Posts from blockchain

Time Will Tell

There is a lot of excitement about Bitcoin Cash. It became a thing yesterday and is up almost 100% in the last 24 hours according to Coin Market Cap.

It reminds me of the way hot IPOs trade. Snap went public at $17/sh, traded up to north of $24/share on it’s first day, and is currently trading at just under $13/sh.

I am not comparing BTC Cash to Snap. I am just saying that time will tell whether BTC Cash, or frankly any ICO, is going to be valuable long term.

But one thing is for sure, hard forks create something from nothing and we will see more of them as a result.

On Forks

Last year Ethereum forked and we got a new crypto asset called Ethereum Classic. I own Ethereum. I don’t own Ethereum Classic.

I could buy Ethereum Classic but I have not been interested in doing that as of yet. That may change.

Next week Bitcoin will fork. If you hold your Bitcoin directly, you will get Bitcoin Cash, the fork of Bitcoin, in addition to your Bitcoin.

If you hold Bitcoin at a hosted wallet or exchange that will not support the fork, like our portfolio company Coinbase, you will not get Bitcoin Cash.

I am going to keep my Bitcoin at Coinbase and pass on the opportunity to get some free Bitcoin Cash.

If, over time, Bitcoin Cash becomes interesting, I could buy some and maybe I will do that. Like I might buy some Ethereum Classic.

Yes, passing on the opportunity to get some free crypto is a missed opportunity.

But I am not sold on Bitcoin Cash, like I am not sold on Ethereum Classic. I would like these crypto assets to prove themselves in the market before I take ownership of them.

All of that said, I think forks are valuable. They allow for innovation. They allow for others to try a different model. They allow for the market to decide what is valuable and what is not.

Forks are a pain for the companies that provide the infrastructure for these crypto assets. Forks introduce instability for a period and the Ethereum fork last year is a good example of what can happen.

But all in all, I think forks are a feature not a bug in the blockchain sector. There is more good that comes from them than bad.

The SEC Speaks On Tokens

Yesterday the SEC issued a report of investigation finding that DAO Tokens are securities under U.S. law. This report sent shock waves across the crypto sector leading to roughly 10% declines in the major cryptocurrencies. I must have received a dozen or more emails from people saying that “ICOs are over.”

I don’t think ICOs are over. I think regulatory clarity is going to be good for the crypto sector long term and while this report does not give us total regulatory clarity, it does give us some very valuable insights into what the SEC is thinking about tokens.

Specifically, we now know that:

  1. The Howey test is the regulatory framework through which to evaluate whether a token is a security.
  2. A token that return profits to holders will be considered a security.

We likely know a lot more regarding jurisdictional issues and what the SEC is going to regulate and what they are not. But I will leave it to the lawyers and other SEC watchers to weigh in on that. I am not a professional and don’t want to pretend to be.

At USV, we have been urging our portfolio companies and others in the crypto sector to get good legal advice before embarking on an ICO, investing in ICOs, and more. That legal advice, given as far back as several years ago, more or less anticipated much of what was in this report.

You could see this coming if you did your homework. None of this is surprising to me and to most of the folks in the crypto sector who have sought legal counsel on these matters.

In fact, if you look at all of the regulatory actions that have been taken in the US over the life of cryptocurrencies, you will see that it has mostly been straightforward application of existing laws, on AML, KYC, taxes, securities, etc. Almost all of this could be, and in many cases, was anticipated by those who took the time to consider what the regulators might do and would do.

None of this means that the crypto sector in the US (or elsewhere) won’t be harmed by bad regulations. That has always been a big risk to the sector and remains one. Regulators must be careful to “do no harm”, here in the US and elsewhere. To date, I would say they have done a good job on that. I encourage them to continue that track record.

But mostly I would encourage all entrepreneurs, investors, and others who are actively participating in the crypto sector to get good legal advice before doing anything significant. The regulators are watching. Closely. So know the rules and play by them.

SegWit2x Update

I posted last week about the debate between the SegWit2x Bitcoin update and the threat of a soft fork.

Since then a number of important things have happened.

BIP91 locked in on Thursday and and yesterday BIP91 enforcement was activated.

That means that SegWit is now active on the Bitcoin network.

This is a big deal because the most contentious protocol change in the history of Bitcoin, the introduction of SegWit, has finally happened.

The SegWit2x road map is not complete yet, as the next step will be to introduce a block size increase.

Jeff Garzik, who has been leading the SegWit2x implementation, has a good interview up on Coindesk explaining all of this and more.

