CryptoAM: Ethereum's Plan, Dharma's Interest, and CZ Sues

Happy Thursday CryptoAM!

Three things you need to know:

One: Ethereum Foundation announces yearly plan

Image: Ethereum Foundation

There is still a significant amount of capital
in the Ethereum Foundation (EF) piggybank, according to an announcement made yesterday outlining the Foundation’s yearly plan. It holds 0.6% of all circulating ETH, coming to a cool $164 million. This excludes cash reserves, suggesting that the amount could potentially be meaningfully larger.

Other highlights:

EF plans to spend $30 million USD
over the next 12 months on key projects. This is broken down into three categories:

  1. $19M for projects involved in next generation Ethereum improvements (scaling solutions, zero-knowledge R&D, working with academic institutions to attract top researchers).

  2. $8M for projects involved in supporting Ethereum’s current capabilities (Solidity, other developer tools like Web3.js).

  3. $3M to attract more developers, especially in Asia where the EF sees significant room for further growth.

Let’s highlight that last point. One of Ethereum’s killer differences right now is they already have far more developers than any other protocol, including Bitcoin. Having the largest number of devs doesn’t guarantee success of course, but it doesn’t hurt. I’d also be looking to see whether the push into Asia attracts new dev talent that is currently outside of crypto or draws it away from other protocols based in that region, namely Tron, where CEO Justin Sun has repeatedly talked of ‘rescuing’ Ethereum developers.

The importance of funding cannot be understated. Most protocols (such as EOS, ADA, HOT and XTZ) actively fund projects as a way to incentivize them to develop on their platforms. EOS has even set up special joint funds with players like Galaxy Digital in order to do this.

Context: As for Ethereum, it’s unclear how much of an increase the $30M in funding is from what was spent on grants during the last year. By August last year for example $11M had been committed to Ethereum projects in 2018 alone.

Go deeper: read the official announcement.

Two: CZ is suing Sequoia for reputational damages

Image: Bitcoin Magazine

The CEO of Binance flexed some muscles
and filed a lawsuit against Sequoia earlier this week, claiming that they hampered his ability to raise capital at favorable valuations.

Context, courtesy of Coindesk:

The case began when Sequoia Capital obtained the December 2017 injunction order in an ex parte or unilateral procedure without notifying Zhao and subsequently filed a notice for arbitration in January 2018 as a claimant against him.

Sequoia accused Zhao of breaching exclusivity by talking to IDG Capital when still in discussions with Sequoia for the Series A round.

Three months later, following an April 11 hearing, a Deputy High Court Judge ruled in a judgment on April 24 that Sequoia “was wrong to pursue the ex parte application without notice to Zhao,” since there was no explanation or evidence as to why no efforts were made to involve both parties.

Why this matters: Binance has proven itself to be a major player, not just in the cryptocurrency markets but also in the traditional VC world. This move should not be overlooked, as it cements the power of cryptocurrency companies and sends a message that this market is one to be respected and not played with. Generally in emerging markets companies tend to be pushed around by larger incumbents and “traditional” players. This action shows the world that the cryptocurrency ecosystem is a formidable one.

Three: Dharma + USDC = 8% interest

Image: The Block

The decentralized lending platform Dharma
announced on Wednesday that it was adding USD Coin (USDC) to its platform, joining DAI and ETH as the currencies able to be lended. Lenders who commit USDC on Dharma will receive 8% interest - not a bad return when you consider the top savings rate at a traditional bank is 2.50%.

What is Dharma? Launched in early April 2019, the company offers peer-to-peer lending of assets in a non-custodial manner. In the plainest english possible basically what this means is:

  • There are two groups, borrowers and lenders.

  • Dharma is the protocol that helps connect these two groups to facilitate a loan in ETH, DAI, or USDC.

  • Dharma doesn’t actually take control over the assets - users remain in control of their private keys that grant access to the assets.

This contrasts with traditional custodial services, where lenders trust a central party to take control over their assets and then lend them out to a borrower. The central party is responsible for making sure the lender is compensated and ultimately has their loan paid back.

Decentralized lending services get around this by having pre-set loan conditions coded into the protocol via smart contracts, meaning that there is no active involvement by a central party. To make sure the borrower doesn’t run off with the assets they have to put down collateral, which is usually around 1.5 times the value of the asset they take out.

Why USDC? It’s a play to increase Dharma’s user base beyond traditional crypto users and increase liquidity on the platform. The company argues it will attract more mainstream investors who are more comfortable with using a cryptocurrency backed by US dollars, in contrast with DAI which is backed by ETH.

The big question: Who would pay >8% interest to borrow USDC? According to Dharma Business Development Manager Max Bronstein on The Block:

"“People who need to get in and out of cryptocurrency easily without getting a lot of price slippage is where we see a lot of USDC demand.”

What I’m watching: How sustainable the high interest rate offerings are on Dharma. Dharma has historically subsidized lending rates in order to capture marketshare, an unsustainable practice. As the markets mature and competition stiffens it will be interesting to see how far the rates fall.

Context: Other lending platforms like Celsius currently offer lenders 6.1% on USDC, while BlockFi recently halved savings rates for ETH deposits due to a lack of interest from the markets.

Also in the news:

Market Outlook:

Quick Take

Direction: As referenced in the last market report, once we broke the 7720 level we broke down relatively quickly to 74xx.

As a trader, it’s important to know when a thesis is invalidated, and you should be able to flip from long to short in a heartbeat. For example, the bullish thesis noted yesterday was invalidated when the triangle broke down, and it was important to note that and move positions accordingly.

There was a slight rebound in price, but on low volume and over a period of time. The market structure has turned short term bearish in an overall bull trend. I would generally consider this a no trade zone, as there’s no solid indication of future movement. If we break above 7980, I think it’s highly likely we revisit 8400. The longer we stay at these price levels, the most likely it becomes to break down based on the structure.

Key Support:  7720

Key Resistance: 7980

Overall Market: 

  • Huobi Token outperforming + on the announcement of Reserve token IEO. Stablecoins seem to be having a slight renaissance now. Ampleforth, another algorithmic stablecoin, was announced as the first IEO on the Bitfinex platform.

  • A lie can travel around the world before the truth gets its pants on: BSV is still trading up 80%+ after the announcement that Craig Wright filed a copyright on the Bitcoin whitepaper. The U.S copyright office later clarified that it does not make calls on the veracity of claims…

  • Augur down 20% since Poloniex announced token delisting last week due to regulatory reasons.

