Posts from blockchain

The Token Summit, run by AVC regulars William Mouyagar and Nick Tomaino, announced two more events in the coming months, Dec 5th 2017 in San Francisco and May 17 2018 in New York.

The first Token Summit was held in NYC at NYU last May, and sold out. Here’s a highlight reel from it.

Today, William and Nick have published the agenda for the San Francisco conference, and you can find it here. It is being held at the Mission Bay Conference Center at UCSF, in a hall that will fit 600 people.

Some of USV’s portfolio companies will be presenting, and I am sure William and Nick will have yet another successful event. If you want to learn about where the token economy is going, and network with the entrepreneurs and companies who are leading it, the Token Summit is a great place to do that.

I got my hands on a Ledger Nano S last week and set it up over the weekend.

The Ledger Nano is a “Cryptocurrency Hardware Wallet” which means it is a device you can store your Bitcoin, Ethereum, and other crypto assets on. It costs $95 on Amazon.

It looks like this:

It is about the size of your average thumb drive/USB Stick.

The screen you see in that photo is quite small and the UI that runs on it is pretty bare bones as a result.

There are Chrome Apps that run in your browser and connect to the Ledger and provide the basic wallet functionality that you have gotten used to on Coinbase or some other hosted or software wallet (balance, send, receive, etc).

I was able to set up the Ledger Nano and get it working without too much hassle. The instructions are pretty good. But the security precautions (which are absolutely necessary) are a bit of a pain to deal with and it is not the simplest experience. It doesn’t take a long time to set up, it’s just a process you have to go through.

There is a USB cable that you use to connect to your computer and put the device online. You can then send and receive crypto assets and use the wallet apps to see the activity on the device.

When the device is disconnected and saved somewhere safely, it is offline.

Many crypto purists believe that you must own a hardware wallet and that your assets are not really yours unless you control the keys and the device on which you store your assets. For those who feel that way, the Ledger is a great solution.

I personally am happy to store my crypto assets with our portfolio company Coinbase in the cloud, particularly in their vault offering which provides delayed withdrawal and multi-sig on the account.

But I do understand those who feel that storing your assets on your own device is the right answer.

Where I find value in the Ledger is as a solution to store crypto assets that aren’t supported by Coinbase and/or some other trusted hosted storage provider.

What many people do is store their “alt-coins” on the exchanges that support those coins. That has turned out to be a dicey option as many exchanges have been hacked over the years.

What I advise, and do, is to store these “alt-coins” on a hardware wallet, like the Ledger, and then move them onto an exchange to trade them, and then back off after the trade clears.

The idea is to limit your assets in “hot storage” as much as possible and maximize your assets in “cold storage” as much as possible.

And for that, the Ledger Nano is a great solution.

I read a Nathaniel Popper piece in the NY Times today about celebrities endorsing ICOs. It made me want to throw up.

Readers know that I have been and continue to be excited about the emerging blockchain/crypto/token opportunity and I believe it represents the next big wave of innovation in the tech sector, upon which many important companies, products, and technologies will be built. I’ve been saying that since I started blogging about Bitcoin here on AVC in 2011.

I have also written a lot about our portfolio companies that are working in this sector and have even mentioned the tokens that they are issuing. But I have never and will never promote a token offering here at AVC. I believe that these are very risky investments that require a lot of diligence and patience. These are very similar to the kind of seed investments we make at USV. We know that that vast majority of them will not work out and we build a portfolio based on that understanding.

I have also written a lot about the need for diversification and that I expect this sector will come unglued at some point, like the Internet sector did in 2000/2001. If you read Carlota Perez, you will understand that most important technological revolutions have been fueled by rampant speculation that almost always comes undone right as the sector is moving from the installation phase to the deployment phase. That framework is almost certainly playing out again in crypto.

