“Blockchain” Phone and Opera Expands into Cryptocurrency Tools

"Blockchain" Phone


Late last year, Sirin Labs announced, the Finney. The Finney would be the world's first blockchain phone. Sirin's ICO raised over $150MM. CNET wrote:

Sirin Labs, the company that two years ago launched the ultra-secure, ultra-expensive ($14,800) Solarin smartphone, has now finalised the design and specification of its next offering. FINNEY looks very similar to Solarin, but costs nearly 15 times less ($999) and features a secondary slide-out touch screen that provides a window on an embedded cold storage crypto wallet. It's this, plus extra functionality provided by Sirin OS -- a security-hardened fork of Android 8.1 -- that underlies Sirin Labs' claim that FINNEY is the "first-ever blockchain smartphone".

Why would I want to carry cryptocurrency on my phone? If a thief knew that I had a Finney, they could threaten me to give up my private key/password and steal my cryptocurrency. Are people going to shell out $1,000 so they can have "blockchain" on their phone? I would wager that the average phone user could care less if blockchain was a feature on their phone. It's unclear how the phone even uses blockchain. A blockchain, at its core, is just a list of records, but what records is the phone keeping? Is it recording my calls, my texts or what applications I use? Who has access to this blockchain? 

The CMO of Sirin Labs wrote this about Finney:

We were wondering what prevents crypto-currencies from hitting the mass market, and we identified two main problems," Nimrod May, chief marketing officer at Sirin Labs, told ZDNet. "One is around security: for the first time in history, users need to take care of their own assets, without the ability to approach a central organisation like a bank. The other main problem with blockchain is the user experience: we [crypto enthusiasts] manage to obtain our cryptos, we know where to trade them, we understand the technology behind it -- but it's still something that's considered complicated for the average user."

Cryptocurrencies aren't meant to be traded. They are intended to be used. When someone buys Bitcoin, in theory, it's meant to be used for payments or a store of value. Bitcoin or any other cryptocurrency will lose its value in the long run if its only use case is speculation. Secondly, are we suddenly going to trust Sirin Labs with our cryptocurrency? Sirin isn't solving the trust problem even if the CMO thinks it is. How do we know someone isn't putting in malware during the supply chain process? 

My favorite part of the CNET article:

To fund FINNEY, Sirin Labs held an ICO based on its SRN token, raising a total of $158 million by the end of the sale on 26 December 2017. What kinds of people invested? "It's a mixture between institutionals and big crypto investors -- about two-thirds in our case -- and crowdsale," said May. And who is the phone for? "When you deep-dive and try to understand who is the ideal customer, they are millennials," replied May.

If the sole way to purchase Finney is through the Sirin token then why would you be bragging about institutional and big cryptocurrency investors buying it? Does the company not want wide distribution? Institutional investors are buying it to speculate. The token's limited distribution doesn't help Sirin Labs sell the phone or grow the token. I love how he added Millennials in there. He needed to fill his buzzword quota.

This phone is nothing more than a gimmick for Sirin Labs. They took advantage of a hyped-up ICO market to raise a lot of money. At the moment, a blockchain phone makes no sense. Blockchains are used to create trust. I admit that I don't trust Apple, but I don't Sirin Labs either. Sirin Labs control the "blockchain" on the phone. There is no guarantee that they aren't using your data either. Maybe, Lionel Messi will convince me to buy the phone. 


Opera Expands Cryptocurrency Tools 


When I was younger, I used to use my mom's Macintosh computer. I was not too fond of the Safari browser. I discovered Opera and became a big fan. Once, Chrome came out, I started using that and haven't looked back. I'm glad to see Opera is now expanding into cryptocurrency and maybe it'll give me an excuse to switch back. Opera's crypto wallet will only exist on Android to start. This marks the first time a browser has ventured into web 3.0. As I wrote above, I still think mobile cryptocurrency wallets are a bad idea especially if you are holding a significant amount of cryptocurrency on it. It would be the same as carrying a lot of cash in your wallet. A person can physically threaten you and take your cryptocurrency. This attack is called the $5 wrench attack:

security.png

I should be clear; technically Opera is focusing on the Ethereum blockchain to start. If you want to hold Bitcoin or Litecoin in your Opera wallet, it's a no go. Opera recently received a significant round of funding from Bitmain and plans to go public shortly. Public market investors have minimal options for investing in a "blockchain play," and Opera could be using this momentum to make it a more attractive IPO. For cryptocurrency/blockchain to grow, we need non-blockchain companies to build in the space. 


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Augur Launches and ICO Graveyard

I've been writing the newsletter for over a year. The newsletter has been focused on curating content. As the cryptocurrency space has grown, I realized there is no newsletter that focuses on analyzing the daily news from that day (similar to Stratechery.) Moving forward, I plan to choose 2-3 topics and analyze the topic. I hope you enjoy and as always I am open to hearing feedback. By the way, I am looking for a new name for the newsletter. If you have a suggestion, let me know.


