Are Cryptocurrencies a Fad or a Revolution in Finance?

Duane M. Tilden, P.Eng
November 5, 2017

As I was walking to my weekly bridge game at the local club, I was pondering my newfound interest in cryptocurrencies, Bitcoin, Ethereum, the block chain, and related topics such as mining, smart contracts, ICO’s; the list goes on. I also thought about the value of things from my childhood, like marbles, hockey and baseball trading cards, comic books, coins, stamps, post cards, and other things that I have collected. All which created markets and gained extrinsic value over time, and could be held speculatively. I then asked myself, “Are cryptocurrencies a passing  fad or here to stay?”

What Makes a Currency Valuable?

Some things, such as coins may be made of a valuable base metal alloy, like gold, silver, nickel and copper. Coins are currency, and as such a perfect example to assessing intrinsic value and extrinsic value. In the past coins were minted with higher contents of the base metal alloys.  The metal content gave them an intrinsic value due to the metals rarity and utility. In time, these metals gained value, to the point where it cost more to mint a coin than it was worth.  People would then begin to horde or “mine” the coin for its intrinsic value which was greater than it’s face value as a currency.

metcalfe_curve

Figure 1. The Metcalfe Curve (1)

Extrinsic value, however, could be likened to what we would consider the “fiat” aspect of a currency. As currencies have moved away from a gold or silver standard, the value of money is largely based on consensus. Markets are also consensus driven, without a universal agreement or set of rules, there could not be trade. This is the reason for the development for money or currency. I work and get paid in the common unit of currency, which I can then use to buy and rent goods and services.

Currency and Security

Until recent developments, Governments and their agencies in partnership with banking institutions have generally controlled currency and financial markets. The operation of the economy is the basis upon which society functions. Money exchanges hands for goods and services, including wages. One currency usually denominates value in a physical market. However, these markets can be subject to various forms of attack or manipulation. Physical money could be counterfeited, transfer of money and assets could be lost or stolen, other forms of fraud could occur where one loses their assets.

Another form of attack is personal, or on the individual. Local regulations and taxation laws require valuation of assets and income which are held by the individual to be known to the public agency and could be subject to economic deprivation and restrictions. This is an instance where individual privacy is violated in built-in, systemic and semi-transparent.

Examples of this are everywhere, such as income tax, sales tax, medical tax, alimony and child-support, retirement and pension plans, insurance. If you owe the government money in a disputed case, they often will violate an individuals rights to deprive them of assets, such as money in bank accounts, garnishee of wages directly from the employer, denial of services, loss of principal residence and other such actions.

Most of the money that we earn, own, or spend is being tracked by the government. There are lots of taxes and lots of “rules” made by the big boys. Unfortunately, the present financial system is often disadvantaging us. Why? Because it often collects more than it provides. (2)

Consensus and Fiat Money

Since a currency in today’s world generally consists of a consensus agreeing in a trading market place, then the truth is anything can have value. As the internet has opened up trading across international borders, and companies have sprung up in the financial market place to provide services beyond their physical location, often catering to the world. I can purchase electronics from China and have them delivered to Canada on eBay, using PayPal or a credit card to exchange in their accepted currency. Buy and sell ads have sprung up, such as Craigslist and Kijiji , allowing wider ranging access to markets at a greatly reduced costs as compared to paper advertising in magazines.

Computer users over time had an edge over non-users, as information became available in a vast manner over greater areas. Shopping for the best price of a desired item, good or service can be searched for on my laptop and obtained at a fair cost. No longer does one have to go out and purchase a paper magazine or ad book, in their search. We now can now open a browser on our computer, or digital device, ask a question on a search engine and sort through a selection of answers. Phone numbers, addresses, reviews, prices, hours of operation, names of staff, job openings and more information is all available quickly and efficiently.

Enter the Bitcoin, blockchains and crypto-currencies. In one report recently obtained, sourced from the international Engineering Firm ARUP (2) it has been stated about Bitcoin, a technology introduced by Satoshi Nakomoto.

