Category Archives: Cryptocurrency

Blockchain, Cryptocurrency, Facebook, Kindness, Music

[VIC – 155] Give me Libra, or give me death!

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Business & Money

In investing you often hear the disclaimer, “past performance does not guarantee future results.” And I get why it exists. You don’t people making investment decisions solely based on the fact that performance has been strong in the past, without considering any other factors.

But, in reality, past performance does often suggest that things will continue to be good in the future. I’m a big believer that winners usually keep winning. The best teams in sports usually keep winning. The best artists usually continue pumping out hits. The best VC firms get access to the best deals. And the best companies often continue to grow and take market share. In fact, the “momentum” investment strategy is centered around this core idea.

It’s not a complicated idea to understand. Great companies attract the best talent, hoards of capital, and organic attention in the media. The success feeds on itself.

So don’t let the disclaimer fool. I believe winners keep winning and I cherish opportunities to add to my winners. #BTFD

Human Progress

“Give me liberty, or give me death!”

These famous words were uttered by Patrick Henry in 1775 before the Second Virginia Convention. In doing so he was making an emboldened declaration that the United Colonies should be liberated from the Kingdom of Great Britain.

Well, asketh and thou shall receive! It would be under one year until the Declaration of Independence was signed in July of 1776.

I stand (well currently sitting) here some 243 years later and would like to make a similarly bold proclamation.

Give me Libra, or give me death!

Ok, it’s not my proclamation, but that of Mr. Zuckerberg (Mark Zuckerberg, CEO of Facebook). And call me dramatic, but we may be at the dawn of an equally historic moment.

A couple of weeks back, Facebook pulled the curtain back on its foray into the world of crypto and financial services. The company will be launching a new cryptocurrency called Libra. Well, more accurately, Facebook, in association with 28 other leading companies around the world, has created the Libra Association, which will be the governing body of the Libra cryptocurrency and the underlying blockchain with the same name. In other words, the digital currency will not be controlled by Facebook alone, but rather by the association.

Pulled directly from the white paper (I recommend reading the entire document),

The world truly needs a reliable digital currency and infrastructure that together can deliver on the promise of “the internet of money.” Securing your financial assets on your mobile device should be simple and intuitive. Moving money around globally should be as easy and cost-effective as — and even more safe and secure than — sending a text message or sharing a photo, no matter where you live, what you do, or how much you earn. New product innovation and additional entrants to the ecosystem will enable the lowering of barriers to access and cost of capital for everyone and facilitate frictionless payments for more people.

So why do I believe that this might be a historic moment? First, let’s zero in on the phrase, “the internet of money.” As a corollary, think about what the internet did for the flow of information. In the 90s, many referred to the internet as the “information superhighway.” That is, the flow of information was democratized. Given you had a computer and an internet connection, it became trivial to publish and distribute information. You could freely communicate with anyone across the globe within seconds. If the printing press wrested power from the church, the internet wrested the same from governments, media conglomerates, and incumbent power structures.

The key thing to note here is that there was a wholesale shift of control from those that controlled the supply and distribution of information, to those that controlled demand. So when I read the phrase “the internet of money,” the thought is that the internet should do for money exactly what it did for information. Namely, create a fully open and democratized system that empowers more people. But I don’t believe we’ve seen for money what we’ve seen for information.

The obvious place to start, and the first place crypto bugs often look for a use case, is the underbanked and disenfranchized. If you live in a setting that has poor payment infrastructure or is ripe with government corruption, an internet for money would be an obvious step forward. Similarly, any locale that is vulnerable to wild currency fluctuations would be an obvious beneficiary of an internet of money based on a stable digital currency.

However, while the above point is an important one, many in the west won’t care. One of the most common questions I hear people ask is, “Why would I care living in the US? We have great payment infrastructure and a stable currency.” True and true. But I’ll highlight a few examples of where there is still friction in the payment system. If you have family in one of those vulnerable locales I mentioned above, sending money to your relatives is far harder than it should be and carries high fees. Traveling is another friction point. Over the last few months, I’ve spent time in France, Korea, and Japan. I often couldn’t download a local ride-sharing app due to lack of a local bank account. Not all merchants accepted cards, so I was often forced to use the local currency. That brought with it ATM transaction fees and, of course, you get gouged in the airport on the way home when you want to convert back to USD. If you want to start a company, you might look for bank financing or venture capital, which is out of reach for many. So, while we do have it good here in the US, friction points abound.

The second point I’ll point to here is the formation of the Libra Association. Here’s a screenshot of the association members at this point (Facebook has stated a goal of at least 100 members when Libra launches next year):

Many thought that Facebook would try to launch a digital currency fully controlled by Facebook itself, but that wouldn’t make a ton of sense given a core tenant of blockchain technology is decentralized governance. However, with fully decentralized systems like the bitcoin blockchain, there are massive drawbacks in terms of efficiency and scalability. Bitcoin bears love pointing out the fact that it can only handle 7 transactions per second and that governance is a nightmare, leading to forks and slow iteration. But you might say this fact is as much a feature as a bug. When transactions need to be validated across a large number of decentralized nodes, you get slow throughput and wasted energy. The polar opposite of a blockchain is centralized database owned by 1 company. So you get perfect governance (a consensus of 1) and no scalability issues (think about how many events [posts, comments, etc.] are processed every second across Facebook’s family of apps today).

So, in effect, Libra sits in the middle of those extremes. It’s not fully decentralized given the association has a relatively limited number of members, but gains from the efficiency of having a more streamlined governance structure and being able to leverage the computing resources of leading global companies.