So this ugly speculative phase comes with the territory and always has. But that doesn’t mean I have to like it. I hate it. Most ICOs, like the ones mentioned in Nathaniel’s piece, are scams. And the celebrities and others who promote them on their social media channels in an effort to enrich themselves are behaving badly and possibly violating securities laws.

The worst of it, as Peter VanValkenburgh, the director of research at Coin Center, told Nathaniel is:

It’s undeniable that a celebrity endorsement brings a new audience into the world of crypto currencies. But I’m not certain that celebrity endorsements are doing a good job of bringing attention to the legitimate projects.

I am certain that celebrities are not doing a good job of bringing attention to the legitimate projects. A legitimate project has these characteristics:

1. A relationship between the amount of money being raised and the complexity of the project.
2. A very clear use case that requires the decentralization approach brought by blockchain technology.
3. A reasonable valuation based on the size of the opportunity being pursued.
4. A credible team.
5. The technology has been built, at least to a point where it is demonstrable.

We have looked at hundreds of token offerings at USV and have only participated in one token offering to date. We do have five portfolio companies that either have done or will do token offerings so you can add them to the list of tokens we have exposure to. And USV is an investor in a number of token funds like Polychain which I blogged about yesterday. But the point I am trying to make is we have passed on most everything that is going on in this sector. We will keep looking for legitimate projects and we will certainly buy into token offerings. But we are being very careful and I would hope and expect that all of you are too.

When it comes to ICOs, understand that most are scams and that you must be careful to avoid them. As I said in that post I linked to above, the operative term when it comes to ICOs is “Buyer Beware.”

Late last year, USV funded a new hedge fund called Polychain Capital, which invests only in crypto-assets.

I talked about the reasons for that investment in this blog post.

In the video of the week, Polychain founder Olaf Carlson-Wee talks about his belief in crypto assets and how he developed it.

Our portfolio company Blockstack is building a development platform for decentralized applications built on top of the blockchain.

This video explains what they are doing and they just published a whitepaper outlining how their token works to support this application ecosystem.

I think that most people would agree that a more secure Internet with identity that users control built-in from the start is a better approach. But how one bootstraps that kind of Internet has been a challenge. Tokens as incentive systems are likely a solution to the bootstrap problem and it is exciting to me to see how this works.

Coindesk did me a disservice with this blog post:

USV’s Fred Wilson Predicts ‘Big’ Cryptocurrency Crash https://t.co/P8085HlhW1 pic.twitter.com/8rVaudYnlA

— CoinDesk (@coindesk) September 26, 2017

It made it seem like I was predicting an imminent crash which I was not.

But just as bad, it has led to a lot of tweets like this one suggesting that I also said that people should have 10-20% of their net worth in crypto:

Interesting viewpoint: @fredwilson believes #cryptocurrencies could represent 10-20% of the allocation strategy for an informed investor https://t.co/0tphYEQ5sG

— Jean-Michel Pailhon (@jmpailhon) October 14, 2017

What I did say is that “true believers” in crypto might want to have 10-20% of their net worth in crypto assets. For many of these true believers that would be down from 80-100%.

So, what do I think is a reasonable asset allocation to crypto for the average investor?

Well to start, as I mentioned in that blog post, The Gotham Gal and I have about 5% of our net worth in crypto assets, across a number of vehicles; direct holdings, USV funds, token funds, etc. We have a fairly diversified crypto portfolio, likely much more diversified than most folks could do on their own.

I think that’s likely at the high end of what the average person should have, but I also think its not a ridiculous number for the average person to have.

Many endowments, pension funds, etc allocate 3-5% of their portfolio to venture capital. They know its a risky asset but it has the potential for outsized returns. The largest allocation I have seen to venture capital from a big endowment or pension fund is 10%. So that gives you a sense of what sophisticated investors do with risky asset classes.