At the start of 2009,when the world was in the middle of a major financial crisis, a paradigm shift in technology quietly made its debut. That technology is called Bitcoin, and it’s the biggest innovation in finance in 500 years, and certainly the greatest invention of the 21st century so far. (3)

Cryptocurrencies Create Markets

Beyond creating an anonymous system of financial transactions and storage, crypto-currencies are creating new markets of value and trade. There has been a recent wave of new crypto-currencies coming on the market, most of which have issued whitepapers, and have sales landing pages which outline the details about structure, their markets or business plan, how to participate, and their projected timeline.

In my opinion, issuing tokens for sale is very similar to crowd-funding, which may also be likened to buying or selling shares on the stock market, without the restrictions or regulations necessarily placed on participants. Whether or not these activities are legal may depend on local jurisdictions. However, as long as no laws are broken for the purposes of making transactions in a business manner, or the proposed ecosystem,  then personal privacy of participants and security should be secured to all qualified participants, which are traits of a crypto-currency like the original Bitcoin.

The tokens offered in the pre-ICO sales are generally intended to fund the business operations, which, if all goes well, will turn a profit and be able to provide token based services. Details of the venture and how proceeds from projected profits are to be distributed are usually outlined in the white paper. Tokens may be able to be openly traded as a currency, depending on various applicable rules and regulations which may apply and being able to be listed on the various exchanges.

For example a current energy token on the market, PowerLedger.io (4) –  is a blockchain-based peer-to-peer energy trading platform enabling consumers and businesses to sell their surplus solar power to their neighbours without a middleman.

<From a Media Press Release>  Power Ledger is based in Perth and uses blockchain technology to allow households to trade excess solar power over the electricity network.

Major Australian power retailer Origin Energy recently announced a three-month trial with Power Ledger to explore the benefits and challenges of peer-to-peer energy trading across a regulated network.

“Blockchain technology and cryptocurrency underpins our business offering and we are excited to be working with Perth-based DigitalX” said Power Ledger Chair Dr Jemma Green.

POWR tokens will be offered via the Ethereum cryptocurrency network in an uncapped price offer, meaning the tokens’ final price will be determined by the market demand.

“POWR will be the Ethereum blockchain protocol token required throughout the Power Ledger eco-system that can be converted to ‘Sparkz’, which is the crypto-currency we have set up for users to trade electricity using the platform,” said Dr Green.

As part of the engagement,DigitalX will introduce cryptocurrency investors to Power Ledger in exchange for a fee which consists of a mix of Ether (ETH) and POWR tokens.

“Blockchain-enabled innovation is disrupting traditional industries and digital currency is changing the way companies access capital. DigitalX is pleased to be able to facilitate this quantum shift in traditional mechanisms for accessing funding,” said Mr Travers.  (5)

Generally speaking, however, most crypto-currencies will have many advantages over fiat currency or stock markets. For one, their trade is not restricted to one market, or country to operate. Beyond anonymity one can store value in one token, exchange it for another, buy services on a network, or hold it speculatively. There are the other aspects related to smart contracts and the block-chain where physical assets or other attributes, such as counting operations of a machine or device can be linked to a token. In fact the possibilities seem endless, only bounded by the limits of imagination.

Cryptocurrency Offerings and Exchanges

Every day I receive more notifications regarding new offerings on a multiple of news feeds. Many of these offerings look good and viable. There are many new white-papers to read, and some are quite technically advanced and detailed in outlook and projections. As more cryptocurrencies are introduced into markets and traded on platforms investments will be expected to continue.

As cryptocurrencies are rapidly gaining acceptance and appeal, the task of evaluating all emerging offerings would be odious without methods of categorization, comparison and establishing legitimacy. At this time, according to the coinmarketcap.com, there are 1257 Cryptocurrencies with a total market cap of $199 Billion USD currently listed on exchanges. Currently there are 121 active exchanges trading cryptocurrencies (5) and in the last 24 hours there was a “volume of 614,489 BTC and $4,396,051,516 on 5915 trading pairs” (6).

Other resources of current token or coin offerings and other related information can be found on various websites, including tokenmarket.net and coinranking.com.

The Future of Cryptocurrency

At the current pace of innovation, new offerings, and investment as determined by market capitalization, it does not appear that current rapid growth in cryptocurrencies  slow down. Rather, examining current trends in cryptocurrency and comparing to models, it appears that we are in the innovation and early adoption phases of a technological innovation, as seen in figure 2. (7)

TechAdoptCurve2

Figure 2. Technological Adoption Curve (7)

In addition to the known bell curve of adoption, the value of the networks being formed on the internet, obeys Metcalfe’s law, see figure 1.