  • Holochain continues to outperform the market, up 18% against BTC today on no news and up 329% YTD.

  • Binance Launchpad coins up ~12% in aggregate today after retracing significantly from their initial rise. They are performing in a highly correlated manner, something interesting to note. It seems to be that after launching on Binance, each coin generates strong community interest from highly overlapping bases.

  • Bitcoin dominance is back on the rise, but I believe it is likely to be a short lived rise. BTC dominance increases during times of chop and high volatility, and tends to decrease during periods of low volatility. I’d expect continued decreasing of BTC volatility and therefore also continued decrease in BTC dominance.

Chart: CryptoAM

What I’m thinking today:

Does Bitcoin have a Security Problem?

Here’s a longwinded article about Bitcoin security that you might want to read. It’s very ok and uses a lot of “cop-outs” but it’s at least interesting and thoughtful and there was work put into it.

To summarize, it talks about the potential security problem that will crop up when Bitcoin block rewards go away.

For those unaware, Bitcoin generates fees for miners & secures its network in two ways:

  1. Block rewards

  2. Transaction fees

Block rewards will disappear by 2140, leaving transaction fees the only way to secure the network. The question is: will the transaction fees be enough?

Right now, the security of the Bitcoin network is mostly a function of price. If I were to write a fake formula with illustrative weights (please do not write to me saying these specific weights make no sense) for the security of the network, it would look like this:

Price = P

Transaction Volume= TX

S(x) = .9P + .1TX

Because price has a much bigger impact on security than transaction volume does. This is because the majority of rewards that go to miners are currently from block rewards. As block rewards decrease, the weight on TX goes up, and the weight on P goes down, until they settle at some equilibrium.

The article above tries to make all sorts of cases for why this doesn’t matter but the crux of the issue is this:

Will people use the Bitcoin network for transactions?

Transactions are the lifeblood of the Bitcoin network, and are absolutely needed if we want Bitcoin to succeed. This is actually the main issue with the Gold vs BTC debate. Gold can accrue value just by sitting around. Bitcoin needs to be actively used in order to keep it’s value. So where does that leave us?

Well, in a few places. As the block subsidy reduces, we will need modest increases in price or a large increase in transactions. When the block subsidy goes away, we will need large transaction volumes. This makes the purely SoV thesis a challenging argument. It however makes the digital cash thesis stronger. The end result in my opinion will likely be somewhere in between, with only large amounts of capital that pay large fees moving through the underlying protocol.

Something talked about in the article that I found interesting was the potential for a more volatile hash rate. As rewards become less standard and more unpredictable (transactions are not regular!) there will be miners that turn on their machines for some blocks and not others.

From the article:

“The volatility of fees, which seem to behave nonlinearly as blocks become full. Might lead to corresponding big swings in hashrate.” — Nick Szabo

Scarce block space is a good thing since we will see a backlog of transactions, which demonstrates future intent to reward miners, which in turn stabilizes the system. Congestion in 2017 demonstrated that the system can create and sustain a backlog.

A legitimate concern is that in a pure transaction fee security model, there will be volatility in cash flows. Transaction fees are market-centered, meaning that they go up and down adjusting to supply and demand. The base assumption is that cash flows from transaction fees will be unstable which makes the network less secure. Dan Mcardle sums it up nicely:

“As mining becomes highly commoditized with mature corporations, miners are unlikely to play short-run games, but will rather choose to mine continuously. Taking this further, as miners will likely vertically integrate with other services (ex: OTC) that become additional profit centers (meaning they’re not as concerned about the possible games to play on a block-by-block basis)” — Dan Mcardle

Miners like stable cash flows, hence why they join mining pools. They don’t play short term games trying to win a block, they socialize the winnings.

Given the worst case scenario where mining fees are unstable, it doesn’t actually undermine the system, it just makes settlement time longer until fees grow large enough for mining to turn back on. Entities, by necessity of time preference, would increase fees in response, countering.

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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

CryptoAM: Central Banks, Bitcoin Rebounds & Microsoft Enters

“If I’d only followed CNBC’s advice, I’d have a million dollars today. Provided I’d started with a hundred million dollars.” - Jon Stewart

Three things you need to know:

One: Coinbase* looks to acquire Xapo

Coinbase’s quest to diversify its revenues continues. The exchange is reportedly close to buying Xapo, one of the most prominent custody businesses in the industry, for $50 million. If successful, it would be the 15th acquisition Coinbase has made since its inception.

Xapo is one of the largest custodians in the industry, with around 700,000 BTC worth of assets under custody, representing close to $5.5 billion. Coinbase already offers custody services but has only $1 billion under custody, meaning that the proposed acquisition would significantly boost Coinbase’s share in the custody market. Other well known custodians in the industry are BitGo and Kingdom Trust.

Key trend: As the industry matures and more institutions enter, look for custody to increase in importance. No institution wants to run the risk of losing their funds, and this industry is rife with examples of hacks and lost private keys. High quality custody solutions give confidence to institutions that their funds will be kept safe, encouraging them to enter and increase their exposure. I also expect the further consolidation of the cryptocurrency industry. There is far too much fragmentation across all the different sectors. Exchanges, custodians, protocols, dApps, and payment rails are all incredibly fragmented and it’s odd to see an industry focused on the renewal of the financial system to have so many silos. If I were making bets (and I am), I would bet on the streamlining of many different offerings that are doing tangentially related things.

Be smart:
Back in 2014 Xapo raised $40 million from investors in what was, at the time, the largest investment in a crypto company. Without knowing the term sheets or specifics, being sold for $50 million after raising $40 million doesn’t appear on the surface to be a great outcome for those initial investors…

Two: Flexa + Gemini = using crypto at Whole Foods

If you’ve spent any amount of time in this industry I’m sure you’ve heard a critique resembling the following:

“You can’t use crypto for anything outside of trading”

“Crypto can’t be true money because it’s not a true medium of exchange”

“If this is money why can’t I buy coffee with it?”

It’s a fair criticism, because most mainstream retailers don’t accept crypto. Not only that, but during the fee crisis of late 2017, many retailers that previously supported Bitcoin actually rescinded that support citing unstable payments.

General reasons for this lack of adoption include low demand, complicated accounting, and technical difficulties integrating crypto into traditional payment infrastructure. There have been a few attempts to mitigate this from companies such as Bitpay and Coinbase custody, but the vast majority of Bitcoin payments are still confined to grey & black markets (which are forced to use Bitcoin since they can’t really accept anything else).

