anywhere between 10 and 1,000 transactions per month. Why? Because there are simply more SMEs than there are big companies in the world. Let's see what the two biggest bitcoin processors look like when stacked up against PayPal's Mass Pay product for the SME market...

image019

image027image028image029

Of course, the Bitcoin transactions are likely a loss leader for additional, value added services for many companies in the not too distant future. As a matter of fact, I feel that the payment space will quickly become commoditized by Bitcoin technology - forcing these companies and many more (I'm talking about you Mastercard, Visa and Western Union) to innovate and offer significantly and materially better value for the buck.

Imagine what this competitive landscape will look like when Mastercard, Visa, American Express, Discover and Western Union jump into the fray. Of course, before that a much greater portion of the VC and private equity community will wake up and realize the opportunity in Bitcoin to pour more cash into it than sugar into a Bubble gum machine (emphasis on "Bubble"). The key is to get in early, and get in right. But how does one do that and where will this tale of uber margin compression end?

Well, the research report from which this info is being prepared will be offered to accredited and instituional investors starting next week, at least those who have an interest in UltraCoin. 

My next article on this topic will explicitly illustrate how UltraCoin can assist ALL players (that's right, including PayPal, Bitpay, Circle, Coinbase, Mastercard, Visa, American Express, Discover and Western Union) as well as their direct customers, in climbing up both the food chain and the value proposition ladder - thus rapidly repairing the margin compression damage they are about to bring upon thier business models.

 image014

 

picsay-1400512647Reggie Middleton discussion UltraCoin at the 2014 FinTech conference at Dechert LLP.Coindesk asks "Do Patent Filings from eBay and Western Union Pose a Threat to Bitcoin?" I feel the question is in and of itself missing the point. To explain this fully, I have to share a little bit about myself, particularly my weaknesses. I'm the type of person who is very knowledgeable about his strengths and his weaknesses, but sometimes I don't see my strength for what it is, and that is tantamount to a weakness in a highly competitive environment.

Case in point, in discussing whether or not competing patents have been filed for smart contract transacion processes by those who seek to be in my space with my contract engineer (a very skilled software architect and IP attorney), I displayed what I considered a healthy level of paranoid concern. I found it hard to believe that no one bothered to patent the most innovative, disruptive and groundbreaking aspect of this new crop of digital currencies - the ability to program them. As those who follow me know, I've spent a lot of resources developing, designing, refining and patenting advanced smart contracts (see How Reggie Middleton's Start-up Patented The Future of Global Finance!). I actually found it highly unlikely that no one had come up with this idea before me. Matt (my contracts engineer) said, "You know, it actually takes an uncanny amount of vision to have seen the scope of this stuff and act upon it, not to mention to have done so 6 months ago. Not many people are like you." Right then and there, it hit me. People really do not see things the way I do! 

Most know me from my prescient calls in banking, finance, real estate and tech (see Who is Reggie Middleton?). I've demonstrated a knack for seeing future trends and determining when things (such as valuations and opportunities) are out of whack. With that being said, the big media interest in Bitcoin combined with the increasing VC interest in Bitcoin companies (reference BitPay Gets $30 Million in Venture Capital Funding) is a very good thing for the industry, but also illustrates shortsigtedness in both the investment community and many practitioners.

The problem with the processors...

When bitcoin is as easy as PayPal to use then it will be on the path to mass adoption, but to assume that’s the most lucrative path to take in bitcoin company private equity investment begs the wrong question. Here’s the strategic landscape as I see it.

Bitcoin is very inexpensive to use as a transfer agent. A transaction may be safely sent without fees if these conditions are met (this is excerpted directly from the Bitcoin Wiki, verbatum):

  1. It is smaller than 1,000 bytes.
  2. All outputs are 0.01 BTC or larger.
  3. Its priority is large enough

Otherwise, the reference implementation will round up the transaction size to the next thousand bytes and add a fee of 0.1 mBTC (0.0001 BTC) per thousand bytes. Note that a typical transaction is 500 bytes, so the typical transaction fee for low-priority transactions is 0.1 mBTC (0.0001 BTC), regardless of the number of bitcoins sent.

