Overview. Ideanomics (NASDAQ: SSC) aims to become a leading global fintech and asset digitization services company focused on digital asset production and distribution. Through strategic partnerships with and ownership stakes in leading Artificial Intelligence (AI) and blockchain companies, SSC is bringing transparency, efficiency, cost savings and new ownership paradigms to various markets including finance, commodities/energy, TradeTech industry/supply chain and consumer. With headquarters in New York, NY and its planned “Fintech Village” center for Technology and Innovation in West Hartford, CT, SSC is pioneering the new blockchain and AI-empowered economy. For 12 months commencing, Aug 2018 through 2019, SSC is employing its 4+2+1 strategy whereby the Company will drive growth across its core products which are — 1) Fixed Income-based Financial Digital Assets, 2) Consumer Digital Assets, 3) Commodity and Energy Digital Assets, and 4) TradeTech Digital Assets. From mid-to-long-term, the Company will deploy its 4+4+4+4 Strategy which will be explained further below.

SSC is transforming traditional assets and their associated industries into the asset digitization era. Our initial primary focus areas are financial assets and related markets, supply chain management and manufacturing, consumer services, media and entertainment, amongst other verticals. SSC is positioning itself as a world-leading digital asset manager and service provider across a portfolio of assets and an ecosystem for super intelligent enhanced risk management supported fractionalization, securitization and tokenization as well as trading systems integration.

We are growing our global management team of world-class technology and business professionals and a high-performance global partnership network, which includes best in class technology infrastructure and service providers in AI, blockchain, and other big data technologies. SSC secures strategic partners by acquisition, investment, joint venture, licensing, and partnership agreements.

SSC is on track to be among the first in the world of going to market and being a leading fintech and digital asset service provider, whereby we have customized industry solutions (engines) that support different business use cases. We will be one of the first companies in the world to go to market with a suite of business use cases across the asset digitization landscape.

Our Strategy. SSC is determined to become one of the most prominent global digital asset companies. Relying on its core base of fintech and digital asset production and services-based ecosystem enablement, SSC is committed to delivering the best digital assets via the best underlying technology. This approach will drive capital formation and sales across our digital asset ecosystems.

SSC customizes technology platform for various business use cases, operates the Platform-as-a-Service (PaaS) and partners with businesses that deliver core digital asset product creation. We are focused on delivering a global multi-layer technology infrastructure ecosystem that manages risk with enhanced super intelligence, issues, trades, and settles digital asset transactions. We will leverage direct sales channels and automated sales systems via digital asset exchange platforms which is inclusive of digital exchanges to realize digital asset distribution, social media, traditional regulated broker dealer network as well as institutions as direct clients.

2018–2019 Execution Plan, 4+2+1 Strategy. SSC’s 4+2+1 Strategy is in direct alignment with our approach to fintech and digital asset production and services-based ecosystem enablement. SSC has identified and integrated core technologies to operationalize Fixed-Income-based Financial Digital Assets, Consumer Digital Assets, Commodity/Energy Digital Assets, and TradeTech Digital Assets via Velocity Ledger Network (VLN), Social Media Influencer Company, BBD, and DGK + Active Ledger technologies respectively. We are committed to increasing topline revenue and our bottom-line performance while simultaneously increasing assets on the Company’s balance sheet.

Ecosystem Perspective and Approach. SSC characterizes digital assets as any type of text, media, or strong cryptographic representation of value. They are represented in binary source code and include the right to access and use them. By combining digital assets with high performance AI-enhanced accuracy and trusted blockchain technology, it is possible to create valuable digital assets and strong, immutable, and irrefutable proof of ownership and secure transactions on behalf of those assets. Trust-based transactions with undeniable authenticity is critically important across industry, and we seek to leverage this to create immense market value.

SSC Mid-to-Long-Term Strategy and Tactics: Global Fintech and Asset Digitization Service Matrix (4+4+4+4 Model). Our long term strategy and approach to asset digitization is best represented via our 4+4+4+4 Model which includes:

· 4 Strategic Technology Platforms

· 4 Digital Asset Product Sectors

· 4 Digital Asset Monetization Platforms

· 4 Digital Asset Product Trading Platforms

4 Digital Asset Product Sectors — (previously mentioned above)

4 Digital Asset Monetization Platforms
1) Redrock Global Capital Operation (in support of Velocity Ledger Network)
2) GenXPlus Operation (see additional info in Partner section below)
3) Social Media Influencer Platform (in support of Consumer Digital Assets and company equity)
4) Redrock Global Capital Operation (in support of TradeTech Digital assets)

4 Digital Asset Product Trading Platforms (various locations US, Asia, Europe)

1) Self-regulated IEO Direct Sales Groups
2) Regulated ATS Exchange Group
3) Unregulated Centralized Crypto Exchange Group (20–30)
4) Unregulated Decentralized Crypto Exchange Group (Over 100)

SSC’s 4+4+4+4 is due to be operational by 2019. SSC’s definition “operational” on product launches and capabilities includes the following 4 Ready States where by 1) the technology is ready 2) the management team is ready 3) the partnership is ready and 4) the clients are ready. Across all of our business dealings we seek to establish and maintain operational states to the utmost.

First Four Digital Products | Engine Launch Categories (as part of SSC’s fintech & asset digitization services)

SSC is aggregating the best underlying technologies worldwide and leveraging their capabilities their core use cases. While the following four engines are scheduled for deployment in 2018, there are more in development with plans to launch in 2019 and onward.

1) Fixed Income-based Financial Digital Assets. (via Velocity Ledger Network (VLN)) are blockchain-based smart contracts that serve as real-world financial assets. They are essentially, secure digital representations of all financial instruments such as equity, debt, derivatives, and other structured financial instruments as well as hard assets such as real estate. SSC offers the full value chain — from a) AI-enhanced risk and rating to b) fractionalization, securitization, and tokenization to c) sales and trading platforms through both regulated and unregulated networks.

a. Credit cards and high-yield consumer financing asset-backed products

b. Financial leasing type of products including finance lease type products such as electric bus, consumer car finance, aircraft leasing, and medical equipment, etc.

c. Share of commercial real estate, and sales, trading, and transactions

d. Tollway assets

e. Government public/private partnership project, local debt share projects, local debt share Sales, and digital distribution

f. PE/VC fund financing platform, and share-based stock fractionalization transfer platform

g. Trust-based asset digitization and trading

h. Transportation infrastructure and utility assets, including gas pipeline, refineries, wind farms, solar power, and power station asset-backed fractionalization and securitization

i. Supply chain finance

2) Commodity/Energy Digital Assets. Commodity and energy digital assets represent the sourcing of actual commodity and energy-based products (physical assets, supply chain contracts, futures and derivatives etc.) This includes gold, iron, and energy products such as oil, coal, or hydroelectric. Our dynamic ontology-based super intelligence engines produce the world’s leading index products.

3) Consumer Digital Assets. Consumer Digital Assets serve as new digital mediums for engaging with merchants and service providers as well as providing for stores of value. These assets can be used in a variety of methods such as media, copyright and licensing, digital collectibles, gaming, celebrity fanfare, social media influencer activities, loyalty management and retail consumer facing web and mobile application uses.

4) TradeTech Digital Assets. Vertical industries typically include a value chain of suppliers, processors, manufacturers, distributors, and other support entities in order to ensure that products and services get to market. TradeTech Digital Assets are ecosystems with their own settlement tokens. Theses digital ecosystems include supply chain management and supply chain financing platforms, settlement assets, payment mediums, stores of value, supply chain contracts, indexes and other digital means of supporting and enabling specific industry verticals.

Our Revenue Model. SSC is an operating company and digital asset management company that supports a portfolio of Artificial Intelligence (AI) and blockchain-enabled technology companies. Our primary business model is directly connected with the agreements and partnerships that we engage in. These include the following:

· Proceeds of new digital asset creation (i.e. Token Generation Event) on behalf of portfolio companies

· Proceeds from the creation and issuance of risk management, ratings, and financial instruments tied with new AI-based products such as indexes and futures

· Fees collected by the fractionalization, securitization, tokenization/primary digital issuance, and trading of digital assets

· Revenue sharing agreements with strategic partners

Additionally, part of SSC’s business includes the sourcing portfolio companies that we will place through our Digitization Foundry. SSC has an option to receive an ownership equity interest in these portfolio companies. As these companies grow and their values increase, SSC will consider portfolio liquidity/exit opportunities with all key stakeholders. In cases where valuable IP is generated by portfolio companies, SSC will consider strategic licensing agreements and additional business models in exchange for our services to further enhance profitability.

The portfolio will include companies owned by SSC, companies in which SSC has investments, companies from SSC’s parent company Sun Seven Stars Investment Group, as well as companies born and incubated out of Ideanomics’ Global Headquarters for Technology and Innovation through the Global Center for Digital Revolution (C4DR). The campus will also house a Global Digital Assets Institute, Global Fintech Incubation Hub, Fintech Trading Center, Fintech Investment Fund Group. Of note, Sun Seven Stars is Asia’s leading media, technology, and investment company.

Ideanomics Global Headquarters for Technology and Innovation (aka Fintech Village). SSC will soon be building its Global Headquarters for Technology and Innovation on 58-acres of land in the heart of West Hartford, Connecticut, located at 1700 and 1800 Asylum Avenue.