Finally, digital currencies today have a limit on adoption given how hard they are to use. Exchanges don’t support every currency. You can’t transact in many places. To put it simply, the user experience is shit. Facebook has the ability to change that in a massive way. If digital payments and financial services become easily available within Whatsapp, Facebook Messenger, and Instagram, you instantly enable billions of users across the globe to leverage Libra across a whole host if different use cases (P2P payments, e-commerce, etc).

And this brings me back to a point a made earlier. Above I said, “the key thing to note here is that there was a wholesale shift of control from those that controlled the supply and distribution of information, to those that controlled demand.” What I mean by controlling demand is controlling the relationship with the consumer. Facebook owns the relationship with all of its users, so publishers and advertisers must play by its rules. (the same is true for Google, Netflix, Amazon, and Apple)

With the association, Facebook has fully embraced that they will not be allowed to control the supply and/or distribution of a global digital currency. And they don’t need to. They are making a bet that they will be best positioned to control demand. That is, they will offer the best user experience and easiest on-ramps to using the currency.

243 years ago, we got the founding of what is now (arguably) the world’s leading global superpower and the dawn of a new era. And, I imagine that, if you could have asked people what they thought at the time, no one knew it. I wonder if we are witnessing something similar today.

Philosophy

A few weeks ago I visited the mountains of Pennsylvania for a friend’s birthday. On one particular day, our group was in the car headed to enjoy a few rounds of paintball. The cell coverage was spotty in the area due to the remote location. As a result, the GPS would often update on a delay while searching for a signal. So as we were nearing our destination, I missed a turn because there had been no instruction to do so. A few moments later, I heard the all too kind GPS lady say “recalcualting,” and we were back on track in short order.

I point this out because I love when technology provides a good model for behavior. These days, it’s common for people to complain about all of the downsides of technology. Loss of privacy, misinformation, etc etc. But sometimes, when you pay attention, you find hidden treasures.

What I love about the kind GPS lady is that she never gets angry. She has one goal and one goal only, to get you safely to your destination. If you miss a turn, she simply adjusts to the mistake and provides a new route.

What’s interesting here is that we often do the opposite with the people we love most. We become frustrated or short-tempered when they make a mistake, and quickly forget that we want nothing but the best for them.

I point this out because I’m as guilty as anyone of doing this. I do it with my grandmother. I do it with my wife. I do it my dog.

I think we would all be well served taking a page from the GPS lady’s book on how to treat people, especially those we care the most about.

My Latest Discovery

My friend David recently played this song for me. Have you ever been having a conversation, but suddenly you can no longer focus on the words swirling around you because the beat was too intoxicating? That’s what happened to me while this one was pulsing through the speakers. Do yourself a favor and give it a spin ASAP!

Blockchain, Cryptocurrency, Uncategorized

[VIC – 145] Start your engines! 🏁

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Business & Money

Many startups seem to spend a lot of time thinking about customer acquisition, which is surely a good thing to think about. But sometimes thinking about customer acquisition seems to trump thinking about customer success and/or customer satisfaction.

In other words, they are trying to acquire lots of new customers while existing customers are unhappy with the product or service.

I am clearly no expert on the subject, but in my mind, that seems backward, at least in the earliest days of starting a company.

So for the project I’m working on now (you can learn more about it here and here if you’re curious), we’re really trying to dive deep with the early adopters to ensure that we are solving a real problem and delivering an incredible experience. And we’re doing that before we give any thought to scaling customer acquisition, raising money, or anything of the sort.

Human Progress

Crypto prices are in the dumps. So many have lost interest. I am not one of those people. And Nick Grossman, an investor at Union Square Ventures, recently showed the following slide in a presentation that captures one reason why.

In the 50s and 60s, IBM was the 800-pound gorilla in computing due to their mainframe dominance.

But then when the open PC hardware standard came along, Microsoft built an operating systems that could run on any computer. So they replaced IBM in the number one spot and became the monopoly de jour.

But then along came the open web and an open-source operating system in Linux. So free distribution and internet protocols allowed companies like Google and Amazon to side-step the Microsoft monopoly and become dominant in their own rights.

So what now? What will unseat this new set of dominant players? The only answer in sight is decentralized technologies. At the center of FANG dominance is the idea of a centralized database of consumer data, on top of which, algorithmic learning can be optimized at scale to offer up the best content and product recommendations. That falls apart when networks and data are decentralized.

So I have no idea when the next wave becomes apparent, what company or companies will claim the crown, or how exactly the scales will tip, but I try to look to history to look for cues about where and how cracks might appear with regards to the dominant technology firms.

Philosophy

Most of you know that I listen to a wide array of podcasts. Well, “wide array” may be a misnomer since most of them center around entrepreneurship, technology, investing, and self-improvement. But you get the point.

One of the podcasts I follow pretty regularly is the Tim Ferris Show wherein Tim’s goal is to interview top performers across many disciplines in an effort to dissect the habits and routines that pave the way to their success.

So when, a couple weeks ago, I saw that Tim was interviewing Lebron James, I became flush with excitement. Lebron is an athletic specimen and seems to defy time and space. He’s in his 16th season in the NBA and seems to get stronger, faster, bigger, and more intelligent with each passing game while most players at the same point in their careers are simply doing their best to stave off decline.

Then the interview happened and I was blown away… Blown away by how utterly pedestrian it was [womp womp]. I’m not sure I can remember a time in recent memory where I felt the same level of under-whelm (perhaps when Anchor Man 2 came out, but I digress).

Lebron spends a ton of money and a ton of energy focusing on recovery. He puts a lot of emphasis on sleep. He tries to avoid processed foods and refined sugars. And everything else that you would expect from a man making hundreds of millions of dollars from a career as a professional athlete.