That’s why last week’s announcement from Flexa, the payment processor, has received mainstream attention. The company claims you can use their mobile wallet, named SPEDN, to purchase goods at major retailers such as Whole Foods, Bed Bath and Beyond, and Nordstrom.

The secret sauce behind all of this? These retailers aren’t actually touching crypto!

  • Our Bitcoin hero Blake puts crypto on his SPEDN wallet (currently can hold Bitcoin, Ether, Bitcoin Cash, and Gemini Dollar).

  • Blake goes to buy groceries from Whole Foods. He opens up his SPEDN wallet, chooses which currency to use, and then scans the uniquely generated QR code on his wallet with the store’s digital scanners (no new infrastructure required for the store).

  • The Flexa backend converts Blake’s crypto into fiat and makes the payment to the retailer. The retailer never touches crypto, and instead just sees a successful transaction on their screens, immediately. This experience can best be compared to AliPay or WeChat, except users are obviously paying with crypto. Flexa acts as an intermediary taking on the currency risk at the time to allow you the ability to pay with your Bitcoin.

What about block confirmation time? Flexa gets around this by requiring that SPEDN stake a certain amount of the company’s native Flexacoin on the network. This serves as collateral to settle the transaction. While block confirmations take place, the merchant is compensated in real time.

The overall vision for Flexa: Imagine your major wallet providers plugging into the Flexa network, allowing all their users to access the large retailers that Flexa has. For example if I was using Trust Wallet and it was signed up to the Flexa network, I would also be able to purchase goods at Whole Foods. The more providers that use the Flexa network the more demand there is for Flexacoin, potentially pushing up the price over time.

Why this matters: Mainstream adoption of crypto requires mainstream retailers to accept it, allowing people to buy their regular goods and services.

What I’ll be watching for: Continued partnerships with big brand retailers, transaction volume on the network, and how many active users there are. This is a great opportunity for stablecoins, and so I’ll be watching to see if there is a significant increase in demand for Gemini Dollar.

Oh, and I’ll be waiting for an Android app also (as if getting left off group chats wasn’t already bad enough).

Three: Microsoft launches testnet for decentralized identity network

Image result for microsoft

Microsoft announced last week that it was previewing a new network called ION (Identity Overlay Network), on top of the Bitcoin blockchain. ION is a decentralized identifier network, which allows users to establish their identities without needing to go through a central party.

ION is the first implementation of what Microsoft calls Sidetree. This is a protocol that enables decentralized identifier networks to be built on top of blockchains. This is important because it solves scalability issues that blockchains currently face, meaning that most can’t handle more than tens of transactions per second.

Why is digital identity important? Because it allows us to authenticate who we are so that we can access services on the internet. Every time you give your email and password, you are giving proof of who you are and that you are the person behind an account.

The problem currently is that having identity centralized exposes the system to leaks, hacks, and general invasions of privacy. You don’t want your account information, details, and personal information to fall into the hands of bad actors.

The best way to think about centralized identity is to take Facebook Connect as an example. When you move across various sites on the internet you often see two options:

  1. Sign up for an account

  2. Sign in via Facebook

If you sign in via Facebook, then Facebook pushes the data that it already has on you to that website, to automatically verify your identity and create and account.

Ideally with decentralized identity you the individual should have your own personal version of Facebook Connect, allowing you to navigate and access applications. This would happen while having full control over your personal details. The specific details you would need to provide to applications to authenticate your identity are still being considered, with industry players banding under the Decentralized Identity Foundation to help answer provide solutions.

Not only does decentralized identity increase privacy and reduce the risk of leaked data, but it can help lay the backbone for millions of people in developing countries without a formal identity to access financial and governmental services.

Microsoft is currently running ION on the Bitcoin testnet, with the mainnet launch scheduled for the coming months.

Read the original Microsoft announcement here and read more on digital identity.

One Extra thing: Bitcoin ETF gets Delayed (again)

The first time that a Bitcoin ETF got denied / delayed the market took a walloping. The second time the beating wasless. By now, the market seems immune to bad news about an ETF.

If you’re holding out hope for an ETF approval, I’d bury that hope pretty quickly. The SEC has been denying and delaying different Bitcoin ETFs for over 2 years now. Seeing as they delayed this application once again, it’s unlikely it gets approved anytime soon. The market will have to mature dramatically before an ETF will be approved.

Perhaps one good way to play the probability of an ETF approval is to consider it a black swan, and take the Nassem Taleb approach. Make a lot of tiny bets that mostly lose and wait for the swan to hit to cover all the times you’ve lost.

Structurally, that looks like taking out extra leverage a few days around decision time and eating the losses until you win big.

Of course…who knows. Maybe the SEC will announce at a random time just to mess with us.

Also in the news:

Market Outlook:

Quick Take

Overall Market: Some interesting developments over the past week. We’re seeing strong dips get bought up quickly, in an inversion of the 2018 dynamic the market experienced. This to me indicates we are indeed in the fourth Bitcoin bull, and one should navigate the market accordingly.

I’d like to note before moving on that *despite* being in a bull run there will be significant pull backs. Every run has seen 30%+ pull backs. When I say bull run, I mean that I expect it’s incredibly likely the price of Bitcoin will end 2019 above where it is today.

The crash from 8000 — > 6800 last week was likely caused by panic selling after a large $31M order on Bitstamp was sold at market. In my opinion this was a clear case of market manipulation. It’s not a coincidence the Bitcoin was sold on the most illiquid BitMEX reference rate exchange. Around $250M worth of longs were liquidated in the move, further exacerbating the crash.

The overall market acted rationally by quickly buying up the dip.

We’re now seeing strong action from altcoins, with Bitcoin dominance falling as Bitcoin ranges between 7800 - 8000 (as expected, alts post gains after BTC cools off).

As for the reasoning behind the continued price action, there are a few reasons that make sense:

  • There are growing trade war concerns with China & the fall of the CNY vs USD leading to capital flight via Bitcoin.

  • There is also increased public & institutional awareness of Bitcoin, and better infrastructure, so that people on the sidelines can enter the market. Google trends & media coverage has grown significantly since the beginning of the year.

  • At the beginning of 2019 there were many underweight crypto hedge funds with sidelined capital. They could not risk Bitcoin taking off without them as they understand that Bitcoin posts the majority of its gains in a small amount of days, meaning that missing those days would leave them in the dust compared to their benchmark.