Augur Launches


Today, Augur, announced in a Medium post that it was finally launching. Augur's first version won't have a web version. If you want to run it, you'll need to access it through Github and then run it locally. Augur was one of the first teams to raise an ICO in the form of a "utility token." I think the underlying idea behind Augur is a smart one. Augur allows anyone to wager on a prediction. The use cases are endless. For example, derivative markets, are mostly available only for institutional investors (think Big Short). Augur would allow retail investors to access these markets. For example, a shrimper in Louisiana might be worried about a hurricane. The shrimper can wager that a hurricane would occur and it would help offset the losses from his shrimping business. According to one economist, the derivative markets are valued at $1.2 quadtrillion. You can see how Augur can be very useful even if it just focuses on the derivative markets (which is unlikely). 

Despite the multitude of potential use cases, Augur has a significant amount of barriers it needs to overcome to succeed. Brendan Bernstein .of Tetras. tweeted about many of the issues today (he is also one of my favorite people to follow on Twitter) which I summed up below:

  • Augur doesn't have a web-hosted version. You need to run your own node or rely on a centralized node to use Augur.
  • Augur is slow to sync and will most likely get slower over time as more users join the platforms (Blockchains aren't optimized for speed)
  • How do we know the resolution methods are honest? (For example, if I bet on the Lakers winning, how do we know the source where they obtain the score is accurate. This problem is known as the Oracle problem.) 
  • Are the gas fees too high? One wager takes up 75% of a block (using Augur's recommended gas fees)

As of 11:54 PM EST, there are ~$1,800 worth of predictions in 37 markets occurring on Augur. Most of the predictions are focused on either sports betting or cryptocurrency markets (which is to be expected). The launched version of Augur is disappointing. Peter McCormack summed it up well,

So an initial look turned into a very quick review of Augur, sorry but it is full of elementary UX mistakes. I am sure the Crypto elite will be congratulating them or making excuses about it being early, give it time etc...

This is not ready for release!

If this application didn't launch on a blockchain, would observers be celebrating its launch? Most startups have one chance to impress a user. If the UX is poor, they will stop using it and not return. Augur holders are incentivized to promote Augur no matter how bad the application is because they want their REP (Augur's cryptocurrency) to increase in value. This issue is one of the downsides of cryptocurrency investing. People will promote poor products for their own self-interest. It's hard to know if a product is useful if the person recommending it is biased. 


ICO Graveyard


Two researchers from Boston College released a report that states 56% of ICOs fail within four months. 4,003 ICOs since January 2017 have raised over $12B. The average return between buying an ICO and the day's opening market price is 179%. The study used Twitter to measure failure rates. If a company stopped tweeting after four months, it assumed the token failed. 

The report confirms what many expected, a lot of ICOs are raising money and then disappearing into obscurity. This problem is occurring for a couple of reasons:

  1. There is little downside in failing. If you raise $50MM, management can pay themselves the money and shut down the company. Investors have little ability to recover their investment.
  2. ICOs have immediate liquidity so founders can sell their tokens immediately with little incentive to increase price (some ICOs have restrictions around this though.)

On the other hand, one can understand why the ICO markets have raised a lot of money over the past 12 months. Pretend you are a farmer from Iowa who dabbles in the stock market. You want to invest in the next "Bitcoin." An ICO allows you to invest in an early stage "company" (some could argue protocol is the better word) and maybe find the next Bitcoin. While the logic might sound sensible, it's flawed. Many ICO valuations are raising at absurd valuations so achieving the exponential returns that BTC or ETH returned is next to impossible. Ari Paul wrote about this phenomenon here

Back to the study. There were three compelling graphs which I shared below:  

Screen Shot 2018-07-10 at 12.41.44 PM.png
Screen Shot 2018-07-10 at 12.43.22 PM.png
Screen Shot 2018-07-10 at 12.43.42 PM.png

t's no surprise that the United States and Russia have the most ICOs. I expect that if this data includes ICOs after April 30, 2018, that Southeast Asia would have a higher amount of ICOs. The United States was an excellent breeding ground for ICOs because it allowed companies to raise from retail investors. ICOs were popular in Russia because it gave startups access to international capital that they previously didn't have access to before. ICO returns for opening day-trading were scattered, but over the course of more than four months, ICOs significantly out returned Bitcoin. I expect that Bitcoin probably out-returned the cumulative returns of the ICO data set over 250 days. 

ICOs are still in the early stages. "Popular" dApps like CryptoKitties have less than 250 DAU (this # is based on on-chain transactions so it could be flawed). Users are investing in ICOs to make money, not for utility purposes. The failure rate will remain high until users adopt tokens for their intended use.


