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Crypto Advisors

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We fervently believe many of the ways individuals and institutions interact with one another, transact, and conduct business are ripe for fruitful disruption. The technology that promises to deliver on this front is called the Blockchain. I call it “fruitful disruption” because although disruption has a nasty connotation, and yes in the short term many service/intermediary industries and jobs may be at stake, the Blockchain has the potential to fundamentally transform how individuals relate to the institutions that construct the fabric of society in uniquely beneficial ways. But let’s back up for a second. What exactly is the Blockchain? How was it constructed and what role will it play as it gains prominence and becomes adopted by a greater number of mainstream users?

The Blockchain is public ledger that has three components: it is digital, decentralized, and immutable. Each transaction on the ledger takes the form of code that runs on a machine. Users that interact on the Blockchain and use it to transfer anything of value do not require or possess any physical items to indicate that value (goodbye fiat money, aka paper currency), but instead digitally broadcast each transaction on the Blockchain via their personal public address. In fact, if someone memorizes their private key and corresponding public address, he can effectively cross borders with millions of dollars worth of digital currency that cannot be confiscated from him. This code runs on a network of machines that all run the same copy of the ledger. These computers determine the correct version of the ledger by implementing a majority voting rule. If rogue computers on the Blockchain network purposefully broadcast an incorrect version of the ledger, this false ledger is booted out of the network and is discontinued by the other computers on the network. This fact leads to true decentralization and immutability. The communal ledger acts as the single version of the truth that every computer on the network possesses.

The concept of the Blockchain was first proposed by an unknown actor or group called Satoshi Nakamoto in 2008 and implemented the following year as a core component of the digital currency Bitcoin, where it currently serves as the public ledger for all Bitcoin transactions. In his famous whitepaper, Satoshi envisioned a way to construct a truly trustless currency that was not inherently tied to any government, political, or economic system. Even if local governments were engaged in bouts of corruption or the mishandling of trillion of dollars worth of financial assets, this digital currency would maintain its value and transferability despite the actions of malicious actors.

The real value in the Blockchain and digital currencies is how they democratize money and anything else we hold of value that can be stored electronically. The Blockchain can store contracts, records, transactions, deeds, mortgages, communications, emails, purchase orders, or anything else that can be represented digitally. Instead of relying on banks to provide financing to local businesses, we can use the Blockchain to set up decentralized lending institutions that would collect money from investors, hold all of the necessary documentation and applications, release the funds to businesses that meet the necessary lending requirements, and pay back investors as soon as the funds are returned with interest. This effectively streamlines and quickens the loan underwriting process and ensures all parties are compensated at reasonable interest rates. Or we can use the Blockchain to fight counterfeiting. Counterfeiting costs US businesses over $400B annually. Imagine your business is able to track exactly where your materials are coming from to ensure quality and prevent fraud. Walmart is experimenting using this tech to track where its produce comes from to prevent the spread of diseases and bugs. There are approximately two billion people that are unbankable because of their restricted income or rural locations. We can use digital currencies and the Blockchain to dissolve barriers to banking and payments eliminating the need for bank branches. There are hundreds of use cases that the Blockchain is currently tackling and books are literally being written on the subject.

Bitcoin and other digital currencies are surprisingly unknown but have exploded in value in recent years. Bitcoin has outperformed most other asset classes since its emergence (including US equities, gold, real estate, and oil) and other digital currencies such as Ethereum and Litecoin are following suit.


Dec 25, 2017 0 Comments

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