The site is the former West Hartford University of Connecticut campus, which is centrally located between New York City and Boston. Not only is the location in proximity to 40+ institutions of higher learning, but it is also in the heart of 1/3 of the US economy and in proximity to 2/3rds of the Canadian economy. Hartford is of historical significance as the first Chinese students to study in the United States, called the Mission Boys, studied at Yale and other Ivy League Colleges starting in 1871 during the era of the Qing Dynasty.

The mission for the campus is to inspire and build a community of innovation centered on blockchain technology, digital assets, and artificial intelligence, empowering mankind in its digitization journey. This campus will serve as a world-class center of excellence, leveraging best of breed developments in high technology for the purposes of high impact private, public, and social good thereby accomplishing its mission of enabling digital transformation of traditional industries.

The $283 million project is intended to transform the former UConn campus into the world’s leading fintech hub and high-tech future job market, focusing on business use case applications. The project is expected to create 330 jobs over the next five years. The site will host a portfolio of operational Artificial Intelligence (AI) and blockchain technology companies that deliver world class capabilities to Ideanomics’ fintech ecosystem.

The portfolio will include companies owned by SSC, companies in which SSC has investments, companies from SSC’s parent company Sun Seven Stars Investment Group, as well as companies born and incubated out of our Global Headquarters for Technology and Innovation. The campus will also house a Global Digital Assets Institute, Global Fintech Incubation Hub, Fintech Trading Center, Fintech Investment Fund Group. Of note, Sun Seven Stars is Asia’s leading media, technology, and investment company.

Please see our Brand Story here.

Ideanomics Overview Mission Approach was originally published in Ideanomics on Medium, where people are continuing the conversation by highlighting and responding to this story.

Brand Story: The human race has undergone major technological revolutions throughout history. We are at the brink of the most significant revolution to date, one where technology, networks, and the operationalization of data becomes ubiquitously integrated in our societies with unprecedented processing power, data storage capabilities, and most importantly, the ability to access volumes of high impact knowledge and execution of new ideas. Our futures will be most greatly impacted by the tight coupling and integration of the physical, knowledge, and spiritual worlds.

The merging of these worlds is predicated on the strong interaction amongst humans, machines, and organizations as they have a perpetual need to conduct transactions. Those transactions can represent the exchange or transfer of instruments of value or just data. Fundamentally, those interactions and transactions serve as the basis of economic activity, representing the atomic condition for the production, distribution, and consumption of goods and services.

The combination of next-generation technologies such as blockchain and artificial intelligence have begun to unlock capabilities in intelligent prediction and trust mechanics by providing enhanced transparency, security, and traceability while simultaneously making the data smarter. The advent of smart contracts that live on blockchain technology has, for one of the first times in human history, created programmable logic that represents both a potential unit of monetary value as well as data with unique and valuable behavioral traits. These next-generation technologies are truly remarkable testaments of our ability to empower innovative ideas.

With the belief and expectation that humans perpetually use their ability to reason to more efficiently use energy and resources, there is nothing more valuable than an idea. Ideas foster creativity and innovation — both essential to the future progress of mankind. Data, patterns, knowledge and the plans of action are what bring ideas to reality. Innovative ideas only become reality when they integrate with actual business use cases.

And hence, the combination of the idea and the field of economics, yields ideanomics — a new paradigm and model for solving problems, creating efficiencies, and more equitably distributing wealth and knowledge. Ideas create value. Without ideas, there is no future. Ideanomics, we are digitizing tomorrow!

Ideanomics — Digitizing Tomorrow was originally published in Ideanomics on Medium, where people are continuing the conversation by highlighting and responding to this story.

A Statement from Bruno Wu, Chairman & CEO of Seven Stars Cloud on our Global Headquarters for Technology and Innovation

SEVEN STARS CLOUD GROUP, INC.

WEST HARTFORD — Sunday, July 15, 2018 — “We are thrilled at the prospect of building Seven Stars Cloud’s (SSC) Global Headquarters for Technology and Innovation here in West Hartford, and transforming the former UConn campus into the world’s leading fintech hub. We have been heartened by how engaged state officials and members of the public are in building a high-tech future job market here, and we continue in our to pledge to be open and honest about both our business and our plans for the West Hartford site. We welcome any and all dialogue on our planned development, today and in the future.”

“As someone who is very much looking forward to being a good neighbor, corporate citizen, and stakeholder in the continued successes of West Hartford, I see it as my responsibility to make sure people have all the facts about not only our plans here, but also the growth and financial health of SSC, in order for everyone to share in our excitement over the many benefits the Headquarters will bring to both West Hartford and the entire area.”

“Since new ownership and management assumed control of Seven Stars Cloud in October 2017, the Company has undergone a major transformation. We are partnering with, investing in, and growing a portfolio of operational Artificial Intelligence (AI) and blockchain technology companies that deliver world class capabilities to Seven Stars Cloud’s fintech ecosystem. Additionally, we have significantly improved the Company’s financial condition — we are truly on course to become the world’s leading fintech and asset digitization service provider. Our company is very much invested in the success of all our partner firms and key stakeholders, which is inclusive of the fine people of Connecticut and especially those of West Hartford.

Unlike most AI or blockchain companies who still struggle for stable revenue, we are a blockchain and AI-enabling fintech and asset digitization services company, which has truly formed a monetization model with a path to profitability. We are modernizing our legacy oil supply chain business with a blockchain-based supply chain finance solution and index products that will greatly enhance margins. Furthermore, in addition to fintech services, we are also developing AI and blockchain-based solutions in manufacturing that will support different industry verticals to include the automotive industry for production lines such as electric vehicles.

There is a huge difference between a solid company with blockchain as underlying technology and cryptocurrencies such as bitcoin. Also, mark my words, we are not a cryptocurrency company. Many large-scale companies, governments and regulatory bodies have embraced blockchain technology, and so do we.

Our revenues of $186 million in Q1 2018 represent 461% growth when compared to the same quarter in 2017. The company is debt-free with a strong balance sheet, reflecting total assets of $140 million as of Q1 of 2018. SSC possesses a full value chain of blockchain and AI capabilities, for the tokenization, securitization and monetization of assets, as well as the world’s best underlying technology platforms to support these processes and associated businesses.

Additionally, we are confident in our estimate of bringing 330 new jobs to West Hartford in the next five years and bringing 30–40 different companies to the West Hartford site to support them as a result of our global reach and dedication to the West Hartford area. These will include companies owned by SSC, companies in which SSC has investments, companies from SSC’s parent company Sun Seven Stars Investment Group, as well as companies born and incubated out of our Global Headquarters for Technology and Innovation. Our investment in the West Hartford area will not only be supported by our strong balance sheet, but also supported by our wholly owned parent company, Sun Seven Stars, which is Asia’s leading media, technology, and investment company. I personally want the residents of West Hartford to know the extent of our commitment, and SSC’s commitment, to the West Hartford area. We are here to do this correctly, and make it a great success for the entire community now and in the future, with something that will all be remembered for generations to come.”

“We ultimately chose to come to West Hartford after narrowing our search to five other states and cities, and we did so due to its proximity to so much abundance — major cities, great schools and universities, and all the talented people who have chosen to live here and raise a family. We have enjoyed working with the State of Connecticut and the Department of Economic and Community Development, and we look forward to building a technology and innovation hub that will rival any in the world. We are energized to continue to work with state and local leaders to fully realize our collective visions for the area.” — Dr. Bruno Wu, Chairman and CEO, Seven Stars Cloud Group, Inc.

A Statement from Bruno Wu, Chairman & CEO of Seven Stars Cloud on our Global Headquarters for… was originally published in Ideanomics on Medium, where people are continuing the conversation by highlighting and responding to this story.

Making heads or tails of short-term activity in the crypto markets is the equivalent of trying to understand chaos theory. While it may be futile to try to understand what caused crypto assets to experience intraday volatility the macro volatility cycle is much more predictable. Not surprisingly, people tend to ask the hard questions when the markets are crashing and less so when they are on the rise.

Most crypto investors are fully aware that crypto is a volatile asset, and while difficult to bear, these investors are relatively insensitive to 10–30% volatility swings on their respective holdings. But once that downside figure increases towards 40–80%, even the most devout of crypto-evangelists tend to scratch their heads and question reality.

The Great Crash

This past December 2017, we saw Bitcoin cascade from its all-time high of $19,783 to $6,953 in 50 days. That’s a staggering loss of 65% of its value over this relative time period. Commensurately, the overall crypto market capitalization fell from an all-time high of $813 billion and fell to approximately $332 billion, representing an approximate 60% loss of value for the entire market. Simply put these are non-trivial losses of notional value. Presently we are sitting just above $450 billion.

And while it may be a bit comedic to include Alex Millar’s YouTube video Don’t Buy Bitcoin. It’s Going To Crash!!! here, he does a great job of succinctly depicting the sensationalism around Bitcoin’s ups and downs. Mind you he posted this in 2015.

Bitcoin Market Dominance

Aside from Bitcoin’s individual price action, an important piece of the story is Bitcoin’s overall market dominance. It has historically been and still is to a large degree the Grandfather of all things crypto, but is its grip on the market is changing? Up through January 2017, Bitcoin maintained a market dominance just above 85%. Since then it’s market dominance has plummeted and even today reflects just under 40% of the total crypto market which is consistent with where the chart below trails off in July 2017.