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Welcome to the Token Graveyard!

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What Happened Today?


Many Tokens Going to 0Many smaller tokens that completed ICOs in the past year have lost nearly 100% of their value. Research shows that as many as 800 tokens have gone to 0. Many experts are comparing the current cryptocurrency crash to the dot-com crash of the 2000's.

Why This Matters? Let us look at some of the tokens that have done ICOs over the past year. We had Dentacoin, a token for dentists, and Useless Ethereum Token, a token that had no use case. Most of these tokens are going to 0 because they were used solely for fundraising purposes and the tokens had no use case. While the broad cryptocurrency markets have declined more than 75% since its peak, I see no reason to be bearish about legitimate tokens such as BTC/ETH or privacy tokens because they have real use cases and a chance of institutional adoption. Investing to make a quick buck was always going to end up being a disaster. 


Tether has more problems: Tether is being used to wash trades according to a recent Bloomberg report. The token was involved in a variety of bizarre trades on the cryptocurrency exchange, Kraken. There is no evidence to suggest Kraken was involved in this manipulation. Tether manipulation concerns many investors because it suggests the cryptocurrency markets aren't "fair."

Why This Matters? Wash trades occur because there is little demand for a product, so you manufacture "fake" orders to make it appear that there is a lot of demand. This trade is illegal in traditional markets. Tether is very much in the grey area of legality. It's impossible for anyone except executives to know if a crime is being committed because the public doesn't have access to the day to day operations. All we can do is speculate. If I were to speculate, something questionable is going on behind the scenes, but I would be wary of using the word illegal. It's unclear if Tether unraveling would affect cryptocurrency prices.


Commentary


Crypto Commons: Mike Maples, a Silicon Valley Venture Capitalist, writes a wonderful piece on why cryptocurrency allows scalable commons and solves the problem known as Tragedy of the Commons. Imagine, 10 people, fish from a salmon stream and agree to equally divide the salmon. Self-interest ends up taking over and one person will end up fishing as many salmon as possible. This is detrimental to the whole group. You end up sacrificing long-term gains for short-term gains. Tokens allow a governance system at scale to ensure short-term and long-term incentives align to prevent the tragedy of the commons. It's a really unique way of thinking about tokens and I love it!


Zcash & the founder incentive trilemma: Very thought-provoking piece by Arjun Balaji. I don't understand why people have been critical of Z-Cash's "founder reward." It aligns incentives of the founder and the growth of the protocol. If the token does well, the founder does well. This model differs from the pre-mined ICO where the founder profits before any work is performed (This trend is probably ending). While Bitcoin's launch is an ideal model, it's unrealistic to expect anything like that to happen again. Do we think a cryptocurrency launching with an anonymous founder and then disappearing is a bullish sign for a cryptocurrency? We need to align long-term incentives and transparency to have a successful governance model and I think Z-Cash's model is one of the best governance models to date. 


Other Interesting Things


Are Token Holders Owed a Fiduciary Duty?

Hello Everyone. I revamped the newsletter style today. The format has some noticeable changes. Please let me know your thoughts. 


From Grasshopper Capital


Are Token Holders Owed a Fiduciary Duty?

As I've seen more and more companies exploring ICOs, I sigh. I think tokens are great technological innovation, but executives are using them as a money grab rather than maximizing the utility of a token. I see many existing companies that have launched tokens recently such as Kik (KIN) and Telegram (TON) where the incentives aren't aligned. When you buy equity in a company, executives and board holders are legally required to execute a fiduciary duty. Fiduciary duty requires three elements (under Delaware Law):

  1. Duty of Care: the responsibility one person or business has to be reasonably careful (or to use “reasonable care”) when dealing with others.

  2. Duty of Loyalty: to act in good faith and a manner, it reasonably believes to be in the best interests of the corporation and its stockholders and to avoid engaging in acts of self-dealing.

  3. Duty of Good Faith: requires control persons to exercise care and prudence in making business decisions

If you purchase a token, these governance laws aren't in effect. It's entirely legal for Kik to stop working on Kin, but to take the token investor's money. This situation is problematic because regulations don't protect investors and companies can take advantage of poorly educated investors.


Read the Rest Here


What Happened Today?


FBI Investigating CryptocurrencyThe FBI has 130 cases tied to cryptocurrency that they are investigating. Cases range from kidnapping to human trafficking. The FBI has noticed an increase in illegal activity related to digital currency. 

Why This Matters? Many people think that cryptocurrencies are used for illicit activity only. While the FBI is sharing light on cryptocurrency crimes, it shows that only a small portion of their caseload is related to digital currency activities. Maybe this will allow people to realize that cryptocurrency can be used for things other than buying drugs.


Top 10 Blockchain InfluencerThe NY Times published a list of the top 10 most influential people in the blockchain industry. The list includes familiar names like Vitalik Buterin and Dan Larimer, but surprising names such as Amber Baldet. The list has attracted controversy on Twitter for both who is included and who is omitted. 