  • Institutional short exposure to BTC. There are now a variety of regulated ways to go short BTC, which also means more violent moves on the way up as shorts get quickly unwound.

Some notes:

  • Implied volatility has spiked massively on Deribit, leaving a wide gap between realized vol. This had led me to begin selling short term vol. Have short positions on the following contracts: MAY24- 7250P, MAY24- 7500P, MAY24- 8500C, MAY24-8750C, MAY31-8750C, MAY31- 7250P.

    Implied vol is forward looking, realized vol is backwards looking. It’s not a perfect comparison but when there is a wide and continued gulf between the two the market may be mispricing.

Direction: We are currently in a bullish continuation pattern but have failed the first breakout. A break above 8100 should sent us to the 8400 level quickly, and a break below 7720 would likely send us down the 7400 level. I’m net long, and believe that Bitcoin is more likely to test 8400 first than 7400.

I’m very overweight in altcoins right now, and am actively entering into positions in coins that:

  • Have strong bottoming patterns

  • Large asian markets

  • Strong communities

  • Protocol or Currency, not dApp

Key Support:  7720, 7400

Key Resistance: 8100, 8400

What I’m thinking today:

Central banks & Bitcoin

I’ve riffed on this idea in previous issues of CryptoAM, but I’d like to expand this exploration by looking (briefly) at the potential economic impact of Bitcoin on the world economy.

Central banks seem to have a turbulent relationship with Bitcoin, with their economists simultaneously fascinated and repulsed by the idea of a free market currency. It presents a terrifying but intriguing possibility — can a world exist with an unmanaged currency?

The answer (to them) is a resounding of course not, but that is because the idea of a free market currency undermines the entire point of a central bank. Central banks exist to manage state currencies and to ensure that economies run smoothly throughout times of turbulence. If there exists no entity to manage currency supply then the ability to influence economic output doesn’t exist.

This idea that a digital asset cannot usurp the place of the a central bank hinges on three things that these banks offer:

  • Protection against the risk of structural deflation

  • The ability to respond flexibly to temporary shocks to money demand and thus smooth the business cycle

  • Capacity to function as a lender of last resort.

Let’s take the third point and run it in a different direction. While central banks may be able to act as a “lender of last resort” in a liquidity crisis, I’d like to introduce the concept of a “currency of last resort”.

A currency of last resort is important for those people trapped in a governmental crisis rather than a liquidity crises. When you hold your countries currency, you are implicitly trusting the government and banking system with full faith to manage the affairs of your country. If they fail to implement effective monetary policy, then you as a citizen and holder of the currency bear a massive cost.

If you believe there is a slight chance that your central bank will not execute effectively, then it’s in your best interest to hold a currency that is not impacted by your state. It’s your hedge. It’s your currency of last resort. If you live in a country with a 1% chance of failure, you should rationally hold 1% of your savings in assets not tied to that country. 50%? Hold 50% of your savings in alternative assets.

In the world economic system, it’s important for an asset like this to exist as it will offer the ability stabilize crises. Central banks do not fail out of nowhere, you can generally see the warning signs. Bitcoin will allow those people living in precarious economic situations to reduce their exposure to their national currency and in the case of total collapse they will not be as negatively impacted, allowing for a faster rebuilding of societal structure.

To me it doesn’t matter as much if Bitcoin replaces central banks. What matters is that it’s the safety net to catch those people living with incompetent central banks. Of which there are many…

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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

* Wave Financial is a client of Coinbase

CryptoAM: Twas the Thursday before Consensus

Thursday, May 9th

Twas the Thursday before Consensus and all the crypto townsfolk were merry. The one time a year when the suits of crypto, the flip flop wearers of crypto and everyone in between gather to celebrate the industry…or so the tale goes…

CryptoAMers in NYC next week let us know on our forever
🔥 telegram group where we’ll be coordinating a catch up!

Three things you need to know:

One: Binance Gets Hacked

As many people know by now, Binance had a rough Tuesday. Hackers gained access to hundreds (or thousands) of user accounts and managed to extract passwords, API keys and 2FA secret keys. Hackers managed to withdraw 7000BTC (which is the entire size of the Binance hot wallet) and move into their accounts.

While not a traditional hack (Binance’s infrastructure was not compromised, user accounts were), it still displayed a shortcoming of Binance's ability to detect abnormal behavior, and is now a black spot on Binance's otherwise pristine record. CZ admitted that the hackers exploited weak points in Binance’s infrastructure. Binance is offering to cover all losses through their Secure Asset Fund for Users (SAFU), so no balances will be affected. Their API and Withdrawals/Deposits will be down for a week.

This is actually the second “hack” that Binance has experienced. The first “hack” also involved compromised user accounts, although the hackers were stopped by Binance’s algorithms. These two hacks took place in the following manner:

  • Hackers phish user accounts

  • Hackers identify a few accounts with high withdrawal limits (>100BTC)

  • Hackers move money from others accounts into the high withdrawal limit accounts via trading

  • Trading attack: have all high withdrawal accounts place really high asks on illiquid coins (like 100 BTC for Viacoin…)

  • Have all other accounts complete those asks, transferring BTC to the high withdrawal accounts

  • Withdraw the BTC collected!

The hackers this time clearly learned from previous mistakes. They executed this attack flawlessly.

While the markers reacted badly at first with Bitcoin trading down ~2% and BNB trading down 10%, both assets ended the 24 hours after better, with Bitcoin flat and BNB down only ~5%. In fact, Bitcoin over the last two days has not only shrugged off the news, but actively gained in the face of the hack.

Why this matters for you: This hack drives home the importance of risk management in cryptocurrency. Even the best exchanges cannot save you if you choose to engage in risky online behaviors. Use a password manager, use 2FA on an app (not tied to your phone), and make sure you’re following the rules of good operational security.

From a market perspective, this reinforces that the bottom is probably in.

Another controversial point: a blockchain re-org. This one created a lot of discussion of Twitter. The consensus here: possible with a larger theft of BTC, but not likely. Here’s the original tweet that started the discussion:

Two: Facebook expands Whatsapp team by 25%

Image result for whatsapp payments

Facebook continued its push down the payments rabbithole yesterday by announcing that it was increasing Whatsapp staff by nearly 100, with the intention of developing a new Whatsapp mobile payment feature for more widescale use.

Side note - for those unaware, Facebook owns Whatsapp and Instagram.