I took 2 simple yet profound things away from this interview.

First, there is no secret to success. Rest, hard work, discipline, and all of the other boring platitudes about success are all there is to it. The ideas are simple, but executing those ideas day in and day out proves beyond the reach of most people.

Second, we create these fantastical and sensationalized images in our minds of people like Lebron James. And in part that is justified. He will experience many things in his life that most can only dream about. However, he is merely a human being. So the anticipation we feel leading up to an interview and the dramatic imagery in our minds will always exceed the reality of the human being.

My Latest Discovery

RPM Raceway in Jersey City is a damn good time!

Cryptocurrency, streaming music

[VIC – 111] Spotify IPO. Request for startups. The feelings wheel. A crypto index fund.

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Business & Money

In VIC 89 I wrote about fixed costs vs variable costs as it relates to Facebook and SnapChat. If you missed that issue, the short of it is was that Facebook made a massive fixed cost investment up front in building its own data centers, with basically zero marginal cost as they add more users over time. In contrast, Snap uses Google Cloud for compute and storage, so there was no fixed cost investment up front, but adding incremental users over time means a proportional increase in operational expense.

The reason I bring this back up is because Spotify is preparing to go public via a direct listing. And like Snap, they have a massive problem with marginal costs. For every new user that signs up to Spotify and starts streaming music, that means more royalty payments to the labels. So costs rise in line with revenues and margins don’t improve. This is the opposite of how technology companies usually operate.

So, while the Spotify user base continues to grow at a healthy clip, it’s difficult to see how the economics of the business make any sense. With over a billion dollars in losses, it’s hard to see a road to profitability.

So I’ll do something I never do, make a prediction. (I wouldn’t give much weight to what follows, but an interesting thought experiment nonetheless).

Scenario 1: Spotify goes public and the stock get’s punished over the next 12 months due to crappy economics. When the price falls far enough, Apple acquires them, kills the service, or simply rebrands it as Apple Music while killing their own. This removes the largest competitor in the market and gives Apple more strategic leverage in negotiations with labels, which has the potential to make streaming music a potentially profitable business.

Scenario 2: again, Spotify goes public and the stock get’s punished over the next 12 months due to crappy economics. The major labels see this and recognize an opportunity. They all come together and form some type of joint venture or SPAC (special purpose acquisition company – a publicly traded company who raises money via the public markets with the sole purpose of buying another company) for the purpose of acquiring Spotify (similar to the way Hulu is a joint venture between Disney, Fox, Comcast, and Turner).

There is, of course, a pretty clear bull case for Spotify, but they have their work cut out for them. (perhaps we’ll touch on that next week)

Human Progress

Y Combinator (YC) is the top startup incubator in the land. I’m not sure if that’s the case in terms of realized returns, but it’s basically non-negotiable in terms of paper returns, brand recognition, and prestige. Their portfolio includes the likes of Airbnb, Dropbox, Stripe, Instacart, DoorDash, Twitch, Reddit, Coinbase, and many other household names.

The reason I bring them up is because, given their laser focus on seed-stage investing, they tend to see trends before others do. And as a result, I try to pay attention whenever they call out specific sectors they’re interested in.

As part of the YC application process, they sometimes issue an RFS, or request for startups. It’s an explicit invitation for startups to apply that are focusing on specific challenges or industries of interest to them. There are 25 categories on their RFS list, and they’ve just added 9 new ones. These are:

Brick and Mortar 2.0

Carbon Removal Technologies

Cellular Agriculture and Clean Meat

Cleaner Commodities

Improving Memory

Longevity and Anti-Aging (YC Bio)

Safeguards Against Fake Video

Supporting Creators

Voice Apps

If you’re working in or thinking deeply about any of these areas, perhaps you might want to consider applying.

Philosophy

I know a lot of people that see some form of a therapist. Unfortunately, I think there’s still a bit of cultural stigma associated with seeing a therapist, but I think that’s changing. In the last year alone, I’ve heard a number of people openly talking about their interactions with their therapist. I could not make that same statement 5 years ago. That is a good thing.

From my second-hand knowledge of therapy, it seems that one of the great things is that you get to openly discuss feelings and emotions. That doesn’t happen all that much in everyday life. It’s really easy to catch up with friends at happy hour or over brunch, without really diving deep into our emotional states and “peeling back the onion.” That’s unfortunate.

One person I know that attends therapy was given the below by their therapist as a tool to get to the core of emotional experience.

The outer wheels show the words that we often use to describe our feelings. The idea is to then move inwards in an attempt to understand what those feelings really mean. Are you feeling trapped and confused? Could that mean that you’re scared? If so, what are you afraid of?

Exercises like these seem like they could go a long way in helping us to be emotionally honest with ourselves and the ones we care about.

My Latest Discovery

Coinbase just launched an index fund. This will give investors access to a basket of all digital assets listed on their exchange, weighted by market cap. To start, it is only available to accredited investors in the US, but I imagine it will soon be available to the broader public. This is a great thing for crypto.

In the same way that average investors want access to public markets without the need (skill, desire) to pick individual stocks, this is all about expanding the addressable market for crypto and making it available to everyone.

Bitcoin, Blockchain, Cryptocurrency

[VIC – 101] A look back…

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When thinking about 2017, the most obvious trend to talk about is cryptocurrency and the blockchain. And it’s really interesting because regular people are making tons of money by way of a transformational technology, yet most people have no idea what it is or why it’s important. I’ve written about it here on VIC a number of times, but many of you have told me you still don’t get it. So with this year-end post, I will attempt to rectify my mistake and start at square one.