Bitcoin has a lot of great things about it. As Jeff says in the interview, it is by far the most secure blockchain. But it’s developer community has had a hard time finding consensus and moving forward together.

SegWit2x is an opportunity for that to change. And I am encouraged by that.

Funding Friday: Token Filings

Public market investors who like to buy into IPOs have Edgar, a database of SEC filings that they can browse through to learn important information on upcoming IPOs.

Investors in token offerings have not had the same thing. Until yesterday.

AVC regular William Mougayar has launched TokenFilings.com which is essentially Edgar for Tokens.

Yesterday we got Coindexter. Today we get TokenFilings.

The crypto community is building stuff that makes this sector more interesting every day.

Reminds me of what the Internet used to be before the big guys took over.

Coindexter

Our former USV colleague Jonathan Libov finally took the covers off a side project he’s been working on since he was at USV.

It is called Coindexter and it’s “a collaborative library for long-term investors in decentralized, blockchain networks.”

You can contribute to Coindexter, like a wiki, or dive into research areasthat interest you. Feel free to ask a question if there’s something you’re looking to learn.

Check it out if you are into token/crypto investing.

SegWit2x vs UASF

Bloomberg has a good piece on the struggle between the Bitcoin core developers and the leading miners on how to best scale Bitcoin.

I am for the SegWit2x proposal and hope that we see it broadly adopted later this month.

There is a chance that doesn’t happen and a user activated soft fork (UASF) could be used to force SegWit into the market.

I personally hope that a user activated soft fork doesn’t happen as it would create a lot of turbulence. The Ethereum fork last year (almost exactly a year ago) that created Ethereum Classic is a good case study to look at if you want to see how that might play out.

Ultimately I do believe the best ideas will win out and that Bitcoin can survive any of these scenarios. But it would be good to see the Bitcoin community agree on something and implement it. That would build confidence that the governance model, which has been a bit shaky, is maturing.

Easy Come, Easy Go

I saw a friend last night who has been trading fiat currencies for thirty years. He looked at the Bitcoin chart and said “I would be worried about Bitcoin if I were you.”

He knows that we own a fair bit of Bitcoin (and Ethereum).

My take on the selloff that continues in the leading cryptocurrencies is “easy come, easy go.”

Anything that goes up 38x in six months can easily go down by just as much.

I am not saying that ETH is going back to $10 or that BTC is going back to $1000. That of course could happen. I am just not predicting it.

It has been too easy to make money in crypto this year. It has been too easy to raise money in token offerings this year.

Tapping people who have made 50x their money on ETH to invest in your whitepaper is a great way to raise money until those people start to lose money on their ETH and fear starts overtaking greed as the dominant emotion in crypto land.

But crypto has not been an easy business to be in over the last eight years. It has just been an easy business to be in over the last seven months.

I remember the two bubbles we experienced in BTC back in 2013:

In April 2013, BTC peaked at just over $200 and then quickly retreated back to below $100.

In November 2013, BTC traded briefly above $1000 and then faded, and did not see that level again until January of this year.

I remember back in the late 90s, a reporter asked my partner at the time Jerry Colonna what he looked for in entrepreneurs.

Jerry said “I want to back people who are doing a startup because of the mission rather than the money, because someday the market will crash and the money will be gone and I want to be with an entrepreneur who will still be around then.”

Bubbles always attract people who are chasing the easy money. And those people come and go.

But crypto is about a lot more than making money.

And the people who are into crypto because of the mission, a global decentralized platform for innovation, are going to be around after this bubble bursts, and the next one bursts, and the next one bursts. They have been around since before the April 2013 bubble and the November 2013 bubble, building this important technology. And so have I and I’m not going anywhere either.

A Visit To Crypto Valley

I blogged about Crypto Valley yesterday (aka Zug Switzerland).

Well it turns out that a couple of AVC community members (Ken Berger and Jeremy Epstein) have put together a three day trip to Zug on August 14-16. Details are here.

Ken Berger wrote this in his post yesterday:

Our target attendee participants are enthusiasts already well-versed in decentralizing internet technologies, including blockchain, crypto-currencies and beyond. We’ve already confirmed some VC’s and hackers, but other deep thinkers and some simply curious will likely make the list too; will be a great group. The event is free of charge. And hey, it’s gorgeous Switzerland in summer.

Unfortunately, we are very limited in spaces. To indicate interest as a participant (or speaker, or host), feel free to message me or use the instructions on the event’s post.

I will not be making this pilgrimage but I suspect some of you may be interested in doing so.