It is important to note that from July 2017 through present time February 2018 Bitcoin is maintaining a high degree of pull on the overall market. One of the indicators of this that even with the continued growth of the Initial Coin Offering (ICO) market, which is soaking up more and more crypto funds every week, Bitcoin has managed to hold steady at this 40% mark.

There are a lot of hypothetical reasons why this is true, but if all else was holding equal, the flood of crypto money into ICO tokens would generally create a further dilutive effect on the market dominance for Bitcoin and that has not occurred even in the wake of the Great Crash of Late 2017/Early 2018.

The Psychological Piece

Markets tend to be rationally irrational. The Psychology of a Market Cycle graphic below is a reminder that we are emotional beings and our decision-making in the wake of financial gains and losses, consistently reflects that.

Price movements, analyses, qualitative inputs and even the algos that are executing transactions on this global market have humans behind their execution processes (that is until the advent of strong AI). The Market Cycle chart shows both micro and macro cycles of market activity as aggregate participants time and time again realize their own relationship with price action.

One may try to look at this chart and try to place where we are. The challenge is that we can be at multiple places on the curve at once, especially when considering individual assets, blockchain verticals, the crypto market as a whole, and the overall macroeconomic picture. What I can say for sure is that with crypto being a 24-hour global market, the micro cycles tend to occur very fast. No sooner than when we believe we are finished with the cycle altogether does something occur that triggers it to repeat itself.

Finding Ourselves on the Adoption Curve

Next, locating ourselves on the Adoption Curve is another fun exercise. Per the chart below adoption typically takes place in phases. Innovators and Early Adopters get involved. They are followed by the Early Majority and then the Late Majority. And just as the market is reaching peak adoption, the Laggards come into play, namely the last 10% of market participants.

Subject to both philosophical and ideological debate, it is rare to be able to have a logical discussion with those who want to cite anecdotal evidence regarding their perception of the Adoption Curve. They claim that when their Mother, grandparents, Uber driver etc.. are talking about crypto that the party is over! If they were correct, we would most likely be at the late majority stage of the Adoption Curve. Well, I took a ride home from a Crypto meet-up this evening in Brooklyn, New York and my Uber driver held his own in a conversation about Litecoin. He was definitely knowledgeable of its recent price action. Now allow me to tell you why we are likely still in the Early Adopter and Early Majority phase of the S-curve.

Let’s consider what true crypto adoption looks like. Estimating the total number of holders of crypto is a difficult task. We do have some data points though. At the end of November 2017, just 3 months ago, Coinbase reported having over 13 million customer accounts, a number that surpasses the total number of Charles Schwab account holders. Hong Kong-based Binance, the world’s largest cryptocurrency exchange, reported onboarding 240,000 people in just one hour and that millions more are signing up just a few months ago. Now even if we stretch some estimates here, I think we would be hard-pressed to say that the amount of holders of crypto globally is substantially more than 30 million, if even that.

The world population is approximately 7.6 billion and as of 2015, Gallup reported that 62% of the world population has a bank account through a formal financial institution or through a mobile device. By those figures, that would indicate that 4.7 billion people globally have a bank account. This insinuates that 0.64% of the banked global population are crypto holders. I would argue that that is hardly a figure that would take us past the Early Majority part of the Adoption Curve.

The Impact of New Retail Investors

Now we must consider the impact of that estimated 0.64%. As much as we’d like to tout the power of the recent masses adopting crypto, I would argue that their adoption in the short term is not as significant as everyone believes it to be.

Assume that an average account holder deposits $5,000 and we are on-boarding 1 million new people a week. We would essentially be adding $5 billion of fiat capital to the crypto markets every 7 days. On paper that sounds like a substantial number considering the current market cap is approximately $450 billion. But even if that were true, it doesn’t account for money that is being taken out of the system and the effects of rapid asset sell-offs.

My intuition tells me that the average account holder is depositing much less than $5,000 and while mainstream exchanges are advertising a lot of user growth, a number of retail investors are setting up accounts on multiple exchanges. In this case, we have a lot of overlapping crypto user populations that are difficult to tabulate.

In Search of Institutional Cash

The crypto markets are chomping at the bit for the green light for institutional money to be deployed into crypto. This is so pertinent to the space that there is pure speculation occurring on the mere possibility of this occurring at scale. In aggregate, companies have billions of dollars that they can invest. If a strong grouping of companies starts to put capital to work in crypto, there is very likely to be a domino effect driving up asset prices.

And while we can investigate individual company balance sheets and plot the figures, there are numerous examples of corporations with a lot of cash or cash equivalents sitting on their balance sheets. For example, in the wake of the recent Trump corporate tax cuts, these companies have even more cash accessible to them. The following article Tax cut scoreboard: Workers $6 billion; Shareholders $171 billion conveys that companies are seeking to buy back company stock with cash accessible, generally enriching shareholders. Furthermore, with efforts to facilitate the repatriation of funds from overseas, it is estimated that when that money comes back another $450 billion will be placed towards stock buybacks. What if just a fraction of this capital were deployed towards crypto assets, even as a hedge? That could make a huge difference.

But I wouldn’t get overly excited about institutional adoption, at least not in the beginning. There are healthy Over-the-Counter markets and Dark Pool trading activity that have been developing in crypto. Essentially, these are peer-to-peer or quasi-peer-to-peer transactions. In the case of Over-the-Counter and in the case of Dark Pools, they can be thought of aggregate order flow that is being transacted with outside of on exchange order books.

Namely, these transactions tend to transfer ownership of the underlying crypto assets without creating price action. If you were an institutional player wanting to acquire large amounts of crypto you would likely go through a myriad of channels to both acquire and divest your holdings, in an attempt to minimize your influence on price. Regardless, the involvement of institutional capital is a critical part of the mainstream crypto adoption and will inherently drive up asset valuations.

Media Mania

The media has gone bonkers for blockchain and crypto. Blockchain is confusing, disruptive, elegant, and has made a lot of people rich. Its mysterious beginnings are rooted in the story of Satoshi Nakamoto and Bitcoin. Its follow-on evolution has ties with the Dark Web, and one of the first prominent illicit marketplaces called Silk Road. The adoption of cryptocurrency threatens the establishment of money and the systems that govern it as we know. What’s there not to love from a narrative standpoint?

And while most people couldn’t name the first 10 Presidents of the United States, let alone explain the difference between Proof of Work (PoW) and Proof of Stake (PoS) blockchain consensus algorithms, there is a lot of room to fill with appeals to human emotion. The media is very very good at that!

Whether it’s Jamie Diamond — CEO of JPMorgan Chase, Warren Buffet — CEO of Berkshire Hathaway, Christine Lagarde — Head of the IMF, or a number of other financial public figures, it has become taboo not to have an opinion on digital assets. Even Blackrock’s Global Chief Investment Strategist, Richard Turnell, went on the record on Feb 27th, 2018, indicating “We see cryptocurrencies potentially becoming more widely used in the future as the markets mature. Yet, for now we believe they should only be considered by those who can stomach potentially complete losses.” For a firm that has $6.28 trillion dollars under management, these are no small words…

The hype and fear that mainstream and alternative media, as well as market influencers, have on the crypto market is substantial and plays to the high volatility that crypto holders embrace on a daily basis.

Bitcoin Futures + Follow-on Crypto Derivatives

The onset of crypto derivatives is in its early stages, but has created a cash-settled channel for retail and institutional participants to gain exposure to crypto without actually holding any of the underlying crypto assets. While futures, options, and other derivatives are being created primarily on behalf of the Bitcoin markets, it is only a matter of time before other cryptos are bundled into derivative instruments providing for wider crypto market exposure from potential non-holders of crypto.

Personally, I am conflicted on the true market impact of these derivatives. While there are a number of reasons to trade derivatives, one reason is that participants may be looking to hedge their crypto positions or perhaps even their traditional investment portfolios with these crypto derivatives.

On a conspiracy theorist note, I want to believe that some really smart illegitimate actors are finding ways to take out Bitcoin derivatives contracts in a manner that suits their interest and seek ways to drive the price up or down making their contracts more valuable and timing this movement in lockstep with their contract expirations. While this behavior would be fraudulent and illegal, it’s not outside the realm of possibility.

It is important to note that no crypto Exchange Traded Funds (ETFs) have been approved to date. This matters, because if and when ETFs are actually approved, there could a requirement to accumulate crypto to serve as the underlying for these funds (if their plans are not to be synthetic instruments — meaning they have no underlying assets behind them)

Generally speaking (with the exception of the ETF market), I look at the current crypto derivatives as net-neutral on the crypto markets. The participants do not want to custody crypto and deal with the challenges of transacting with them on a crypto exchange, but they are interested in trading both the upside and downside of these assets. By participating in the derivatives space they are not directly affecting price action on crypto exchange order books and hence I believe their effects on the overall market are fairly insignificant in practice.

The Whales

The Whales are an interesting group in the crypto. They are high net worth holders and have the ability to move markets. As with any market participant, they are subject to the psychological effects of market fluctuations. While it is difficult to ascertain what any whale individual or groups interests are, I believe there are some common themes with their activities. They are as follows:

• They generally want to remain anonymous
• They want to protect their wealth
• They are looking for high reward opportunities for their holdings with minimal risk
• They want to minimize and/or avoid tax burdens altogether (may involve minimizing their conversion to fiat unless absolutely necessary)
• They are constantly concerned about both physical and computer security

That being said, Whales are likely to know other whales, and they may be engaging in synonymous market activity. As, other market participants catch spot whale activities they may take actions to follow-on with the whales activities in a mutually beneficial manner.