Business & Money

So what is bitcoin and what is the blockchain? I’ll stay away from technical details because it honestly is just not that important for everyone to understand (plus I don’t understand it in great detail). Similarly, I’d bet that many of you have no idea how the internet works from a technical perspective, but you have no problem understanding why it is so important. So let’s start there.
The central idea to understand here is trust. If you think back to the origin of trade and “money,” you basically start out with a barter system. If you live in a small tribe or group of just a handful of individuals, it’s easy to acquire some milk by trading some grain. You give me a few gallons and I’ll trade you a few bushels from my harvest. Pretty straight forward and no need for much trust and security. I know who you are and I can look at the milk and smell it to make sure if’s not spoiled. In order to keep track of these “transactions,” I can just write them down in a notebook that says on such and such date, we traded such and such items. Everything is listed there in one neat column.
When the groups started getting larger, and the items being traded more numerous, the simple barter system started to break. If my farm has grown in size and I want to sell grain to the entire village, it doesn’t make sense to trade different items with everyone and write it all in a notebook. You need a means of exchange, or “money,” in order to transact in an efficient manner. Everyone can use the same beads, shells, or coins to buy and sell whatever they need. Additionally, with a much larger number of transactions to keep track of, my simple one-column notebook entries would be hard to manage. So now I start to keep track of things in two columns, credits and debits. In the milk example, I would add a debit for the cash spent, then a credit for my new gallons of milk (enter double-entry bookkeeping).
Another word for my notebook in the above examples would be “ledger,” the record of all transactions. And that system worked great for a long time, until it didn’t. The glaring problem was that it wasn’t very hard to cheat the system. With only one party holding the ledger, it’s easy to cheat. Simply erase an entry here, or add a 0 there, and there’s no way to prove that something’s amiss.
So as things continued to grow and get more complex, our answer to this was independent 3rd parties that would manage the ledgers for everyone else. Enter banks, brokerages, insurers, accounting firms, and the like. But when you think about it, the problem still persists. A bank is just one company, so you still have the trust issue and the single point of failure, albeit a bigger one.
So what if, instead of one bank tracking credits & debits to your account, what if all of your transactions could be independently verified by 5,000 different parties all across the globe. And for a transaction to be verified, there would need to be a majority consensus across the entire network. Even if you bribed one party to erase an entry, that ledger would be out of sync with the other 4,999, so the majority consensus would remain accurate. It becomes much harder to manipulate this system when the ledger is distributed across so many independent participants.
That’s what bitcoin and the Bitcoin blockchain bring to the table. A distributed ledger system that allows for transactions between non-trusted parties, without the need for anything to be verified by financial institutions or 3rd parties. There are lots of independent parties holding copies of the same digital ledger, and it’s a lot harder to compromise a large number of parties than it is to compromise one.
Hopefully that makes some sense without getting into the weeds.

Human Progress

So why is this technology so transformative and so important for the progress of humanity? Using the US dollar and banking institutions seems to work fairly well. You can easily open an account, transfer funds, transact with merchants, and do basically anything else you need to do with your FDIC insured dollars. However, you have to realize that as one of 300 million Americans, you’re thinking is incredibly biased. As the most privileged 5% of the world’s population, you’re completely insulated from things that most people experience.
If you want to think about the average consumer in the world, that’s probably closer to a Chinese male in his mid-twenties. And in China you have communism, corrupt governments, dictators, totalitarian rule, and serious capital controls. That’s a very different picture.
Or maybe you hail from Greece. In 2013, they had FDIC insurance for banks deposits as well. Then one day the banks closed on a Wednesday (not sure if that was the actual day), and reopened on the following Monday to a different version of reality. 20% of money had evaporated while the banks were closed, and even when the banks reopened there were withdrawal limits. What about the FDIC insurance? What insurance? Never happened. Let’s not talk about that.
Or what about what happened with Julian Assange and WikiLeaks in the same year. Because the US government was not in agreement with what Assange and his crew were up to, they basically coerced Visa, MasterCard, Amex, PayPal and all of the major payment providers to cut off WikiLeaks from the global financial system. In other words, WikiLeaks was basically deemed guilty until proven otherwise without any conviction or due process. This was a complete perversion of our judicial system. Ironically, WikiLeaks moved to bitcoin as a result and has now made a 50,000x return on their investment.
Global financial crisis anyone? How many examples do you need of financial institutions and governments behaving badly and betraying our trust before you realize that the current system is broken?
The reality is that 90% of the world’s population doesn’t have access to the financial system in the way that US citizens do. 2.5 billion people have no access to banking at all. Another 4 billion are what we refer to as “under-banked.”
What we need is a system where governments and large financial insinuations can’t rig the game. Can’t print money whenever it suits them.
What we basically need is the separation of state and money in the same way that we currently have a separation of church and state. It’s a no brainer why the separation of church and state makes sense. The Crusades, WWII, Islamic Terrorism…. examples of religion perverting politics and politics perverting religion are innumerable.
We’ve arrived at a point where the same is true of money. It has become a system of mass surveillance and control. Financial institutions, payment processors, clearing houses, all of these are political by nature. In order to operate, these companies have made a bargain with governments that they must do whatever they say if they wish to continue operations. It’s not that these institutions can be manipulated or coerced, it is that they MUST.
And what’s really exciting is that we all get to witness this tipping point during our lifetimes. I can’t see how this technology doesn’t fundamentally change things. There’s no turning back.