If you had to pin me down on a number, here is where I would end up:

• young, aggressive risk taker – 10% of net worth in crypto
• sophisticated investor seeking a high performing portfolio – 5% of net worth in crypto
• average investor, slightly conservative, but with some appetite for risk – 3% of net worth in crypto
• retiree seeking to preserve portfolio value and generate income – 0% of net worth in crypto

Hopefully this will set the record straight. It makes me very nervous when I see folks tweeting out “advice” that I did not give.

This is a conversation between two friends of mine; Chris Dixon, partner at Andreessen Horowitz, and Fred Ehrsam, co-founder of Coinbase.

It is excellent. I highly recommend it, particularly for those that want to make sense of crypto and what is happening in this market.

I was emailing with my friend Harry this past week and we started talking about crypto and the inevitability of a massive crash. I am certain the big crash will happen. I don’t know when it will happen and I think it may be some time before it does. But better safe than sorry. So I’m going to write some thoughts about how to survive it.

I told Harry my personal story of having 90% of our net worth go up in smoke in the dot com bubble and crash.

The only reason it was not 100% was that we owned two significant pieces of real estate that were about 10% of our net worth before the crash and became our entire net worth after the crash.

We were not diversified. We had all of our money in venture capital and internet stocks and had ridden that wave all the way up. Before Flatiron Partners (the venture firm I co-founded at the start of the Internet boom), we had no net worth. So everything we had, we made in the 1996-2000 period. And we essentially lost it all when the bubble burst.

Had we not sold Yahoo! and other stocks to purchase the real estate and pay the taxes on the gains, we would have been wiped out completely.

You might think “you could have sold when things went south” and that is a good point. But when things blow up, your first instinct is that they will come back. They didn’t this time. The selling just continued. A few companies we owned a lot of went bankrupt. These were public stocks that went all the way to zero. So, while it is true that we could have and should gotten out when the bubble burst, we did not, and in some cases could not.

So selling when a market blows up is not the best way to protect yourself from a crash. Selling long before it blows up and diversifying your assets is a much better way. Like we did with real estate, but with a lot more than that.

I like a mix of cash (t-bills, money market funds, etc), blue chips stocks (Amazon, Google, etc), real estate (income producing with little to no leverage), and a risk bucket (venture capital, crypto, etc). I think 25% in each would be a good mix. We have more in the risk bucket but I am in the VC business professionally and have been for 30+ years. 25% in each is where I’d like to get to in time.

I have advocated many times on this blog that people should have some percentage of their net worth in crypto. I have suggested as much as 10% or even 20% for people who are young or who are true believers. I continue to believe that and advocate for that.

But we don’t have that much of our net worth in crypto. We probably have around 5% between direct holdings and indirect holdings through USV and other crypto funds. I think that’s a prudent number for a portfolio like ours.

I know a lot of people who are true believers in crypto and have made fortunes in it. They are “all in” on crypto and have much of their net worth (all in some cases) invested in this sector. I worry about them and this post is aimed at them and others like them. It is fine to be a true believer and being all in on crypto has made them a lot of money. But preservation of capital is about diversification and I think and hope that they will take some money off the table, pay the taxes, and invest it elsewhere.

That is the smart and prudent thing to do. I wish I had done it during the internet boom. I did not, but the next time we made a bunch of money, I did. I learned the hard way. I share my story so that others don’t have to.

Vaults are the crypto equivalent of a savings account.

If you have crypto assets that you don’t plan to spend/send frequently, you can put them in vault and get increased security.

Coinbase has had a vault offering for Bitcoin for the past three years and they have now launched the same vault product for ETH and Litecoin.

It appears as an additional account in your Coinbase accounts screen:

With the vault, you get a 48 withdrawal period (so nobody can move funds out of your account for 48 hours) and multiple signers on a withdrawal.

You can have three signers and require all three to sign a withdrawal or you can set up five and require three of five to sign a withdrawal.

I like to keep some crypto assets in my wallet and the rest in a vault. It is more secure.

If you have crypto assets at Coinbase, I encourage you to set up vaults for them.