Bot Trading

Just as in traditional financial markets, there is an ever-growing number of automated market participants — Bots. These bots are computer generated trading applications that run in real-time on live markets and typically execute trades using algorithmic software. It is difficult to say how much crypto trading volume is being run on automated bot trading, but if we look at some figures it is possible to consider to high-level estimates.

Today’s market trading volume was approximately $19 billion in notional value. If we assume that only 15 million participants (half of the previously estimated 30 million) are actually trading on their portfolios, and only half of that figure is actively trading their portfolios, that leaves about 7.5 million participants.

Let’s assume that each of those 7.5 million has accounts of $10,000. This would mean that their account holdings are valued at $75 billion. Now let’s assume that only 5% of their portfolios are being actively traded on any given day. This assumes that only $3.75 billion of retail participants funds are being traded daily.

So the follow-on question is — “where is the remaining $15.25 billion dollars of trading volume coming from?” While the answer includes participants such as general crypto funds and Whales, a portion of that can most definitely be attributed to bots. If you want to look further into bots, check out Gekko, ZenBot, CryptoTrader, or Haasbot.

Funds

The fund category is another interesting one. Funds can range from a family offices, traditional hedge funds, VC funds, newly minted crypto hedge funds, real-world investment banks to informal crypto syndicates. Of course there can be other players, but I would like to focus on those that are likely to consistently be generating trading volume. While there is no definitive answer, a key question to ask is what are the funds interest in crypto?

Some options include traditional buy and holds, accumulation in anticipation of a hot market, active trading, position hedging, general diversification and exposure. The list goes on and on, but it is relevant to note that in aggregate they play a role in the overall volatility of crypto since they are positioned to move larger amounts than a retail investor.

Market Manipulators

There are and most likely always will be market manipulators and general bad actors. Barclays, for example, is still dealing with the fallout of foreign-exchange market manipulation. Notably another trader — the former head of New York foreign exchange trading is facing charges that has led to the firm facing $10 billion in fines.

With over 1 trillion dollars in assets, Barclays is one of the biggest banks in the world. If there are market manipulation activities that can take place at a reputable brand name firm, are we really so naïve to think that pump and dumps, painting the tape, order spoofing is not going on in a global, fragmented, 24/7 environment, that is for the most part unregulated?

One of the biggest potential scandals and manipulation threats that the crypto markets may have endured is that tied with Bitfinex and Tether. Rather than spread gossip, I encourage you to do your own research. Here is a relevant report called Quantifying the Effect of Tether. I cannot vouch for the accuracy of the report, but I would at a minimum like to highlight the possibility that it could be true.

The answer to my earlier question is, “Yes there is market manipulation going on,” but to what degree? And how susceptible are particular asset classes and tokens to these schemes?

Holy Grail — Stable Coins and Asset-backed Tokens

The crypto markets are starved for Stable Coins and Asset-backed Tokens (excepting Tether). Some call Stable Coins the Holy Grail of the crypto markets. And while asset-backed financial instruments are nothing new to the financial world, but they are novel to the crypto markets. At my company Vermundi, we are working diligently to deploy both a stable coin and asset-backed token system. More details soon!

There are a number of projects in the works — Basecoin, MakerDAO, and others. They are still very much in their infancy. In many cases this is the same story for asset-backed tokens, but my projection is that we will see a lot more asset-backed tokens deployed before we see a truly successful stable coin at scale.

Both stable coins and asset-backed coins need to at a minimum prove unfailingly — 1) price stability, 2) scalability, and 3) resiliency. Some will argue for privacy and decentralization, and while those are nice add-on features, we need Stable Coin options to be available to the market so that there are secure assets available in the cryptoverse. The fact that this instrument is effectively missing from the ecosystem is a huge red flag! This article, An Overview of Stablecoins by Multicoin Capital is one of the best pieces I have seen on this topic.

Regulation

Coming to save the day is regulation! Some measures have already arrived, but the impact of these laws will be closely tied to the structure of the policies and enforcement by each sovereign jurisdiction. Now it is true that each country whether it be China, the United States or others could come down hard on crypto in various capacities, but there are very clever and determined folks out there who will constantly look for ways to circumvent rules and/or laws. I would argue even more so if these rules would otherwise prevent them from taking the actions that they want to take — moving funds or engaging in various styles of transactions.

Crypto is the wild west for now and regulation will play a substantial role in its future. My personal sentiment is that the regulation will cause more short-term volatility shocks to the system and will lead to a larger stabilization effort for the markets.

In fact, if regulation can come in and effectively put strong controls on the flows of capital, I believe that we are much more likely to see more institutional activities, pension funds, sovereign wealth funds and others jump into the cryptoverse. The funny part about this is some institutional players may be putting their toes in the water now, but I believe when the green light is metaphorically given, there will be an exponential turning point at play. We will go parabolic.

ICO Effect

Initial Coin Offerings (ICOs) have multiple effects on the crypto markets. Here are a few that I would like to highlight.

Promotes Accumulation of Crypto as Medium for Investment Purposes. On one hand, they are promoting crypto adoption because in many cases in order to invest in a speculative ICO, you have to do so in crypto. I believe this will change over time, but until that occurs at scale, holding big name cryptos such as BTC, ETH, NEO and others allows the ICO investor to be able to deploy crypto-capital towards the next new and exciting project. Therefore the ICO market creates demand for big name cryptos. Without them, you simply cannot participate in ICOs.

Creates market Sell Offs via Crypto Liquidation Effect. If you are a sexy crypto company and just completed your ICO, chances are you are sitting on millions of dollars worth of crypto. The decision point from here is — what do you do with your crypto capital — Liquidate to fiat, hold it all in crypto, or find some happy medium? If you are a real company you need to pay employees, office(s), supplies, legal expenses, taxes, and everything else it takes to run a business. In which case, liquidating to fiat becomes less of an option, and more of a requirement.

Hypothetically, let’s say your company raised $30 million in crypto. You liquidate $25 million to USD and keep $5 million in the crypto. I will emphasize now, that $25 million worth of crypto is now being pulled out of the market and is being converted back to fiat. If this was a one-off occurrence, it would be a big deal. But there are hundreds and hundreds of ICOs out there…with many more in the pipeline.

This adds up to being a vicious cycle of money coming in and money going out of the ecosystem. Who knows exactly what the trade balance really looks like unless we have the aggregate data from all of the exchanges that are processing crypto-to-fiat and fiat-to-crypto transactions combined with actual inflows and outflows to real-world bank accounts. That information is simply just not available.

ICO Failures. While some ICO failures have already occurred, there are many more to come. This will big volatility swings and sell offs resulting in losses for many ICO/altcoin holders. When these occur, I expect larger market shocks to follow that will affect more than just alts. The combination of the herd mentality, the media, and everything else we can throw in the mix will exacerbate the volatility tied with this type of market activity. Beware of this one.

Smart Money

Throughout this piece we’ve covered a myriad of reasons why the crypto markets are and will continue to be volatile. Many on the sidelines and even those investing in crypto are asking — what is the smart money doing? While there are no unequivocal answers to this question some options include:

1. Stay out of the game altogether
2. HODL — Buy and hold for the long-term
3. Day trade
4. Buy the Dip
5. Diversify
6. Mine for your favorite crypto
7. Set up Masternodes…
8. Some combination of the above

…the list goes on and on!

Anyone can put together a strategy, but with all successful investing strategies — they always work until they don’t. I do believe that we are on verge of a turning point in crypto as an asset class. The markets are beginning to show signs of recovery and institutional capital is figuring out ways to participate. I believe we will see a $1 trillion market cap for the larger market sooner rather than later, but hey, who knows?

— — — —

Disclaimer: This post is not and should not be considered to be financial advice. Much of the content is my own personal professional opinion and associated projections. The post has been written for educational purposes only to assist in your framing of what is happening in the crypto markets.

Decrypting Crypto Volatility was originally published in HackerNoon.com on Medium, where people are continuing the conversation by highlighting and responding to this story.

For anyone that has been following crypto in 2017, hearing about the next hot ICOs has been par for the course. Having a phonetic similarity to IPO and only having 3 syllables when each character is sounded out, has definitely played to its “cool” factor. And, for folks that want to play up their hipness in the space, saying “īkō” as a 2-syllable word can sound even catchier.

Regardless of your stance on ICOs are, they are a novel fundraising phenomenon. Having largely been popularized by the founding of Ethereum in July 2015, ICOs standing for Initial Coin Offerings have taken the early stage technology market by storm.

What is an ICO?

But what exactly is an ICO? In short, ICOs are a global fundraising mechanism for blockchain-based technology companies. These companies issue a new cryptographic digital asset in exchange for more established cryptocurrencies such as Bitcoin and Ethereum. These companies typically use the raised funds for the launch of a brand-new company, and, in some cases, a new service or capability within an established company. The ICO mechanism has served as a launch point to make that possible. In return, ICO investors receive tokens at some predefined crypto exchange rate.

Generally, these tokens are expected to have platform utility and secondary market liquidity. This investment vehicle is highly speculative and risky. In a worst case scenario, any investor should be prepared to lose ALL of their investment.