Philosophy

Of course, it can’t all be rainbows and butterflies. Blockchain technology is far from perfect in its current instantiation, and will surely undergo many iterations before we get it right. Again, I’ll stay away from the technical limitations, in favor of touching on the philosophical.
The one I’m thinking most about of late is the issue of anonymity. People behave poorly when they’re anonymous. The fact is simple and true.
Social networking is a great example. Some of you may have heard of the anonymous and localized social network called Yik Yak back in 2013. It was largely used at high schools and universities and exploded to 1.8 million downloads in a few months. But the dirty underbelly of the app quickly took center stage. Because there was no real identity tied to profiles, the app quickly went from friendly social network to ground zero for bullying, hate space, and threats of violence. This is a big reason why Facebook requires real names and real pictures to create a profile.
When large groups of people congregate together for protests, to celebrate big wins in sports, or any other reason, these events often turn violent and unruly because people lose the sense of individual identity in favor of the crowd’s.
When people rob banks or commit other crimes, they often wear masks. The feeling of anonymity empowers people to do things that they wouldn’t otherwise do.
India’s president, Narendra Modi, recently removed the largest bills from circulation to cut down on tax evasion and to eliminate payments to fund terrorism & government bribes.
When people buy drugs, guns, or other people, they use cash because it’s anonymous and untraceable.
It’s an ugly fact, but a true one. Anonymity breeds bad behavior. Not from everyone, but from a lot of people and organizations.
If we move money to a truly private and untraceable protocol (e.g. Monero), I’m not so sure about the future of that system. Would you pay your taxes if there was no way to prove how much money you made or no way to enforce it?
Don’t answer that.

My Latest Discovery

Shortcomings aside, these are exciting times. There’s ton’s of noise and coverage about the leading protocols (Bitcoin, Ethereum, LiteCoin, Ripple, ZCash, etc), but there are tons of other really exciting projects out there.
One that I find especially interesting is Augur. Augur is a decentralized prediction market that’s built on top of the Ethereum network. The most obvious application is betting. You can make a wager on any future event, as long as someone in the world is willing to take the other side of that bet and the outcome is publicly verifiable. Now gambling is fun, exciting, and there’s a big market (~$240 billion in the US), but this application is also somewhat short-sighted.
With Augur, you could basically create a futures market for anything. Today we have future’s markets for commodities and financial instruments. For example, if you grow corn, and you sell a pound of corn for $10 to your customers, you’ll want that revenue to remain flat and predictable. So you could buy a futures contract that says if the price goes to $5, you will still get your $10 and the investor pays the difference. If the price goes to $15, then you would only get the $10 and the investor would keep the additional profits. So it’s pretty obvious and straightforward why futures contracts make sense.
But for many things, there are no futures markets. For example, what if you decide to work for the Trump Whitehouse. If he stays in office, your future is pretty bright. But if he’s impeached, your political career might be over. So perhaps you might want to hedge that bet by wagering some amount that he’ll be impeached. And of course, no one would know about it.
What about foreign stock markets? Currently, as an American, I have no exposure to foreign markets (unless there is an American Depository Receipt [ADR] or something similar). With Augur, you might bet on the appreciation of a foreign security.
Or what about access to private markets. If you have a ton of conviction, you might bet on monthly active users, revenue numbers, or the IPO price for Uber.
So think Vegas + DraftKings/FanDuel + futures markets + anything else you can imagine.
I’ll say it again. These are exciting times!!

It’s a Wrap!

I hope this issue was somewhat useful and that 2017 was good to you. I urge you to spend some time in deep reflection about the past year. I imagine there were a few things that didn’t go as planned, people you grew apart from, and less than ideal circumstances. I imagine there were also a ton of reasons to smile and be grateful. In your reflections, look at those two categories, and think about the actions or events that brought both about. You don’t always have control over outcomes, but you do have control over inputs. Focus on the areas you have control over, and that’s all you can really do. Falcon speed in 2018! (Falcon’s are the fastest creatures on the planet and their existence is provable)

Cryptocurrency, Electric Vehicles, ICO, Investing, Tesla 3 Comments

[VIC – 91] Overvalued is horse shit. ICO 101. Damn millennials. Don’t close your apps.

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Business & Money

Early this year I sold my Tesla (TSLA) stock. It had gone up a bunch over the years and the markets were (are) feeling frothy, so I decided to cash in and walk away with the gains. Of course, it has gone up an additional 20% this year and I’m sitting here feeling like an idiot. That said, I’ve noticed a couple other things that I thought were worth sharing.
The first is that there are a couple of foundational pieces of technology that are large drivers of success for Tesla, one being the lithium-ion battery pack.

There are 7,000 individual batteries in one battery pack. And now, given Tesla’s success and a growing global consciousness about climate change, you have every other major car company saying that they will switch all models to electric, and thus lithium-ion battery packs, in the next 5-10 years (unless some other breakthrough comes from left field). So lithium will be in very high demand. If TSLA feels too risky for you as an individual stock, I’d recommend the Lithium ETF (LIT) which gives you exposure to the entire category (lithium miners, battery manufacturers, EV companies, etc) as a hedge against any one specific bet.
The other key factor I was referring to driving Tesla’s success is, of course, artificial intelligence, but I write ad nauseum on that subject here on VIC so I’ll leave it alone today.
The other thing I’ve noticed as a result of selling TSLA is that there is a lot of talk about the market and individual companies being overvalued. And in some respects that is true. If you use traditional valuation metrics like P/E, EV/EBITDA, and the like to compare a company to historic multiples in the category, then yes, the market is expensive. But what I’m realizing more and more is that there are a lot of things that aren’t captured in ratios and financial statements. If you look at Amazon’s filings, where is Jeff Bezos. He’s not on there. There’s no entry for “visionary CEO” on an income statement or balance sheet. There are no entries for durable competitive advantage or strong network effects. I believe it’s far more important to think about the fundamentals of the business, rather than a simple mathematical exercise, and why it will be successful in the long run. Most of the great companies of our day are always “overvalued.” My thinking has shifted considerably to take “overvalued” as a strong buy signal. Perhaps the term is just horseshit altogether.