Close to 1 million people have already trialled the payments feature in India, with the beta being launched there last year. Zuckerberg’s rationale and vision behind this move is clear:

"I believe that it should be as easy to to send money to someone as it is to send a photo.”

This isn’t a striking revelation to the crypto community, who have been echoing this sentiment for years. However it does again show Facebook’s intent for the payments industry, a large part of which revolves around the introduction of its own stablecoin called Project Libra.

What I’m most interested to see is what sending the stablecoin between users in different countries looks like. Anyone who has sent a sizeable crypto transaction knows the anxiety associated with making sure each digit in the address is correct. Putting to one side the potential concentration of power, when it comes to designing easy to use products for widespread adoption, there aren’t many better than Facebook.

See the video of Whatsapp payments in India.

Three: tZERO falls well short of projected investment by fund

Image result for tzero

Nothing is ever set in stone until the contract is signed. That’s a key takeaway after GSR Capital closed a mere $5 million investment in tZERO, one of the most prominent security token trading platforms. tZERO is a subsidiary of whose billionaire CEO, Patrick Bryne, is a prominent blockchain evangelist.

The breakdown:

  • GSR was originally supposed to invest $404 million in the company at a $1.5 billion valuation back in August. Term sheets were signed.

  • That was downsized to $100 million in an MOU in March at the same $1.5 billion valuation. Another firm, Makara Capital, was brought in to co-invest with GSR.

  • That agreement also fell through. In April Bryne’s stated that GSR was still obliged to purchase $30 million worth of tZERO tokens on May 6, as per the original agreement in August 2018.

  • That also didn’t happen. The $5 million deal finalized this week was an equity investment, with tZERO letting GSR out of all their previous contracts.

Why this matters: Security token platforms were hot last year but there haven’t been many prominent success stories yet. The failure of the tZERO/GSR deal, and the subsequent reduction in the valuation of tZERO, raises interesting questions about whether investors share the same optimism for these platforms as they did last year.

One Fun Thing: The Aliens Among Us

As per Bloomberg:

For the last several years, the U.S. military has observed an increase in what it calls “unexplained aerial phenomena.” The rest of us may know them by their more common name — unidentified flying objects — and we should all strive, as the Navy is doing, to take these reports more seriously.

Sometimes, according to the Washington Post, well-trained military pilots “claimed to observe small spherical objects flying in formation. Others say they’ve seen white, Tic Tac-shaped vehicles. Aside from drones, all engines rely on burning fuel to generate power, but these vehicles all had no air intake, no wind and no exhaust.” They also appear to exceed all known aircraft in speed and have been described by a former deputy assistant secretary of defense as embodying a “truly radical technology.”


Also in the news:

Market Outlook:

Quick Take

Direction: We’re above 6000, this cannot be understated. We performed an extremely important S/R flip, bouncing off the 6000 level before continuing higher to 6050. It’s likely that we continue this run up to the 6500 level, where we will encounter strong volume resistance. I’m very bullish on continuation, and will be until the parabola drawn above is broken.

Key Support:  6000, 5800

Key Resistance: 6300, 6500

Overall Market: Altcoins are going to die for the next few months. Consider this your warning. I know I’ve been saying that scaling into alts is a good idea, and I do still think so.

There is a smart way and a reckless way to scale! The smart way is to set limits at key support levels and wait. The reckless way is to market buy.

What I’m thinking today:

A Brief on Consensus Mechanisms

In this great post, Jordan Clifford from Scalar Capital breaks down consensus mechanisms. This is now the #1 article I send people when they ask me about consensus.

Jordan breaks down consensus mechanisms into two types:

  1. Mining algorithms

  2. Non-mining algorithms.

Mining Algorithms:

  1. Proof of Work.

    PoW creates consensus in rounds known as blocks. Consensus participants are called miners or block producers. To create a new block requires solving a mathematical puzzle that is difficult to solve but easy to verify. This puzzle acts as an ongoing lottery for the right to append to the ledger. Proof of Work awards each valid block that is included a block reward, and for the first time, consensus is paid for.

    Pros: Very simple and secure. Novel approach to Sybil resistance allowing open participation

    Cons: So far economies of scale have resulted in centralization. Consumes large quantities of physical resources.

    Notable Examples: Bitcoin, Ethereum (current), Litecoin, Monero, ZCash

  2. Proof of Stake:

    Building on the concept of proof of work, Proof of Stake aims to be faster, more environmentally friendly, and more amenable to sharding — the division of labor within subgroups of a network. For the privilege of producing a block, rather than solve a mathematical puzzle, block producers vote with their stake on the blocks they produce. In PoS, it is possible to create a schedule in advance resulting in quite fast block generation times.

    Pros: Offers finality enabling sharding possibilities. Can offer fast block times.

    Cons: More complex than PoW. Nothing at stake is a theoretical problem.

    Notable Examples: Ethereum (future), Decred (hybrid PoW/PoS), Dfinity

  3. Delegated Proof of Stake (dPoS)

    Delegated Proof of Stake is a specialized form of PoS. The difference is that the majority of owners in dPoS are expected to delegate their responsibility. By limiting the number of participants, latency becomes less of a problem and consensus speeds up. If the delegates are severely limited in number, premium hardware system requirements may be expected. A limited number of block producers with top notch equipment would allow a network to run at higher throughput.

    Pros: Faster consensus since latency is less of an issue; more throughput

    Cons: Less decentralized

    Notable Examples: EOS, BitShares, Tron

  4. Proof of Space Time (PoST)

    A clever alternative to PoW, is PoST. In PoW, miners expend energy trying to solve a hard mathematical puzzle. PoST awards block rewards to consensus participants at a rate proportional to the storage they have allocated for participation.

    One of the most promising advantages of PoST is the possibility that it will remain more decentralized. A problem with PoW algorithms is that they require cutting edge specialized hardware to participate profitably. Application Specific Integrated Circuits (ASICs) are mandatory to mine Bitcoin.

    Pros: Potentially ASIC resistant. More environmentally friendly than PoW

    Cons: Unproven and complex. ASICs or HD farms could diminish benefit

    Notable Examples: Chia, SpaceMesh

Non-mining consensus mechanisms:

  1. Practical Byzantine Fault Tolerance (pBFT)

    When parties are familiar with each other and cooperative, it can make sense to abandon PoW or PoS models, and use traditional consensus algorithms. One such algorithm is an off-shoot of the original BFT family of algorithms known as pBFT. pBFT was proposed in 1999 by two MIT researchers. It requires a lot of communication overhead between participants, so it is only practical for small groups.