The Speculative Why

Those unfamiliar with ICOs might be asking, “Why would anyone invest in such a thing?” Simply put, while the traditional investment world looks for ROI in terms of “%,” ICO investors are looking for returns in terms of “x.” Extreme ICO performance has yielded results in excess of 90x. Now, the possibility of a 9000% return in many cases is well worth the associated risk. While 90x is exceptional, a return of 200–400% in a matter of weeks or months has by no stretch of the imagination, been outside the realm of possibility.

And while all of this may seem like high stakes gambling, keep in mind that the highest payout when playing roulette, a popular casino game, is 35-to-1. And the lowest roulette payout is a matching 1-to-1. For those investing in the stock market, “beating the market” tends to mean beating a 6–8% year over year yield. When looking at speculative investment, there are few steroid-like options such as these, short of trading with leverage and buying up derivatives, such as options and futures contracts.

Typically No Equity

With rare exception, most ICOs to date have not issued any equity in their respective companies. This essentially means that they have in many cases raised millions of dollars without giving up ownership in their respective companies. (Note that this primarily holds true at the retail investor level. There are likely to have been equity terms provided to institutional investors that make larger investments in these companies, similar to what you would expect from traditional early stage capital markets. Also, I expect crypto token equity offerings are due to increase in the years to come.)

The Regulated Security Predicament

To make the ICO even more vexing of a subject, many of these ICOs have been executed under the pretense that their token offering is not a regulated security. While the Securities and Exchange Commission (SEC) in the United States has begun voicing their stance and taking action against companies who are clearly in violation of the certain terms that would qualify any investment as a security, many technology companies pursuing this funding mechanism have gone to great lengths to protect their tokens from being considered a security.

To date the SEC has:

1. Released Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO, №81207 on July 25, 2017,
2. Provided a Statement on Cryptocurrencies and Initial Coin Offerings by the SEC Chairman James Clayton
3. Issued its first cease and desist order against an in-progress ICO by Munchee, Inc., ADMINISTRATIVE PROCEEDING File №3–18304, SECURITIES ACT OF 1933 Release №10445, December 11, 2017.

Now if you were a company and you could raise millions of dollars without giving up equity, why wouldn’t you take advantage of this opportunity? While most would not say “no” to this type of funding opportunity, ICOs are not easy to launch, nor are they guaranteed to be successful. And the consequences of launching a failed ICO can be devastating.

Early Stage Capital and the ICO Market

In the age of startups, the early stage capital market has consisted of Seed and Angels investors, Venture Capital Funds, accelerators and incubators, specialized banking services, and various crowdfunding platforms. The crown jewels of these investment methods has typically been access to equity, future revenues, and in some cases control over the direction of the candidate company.

While I am confident that the early stage capital market is still alive and well, a shot over the bow was fired this June 2017. June was the first month where ICO fundraising took in over $500 million in equivalent crypto capital priced in US Dollars, whereas Angel, & Seed VC Funding in the Internet/Tech space was approximately $300 million. To put it bluntly, ICO fundraising on a per dollar basis was more than early stage capital in its equivalent category.

While this June ICO fundraising compared with traditional Early Stage Capital could have been an anomaly, July reinforced this market phenomenon. July ICOs were just over $300 million, while angel and early VC funding was just over $200 million. If you are an internet-based early stage investor, this recent trend is a troubling turn of events and has most likely made you reconsider your investment strategy and terms for getting into blockchain-based internet tech deals.

Red Flags, Controversy, and Bubble Rhetoric

Since ICOs issue a cryptocurrency and cryptocurrency is largely attributed to Bitcoin in mainstream media, the word “Bubble” is frequently thrown around. And for those who have been following additional cryptocurrencies that have also appreciated substantially in value the Bubble argument becomes even stronger.

So are we in a Bubble? This is a complicated topic and my personal belief is that the answer is both Yes and No.

Token price. If by bubble, you mean that some investors from the institutional to retail level are bidding up the price of newly issued tokens as speculative opportunities, then the answer is in some cases yes.

Token Supply. If by bubble, you mean that some of these companies executing ICOs are not effectively managing the supply of their tokens from ICO launch or through the maturation of the business, then in some cases the answer is yes.

Overcapitalization. If by bubble, you mean that some of these companies executing ICOs are receiving excessive amounts of capital, essentially overcapitalizing them, then the answer in some cases is yes.

Pre-product Ventures. If by bubble, you mean that some of these companies launching ICOs do not have an actual product and will eventually fail at building, deploying, or even growing a meaningful userbase, then the answer in some cases is yes.

Lack of Regulation and Investor Protection. If by bubble, you mean that there are little or no investor protections in place and that some investors will be outright defrauded and have no recourse for their losses, then this is a resounding yes.

Marginal Price Phenomenon and Asset Fragility. Crypto assets are trading in highly fragmented markets and the prices by which assets are trading generally do not reflect the true value of the underlying asset, but rather the marginal price of the last exchange of that asset. This is supply and demand economics at its best. Notionally, all of the circulating supply of those tokens inherently have the value of the last traded price, but varying degrees of asset liquidity combined with fragile market dynamics make these assets’ prices anything but stable and at high risk of crashing in the event of market sell-offs.

While there is much more to consider than just token price, token supply, overcapitalization, product risk, and general lack of regulation, the intent is not to painstakingly examine the bubble argument in gross detail, but to provide you with the traditional business case answer to the complex bubble question and tell you that — “It depends…”

Despite all of these bubble-oriented risks — there are positive trends emerging in this sizzling hot investment arena.

The Case for the Crash

As much as the blockchain and crypto community does not want to see a market crash, we may very well be heading for one. Millions of dollars in crypto are being sloshed around as if it is business as usual. The propagation of higher crypto values make it even easier for new ICOs to get funded.

Take for example someone who invested $10,000 in crypto. Let’s assume that over a period of 6–12 months they 10x’d their investment and now they are sitting on $100,000 of crypto. It is now possible for this individual to invest that newfound money. Let’s say this person wants to diversify in 10 ICOs each at $10,000 a piece. Previously, this individual would not have had this money available to invest, but now 10 new projects are getting $10,000 of new money being invested in them. No big deal, right?

Now let’s assume that the entire market 10x’d their investments over a comparable period of time and they also feel as if investing in ICOs is a sound investment vehicle. Now let’s say that there are 5 million people in the world that are holding $10,000 in crypto. At the onset this represents $50 billion of money in the system. After their holdings 10x, now their collective investable capital available is $500 billion… You get the idea. And with today’s market cap sitting just over $700 billion. These figures are comparable to reality.

This base case with retail investors having a uniform distribution of capital available to them is one way to look at this asset space, but this is not the case. The distribution is highly skewed with crypto whales and institutions wielding large amounts of crypto capital, and retail investors holding much smaller amounts. This market cannot cash out to fiat money and still remain intact. While there are an endless amount of hypotheticals that can be considered to sustain the current market environment in a relative homeostasis, I would like to highlight the following as critical requirements:

1. New money needs to continue to be invested in the crypto market
2. Existing crypto holders need to minimize cashing out and converting back to fiat
3. Existing cryptocurrencies and ICOs need to merit their crypto market capitalizations by delivering real value

This drunk money phenomena combined with central governments’ need to maintain control over flows of capital and tax collections is precarious at best. Layer on the threat of the criminal underworld and terrorist financiers taking advantage of crypto’s unique capabilities and there may be harsh policies put in place for ICOs, crypto trading, general legality, and the ability for the traditional banking sector to interact with crypto customers and businesses alike.

The Case for Optimism

There are in fact positive market trends that present a case for real optimism, shoring up some of the risks and associated concerns mentioned above.

Blockchain technology is rapidly improving

• Increases in transactions per second
• Improvements to consensus algorithms
• Security protocols are advancing (consider Quantum Resistance initiatives)
• Protocols are becoming more interoperable

Smart Contract capabilities are advancing

• Code libraries are in development that will facilitate the automation and integration of efficient and reusable smart contracts
• Poorly designed smart contracts will be replaced with stronger code

Investors are getting smarter

• As the volume of blockchain-based projects ICOing increase, investors are forced to conduct stronger due diligence
• Terms such as overall supply, discount rates, lockup periods and governance models are just some of the many considerations investors are more closely looking at

Bad projects will fail

• As ICOs fail, the market will become even more efficient. Few things force markets efficiency than sudden losses of capital.
• The post-mortems on these companies will serve as lessons to the ICO investing community as to the indicators, timelines, and triggers related to the failure of blockchain-based companies.

Good projects will succeed

• Conversely, the indicators, timelines and core contributing factors that enable good companies to survive in their respective industries, markets, and technology stacks will serve as comparable points of reference for future investors.

Bitcoin correlation and market dominance decreasing

• The crypto market is slowly decoupling from Bitcoin. For sometime Bitcoin served as the bellwether of all things crypto. With each new project that comes online, the crypto market capitalization will become more distributed, slowly reducing the market cap percentage of Bitcoin
• While Bitcoin can spike in price offsetting the growth and market dominance of other cryptocurrencies, I am confident that the net effect of the price of Bitcoin will matter less and less over time.
• Decoupling is important so that ICOs and the market altogether do not react as harshly as it has to the rampant volatility that most Bitcoin holders are frequently subject to.

ICO Standards will continue to develop

There have already been attempts at creating ICO standards. These will likely become more robust in time. See the following links for some of the latest developments:

• Vitalik Buterin’s Decentralized Autonomous ICO (DAICO) where participants contribute ETH to a smart contract, and get tokens in exchange after the terms and requirements of the contract are met.