Human Progress

I’ve gotten the question about how to participate in ICOs a bunch of times, so I figured it was time to write a quick blurb. For the uninitiated, ICOs (initial coin offerings) are a means by which startups and blockchain-based projects raise capital. In short, the company initiates a crowd sale of tokens (think Bitcoin or Ether, but specific to that company or project) to the public. This year ICOs have raised over $1 billion, with the largest individual sales raising over $200 million (Filecoin and Tezos have been the largest and most talked about).
So how to participate.
First, you have to acquire Bitcoin or Ether. The easiest way to do so is via Coinbase, the leading crypto exchange and wallet. You just open an account, connect a bank account, and purchase your token of choice. Keep in mind that, because this purchase happens via a traditional bank, the transaction will take a few days to settle. So if you want to participate in an ICO, you’ll want to purchase Bitcoin/Ether a week in advance.
Second, you’ll need to transfer your Bitcoin/Ether to a wallet you control. With Coinbase, you don’t own your private keys, so that won’t work. The way ICOs work is that you send tokens to a specified address, then a smart contract is executed and your desired tokens are sent back to your address. You need your private key in order to access those tokens. I use My Ether Wallet for this.
Third, participate in the ICO by sending your Bitcoin/Ether to the appropriate address. The company hosting the sale will provide the address where the funds are being collected during a specified window of time. Be careful here, though, because hackers and scammers will try to replace the correct address with their own, stealing any funds sent to their address, with no recourse. They’ve been successful to the tune of millions of dollars.
Last, and especially if we’re talking about considerable sums of money, you’ll want to store your tokens in a cold wallet, aka one this isn’t connected to the internet. Hardware wallets are best for this, with Trezor and Ledger being the most popular.
Hopefully this helped. Be careful out there!

Philosophy

I often write here on VIC about the positive effects of the internet and technology. But one not-so-positive side effect is that we increasingly live in a world of instant gratification. If you want to go on a date, just swipe right and viola! One date coming right up! Hold the awkward meandering up to a group of strangers in the park. Hungry? Not for long with Seamless or GrubHub at your fingertips. Feeling down, just post a picture to Instagram so everyone can like it and stroke your ego.
At every turn, it seems, every need can be met in an instant. The problem is, when it comes to important things like meaningful relationships or fulfillment at work, there’s no quick fix. Substantive interpersonal connections require a sustained and genuine interest in another person’s affairs. If you want to find meaning at work, there will likely be a ton of long hours, frustrating conversations, and uncomfortable situations. And while none of these are fun in the moment, I’d say they’re almost a requirement for anything worthwhile.
This might be the primary reason that people ascribe laziness and entitlement to millennials. You have an entire generation of people that are expertly trained in instant gratification. How you can you blame them (us) for expecting to get exactly what they want when they want it.
And what’s more, many of the needs currently met by technology were previously met by other people. Individuals look to social media for their self-esteem and their sense of well-being, instead of relying on friends and family. This likely leads to underdevelopment in communication faculties and an inability to cope with stress in effective ways.
What you have here is the perfect recipe for what I’ll call the millennial psychosis. And given that the pervasiveness of technology in our lives is sure to increase over time, the future looks rather bleak.
I wish there was some easy answer or magical cure, but there isn’t one in sight. That said, I AM a firm believer that making space in your life to be free of technology and instant gratification is a good start.

My Latest Discovery

I was recently speaking to a friend who happens to be an iOS engineer. As we were walking side by side, he noticed that I had pulled my phone out of my pocket, and was in the process of force quitting a bunch of apps to conserve battery life. He proceeded to tell me that this was futile. He claimed that the power required to reboot an app from scratch was likely equal to, if not greater than, the power used by an app sitting idle in the background.
I’ll have to fact check this one, but an interesting insight none the less.

Blockchain, Business Strategy, Cryptocurrency, Diet & Nutrition

[VIC – 87] Power of defaults. App layer vs protocol layer. Intellectual flexibility. No dairy experiment.

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Business & Money

Apparently, Google is paying nearly $3 billion per year to be the default search engine on iOS devices.
This reminds me of when AOL was included as the default internet service on Windows when Windows 95 launched. You could search for and use a separate service, but there was a ton of friction in those days (remember software was sold on cd-roms in physical retail stores).
Being the default option is powerful. You don’t have to have the best product if you’re the default. You only have to be good ENOUGH. There are countless examples of this. Going back to Windows 95, it also came with Internet Explorer, which was Microsoft’s web browser. IE was not even close to being as good as Netscape Navigator. But it didn’t matter. IE was free and it was the default. Netscape’s dominant position in the browser market evaporated seemingly overnight.
Tied to this idea of being the default, is distribution. Again here, the product can be inferior if the distribution strategy is spot on. The direct to consumer model has started to change this a bit, but not by much. Distribution still matters a ton.

Human Progress

There’s something interesting happening with the development of blockchains. If you think about the internet in its current incarnation, there is no value capture at the protocol layer. No one got rich solely by creating or investing in open protocols (HTTP, TCP/IP, etc). Instead, all of the value has been captured at the application layer. The big internet companies that have built successful applications on top to the protocols have made all the money.
The reverse is true with blockchain. The market cap of Ethereum is north of $30 billion and Bitcoin is over $70 billion. But the most valuable companies that have built interesting applications on top of the leading blockchain networks might be worth a couple hundred million dollars, at the high end. Most of the value is accruing at the protocol layer.
This suggests that the internet of tomorrow might look vastly different than it does today. With data replicated and shared across a decentralized network, perhaps massive monopoly platforms will not grow to dominate their markets as they do today. Perhaps competition will be more vibrant as barriers to entry come down and new creators can emerge. Perhaps this is how it was always meant to be.