Metcalfe’s law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2).

As we can surmise from the effect of Metcalfe’s law as it applies to the development of cryptocurrencies is that we are currently in the earlier phases of value development, which will be expected to grow at an exponential rate associated with a nodal peer to peer model.

220px-Metcalfe-Network-Effect.svg

Two telephones can make only one connection, five can make 10 connections, and twelve can make 66 connections.

For innovators and early adopters these are exciting times as the number of participants continue to grow, and more capital continues to be invested in fledgling commercial enterprises. New business plans for ICO and Token issues are being issued every day. There are technical developments coming, apps, games, lenders and financial instruments, as well as new types of Tokens being issued with a variety of proof’s or calculation methods. Blockchains technology is changing to become increasingly efficient to handle ever increasing numbers of transactions. At this time there appears to be no limit to the possible applications of blockchain technology.

combined_curve

Figure 3. Combined Curve – Crossing the Chasm (1)

[…] The combination of Moore’s and Metcalfe’s laws explains the rise of information technology and the growth of the Internet as we know it today. […] And finally, in an unprecedented apotheosis, by combining the three preceding charts and by ― I have to admit ― visually cheating with axes, scales, and representations I came to the observation that the chasm is actually the point where the transition from a technology driven business to a value driven business needs to take place ― and if this doesn’t happen, that any new product or technology introduction is doomed to fail.

Disclaimers:

Expect that there are traps and pitfalls, some ventures may be fraudulent or simply fail. No guarantees on individual outcomes of ICO’s or other value propositions, and, as in all markets expect that there will be both successes and failures.

Expect, in various regions, government control and regulation, which may attempt to prevent or limit participation by populations or otherwise affect and manipulate markets.

Every participant in any new market, such as a cryptocurrency,  is advised to perform their own due diligence and research before investing capital.

No guarantees or warrantees are implied or expressed by the author, who, may at any time, hold vested interests in a variety of cryptocurrency tokens for speculation or other purposes.

End

References

  1. The Metcalfe Curve
  2. 7 Trends in Cryptocurrency Entrepreneurs Should Know
  3. Blockchain-Technology (for the Built Environment)
  4. How PowerLedger Works -Snapshot
  5. PowerLedger.io Home Page
  6. cryptocoincharts.info
  7. The Early Days of Cryptocurrency

 

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An Engineering Blockchain Cryptocurrency

The revolutionary aspect of the blockchain is starting serious discussions in the Professional Engineering community. Indications are that there are some fundamental problems in Engineering may be solved by the issuance of a token, in this case called Quant (1) and is currently in the “sand-box” phase of development.

The plan, in part, involves mining Quant to create a public key, or data-base called Engipedia.  There is also a “proof-of-stake” (2) aspect, which forms an engineer’s private key summarizing by algorithm the engineer’s personal data such as education, qualifications, projects, and other contributions or related works.

The Quant token, which is proposed to have inherent smart contract capabilities will be mined by engineers in a variety of ways, most of which are intended to establish an expanding  knowledge base, one such enterprise is called Engipedia. This is a knowledge base which has a formidable upside for democratic technological advancement and dissemination of workable knowledge worldwide.

As a virtual currency, the Quant token may provide a necessary bridge to financing that was previously inaccessible to engineers. Often pools of capital are controlled by vested interests or politically minded parties. Economic opportunities, which previously were unavailable due to lack of funding, may now have a financial vehicle for entrepreneurial Engineers.

The Design is the Contract

Engineering is different than finance and insurance. Finance and Insurance merely need to represent a physical object in a party / counter-party transaction script.  There is no design involved. Engineering represents a physical object – the engineering design and specification IS the smart contract. Then, what happens in construction, operations, maintenance, renovation, and replacement is far too complex to be scripted in a single smart contract. Engineering outcomes involve enormous mass, forces, and real-life consequences. (3)

References:

  1. The Market for QUANT
  2. QUANT Proof of Stake
  3. A Warning to Engineering Firms Concerning Blockchain Technology

Twelve Reasons Why Globalization is a Huge Problem

Globalization seems to be looked on as an unmitigated “good” by economists. Unfortunately, economists seem to be guided by their badly flawed models; they miss  real-world problems. In …

Source: Twelve Reasons Why Globalization is a Huge Problem

SEC Rule Changes – Small Businesses Get Funding Cap Raise to $50 Million

Nearly three years after the law was signed, the Securities and Exchange Commission has taken an important step toward implementing the so-called JOBS Act, making it easier for small and mid-sized businesses to raise capital through small public offerings.

