Monday, March 24, 2014

A crypto-currency for crowdfunding and emerging socio-economic models

All current crypto-currencies are inherently broken by design. Every single one of them. The popularity and news flow surrounding them is encouraging, indicating an awareness that the old currency systems have failed us. But it’s time to move on, before we get stuck in many of the same pitfalls from the old system. And frankly the most popular crypto out there, bitcoin, is already beyond stuck in yesterday’s mentality. The others attempt to ‘fix’ some of bitcoin’s shortcomings, but then end up replicating key issues in the old currency paradigm.

Dynasty: one of the most potently corrupting aspects of any form of currency. Dynasty occurs when people who were in the system early, accumulate leverage over new entrants in the system. The two key words here are early & accumulate. Dynasty, one of the true faces of capitalism, feeds on scarcity. Accumulating more as a percentage of the total outstanding resources, means others necessarily have less. That’s why all of our current systems are engaged in war & destruction. The accompanying concentration and blatant transfer of wealth that we are witnessing is a natural progression of dynasty. It should be of no surprise that a few parties control so much wealth, as an accumulation early on begets leverage to accumulate more, often through nefarious means.

So how does bitcoin fare on dynasty? At the end of 2013, Business Insider claimed 927 people owned half of all bitcoins. While much of the World is just now getting its mind wrapped around bitcoin, a “bitcoin cartel” has already been established. But let’s not only look at ownership dynasty; bitcoin also has hardware dynasty. In order to compete with others, a bitcoin miner must frequently update their hardware with the latest ASIC (custom hardware processor dedicated to mining), creating sort of a miner’s “arms race”. In a recent presentation, Ethereum founder Vitalik Buterin mentioned that from 10 to 50 companies mine 50% of bitcoin. As part of this trend, a number of individual miners have switched to mining other cryptos which are scrypt-based and harder to mine at scale on specialized hardware. But even that trend is looking to be disrupted by new products which can do scrypt-based mining at far greater energy efficiency (and thus more cost effectively).

Many of the other crypto currencies have made attempts to create less concentrated distribution with various schemes of pre-mining certain percentages, even handing out currencies. But in the end, none of these schemes will ever solve the dynasty issue. Look at the market caps of all the cryptos combined – a total of about $10 billion. The only thing worth noting is that most of the World does not own any. And if the involvement in any of the majors goes up, much of the World will not be able to afford to own any. That’s dynasty at work. It’s a veritable “fly-wheel” of un-change for the poor.

There are even nationalist efforts like the AuroraCoin in Iceland (based on Litecoin), where 50% of the coins are pre-mined and distributed via a one-time “airdrop” to Icelandic citizens. What about the people born thereafter? Essentially they are being born into AuroraDynasty bondage. SpainCoin is a similar effort for Spaniards. The human race just keeps on falling into the same pit, like it has no memory...

Velocity of Money: crypto currency ‘investors’ are essentially hoarders. We don’t want material amounts of money sitting idly in wallets of people (who probably acquired that amount via dynasty in another system). Without velocity of money, there is no economic activity, and these holders offer no social benefit. To the contrary, they offer the potential for volatility and cartelization. Any workable monetary system must encourage money to be alive, not dormant.

Speculation / high-frequency-trading: these are extractive and parasitic activities which induce volatility with no social benefit. Volatility translates to loss and higher fees for the user (somebody has to pay for the risk of fluctuation during the time of transaction and that somebody is you). And parasitic volume masks valid liquidity signaling (it’s important to understand how liquid a market really is to assess a transaction).

Valuation of social contribution: our current economic system forces the valuation of worth produced to be based on extraction of scarcity and nearly nothing related to the actual value offered to humanity. Buying into a crypto currency with money based in the old paradigm carries over this (lack of) value system. So the people buying / speculating on much of the crypto currency will have been involved in the most extractive and destructive activities (often indirectly). All of people’s activities (given they live by the Golden Rule) should be valued equally from a currency creation perspective. Otherwise, the socio-economic model will not have creative synthesis, and we’ll be back to the current model where gifted artists and scientists are living out of dumpsters. We have to get out of scarcity-driven extraction & destruction and move on to co-creative abundance-oriented socio-economics.