Philosophy

For a long time, I’ve been doing a certain thing a specific way. Recently, some one suggested I do it another way. I gave feedback that I didn’t think it would work for all of these conceptual reasons (not based on any evidence). Then a bit later, I witnessed some one else doing it the way it had been suggested to me. It worked perfectly and made complete sense.
I stretch a lot in the gym these days, sometimes even devoting an entire day to just doing it. But it’s clear my intellectual flexibility needs work. If someone that you trust and admire makes a suggestion, it often makes sense to give it a try, at least once or twice. Of course, there’s no guarantee that what works for them will work for you. But there’s a reason that that person holds your respect and admiration in the first place.

My Latest Discovery

I’ve been trying a bit of an experiment for the last couple of weeks. I’ve removed dairy from my diet to see if it makes me feel materially different (outside of one scoop of cookie dough ice cream that I couldn’t resist 😞 ). So no cheese on my chicken parm, no yogurt in my protein shakes, and I’ve even swapped out my normal whey protein supplement with a plant based protein substitute. Overall, I’d say I’ve noticed better digestion, a bit more energy, and my allergies seem to less of a problem. Planning to keep this up to see if the changes persist.

Blockchain, Cryptocurrency, Meditation, Reading

[VIC – 78] A master plan. The evolution of free speech. Pause and begin again. The most enjoyable book.

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Business & Money: a master plan

Do you remember back in 2006 when Elon Musk posted his master plan for Tesla? In short, the steps were as follows:
1) Build a high-end electric sports car
2) Plow all of the $ from sales back into the company in order to move down market with a more affordable model
3) Make consumers “energy positive” (produce more than you consume) via electric cars + other sustainable products like solar panels.
While Elon is killing it and following his plan to a T, he’s not the only one with a master plan. Brian Armstrong, founder & CEO of Coinbase (the largest cryptocurrency exchange), published his own version this week. Brian is on a mission to “create an open financial system for the world” (aka bring digital currency to the masses). I’d recommend taking 4 minutes to read the entire post, but just in case you’re feeling lazy, I’ll summarize it for you.
1) Make it really easy for normal people to invest in digital currency via a retail exchange (Coinbase’s product in its current form).
2) Make it easy for professional traders and institutions to participate in the exchange. Professional traders = higher trading volumes = more liquidity = lower volatility.
3) Create a mass market application to allow regular people to start getting real value from the payment network. In other words, build the killer app for digital currency. (just like the web browser did in facilitating the explosion of the consumer internet)
4) Pour gasoline on the fire by building/investing in/partnering with new applications for digital currency.
I can’t wait to look back on this moment in 10 years and see where things stand. Exciting times we live in!

Human Progress: the evolution of free speech

One of my primary news sources is the Economist. In reading a European publication, and also in speaking with European friends, it seems there are still remnants of social democracy across the pond. By that I mean that there is some memory of shared public space and the public good.
By contrast, individualism reigns supreme in the American context. It’s a core tenant of liberal democracy. Free speech is an excellent example of this. Any person should be able to say anything at any time via any medium (with rare exceptions like saying “bomb” on a plane). This is all good and well. Except for when it’s not.
We now live in a time of so-called “fake news” or “alternate facts.” So, regardless of truthfulness or verifiability, anyone can post a story on social media that has the potential to reach millions in an instant.
It seems we may have arrived at a point where we need a progression or evolution of the concept of free speech. It seems we are in need of shared standards around the quality of information. And these standards should not illicit feelings of an encroachment on the first amendment. I don’t believe a commitment to high quality information and truth equates to censorship.

Philosophy: pause and begin again

I wanted to share a snippet from a guided meditation session a few days ago. (you’ll have to imagine that dreamy guided meditation type of voice)

Just to help you maintain that focus on the breath,
just silently starting to count the breaths as they pass.
One with the rising sensation.
Two with the falling sensation.
Then three, then four.
Just up to a count of 10.
When you get to 10, you can stop,
then start again at 1.
Just try that a couple of times through.
Remember to allow thoughts to come and go,
but the moment you get distracted,
just gently bring the attention back again,
to that physical sensation of the breath
…
It’s perfectly normal for the mind to wander off.
Remember as soon as you get distracted,
as soon as you realize that the mind has wandered off,
just gently bringing the attention back again
and just picking it up on the number you left off on.

This is such a powerful idea. Many people say that the hardest part about meditation is calming the mind. You have so many thoughts running around at any given moment. How can you possibly just sit and think about nothing?
But that’s exactly the point. It’s perfectly normal to get distracted. It’s not about being perfect, but instead just allowing the distraction to come and go. As soon as the mind wanders off, just refocus the attention and begin again.
There are so many of these moments in life. For me personally, I lose deals at work, get upset with my fiance, have disagreements with family and friends… the list is never ending.
Whenever these things happen, meditation has made it easier to simply pause, refocus, and begin again.

My Latest Discovery – the most enjoyable book

Surely You Must Be Joking Mr. Feynman is one of the most fun and enjoyable books in existence. It’s not often that I’m constantly chuckling and smiling to myself as I flip through the pages of a book.
The book is about the life of the world renowned and Nobel winning physicist Richard Feynman. It’s really just Feynman telling short stories throughout his life in very simple and informal terms. He has an unbelievable way using seemingly frivolous events to convey profound ideas. It’s truly amazing!
BUT WAIT!! If you decide to check it out, watch this video first.