Source: www.washingtonpost.com

>” […] Commissioners on Wednesday approved rule changes that allow companies to raise up to $50 million a year, up from a longstanding cap of $5 million, through what’s known as Regulation A offerings. Under Reg A offerings, as they’re commonly called, companies looking to raise relatively small amounts of money through a public offering are subject to a much simpler SEC registration process, putting fewer bureaucratic hoops between them and investors.

Until now, the Reg A path, which is nearly as old as the SEC itself, has been sparingly used. Congress voted to lift the cap as part of the Jumpstart Our Business Startups (JOBS) Act, which was signed into law in April 2012, largely to encourage more small and mid-sized companies to consider that option. […]

The finalization of the rules was the latest step in what has become an exceptionally long process to breathe life into the JOBS Act. Now on the cusp of its third birthday, only about half of the provisions in the statute – which, by providing better access to capital to new and growing businesses, was touted as a potentially powerful gust of wind in the economy’s sails – have been put in place by the SEC.

Among the most highly anticipated changes mandated by Congress but not yet implemented by the SEC are rules allowing companies to raise small amounts of money from mom-and-pop investors via what are known as online crowdfunding portals. Initially, the SEC was to give that process the green light by the end of 2013; however, the agency has been slow to move on the rule-making process. The SEC put forth proposed rules in October 2013, but it isn’t clear when they will be finalized.

While the crowdfunding rules, which are outlined in Title III of the JOBS Act, have drawn most of the JOBS Act’s spotlight, Paul explained that the Reg A changes (contained in Title IV of the legislation) will likely have a much more significant impact for certain companies.

“With Reg A, we’re talking about businesses that are going to be much further along in their life cycle than the ones that would benefit from Title III,” Paul said, noting that the online crowdfunding rules will limit entrepreneurs to raising no more than $1 million from non-accredited investors. “Obviously, a company raising $1 million is in a very different place than a company raising $40 million, or even $10 million.”

“It’s all part of a continuum,” Paul added. “While crowdfunding will be important for getting capital to genuine start-ups – ones that have three people working for them – this will help those that have 300 people working for them and are still looking to grow.” […]”<

See on Scoop.itSocial Media, Crypto-Currency, Security & Finance

Leaked HSBC Files from Swiss Bank lead to Tax Evasion and Money Laundering charges

Data in massive cache of leaked secret bank account files lift lid on questionable practices at subsidiary of one of world’s biggest financial institutions

Source: www.theguardian.com

Video:  Guardian explains case against HSBC

>”[…]  The Guardian’s evidence of a pattern of misconduct at HSBC in Switzerland is supported by the outcome of recent court cases in the US and Europe. The bank was named in the US as a co-conspirator for handing over “bricks” of $100,000 a time to American surgeon Andrew Silva in Geneva, so that he could illegally post cash back to the US.

Another US client, Sanjay Sethi, pleaded guilty in 2013 to cheating the US tax authorities. He was one of a group of convicted HSBC clients. The prosecution said an HSBC banker promised “the undeclared account would allow [his] assets to grow tax-free, and bank secrecy laws in Switzerland would allow Sethi to conceal the existence of the account”.

In France, an HSBC manager, Nessim el-Maleh, was able to run a cash pipeline in which plastic bags full of currency from the sale of marijuana to immigrants in the Paris suburbs were collected. The cash was then taken round to HSBC’s respectable clients in the French capital. Bank accounts back in Switzerland were manipulated to reimburse the drug dealers.

HSBC is already facing criminal investigations and charges in France, Belgium, the US and Argentina as a result of the leak of the files, but no legal action has been taken against it in Britain.

Former tax inspector Richard Brooks tells BBC Panorama in a programme to be aired on Monday night: “I think they were a tax avoidance and tax evasion service. I think that’s what they were offering.