Inflation/deflation: there are a variety of strategies to address quantity of currency across the crypto family. Bitcoin miners will create fewer coins each year until the total outstanding bitcoins reach 21 million. Some of the other coins have a schedule of a percentage of new coins mined each year, ostensibly to match population growth. In the end, I believe we’ll find the whole topic of inflation/deflation is a relic of old-paradigm thinking and a distraction from focusing on velocity of money, an area in which current cryptos are awful.

A new crypto currency paradigm

Following is an outline of what I envision would not only avoid the major pitfalls of today’s fiat & crypto currency systems, but also match our emerging co-creative peer-to-peer socio-economics model. And that model is manifesting throughout, from crowdfunding to content creation.

  • N coins per user created per month.
  • Each coin has a lifetime of 1 year, with linearly depreciating value. “Use it or lose it.” Consequently there will also ultimately be N coins per user extinguished per month.
  • A credibility network establishes each user’s right to create said coins, then mined into existence.
  • Fixed transaction fee.

The idea is that everyone in the system has value-generating capacity by the nature of wanting to exchange their coins with someone else for something else, without the system dictating how value is derived. Because the coins diminish in value, the incentive is to circulate the coins (velocity of money) rather than to hoard them, thus creating economic activity. At first, this causes cognitive dissonance in many people, as they’re stuck in the old ‘savings’ model (i.e. extract and hoard). So let me quickly explain how various financial activities map into this new model. It’s actually quite simple.

Savings / loans: these collapse to the same thing. Simply, money is assigned to whatever project / instrument, to be re-paid back at a future date (or over time). When it’s paid back, it will be in full value coins, therefore postponing the depreciation for the agreed upon time. In other words, to save money, you have to put it to work in the system (what a concept, no?) The value of the money is backed by the economy (the only “honest money”), not by dynastic mechanisms such as minerals, land, etc.

Investments: these generally come as revenue sharing or equity deals and would operate as expected in the current system. Revenue sharing would be an extension of savings above, postponing the depreciation of money. Equity is generally structured as a percentage of proceeds of the sale price of an entity, which for the investor also postpones the depreciation of money.

Having a fixed transaction fee prevents preferential treatment (another form of dynasty) and inhibits a level of high-frequency trading (which is value extractive to end users). There is no inflation / deflation debate, as the amount of currency in the system is always keyed to the number of people in the system (with currency continuously created and dissipated). A credibility network is the ultimate way to allow currency creation in a decentralized fashion. Initially, projects like AuroraCoin and SpainCoin use national ID cards to validate people. But that exposes the danger that parties who exert control through corrupted governments, can cut off valid participants from money creation. And that’s like letting the fox guard the chicken coop.  How about instead a credibility network which keeps the bad actors out of money creation?


-Kevin

Tuesday, December 25, 2012

Unlocking the global trillion-dollar crowdfunding market

Now here is the one percent you do want to hear about!

The world is on the precipice of creating a trillion-dollar crowdfunding market. In Australia, the ASSOB has offered a crowdfunding investment portal since 2005. In the UK, equity crowdfunding is already in progress, with investment platforms such as Crowdcube andSeedups. And in the Netherlands, crowdfunding is ramping up with Symbid.

The crowdfunding components of the American JOBS Act and the Italian Decreto Crescita are now in the process of finalizing the attendant regulation before securities crowdfunding goes live.  Industry associations are popping up everywhere, including in IndiaEuropeCanada, and the U.S. (CFIRACfPA).

If you want to get an idea where things are headed, look at the travel list of the leading crowdfunding advisory team, Crowfund Capital Advisors. Recently, they’ve visited Colombia, Canada, Mexico, Italy, Turkey, Sweden, and Dubai, with upcoming visits to Singapore, Malaysia, Hong Kong, and Sydney. They’ve also secured a relationship with the World Bank to study crowdfunding as a way to unlock innovation in developing countries.

Thursday, November 29, 2012

2nd Edition of The Crowdfunding Revolution available!

Two years from our self-published 1st Edition, we are excited to announce the launch of the 2nd Edition of The Crowdfunding Revolution with our publisher, McGraw-Hill!