• Growth of self-regulatory initiatives such as Hong Kong-based Financial Commission on ICO Certification and the ICO Governance Foundation
• Russia Developing Global ICO Ratings Standard With 30 Countries
• Waves and leading market players are founding a new self-regulatory body to set standards for ICOs
• NEO-based ICO standards.

Government authorities will continue to implement guidance and enforcement actions

As there is an indisputable linkage between investor regulatory issues and the need for organizations such as the Securities and Exchange Commission (SEC) to deliver guidance on ICOs. Other regulatory bodies will also get involved.

Growth of Cryptocurrency

• Both institutions and retail investors are more widely adopting cryptocurrency. Data out of South Korea, a country representing one of the most active cryptocurrency markets, show that approximately one-third of its countries workers are crypto investors. And while there are ongoing efforts to regulate trading activity in South Korea, protecting the population from the associated risks of investing in crypto, the overall growth is staggering.
• The net effect of more market participants will likely be increased market liquidity and while many hope for market stabilization, I project that more liquid markets are resilient and that even in the wake of volatility, they will more quickly rebound than markets that are not.

Onset of Asset-backed Cryptocurrency, Putting Real-world Assets on Blockchains

• There are a number of ventures that are tokenizing real work assets. Some of the projects in this space include:
• Gold Tokenization. Digix Global and GoldMint
• Real Estate. ATLANT and Velocity Ledger
• Artwork. Maecenas and CryptoKitties
• Futures Contracts. Evermarkets
• Issuance of company equity. As tokens have the capacity to represent real shares within a company, the issuance of such tokens are on the horizon

Advancements in Blockchain interoperability

• While blockchain itself unlocks powerful capabilities through decentralization and newly deployed technology-based trust mechanics, advancements in blockchain interoperability will likewise unlock those “would-be” platform- based siloed features and capabilities with compounding effects.
• These advancements will flourish as we gain more integrations for protocols and solutions. Some highlights include:
• Interledger Protocol, sending payments across different ledgers
• ARK’s Smartbridge technology,
• Loopring’s Decentralized Exchange and Open Protocol
• Airswap’s Peer-to-Peer trading network
• Atomic Swap capabilities such as the cross-chain interaction between Decred (DCR) and Litecoin (LTC)
• Onchain’s Distributed Network Architecture (DNA). Onchain, the company behind NEO (the blockchain, commonly referred to as the Ethereum of China), has its eyes set on a well-developed inter-blockchain network.

The 2018 Outlook

Confused? Fearful? Optimistic? Welcome the club. We are in highly unstable and formative times as it relates to the overall health of the crypto markets. This market can be sent into a tailspin by the smallest of events or by many events occurring over a period of time.

The market continues to be shocked by news designed to spread FUD — Fear, Uncertainty and Doubt, the advent of derivatives markets, and seemingly excessive sovereign regulatory measures (e.g. outright bans on ICO investing and cryptocurrency trading) to name a few.

Antifragility. People have commented on Bitcoin as being an antifragile asset and that this may apply to a host of other crypto assets. But even if a number of crypto assets gain strength and resilience from market instability, that does not mean that it applies to the entire market landscape.

Blockchain Resilience. We do know now that blockchain tech is resilient, powerful and here to stay, but that does not guarantee that the crypto markets can continue to resist a crash. The boom bust cycle is all too familiar to those who have lived through the Dot-com bubble in the 1990s, the financial crisis of 2008, and the follow-on Euro-debt crisis through 2012.

I do predict that there will be a market crash (one that can be recovered from), but I do not believe that 2018 will be the year. This market is too promising, too new, and gaining too much media attention for their to be a mass exodus. I believe 2018 will be a year of unprecedented market growth whereby we reach a market capitalization of $1.5 trillion to $2.5 trillion globally.

Past that, we will need to continually assess the market environment and determine whether sustainable fundamentals are developing and shoring up major risk factors. Today, I am not a believer that the necessary fundamentals are there. Even despite this, I am quite optimistic about future market growth.

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For more articles like this feel free to contribute any amount of ETH or ERC20 tokens to this address: 0x94b43854Aaec027a499B4566d761e0E94b222E28

ICO Health Check & 2018 Outlook was originally published in HackerNoon.com on Medium, where people are continuing the conversation by highlighting and responding to this story.

Bitcoin is going to $1 million dollars! Well that’s what Bitcoin maximalists are saying. But is that true? Is it even possible? As the proverbial experts debate the future of money and the real value of digital assets, there is a genuine business case to be explored. Rather than just recklessly speculate and encourage investing all of your savings into this digital asset, let’s objectively discuss some of the underlying facts, assumptions, and general requirements needed for the possibility of this seemingly unreasonable price to be assigned to one single Bitcoin.

Before I begin, I would like to disclose that I have no insider knowledge, I have not run advanced prediction models, nor did I previously predict with any degree of certainty the current price of today’s Bitcoin. And even if I did, I would like to caution that the market is going to do what the market is going to do.

What the 1 Million Dollar Bitcoin Implies

In order for there to be a 1 million dollar Bitcoin, we must consider the forces that are currently in play and as well as differentiate between price of Bitcoin and its perceived value. These are inherently not the same. Price is what someone is willing to pay. Essentially, it is the monetary cost of something. Value on the other hand, derives its meaning from benefits and overall usefulness. Price is the point of focus for this discussion. And while there are price factors that are tied to the perception of value, I will concede that it is too easy to derail the dialogue by debating value when it comes to Bitcoin.

The price of Bitcoin upon writing this piece is $18,500. At that price point the market cap was $294 billion. If Bitcoin were to be priced at $1 million per coin, that would reflect a percent increase of 5400%, a return of 54x. In layman’s terms that would mean you give me $1 and I give you $54 in return. I know this seems exceptional. But with irony at its best, I originally started this blog post during the Thanksgiving holiday, just 3 weeks ago. Then…the price of Bitcoin was $8,200. At that price point the market cap was $137 billion. If Bitcoin were to be priced at $1,000,000 per coin then that would reflect a percent increase of 12,100% (or 121x). Hence you give me $1, and I give you $121 dollars in return.

That seems more unlikely and exceptional wouldn’t you say? Truth be told, this market has continued to displace the largest of skeptics and while it is impossible to know if this bubble will burst, it is even less possible to predict when it will happen.

The $1 million dollar Bitcoin argument predicates that the total market cap of Bitcoin in the world would amount to $16.5 trillion. This compensates for the approximate 4.5 million Bitcoin that have been lost and are now unrecoverable for various reasons.

Understanding $16.5 trillion dollars

While $16.5 trillion is a very large number, let’s put it in perspective. There are a number of comparative figures we can look at when considering large financial numbers, but for the purposes of this article, let’s visit the global money supply, global stock markets, the world’s largest companies, and 50 of the worlds richest people. Additionally, I feel it would be helpful to consider Gross Domestic Product (GDP) and, my personal favorite, money held in offshore accounts.

With the assistance of the infographic below authored by Jeff Desjardins at the Money Project, the some of the aforementioned figures are more easily digested.

Now that we have an orientation for some of these comparative figures, let’s consider what a $16.5 trillion dollar Bitcoin market cap looks like in relation to them.

To highlight some comparative figures, given this assumed Bitcoin market cap, it would be equivalent to 13% of Global GDP, 23% of the value of Global Stock Markets, and be equivalent to 45% of the Global money supply.

The amount of money held in offshore accounts is estimated to be $21 trillion USD. Bitcoin’s market cap at $16.5 trillion would represent an equivalent value of 79% of those assets today. Offshore account figures are symbolic because Bitcoin is considered to be a “non-seizable” asset. Short of your computer getting hacked or you personally being held captive until you give up your private keys to your Bitcoin, no authority can technically take your Bitcoin from you. As long as this holds true, it is very possible that offshore money may be converted into Bitcoin and other cryptocurrencies.

These figures are staggering and to compare a digital asset such as Bitcoin to them requires a leap of faith in the first place. And at this exceptional market cap assumption, it becomes an even more difficult concept to fathom as reality. Overall, these comparisons should now give you a reference for the implications associated with having a $1 million dollar Bitcoin.

Ecosystem Forces

Bitcoin has been alleged to be deflationary as the supply of the currency is finite. As long as demand for Bitcoin is stable or expanding, the purchasing power of Bitcoin increases over time. When compared to fiat money such as US dollars the supply and printing of dollars is theoretically infinite, and hence the purchasing power of the US dollar tends to decrease over time.

In addition to this key monetary difference, there are a number of systematic forces that must also be highlighted before we can pursue our investigation of the 1 million dollar Bitcoin argument. These forces are inherent the Bitcoin blockchain and the way the ecosystem operates today. The supply of Bitcoin, the release of new Bitcoin into the market, and how computationally difficult it is to gain access to new Bitcoin all play an integral role in a new field that has emerged known as cryptoeconomics. I will highlight some key points about Bitcoin’s cryptoeconomic framework here for reference purposes.

Bitcoin supply. There will only ever be 21 million Bitcoin in existence. As of today, there are approximately 16.7 million currently in circulation, thereby leaving 4.3 million more Bitcoin to be released.