“There are very few reasons to have an offshore bank account, apart from just saving tax. There are some people who can use an … account to avoid tax legally. For others it’s just a way to keep money secret.”

The Labour party said: “Tax avoidance and evasion harms every taxpayer in Britain, and undermines public services like the NHS. What is truly shocking is that HMRC were made fully aware of these practices back in 2010 but since then very little has been done.””<

See on Scoop.itSocial Media, Crypto-Currency, Security & Finance

New Boston Start-up Tracks Multifamily Residential Energy Efficiency “Score”

wego_screen_shotWegoWise Inc., which provides energy analytics to private property owners and public housing entities, last week launched WegoScore, a rating system that assesses buildings in three areas, energy, water and carbon and then spits out a score between one and 100.

Source: www.bizjournals.com

>” […] “We are focusing on a universal approach with meaningful reductions,” WegoWise founder and CTO Barun Singh said of the platform.

With the water crisis in California and with 39 percent of carbon dioxide coming from buildings, property owners and public housing agencies are making energy-saving retrofits and want to market what they’ve done.

Those buildings that reach a high rating are issued certificates and decals to let the world know they are more efficient. Maloney Properties Inc., a Wellesley-based real estate management, sales and construction firm with 350 buildings, is featuring its decal proudly. Other area companies include Peabody Properties in Braintree and Homeowners Rehab, based in Cambridge.

The score not only brings awareness to a building’s efficiency, it also provides a way for property owners to market the value of the work completed in their buildings to perspective tenants who are concerned about the environment, Singh said. And the stickers are a fun way to market their accomplishments.

After using WegoWise, Maloney Properties was able to find $2.5 million in 2014 retrofits and expects to save 10 to 20 percent on utility costs related to the retrofits annually. John Magee, an assistant facilities director at Maloney, said the real estate company has been looking for a way to market the value of its properties. And now, the WegoScore will enable it to do that.

With the $4.9 million in funding it has raised from Boston Community Capital, WegoWise was able to build a portfolio of 23,000 multifamily buildings covering more than 600 million square feet. With all of the data that WegoWise has collected since its launch in 2010, coming up with a rating system would be a simple solution, right? Not exactly, according Singh.

Launching WegoScore was an expensive and lengthy process for the 25-person company, he said. Before launching the rating system, Singh said he wanted to be sure that had enough data to come up with a score that was meaningful.

“The end result is a straight-forward algorithm,” he said.

The WegoScore is currently only available for multifamily buildings, according to the company. Scores will be refreshed on a weekly basis and stickers are awarded twice a year.

In addition to gaining interest from its existing customers, venture-backed WegoWise is also garnering the attention of other potential partners including banks, who could use the score as a way to get a sense of the building and decide whether or not to lend to them, and insurance providers that would make decisions based on the building’s efficiency score and other factors. […]”<

See on Scoop.itGreen Building Operations – Systems & Controls, Maintenance & Commissioning

Electricity storage becomes priority as solar and wind energy cost keeps dropping

“And the cost of solar power is declining amazingly. Austin Energy signed a deal recently that a solar farm is selling at 5 cents a kilowatt-hour. A recent study by Lazard gave a cost of 5.6 cents for solar and 1.4 cents for wind power (with current subsidies) or 7.2 cents for solar and 3.7 cents for wind without subsidies. Natural gas came in at 6.1 cents and coal at 6.6 cents. The Solar Energy Industries Association claims that in the Southwest electricity contracts for solar energy have dropped 70 percent since 2008.”

chemengineeringposts

imgres The rapid advances in the use of solar and wind energy – more in Europe, but now also gaining momentum in the U.S.- has put electricity “storage” front and center. That is because there is no solar production at night and little on cloudy days, while strong winds are unpredictable in most locations. So, the best “model” for these renewable energy sources is to generate as much as possible at favorable times and to “store” excess production for periods when solar and wind energy supply are low.