Bitcoin as of 5/18/2014 is $444.74m, thus the fee for this transaction is roughly 4 cents, if not outright free. If a processor is transferring $10,000 on behalf of a customer, whether at one time or 100 times throughout the course of a month, the processor’s fee cost would range from $0 to $4, while the processor would likely charge (as of the date of this writing, $0 to $100). The traditional processors such a Visa or Paypal  would charge hundreds (as in up to 50x more!) for the same deal!

That 25x markup on the high end is significant (even for the Bitcoin companies), and ripe for disintermediation itself (that's right, the disintermediaing agents are poised for disintermediaion). Particularly once the UX of Bitcoin evolves, as email and web browsing did, and users realize how easy and cheap it is to jump onto the blockchain and do this stuff themselves.

Even assuming users don’t follow the historical model of those that left proprietary walled gardens (think AOL) and jumped directly into the open World Wide Web themselves, there are no material barriers to entry to enter into the processing business other than potentially a money transmitter license. The only material barrier, hence the business opportunity, is that Bitcoin is cumbersome to use. As the UI/UX polish increases and the amount of competitors in the space increase, the lower the prices charged - hence the margins - will be.

With such low barriers to entry and potentially humongous markups to exploit, what do you think happens next? The wild, untamed hordes of competitors swoop down upon the masses, and we have a concerted race to zero, and likely negative margin as competitors attempt to make processing a loss leader to draw users into the folds of richer, higher margin services!!!

 The race to marginal zero, then negative, does not make a strong business plan. So, what do these companies such as BitPay, Coinbase, etc. do once that point is reached (rather quickly)? They look to value added (high margin) services on top of their low margin, utility-like payment infrastructures.

Enter smart contracts and the true use of programmability in the crypto-currencies. The easiest and the likely first implementation of such will be multi-sig operations which allow multiple parties to share funds without having to worry about trusting and single party in a transaction. Our ZeroTrust Letters of Credit (patent pending) is just such a product. It allows for multiple parties to tranfer payment for simple and complex transactions contingent upon the mutual agreed upon successful execution of said transactions. This is done without the parties having to:

  1. Know each other
  2. Trust each other
  3. Have any form of proximity to each other;

and can be done using micropayments all the way up to multi-million dollar macro payments. The barriers to this business are much higher. For one, it takes more than just programming code. You have to be able to congeal the legal logic of the conventional law in equity contract into code. You have to be able to congeal the business logic into code, and you have to be able to implement it into the blockchain or whatever other underlying transmission mechanism you choose to utilize.

Once the race to negative zero is in full swing, a few of the wiser companies will wake-up and say "Hey, there has to be a better way, and we think we found it!". It is at that point Reggie Middleton's UltraCoin products and assets will shine. It is not hard to foresee that the entrenched companies (Visa, Mastercard, PayPal, Western Union) may enter a bidding war with the new comers armed with material VC warchests (much more than we're seeing with $30 million investments of today - all over the guys who had the foresight to see the next evolutionary step in plain vanilla payments - smart transactions and self-executing digital contracts and transactions.

We're actively looking for financial and intellectual capital. If you, as an accredited investor, are looking for an opportunity in the higher end of the digital currency space, I think we should talk. In addition, if you are a higher level Java/C++ developer willing to take risk, we need to talk. I'm available at reggie at ultra-coin.com.

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ReggieMiddleton @rwfortunato Depending on how things go at the hearing, I may definitely take you up on that offer. Legal fees are… https://t.co/M8H78M0up8
Thursday, 22 August 2019 12:45
ReggieMiddleton @CryptoNana4MAGA @ArcadiaEconomic Thank you all. The court date has been moved to Monday, the 26th.
Thursday, 22 August 2019 04:43
ReggieMiddleton Our response to SEC allegations has been filed and is now public. While it may appear voluminous, it should be cons… https://t.co/f3SH6jTNpo
Tuesday, 20 August 2019 10:17
ReggieMiddleton Asia Surprises With Cuts in Global Race to Monetary Bottom: New Zealand, India, Thailand cut rates today, which cau… https://t.co/bdY8cZqYqZ
Wednesday, 07 August 2019 11:05
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ReggieMiddleton @fortunekr75 @venmo We have our own internal USD token. We actually use our metal tokens as private currency for transactions.
Tuesday, 06 August 2019 14:41

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