Rate of release of new Bitcoin. New Bitcoins are released as a reward every time a Bitcoin blockchain block is created. The rate of block creation is adjusted every 2016 blocks to aim for a constant two-week adjustment period (equivalent to 6 per hour.) The number of bitcoins generated per block is set to decrease geometrically, with a 50% reduction every 210,000 blocks, or approximately four years. It is currently estimated that the last Bitcoin will be released by the year 2140. (identify what the current release of BTC per block, currently to give some perspective)

Changes in Bitcoin Mining Difficulty. In order for the Bitcoin network to release more Bitcoin as well as write new transactions to the Bitcoin blockchain, encryption functions must constantly be solved. There are two main factors that affect this. These factors are known as difficulty and hashrate. This can get mathy very quickly and to avoid making this piece too technical, the general concept that needs to be understood is the more quickly that blocks are being solved for, the more difficult it is to mine the next block in the Bitcoin blockchain. When difficulty increases, the network generally requires more computing power, in the form of hashrate, to combat the increasing difficulty. The below Bitcoin Controlled Supply Timeline shows how we arrive at the max issuance of Bitcoin by approximately 2140 and adjusts for an increase or decrease in hashrate.

Bitcoin Distribution

The distribution of Bitcoin is also a major point of discussion in the existing market environment. Bitcoin ownership is NOT evenly distributed. While Bitcoin was founded on the premises of libertarian undertones regarding wealth distribution and efficient decentralized flows of capital, there are a small number of wallets that hold in excess of 100 BTC. According to the Bitcoin distribution chart below, this concentration is so high that approximately 18,000 wallets hold just over 10 million Bitcoin (assuming that no Bitcoin has ever been lost, this represents 47.5% of all Bitcoin that will ever exist). At today’s price of $18,500, that means that $185 billion worth of Bitcoin is concentrated in somewhere close to 18,000 participants. (Note that is difficult to ascertain how many people are actually attached to these wallets as one person can have many wallets or conversely be “sharing” the custody of wallet)

Stakeholders and Incentives

Now that we know more about the Bitcoin ecosystem, we need to talk about stakeholders and incentives. At their core incentives motivate individuals or organizations to partake in certain activities. And in the nearly 9 years that Bitcoin has been existence, it has managed to create a number of stakeholders, each of which have their own individual rationales for participating. This participation can be at the micro-retail participant to the larger Bitcoin Whale or financial institution.

Miners. The earliest adopters of Bitcoin were the miners. They run Bitcoin network nodes and validate transactions. In order to run a node they have a computer system that has the entire Bitcoin ledger downloaded to it. In addition to running a node, the miners run software that allocates computational processing power to solve an encryption problem for the next Bitcoin block that can be written to. The miners that find the next block are compensated in Bitcoin as a reward. Assumably, as long as Bitcoin has value, and the economics of mining work in the miners’ favor, there will be a healthy supply of miners. This graphic of Active Nodes in the Bitcoin Network show just how global the Bitcoin network is. And while it can be exciting to mine, it is not an effortless process as it requires maintenance and upkeep.

Retail Owner/Investor. Retail holders of Bitcoin can range from the young millennial to the older retiree. For the most part, they are investing and hoping for price appreciation. In the early days of Bitcoin, the stories of how people got involved with Bitcoin are laudable. For some they found out on social media, they played games that were settled in Bitcoin, and yes, some even participated in the Dark Web and engaged in illicit activities on the once notorious Silk Road. Today’s adopters, are more likely to have heard from mainstream media outlets. Regardless of how these retail participants started out, many have found that their hobby could have been a life-changing event.

Institutional Owners, Investors, and Traders. In the latter half of 2017 we have seen the explosive growth of institutional participation in Bitcoin and cryptocurrency at large. This asset class is new, sexy, promising, and befuddling to many non-techies. Regardless, it has caught the eye of larger banks, family offices and hedge funds. There have also been a number of cryptohedge funds that have launched further demonstrating that there is a specialized market opportunity for direct engagement in this digital asset space.

Additionally, there are a number of structured financial products that are launching to trade on the price of Bitcoin. While it is unlikely that a number of these financial players actually want to hold Bitcoin, they are showing quite an appetite to trade on it. The respective organizations that are providing these derivative instruments include the Chicago Board Options Exchange (CBOE), the Chicago Mercantile Exchange (CME), and the NASDAQ. The US is not the only player in this landscape as the Moscow Stock Exchange has made a proposal for trading Bitcoin Futures. For the time being The Russian-based product has been rejected pending the adoption of a regulatory framework.

There is also a push for Bitcoin to enter the highly coveted Exchange Traded Fund (ETF) market. Many Bitcoin bulls are frothing at the mouth in the hopes that a ETF market for Bitcoin will be launched. ETFs trade as conventional stocks on open markets and in order to list a Bitcoin ETF, many believe that the funds will need to hold Bitcoin to manage their fund thereby pushing demand for the token.

To many, these products represent the legitimization of the digital asset as well as promoting the token’s visibility. As these products and markets form, many believe that Bitcoin will continue to be highly volatile. If the price moves, you can bet the Wall Street and financial institutions in general can find a way to make money on it.

The Banks. When considering banks and financial service providers, Bitcoin and cryptocurrency stand to disrupt conventional business operations. According to Investopedia, the banking system functions by “accepting deposits from customers, raising capital from investors or lenders, and then using that money to offer loans, buy securities and provide other financial services.” If people are using Bitcoin and other cryptocurrencies to move their money essentially being their own bank, they are circumventing the usage of their banking institution for traditional banking needs.

Influencers and the Media. A number of Bitcoin and cryptocurrency influencers have arisen as it has become a fashionable way to gain notoriety on this hot-button conversation. The media loves a story, and Bitcoin has given them one they can run wild with. Whether it is Bitcoin’s mystique, the get rich quick angle, or the naysayers, as long as it is good for ratings, it is good for the media.

The Sovereign State and the Role of Government. It is not possible to overlook or underestimate the nature of sovereign states as it relates to cryptocurrency in general and especially Bitcoin. Each nation state whether they hold Bitcoin at an organizational level or not has been forced into this dialogue as Bitcoin has the potential to impact banking, capital controls, monetary policy, and even the law enforcement and national security. We have seen in countries that are experiencing hyperinflation such as Venezuela that Bitcoin has become part of the national conversation as the people there struggle to maintain a stable store of wealth and secure medium of exchange. Bitcoin has been a partial solution to that problem. And in the case of China, the country has maintained very tight capital controls that Bitcoin has poked a hole in thereby creating a financial regulatory enforcement issue there.

Of course, we can define additional stakeholders and interests of various shapes and sizes, but regardless of where these players fall in the ecosystem, Bitcoin has become a phenomena where it is nearly impossible not to take a stance. Not knowing more about this conversation is becoming socially reprehensible.

For the Bitcoin Bull to Run

There are a lot of Bitcoin bulls out there, but many of their arguments are either undisclosed or purely based on hype. Few of them are actually discussing barriers need to avoided or mitigated in order for Bitcoin to continue to thrive.

Favorable Regulatory Environment. Bitcoin and cryptocurrency need to remain in a favorable or at least permissible regulatory environment that does not curtail or stifle adoption and interaction with Bitcoin. The crypto industry hopes for fair and balanced regulation that will allow for continued growth of the larger blockchain-based cryptocurrency markets and the tech solutions that they are bringing to market.

Collaboration with Banks. Banks need to support transactions to companies such as Coinbase. If banks prohibit fund transfers to and from these institutions, they are effectively blocking the linkage between the crypto-financial and fiat-financial world. We have already seen a number of banking institutions globally that have limited or no relationship with cryptocurrency-based businesses.

Long-Term Technological Success. To date the Bitcoin network has not been hacked. Yes, there have been a number of hacks which have resulted in the loss of Bitcoin to individual users and companies, but more importantly, no fatal flaw has been acted on in the Bitcoin network. There is a Bitcoin network vulnerability called the 51% Problem, but it is very difficult to act on with out mass collusion from the malicious actors on the network or operationalized quantum computing assets that have not yet been built.

Institutional Support. Bitcoin is currently a sexy asset to talk about and trade. When people are making money they tend to be giddy and enthusiastic about their winner. If Bitcoin falls out of favor with institutional players, they will likely decrease volume in their newly created derivatives markets, sell off their actual Bitcoin holdings and effectively drive down the price of the asset.

Media Support. While Bitcoin is not a company, it has enjoyed an unprecedented amount of media hype, prompting people to learn more and in some cases consider adding Bitcoin to their retirement portfolio. Regardless, the more Media pushes the issue, the more people will be compelled to talk about it. The more people talk about it, the more they are likely to invest. If the media promotes fear in this space that is founded on actual loss, this could introduce a mass sell-off.

Growth of Value-added Blockchain Solutions. There is an entire ecosystem of software solutions that are leveraging the technology which the Bitcoin network operates on, namely blockchain. As more and more production networks and applications are built on this technology, the unique crypto assets that these projects launch generally been promoting speculation and in some cases blockchain software-based interoperability.

Wide-scale Tokenization. There is an early movement to tokenize real-world assets. These can include physical property such as cars and real estate, but it can also include financial assets such as stock and bonds. As more and more assets are “tokenized” in some form of cryptocurrency in a legally binding way, there is a greater chance that Bitcoin and other cryptocurrencies can be used to transact with and on behalf of real world assets.

More Commercial Use Cases. We have seen a handful of companies accept cryptocurrency as a method of payment. These include Overstock.com, OkCupid, Tesla, Shopify and others. For a larger listing see 2017 List of Big Companies that Accept Bitcoin & Cryptocurrencies. We have already seen some high end real-estate and vehicles such as Lamborghinis purchased with Bitcoin.