And the cost of solar power is declining amazingly. Austin Energy signed a deal recently that a solar farm is selling at 5 cents a kilowatt-hour. A recent study by Lazard gave a cost of 5.6 cents for solar and 1.4 cents for wind power (with current subsidies) or 7.2 cents for solar and 3.7 cents for wind without subsidies. Natural gas came in at…

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Retro-fit NYC Office Building Achieve’s LEED-EB Gold Rating

A $9 million retrofit that included $1.5 million in improvements that can be directly or indirectly linked to energy and water savings has elevated the building to a select group that includes 1440 Broadway, 498 Seventh Avenue and 345 Hudson Street.

Source: www.rew-online.com

>” […] Built in 1919, the 22-story tower with a block-through arcade of service shops for tenants, has undergone a plethora of changes to improve sustainability to achieve Gold Certification that include reducing water use by over 25 percent annually, saving over 536,800 gallons a year; recycling over 79 percent of ongoing consumable waste; recycling 100 percent of electronics waste; achieving Energy Star Label and Energy Star Scores of 86 and 83 in 2013 and 2014, respectively; and purchasing green power and carbon offsets from US-generated wind energy and landfill gas capture projects representing over 50% of the property’s two-year energy use

“The LEED-EB Gold Certification at 28 West 44th Street demonstrates APF Properties’ ongoing commitment to providing its tenants with a sustainable, modern and healthy environment in which to work,” said John Fitzsimmons, vice president/director of Real Estate Operations at APF Properties.

“Our overall goal is to achieve Energy Star and LEED Certification throughout our commercial office building portfolio in New York, Philadelphia and Houston.

[…]

LEED was developed to define and clarify the term “green building” by establishing a common standard of measurement — a benchmark for the design, construction, and operation of high-performance buildings.

To earn LEED certification, a building must meet certain prerequisites and performance criteria within five key areas of environmental health: 1) sustainable site development, 2) water savings, 3) energy efficiency, 4) materials selection, and 5) indoor environmental quality. Projects are awarded Certified, Silver, Gold, or Platinum certification, depending on the number of credits achieved.”<

See on Scoop.itGreen & Sustainable News

Multifamily Building Energy Efficiency: SLEEC Financing

This winter, ACEEE, in partnership with Energi Insurance Services, will host a second gathering of select members of the Small Lenders Energy Efficiency Community (SLEEC) in Washington, D.C. The initial SLEEC convening in October 2013 brought together small- to medium-size lenders to discuss strategies for expanding activity in the market for energy efficiency financing. Building off the success of that first meeting, the second SLEEC gathering will focus exclusively on financing in the multifamily sector […]

Source: aceee.org

>” […] The goal of the upcoming SLEEC meeting is to discuss how recent developments inform the lender perspective on the size, attractiveness, and viability of the finance market for multifamily efficiency. We chose to address multifamily this year because potential savings are phenomenal at an estimated $3.4 billion per annum, and multifamily has traditionally been characterized by the label “hard to reach” due to significant barriers to entry. Single-family residential, large commercial, and MUSH (municipal, universities, schools, and hospitals) markets pose fewer barriers and have therefore been easier to approach, while multifamily is a more complex market posing greater obstacles.

The first and most commonly cited obstacle is known as the split-incentive problem: Landlords and building owners don’t always have an incentive to pursue energy efficiency improvements since their tenants would be the ones benefitting from reductions in energy bills. The next most bemoaned roadblocks are a lack of information and lack of available capital. Landlords and owners are experts at running their buildings, but may be in the dark on energy efficiency. Utilities and many loan agencies, while knowledgeable about energy efficiency, lack experience interacting with tenants. The resulting information gap inhibits energy efficiency projects from getting off the ground. This problem is exacerbated by a lack of capital, especially in the affordable housing market, where many buildings owners hold 30-year mortgages on their property with only one refinancing opportunity after 15 years. Unless building owners and potential lenders can capitalize on this small window, many projects would not have another opportunity to finance efficiency improvements for another 15 years.

Despite these barriers, there are a number of successful initiatives that are poised for impact. Perhaps the most successful is Energy Savers, a Chicago-based partnership between Elevate Energy and the Community Investment Corporation (CIC) that has retrofitted 17,500 apartments since 2008.  […] Innovative programs such as these are paving the way for energy efficiency in the multifamily housing market.

A perceived lack of capital may be attributable to issues surrounding the valuation of energy efficiency from a building owner’s perspective that manifests as low demand. […] “<

 

See on Scoop.itGreen Building Design – Architecture & Engineering