    Pros: Reliable consensus amongst known parties

    Cons: Only supports small number of participants; not a trustless system due to users having to trust validators

    Notable Examples: Hyperledger, Ripple, Stellar

  2. Directed Acyclic Graphs (DAGs)

    Requiring all participants to come to consensus within a certain period of time limits the throughput of a system. One novel approach is to not require a global consensus on regular intervals. Rather than batch transactions into blocks that are agreed on in a global manner, transactions are individually added to the history.

    As transactions are added, they reference prior transactions, and that gives some confidence that the prior transactions are accepted. If enough transactions are chained together on top of a given transaction, it’s increasingly probable that the network will accept the original transaction.

    Pros: Fast “confirmations” and high throughput

    Cons: Unproven in practice. Suspect immutability.

    Notable Examples: Iota, Byteball, Nano

Some food for thought: everything but Proof of Work is “unproven in practice”. Even Proof of Work has major flaws such as centralization of mining power and energy usage. 

Delegated Proof of Stake has seen some mild success with EOS, and there are many different Proof-of-Stake protocols launching in the near future which I will be watching with interest. 

In the coming years, there will be many breakthroughs when it comes to efficient consensus mechanisms, and I believe that the cryptocurrency landscape will radically change as a result. PoW is just the first step, and while it’s the best as of now I’d wager that 50 years from now it’s likely we have discovered a more efficient consensus mechanism.

Make it a point to document all new consensus algorithms and follow the projects that are attempting new, novel approaches. One of them may end up a winner….

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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

CryptoAM: Fidelity, ETH Futures and a New Kid on the Block

Tuesday, May 7th

☀️Happy Tuesday morning CryptoAM. We’re looking at a market this morning that’s on the cusp of a full bull run. This market feels radically different from the desperation of May 2018 leading up to Consensus, but don’t let that feeling of suppressed joy get in the way of rational and objective thought.

This market requires just as much caution, patience and understanding as last years market did. The ones who waited, watched, and acted survived. Nothing has changed. Wait, watch, and act.

Three things you need to know:

One: Fidelity to Offer Crypto Trading to Institutions

The world’s fourth largest asset management fund, Fidelity Investments, is set to roll out a cryptocurrency trading service in the coming weeks according to Bloomberg. The offering adds to the firm’s custody service for digital asset holders which begun earlier this year.

The details:

  • Fidelity will act as an agent to buy and sell Bitcoin on behalf of institutional clients. These clients include pensions, hedge funds, and family offices.

  • Only targets institutional customers unlike Robinhood and E*Trade that service retail investors.

  • No other digital assets aside from Bitcoin will be offered initially.

Why this matters: Trust. If you’re a traditional institutional investor who doesn’t follow crypto closely, having a big name like Fidelity offering crypto trading is encouraging. It can help nudge these investors to allocate small portions of their portfolios towards digital assets - something that the Wall Street facing firms in the crypto industry have been pushing hard for.

Most important, Fidelity offers a way for the more forward thinking people at institutions to sell their superiors on the idea of Bitcoin. Previously, there was no qualified custodian or any trading platform (besides the CME) that would be deeply trusted by a career executive in finance. People are keenly attuned to reputational risk, and they definitely do not want to explain that they “lost” bitcoin in a hack of Coinbase, or BitGo, or another relatively new company. They are definitely going to be more comfortable selling the idea of Fidelity.

Great, but remember that 22% of institutional investors
already have exposure to digital assets, according to another recent Fidelity survey. Therefore it’s unlikely to be a sudden rush of new institutions to the market that push prices upwards. Instead it’s more likely that prices increase via existing institutions in crypto accumulating assets, combined with a slow trickle of new institutions entering the market as players like Fidelity offer more options to become involved.

Context: Fidelity has USD$2.46 trillion in assets under management. The entire Bitcoin market cap is slightly over $100 billion.

Two: Alkemi announces $16 million liquidity pool

Image result for alkemi crypto

A lack of liquidity in the crypto markets is problematic for a host of reasons. It prevents the overall growth and adoption of crypto products and services. Crypto exchanges often try to address this liquidity problem and the spread on their order books through interexchange arbitrage, exposing them to counterparty risks and costs.

Enter Toronto based startup Alkemi, which last Wednesday unveiled a $16 million liquidity pool for its decentralized protocol which addresses liquidity problems in crypto markets. This liquidity pool is non-custodial, meaning Alkemi has no control over the assets in the protocol; users hold their own private keys.

How it works (heavily simplified):

  • Liquidity providers (large token treasuries initially, retail users in the future), connect their wallets to smart contracts via the Alkemi app.

  • The average price of an asset (e.g. BTC) is collected across exchanges that choose to participate and used as the price to work towards.

  • The liquidity pool can then be used to address price inefficiencies on exchange order books, ensuring that prices across participating exchanges are the same.

Alkemi acts as the settlement mechanism here; ensuring full decentralization with revenues being shared between all stakeholders.

The significance of $16 million: Once the Alkemi protocol is deployed this would put the company in 3rd place in the DeFi rankings, ahead of other prominent projects such as Dharma, UniSwap and Augur.

Source: DeFi Pulse

Check out the Alkemi Open Value Manifesto.

Alkemi is another product in a long line of fascinating DeFi protocols launching. If you haven’t already, I would take a look at UMA protocol. They’re focusing on launching a myriad of financial derivatives on the blockchain and are doing a stellar job of it too.

For the other side of things, check out this video of Arthur Hayes. He has persuasive arguments against decentralized exchanges and listening to them will sharpen own arguments:

*Disclaimer: I worked closely with the Alkemi team throughout the Alchemist Techstars Blockchain Accelerator (Zac).

Three: Ethereum Futures are Coming

Image result for eth futures

Ethereum saw a significant uptick after the article by Coindesk claimed that Ethereum futures were close according to a senior CFTC official.

The money quote:

“I think we can get comfortable with an ether derivative being under our jurisdiction,” said the person, who did not want to be identified because the regulator does not typically publicize decisions to adopt new products.”

We like to talk a lot about infrastructure here, and the benefits that infrastructure will bring to the markets. Well, here it is. More infrastructure coming your way.

Up through the announcement of Bitcoin futures, Bitcoin rallied significantly on the speculation and on the approval of BTC futures. It’s likely that much of the same will happen with Ethereum, culminating in a blow-off top and decline after the futures are announced.