Why This Matters? These lists are created purely for clickbait. It's impossible to measure who is most influential in the space. One can argue that Twitter account such as WhalePanda or Youtube account like Ian Balina "influence" people more than some of the people listed. The worst part is "influence" doesn't need to be positive. Dan Larimer is terrible for the industry. He is on his third project which will probably end up losing $4B worth of investor's money. People like that shouldn't be celebrated, plain and simple!


Line is Opening a Cryptocurrency Exchange: The exchange, BitBox, is opening in Singapore in July and will handle more than 30 tokens. Service will be available everywhere, but the US and Japan. Line believes blockchain is a critical part of their future offerings. Line is considering issuing a token for its exchange and is also looking at opening an exchange in Japan.

Why This Matters? Another big corporate player is looking to enter the cryptocurrency space. The more money invested in the space, the better for everyone. I am still skeptical of many of these corporate efforts. Many are using blockchain to impress shareholders and boost stock prices. Line might be serious about their blockchain efforts, but only time will tell if it has any impact.


Commentary


Block.One Controversy: I've been writing about EOS's launch over the past few days. It's been a complete disaster. Dan Larimer, head of Block.one, wants EOS to start over and completely rewrite their constitution. If I invested in this project, I'd be annoyed. It's a pure bait and switch. Everything they were promised has been thrown out the window. It baffles me how someone can preach decentralization when one person can change the system.


Other Interesting Things


Pornhub is Accepting Two New Cryptocurrencies

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Notable News


Pornhub to Accept Tron Cryptocurrency, Whose Founder Just Bought BitTorrent

What's the Story?

  • Pornhub is now accepting Tron
  • Tron recently acquired BitTorrent and has been trying to expand adoption
  • Pornhub is also accepting a cryptocurrency called ZenCash

What do I think?

Strange choice for Pornhub to accept Tron and ZenCash. Z-Cash and Monero would be a more logical choice because of their privacy aspects. I don't have any proof, but I wouldn't be surprised if Tron and Zencash paid Pornhub to be added. It's the most logical explanation. Tron is using the millions of dollars it's raised to try to raise its token price artificially. It's why it bought BitTorrent, and it's most likely why Pornhub added Tron. If someone is going to buy Pornhub Premium, I don't see the benefit of purchasing with Tron. Let's think about the steps it would take to purchase Pornhub Premium with a credit card versus with Tron.

Credit Card:

  1. Log on to PornHub
  2. Enter Credit Card Information
  3. Complete Purchase

Tron:

  1. Create a Coinbase Account
  2. Buy Bitcoin on Coinbase
  3. Create an account on Binance
  4. Send Bitcoin to Binance
  5. Buy Tron on Binance
  6. Log on to Pornhub
  7. Send Tron to Pornhub
  8. Wait for confirmation
  9. Complete purchase

Maybe it's just me, but I think a credit card is the easier payment option.


Facebook is reversing its ban on some cryptocurrency ads

What's the Story?

  • Facebook is allowing specific cryptocurrency advertisements
  • Ads promoting ICOs are still banned
  • Facebook launched a blockchain team earlier this year

What do I think?

I am excited to see James Altucher's face plastered all over Facebook again. What an excellent time to be alive. On a more serious note, this decision was most likely driven by David Marcus, head of their blockchain team and former CEO of PayPal, to show Facebook takes cryptocurrency seriously. I am surprised the ban was reversed so soon. Google also has a prohibition on cryptocurrency advertising. One could make an argument that Facebook is trying to get a headstart on capturing market share as they acknowledge that blockchain and cryptocurrency are here to stay. The most straightforward reason is that Facebook makes more money by accepting cryptocurrency advertisements. 


Commentary


PBoC Filings Reveal Big Picture for Planned Digital Currency

What do I think?

Cryptocurrency is a threat to state actors and fiat money because it takes monetary policy out of the hand of central banks. If a government loses control of money, they lose control of their government. For China, it would be disastrous if Bitcoin or another cryptocurrency replaced the Yuan as a primary method of payment. Bitcoin's rise is why China is attempting to launch a digital currency. I've talked about the benefits of a digital national currency in the past. If a country had an official digital currency, it allows the government to track a person's assets, eliminate crimes like money laundering, and automate tax payments. If China launches a digital currency, expect an even larger crackdown on cryptocurrencies. They will want to ensure no competition so that their digital money can succeed. 


Other Interesting Things


ING publishes an in-depth report on Bitcoin, The Federal Reserve Bank is tracking cryptocurrency, Bitmain nears 51% hashrate for BTC, crypto hedge fund adds a Wall Street executive, Bitcoin has a new use case: heating housesblockchain + patents, and cryptocurrency influencing elections.