It's been quite a journey that's taken us so many places, from the blogosphere to the White House.  This is a book, wrought not just from our hearts & souls, but from the synthesis of a wide spectrum of research across many disciplines, such as sociology, venture finance, economics, entrepreneurism, and social networking.  And as much so, from our interactions with leaders, users, researchers and political figures active throughout the crowdfunding space.

It is our incredible honor to participate in what is only the beginning of a powerful revolution in finance; one which will play a defining role in unlocking the potentials of achievement for the human race.  As we look around us, the entire international finance & economics scene is in flames, an inevitable outcome from a system which has no soul.  But the revolution in crowdfunding brings us a natural and culturally organic alternative.

It is perhaps, one of the most powerful developments in our modern-day socio-economics, and promises both to transform the capital formation landscape and to offer an avenue for a creative and intellectual re-birth.  Crowdfunding is after all, an expression of our collective human will, and ties together true forms of human economic activity such as contribution, participation and co-creation, along with our current system of capital.  The World is waking up quickly to crowdfunding; tomorrow's crowdfunding won't necessarily look like today's.  We hope that you find our contributions valuable.  And look forward to co-creating our future with you.

Sincerely,
Kevin Lawton & Dan Marom

Saturday, April 21, 2012

Pics from the JOBS Act signing at the Rose Garden

For all of you who wonder if it's still possible to make a difference in the World.  And in memory of my mother, who gave up so much so that I could be here.

Saturday, September 10, 2011

The 'next Facebook' will be a crowdfunding platform

The leading social network service is ... Facebook.
The leading micro-blogging service is ... Twitter.
What's the 800 lb gorilla in online services for startups? ... There isn't one.

There is no one place 'everybody' goes online for startups.  And thus:
  • You can't access a 3rd party app market and related APIs.
  • There is no 'search' for startups.
  • There is no central ecosystem for all the related players (office rentals, IP lawyers, accountants, benefits companies, employees, ...)
  • There is no way to apply deep quantitative models and trend analytics to startups.
  • And of course, as a consequence, much of the startup market remains opaque and difficult to access.
And yet, think about how huge the small business ecosystem is.  American "informal investors" put approximately $51 billion into early companies in 2010 alone (business angels, only $9.4 billion of that).  But it's the size of the entire ecosystem around small companies that really drives the value of being a "Facebook of startups" -- and that's going to be an order of magnitude bigger.

So what happens when across the global scene (or some fraction of it), trillions of dollars worth of ecosystem start focusing its time on one (or a few) winners in the online startup space?  And when players access related apps from a marketplace, find employees, employers, lawyers, administrative services, office space, designers, etc?  Investors will find a rich ecosystem equally valuable and transformational, given that large data sets of info will enable trend analytics and custom deal potential identification.  Do you suppose that will make a 'Facebook' of the space valuable?

I've had a conversation with a number of VCs about a crowdfunding platform being the next major investment potential.  Mostly they just politely change the subject, or even roll their eyes.  Reminds me of trying to get funded in the 90's for a virtualization startup (doh!).  Well, I'm going all-in on perhaps my biggest ever trend call.  The next Facebook-sized investment opportunity in software startups, is a crowdfunding platform.  And it's going to have an app market & APIs.  Roll your eyes all you want, sheople.  It's about to get interesting...

P.S. It's worth noting the momentum picking up in regulatory changes for crowdfunding.

Congressional hearing on crowdfunding, White House blog post on crowdfunding

Crowdfunding is really picking up steam in the U.S.:
  • Hearing #2 in a House of Representatives subcommittee (this time specifically about crowdfunding!) is scheduled for 9:30 a.m. on Thursday, September 15.  Btw, you can request that C-SPAN covers this hearing, by calling them the day before at 202-737-3220.
  • In a recent blog post from the White House Office of Science and Technology, point#1 makes the case for allowing crowdfunding as part of the Startup America initiative.
This is a great time to get the word out about the petition for crowdfunding at StartupExemption.com.  It's important to show support while this is a hot topic.

I keep track of related events in a dedicated page.

Monday, May 16, 2011

Kevin at Maker Faire (Bay Area) moderating crowdfunding panel

I'll be at Maker Faire (Bay Area / San Mateo) moderating the crowdfunding panel on Saturday May 21 (3pm).  Drop me a note if you want to meet up