Based on my personal experiences with regulators (which is a lot…since I lived in DC for a year while working on crypto… ), the CFTC seems infinitely more comfortable than the SEC with cryptocurrencies and are more open to working with product issuers especially when the products are based on Bitcoin.

The SEC takes a harder look at ICO’s and retail scams, and generally devotes less mindshare to the Bitcoin/Ethereum question. It’s more likely than not that along with the launch of Ethereum futures we will get confirmation from the CFTC that they consider Ethereum a commodity, which would also be a great boon for the Ethereum price.

Also in the news:

One fun thing:

In case you forgot how far we have to go, check out this great quote from a Nobel prize winning economist. I wonder though, what’s his plan for how to shut crypto down is?

Check out the video for more fun quotes.

Market Outlook:

Quick Take

Overall Market: 

On February 6th, 2018 Bitcoin experienced one of the sharpest collapses in recent memory, dropping from a high of 7948 to a low of 5873, before closing the day at 7643. At the time of writing, Bitcoin is trading at 5903 — a smidge above that February low.

Here are the prices (low’s) of other assets during that time:

It’s been a slow and painful bleed for most altcoins. If you look at the charts, you’ll see that their BTC ratios were rarely sharply down on any given day but rather they experienced a slow decline in their ratios. If you’ve heard the parable about the frog in boiling water, you know exactly what most altcoin holders felt throughout the 2018 bear.

Something to keep in mind. Bitcoin dominance functions similarly to the S&P, in that up days are far more frequent but down days are sharp and severe. Altcoins tend to have extremely right skewed returns, meaning that they move upwards extremely fast. It’s generally +EV to hold/accumulate altcoin positions throughout bleeding as they often far eclipse previous highs during runs.

The way to understand this (and to use this) is by looking at market cycles:

  • The bull run is usually started by Bitcoin posting strength.

  • What comes next is a few alt coins (such as ETH and XRP in 2017) leading the charge up and shaving off Bitcoin dominance.

  • Then, at the peak of the bull will come the part called “altseason” where profit spills over into altcoins.

  • In the ‘16-’17 run this BTC->Major Alts-> Minor Alts happened twice before the end of the last bull run. It’s not unlikely for it to happen more than once before the end of the longer cycle.

This is a classic cycle. If the market you are active in begins to do well, you’ll start losing interest in the appreciation of the major assets as their returns will generally be in line with overall market appreciation. As the perceived risk of holding a position in the market goes down you begin believe to that you are not exposing yourself to enough price risk. So you end up seeking out additional risk.

Personally on every major bleed this cycle I have been content to enter into altcoin positions at key support levels. My view is that the market is entering the bull phase of the 4th cycle of Bitcoin, and that in the coming months we will see a reinvigorated market. It’s difficult to time exactly when “alt-season” will appear, but know that the cycles are generally longer than expected and happen more swiftly than expected. On the chart below, BTC dominance gained for a solid 6 months before being wiped out in the span of 3 weeks.

Direction: We gapped up here. Low volume generally means that price in this area was not fully "agreed" upon by the market. Generally this means price punches through or falls through quickly. The fact that we have stayed in this area means we will be experiencing a lot of chop and then violent movement in one direction.

For Bitcoin, I don’t know what to expect. If I had to put probabilities on it, I’d say 70% chance we punch through 6k and 30% chance we drop to 5200 within a week.

If we break 6000 and hold for > 1 hr the likelihood of gapping up to the 6250 level is very high.

The options market is pricing this rally well.

Last week at 5300, the probability of ending December above 10k was 20%. This week at 5900, the probability is 25%.

Key Support:  5780, 5700

Key Resistance: 6000, 6270

What I’m thinking today:

Made this graph yesterday. Long Bitcoin, long the ocean (not financial advice).

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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

CryptoAM: Bitcoin vs Gold, VC Activity, and Huobi Goals

Thursday, May 2nd

Good Thursday morning from the West Coast! Starting next week I’ll be making a trip out East, first to Chicago for the Trading Show, New York for Blockchain week, and Baltimore/DC for the Preakness Stakes. If you’re going to be at any of them, give me a shout!

3 things you need to know:

One: Bitcoin vs Gold: 1 in 5 Millennials prefer Bitcoin to Gold.

If you’re like me and you think that hedge funds doing interesting things is fun, you’ve already experienced two very fun things this week.

First: Blockchain Capital released their second survey on attitudes towards to the digital asset market, uncovering a multitude of gems like “4 in 5 millennials prefer gold to Bitcoin”. Did I say that differently in the title? My bad.

Second (and even more fun): Grayscale just released a commercial (wow!) about Bitcoin, in which they described it as digital gold, gold of the future, and insinuated that Gold is “so 1970’s get with the times”. The entire commercial consists of two people running around what looks like NYC but a version of NYC where everyone is carrying gold and dropping it because it’s so heavy. Go check out the website they launched with it, hilarious stuff.

On the concept of comparing gold to Bitcoin: It’s a powerful starting point to compare the two for many “no-coiners” to grasp that Bitcoin may be a useful “hedge” against the current financial systems, but to suggest that by investing in one you are choosing an “outdated” investment is mistaken at best.

  • Bitcoin can be viewed as a digital native asset that helps the individual escape censorship of money by individual governments. Gold can be viewed as a primarily physical store of value that enables people to be insulated from larger scale economic crashes (if they actually hold the gold). Let’s put it like this. Gold is more useful in widespread economic panic. Bitcoin is more useful for individual state collapses.

  • Gold has industrial use in addition to it’s Store of Value like qualities. Bitcoin has the qualities of “offshore money” AKA regulation arbitrage in addition to it’s SoV like qualities.

  • I will concede that if you are a fund, a trader or otherwise looking to hedge short term cycles and you have historically done that with Gold — it may be useful to do that via Bitcoin with increasing regularity.

Going back to the Blockchain Capital survey, I’d like to introduce you to the chart that will spark the bull run:

Yes, it’s the familiarity chart. It’s not discussions of who might buy, what they prefer it too, etc. It’s all about familiarity. Here’s an excerpt from the fantastic book Thinking Fast, and Slow by Daniel Kahneman:

People tend to assess the relative importance of issues by the ease with which they are retrieved from memory—and this is largely determined by the extent of coverage in the media. Frequently mentioned topics populate the mind even as others slip away from awareness. In turn, what the media choose to report corresponds to their view of what is currently on the public's mind.