It’s Feynman talking about light. Seeing his quirky mannerisms and hearing how excited he is allows you to really see and hear the stories while you read.
If you don’t laugh while reading this, leave me a comment and I will reimburse you for the cost of the book. Scouts honor!

Blockchain, Cryptocurrency, Investing, Retail

[VIC – 76] Running 🏃🏃 for the exits. Early = wrong. Toasters as teachers 📝. Filter by unread. Do dreams 😴 mean anything?

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Business & Money

Take a look at Best Buy and Home Depot over the last year:

At a time when most retailers seem to be hemorrhaging, these guys are both trading at all times highs. This fact reminds me of 2 key points in investing:
It’s not an abstract philosophical game. Regardless of what people are saying, you simply have to think deeply about the business and analyze the numbers. It’s purely rational.
Second, and more importantly, when everyone is running for the exits, it’s a great time to look for cheap opportunities to buy. When the housing market crashed, it was a great time to buy real estate. After the internet bubble burst, great engineers and companies could be acquired for next to nothing.
If investing was about consensus, everyone would be rich.

Human Progress

I want to talk about cryptocurrencies and the underlying technology today. But before we dive in, I realize I’ve written on this subject before without providing adequate context and background to why it’s really important.
First, let’s consider banks. Banks have essentially unfettered control over money. They can print it (causing the value to fall). They cash restrict your access to it (e.g. in the case of a run on the bank = close banks when too many people are attempting to withdraw cash). They prey on the poor with myriad fees and predatory loans. The list goes on and on. And the best part, when they screw up, there are basically no repercussions (hence the term “too big to fail”).
Long story short, the incentive structures are all messed up. And given that these centralized institutions control our financial system, we’re basically forced to simply sit on our hands and pray they do the right thing (don’t hold your breath).
It is here that we arrive at the central tenant of the blockchain (the technology behind cryptocurrencies): it’s decentralized nature. There is no central entity (person, company, government, etc) that controls the entire system. Instead you have a distributed system (think ledger or database) where each entry is verified by lots of independent and self-interested parties (“miners”). As a result, you have inherent trust baked into the system. All participants rely on all other participants for the safety and integrity of the system. Incentives are beautifully aligned. (The implications go far beyond money, but this core tenant provides enough context for now)
So why are we revisiting the subject this week? Because of the price action of course.

This past week, 9 different people hit me up asking where/how to buy cryptocurrency. And many were people completely outside of the crypto.. actually the technology industry altogether. This is a telltale sign that we’re in bubble territory. Speculators and uninformed consumers are artificially inflating the value of cryptocurrency right now. And moreover, we don’t have any mainstream consumer application that would equate to higher demand (and higher prices as a result). It reminds of the dot-com bubble of the early 2000s when regular people were sinking their life savings into internet stocks, only to have it all evaporate overnight.
But the dot-com bubble is a prudent analogy for another reason. While companies were going bust left and right, many were actually incredible ideas that would later become valuable in their own right. Remember WebVan? It was FreshDirect before FreshDirect. Or what about the spectacular failure of Pets.com? Just a few months ago PetSmart acquired Chewy.com for $3.35 billion. It’s too bad that being early is synonymous with being wrong.
Similarly, I am a blockchain bull all day every day. It seems obvious that this technology will be absolutely revolutionary. But how many real consumer applications are viable today? Maybe a few. But there are a ton of things that need to be figured out first. What’s happening right now is speculation, plain and simple. Don’t be a sucker! If you want to get involved, park 1-2% of your portfolio in a secure crypto wallet and let it sit there for the next 10 years. In the meantime, it’s a good time to start educating yourselves about what’s coming.

Philosophy

So I wanted to show you my toaster:

You’ll notice that the power is set to level 5. This is a recent change. Up until last week, it was set to level 3. I think it came that way when I bought it. And level 3 was a great setting. It cooks waffles perfectly. The only downside is that you to run it twice to achieve said perfection. So when the waffles pop up, I would simply push the button down again for one more cycle and viola. Perfect waffles.
One day last week my fiance noticed this pattern and asked, “why don’t you just increase the power setting so that you only have to run it once? Wouldn’t that be faster?”
“Blasphemy,” I thought to myself. I already had a fool proof system of cooking waffles.
For some reason, I kept thinking about the toaster at random moments throughout the day. Of course it would be better to find the optimal power setting, but that would force me to venture into uncharted territory (a.k.a. untested power settings).
The next morning I decided I was in a risk-taking mood. I switched the power setting to 6 and pushed the button down. It was a grueling 90 seconds of weighting. Then pop! They were too done! Not burnt per say, but more done than I preferred. I knew I should have stayed with my system!
The next morning I was at it again, but with level 5 this time. To my surprise, the waffles were perfect. That wasn’t so bad after all. One false start the day before, but now back on solid ground.
While this is a pretty trivial example, fear of change is a real thing. I spent almost 4 years avoiding the power setting on a toaster due to fear of change. If an obstacle this small can cause such cognitive dissonance, one can only imagine what happens when larger ones present themselves.
I appreciate my toaster for this much-needed reminder.

My Latest Discovery

I’m either an oblivious idiot, or you will thank me effusively. Did you know that this little icon filters your inbox by “unread.”

I’ve wondered so many times why there was no easy way to do this. All the while, it’s been right here in front of me.

Question Of The Week

Whenever I have a dream, I tend to journal about it the next day to parse it for meaning. I’ve always felt that dreams were a great way to listen in on your unconscious mind. What do you think? Do you place any value or meaning in your dreams?