As familiarity with Bitcoin increases, so does the propensity of buying Bitcoin. There are three steps to buying *anything* in this world. (1) Learning about the thing (2) getting comfortable with the thing (3) determining you want the thing (4) finding you can afford the thing (5) buying the thing.

The more people that are familiar with Bitcoin, the more you can skip step (1) and move further down the path on step (2). Humans as a pack tend to become more comfortable with something the more they hear about it, regardless of how they felt about it in the beginning. So the more people hear about Bitcoin, the more implicitly comfortable people will get about changing their minds and buying Bitcoin.

Two: Blockchain and Crypto Investment Activity

Alex Thorn put together a great tweet thread about the state of VC funding in the cryptocurrency world. Highly suggest checking it out.

Some interesting takeaways:

  • Seed rounds are shrinking as valuations go up, and investors are gravitating towards more established companies

  • This is leading to bigger (and fewer) rounds. Quality of deals is going up and quantity is going down

  • Many funds are chasing the same deals making them overcrowded.

From my personal perspective (working at a fund), we’re seeing a lot of high quality infrastructure & data plays walk through the door. Many of them are just on the cusp of closing a round and most already have some signal investors in the mix. I’d expect the field of participants to continue to decrease with time.

Three: Huobi leverages small overseas exchanges to boost revenue 

Large exchanges are continuing to diversify their revenue streams. That's what it looks like at least for Huobi Group, the large Singaporean based exchange conglomerate.

This comes after it announced the addition of South African exchange HIZA to its Huobi Cloud platform, as reported by Coindesk. HIZA will join 150 existing exchanges, with 80 further exchanges in the pipeline, according to Huobi Group's senior business director David Chen. Chen also mentions that they want to see these exchanges process a cumulative total of $55 million daily volume by 2020.

What is Huobi Cloud I hear you ask... Basically it's a one stop shop for parties who wish to set up digital asset exchanges quickly. Huobi leverages its expertise to help these parties set up things such as wallet management, order integration and clearing systems.

Better yet for these new players is the liquidity that they can access through Huobi's global order books - another benefit of this service. Don't underestimate this last point, having consistent depth in order books is important for an exchange to gain credibility and traction.      

This is part of a play to enter into emerging markets. Local partner entities split their profits 50/50 with Huobi and these local players are responsible for regulatory compliance. Huobi mitigates its legal risk by not actually owning the customer data that might pass through their order books. Huobi isn't the only one looking closely at Africa - Bittrex recently invested in South African exchange VALR and Binance has subsidiaries in Uganda.  

What I'm thinking: I'm of the belief that real world demand for crypto by millions of consumers will be fueled by emerging markets. The goal of $55 million in daily volume between potentially 230 partner exchanges might not seem like much on the surface. However I read it to be more of a long term play - if crypto does end up spreading in regions like Africa, then large exchanges with existing business operations stand to benefit enormously. Getting involved early through local entities mitigates risk, while allowing them to gain local knowledge, business contacts and insights which could be valuable down the line. 

Also in the news:

Market Outlook:

Quick Take

Direction: As expected we had a slight pullback to the 5280 level before continuing our climb. We’re looking at a weak volume resistance right now. Combining that with the moving averages crossing over, the shrugging off of the Tether news and the bullish continuation.

I’m a buyer of June & Sept 5500 calls at this level. It’s unclear to me where we will be in those months, but I’m fairly confident it’s likely we see a test of the strong 6000 resistance between now and then. You can offset some of the cost by selling calls above 6000 and buying longer strike calls if you (as I do) believe that a break of 6000 would lead to a strong upwards surge.

Key Support:  5280

Key Resistance: 5500

What I’m Reading

How Mesh Networks and Crypto Can Fill the Rural Broadband Gap - BreakerMag (RIP)

Nothing gets a crypto lover hot and sweaty like a story about how decentralization is helping improve people's lives in a real use case. That's a nice little image to introduce a company I've been following recently, Althea - a San Francisco based venture that leverages mesh networks and cryptocurrency to help democratize internet access to underserved urban and rural communities.

I assume the majority of people who read this newsletter have a pretty solid internet connection and are mostly inner city urban dwellers. Internet prices and options are relatively competitive in major centers (unless you're in Philadelphia in which case Comcast owns you).

But what happens if you're rural? You probably have one or two internet service providers (ISPs) that give you:

a) crazy high prices
b) slow internet speeds
c) both of the above

Either that or you don't have an internet connection at all. This makes it pretty difficult to access all this new financial infrastructure that the crypto industry is building to empower people.

Why does this happen? Because it's damn well expensive to lay fiber networks in rural areas, and there aren't many consumers to make the cost of this worthwhile (unless you charge them higher prices). This is the classic last mile problem.

That's where I want to focus on Althea.

Under Althea's model the economics of the last mile distribution are shifted by socializing internet access. In a nutshell, here's how it works: community members in the network pool their resources and buy a commercial grade internet connection from an ISP. This connection is a fixed cost, and an example might be that rather than needing to lay new fiber to the community, the bandwidth purchased can be transported using one or more antennas, communicating with one another via line of sight hops.

Once the fiber connection's signal has been re-routed to a more favorable location if need be, a router receiving this commercial grade connection can act as a gateway node. The internet from the gateway node can then be shared with other non-gateway nodes via an antenna at the gateway node and more antennas on households that want to receive internet. In dense environments, the houses with antennas can also share internet with their neighbors by each hooking their router to a switch, and running ethernet cables from that switch to routers in their neighbors' houses.

The gateway node shares internet access with other nodes in exchange for being paid in real-time for data that is used. The same is true for the houses that connect their neighbors via Ethernet cables. This mechanism is called “pay for forward.”

Each router has a wallet address that is pre-loaded with Ether (with xDai being implemented in some projects).

To make this network more resilient and scalable, any router running Althea's software, such as those houses sharing internet with neighbors via Ethernet cables, can also operate as an 'intermediary node'. These nodes can define a price in cents per gigabyte to forward internet service to nodes that are further away in the network. This is an important point as it helps extend the reach of this network to more remote households. See the demo here.

Not only should this model work out to be cheaper than each household buying an individual home broadband package, but previously unconnected households will have the ability to access the internet and the financial infrastructure of tomorrow.

I encourage you all to read more into the project. Ultimately what I'll be following is how easily this scales in communities and how easy it is for people to use and operate.

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Nothing written in CryptoAM is legal or investment advice and should not be taken as such. CryptoAM does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence.

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