Addressing the Scaling Problem and Transaction Costs. Bitcoin has a scaling problem. It is not unusual to see over 100,000 unconfirmed transactions sitting in the Bitcoin queue. Additionally, the cost to transact in the currency has seen a stark increase along with the price of Bitcoin. There are efforts underway to address this scaling issue, but it will take time before it is successfully addressed.

Keeping Bitcoin Forks in Check. There have been a number of forks to the Bitcoin network. Most recently Bitcoin Cash and Bitcoin Gold were created as derivatives of the Bitcoin blockchain. Essentially, the change represents a split in the blockchain. To avoid getting too technical here, the more pressing financial implication is that these forks have created new currencies out of thin air. These new forms of Bitcoin have tradeable value. If you held one Bitcoin going into a fork you should have been able to gain access to a derivative token — Bitcoin Cash and Bitcoin Gold post-fork. This introduces a dilutive effect to the currency model. While it seems exciting, Bitcoin forks can be a contributing factor to the destabilization of the digital asset.

Mitigation of High Risk Market Areas. There are a number of high risk factors that have developed in the crypto markets that are either directly correlated with Bitcoin or affect the price movement of Bitcoin. My top three include

1. Weak Initial Coin Offerings (ICOs) that are fraudulent and clearly unable to deliver on their technology builds and execution roadmaps
2. Stable Coin Management. The transparency and effective management of stable coins such as Tether, that is pegged 1:1 to the US dollar, which now touts a market cap in excess of $1 billion
3. Bitconnect. Perhaps one of the most aggressive pyramid schemes ever created, Bitconnect alleges to be a self regulated financial system that enables the staking of your actual cryptocurrency for the promise of insanely high returns as long as you keep your crypto staked with them and don’t take it out. Despite this business model seeming too good to be true, it has attracted a lot of attention, and is a highly ranked cryptocurrency with a market cap of over $2 billion as of December 2017.

A Quick Look at Metcalfe and Reed’s Law

In discussions Tom Budd, a Blockchain Advisor and Consultant, the notion of Metcalfe’s law has arisen on several occasion. The Law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n2). Tom is honed in on the framing that if you look at Bitcoin and cryptocurrency adoption as one that mirrors the performance of that of a telecommunication network, it becomes more understandable to see the rationale for the price movement along with the increase in adoption.

One notable author and scientist David P. Reed who published the paper called “The Law of the Pack,” proposed that Metcalfe’s Law actually understates the value of Group-forming Networks (GFNs). Reed’s Law indicates that the utility of large networks, particularly social networks, can scale exponentially with the size of the network. Hence Reed’s law has also been used to better understand the adoption and utility of social networking like Facebook and Reddit. The adoption and participation in the Bitcoin network could over time largely hold true with the findings of both Metcalfe and Reed’s studies.

Once might see some similarities with these curves when compared with the growth of the wallets on Blockchain.info a very popular Bitcoin Wallet Company.

In Closing

While it may at first seem shocking that we have arrived at a Bitcoin price of $18,500, having a firmer grasp on the points discussed in this piece should better assist your understanding of the road not only of the $1 million dollar Bitcoin, but any increase in price from hereon-in. The crypto space has proved to move quickly and if either Metcalfe or Reed’s law holds true on the future of this financial revolution, then we are clearly at an inflection point in the story of Bitcoin and cryptocurrency at large. I’m not saying that Bitcoin will go to $1 million, $100,000 or any astronomical price from this point forward. I am merely stating that this issue is complicated, and it’s going to be exciting to see what happens next!

The Case for the $1 Million Dollar Bitcoin was originally published in HackerNoon.com on Medium, where people are continuing the conversation by highlighting and responding to this story.

The sad truth about holding cryptocurrency is that there are a lot of very real risks. The largest of them is that you could lose your money…ALL of it! Investment advisors will tell you never invest more than you can afford to lose, and that explicit warning tends to be communicated more strongly, the higher risk the investment vehicle. Ironically, these prescriptive words are usually provided as it relates the investment not working out as planned, namely, that the investment is volatile or by some rare occurrence becomes worthless. Seldom is it given on the basis that the actual security of your investment could become compromised.

Allow me to make a simple analogy. Assume you put a lot of money in your bank’s safe deposit box. We generally believe most safe deposit boxes to be secure. Banks tend to have very thick walls, security systems and sensors, a fireproof and blast proof vault, and there amongst the others, a securely locked safe deposit box assigned to you. Now imagine that you could inadvertently make one very easy, but nontrivial mistake and all of that security is worthless and is effectively breached. And in as quickly as you can bat an eyelash, all of the money in that safe deposit box could be stolen and is completely unrecoverable. That is precisely what I am here to discuss with you, because in crypto, this is a very real risk. Take a deep breath, because if that increases your heart rate slightly, you are not alone.

My intent is to educate you on what the risks of holding crypto are from a custodial perspective so that you are better informed navigating the space. The biggest determinant of your cryptocurrency’s security is completely dependent on how you choose to hold it. For those readers who don’t hold crypto or do not understand it very well, the easiest analogies that I can make are the following.

Let’s assume you have $100 USD. Some of your custodial options include

1. Bank. Keeping that money in your checking account.
2. Brokerage. Sending the money to a brokerage account to hold it on your behalf and possibly trade with it.
3. Self-management. Holding that physical cash in your pocket or under your mattress.
4. Friend. Giving that money to a friend to hold for you.
5. Mobile Wallet. Loading that money on your PayPal or Venmo account.

While there are many more things you can do with your $100 USD, those above use cases have been selected because there are equivalents for each of them in the crypto space. Let’s explore each of these.

1) Bank equivalent. Technically there aren’t any mainstream crypto banks that are safeguarding your money for you and providing you FDIC-level insurance, though there is a handful in development. BankEx is working on a decentralized banking system focused on proof of assets and OmiseGo is seeking to bank the unbanked with a diverse platform of financial transaction and settlement services. Note that neither of these represents a true 1-for-1 substitute for traditional banking, but they are in and of themselves disruptive to banking.

2) Brokerage equivalent. Crypto exchanges such as Coinbase, Kraken, or Bittrex are just a few crypto exchanges that provide similar services to that of a stock brokerage account. Each exchange is different in that they provide various crypto-to-crypto trading pairs, in some cases, offer more advanced trading functionality, and also exist in various sovereign jurisdictions. Aside from these key differences, the issue with keeping your fiat or crypto money on an exchange is that you 100% susceptible to entity counterparty risk.

When you hold your crypto on an exchange, the exchange owns your money, YOU DO NOT. This is a very important distinction. While they are providing you access to your funds upon log in. You are completely relying on their underlying infrastructure, governance, security systems and processes to ensure that your money is protected. Arguably, today’s banks are doing the same on your behalf today, but they have to answer to much stricter guidelines and regulations as to how they handle your money.

There have been two high-profile exchange hacks, namely MtGox (now insolvent and under bankruptcy proceedings) and Bitfinex (recovered and still operational). The MtGox hack resulted in the initial loss of 850,000 BTC and the Bitfinex hack resulted in the loss of approximately 120,000 BTC, which at today’s BTC value of approximately $4,300 USD per BTC, is worth $3.65 billion USD and $516 million USD respectively. Yes, those numbers are in fact accurate. These are no small sums. If there are future exchange hacks and you hold your money on an exchange, you are at the mercy of the exchange’s executive decision making. Their leadership will determine what the resulting impact will be to their account holders in accordance with the options they have available and the severity of the hack.

It is also important to consider jurisdictional risk. One of the greatest examples to date has been China’s crackdown on crypto which has even included the possible shutting down of Chinese crypto exchanges. While this proclamation is in the process of being eased, let’s say you put all of your crypto on a Chinese exchange, and you didn’t follow the news all year long. This news would have broke and you wouldn’t have moved your crypto to a different location. Hence, all of the crypto you held on the Chinese account could then effectively have been lost when the exchange is effectively shut down. As we live in truly uncertain times as it relates to crypto regulation, it is possible that similar actions could be taken by other sovereign nations.

Additionally, your login credentials could be compromised and someone could gain access your account similar to how if your online bank account credentials were compromised. Most exchanges strongly recommend implementing two-factor authentication (2FA) with an application such as Google Authenticator or Authy. In some cases, SMS confirmation has also been utilized, but this is less secure as someone could port your phone number and get access to your SMS verification code.

3) Self-management equivalent. Maintaining custody of the crypto yourself is where this becomes more interesting. There are a wide variety of wallets that you can choose from to hold and manage your own crypto. It is important to understand that your crypto doesn’t exist anywhere specifically. Rather, it is a recording on a distributed database structure (also known as a distributed ledger) known as the blockchain. All of the methods that I will share with should be considered interfaces that allow you access to interact with the respective blockchain where the crypto transactions are being codified. One of the most critical points is that in order to access your crypto through these interfaces, you typically need your private key which directly correlates with a public facing address to sign the transaction. Let’s explore the web wallet, hardware wallet, paper wallet, full client and thin client storage methods

a) Web wallet. You visit a website and select the option to view your wallet or send crypto. The following prompt will ask you for your private key. Upon providing your private key you will have access to your wallet. Two of the most popular websites are Blockchain.info for Bitcoin and Ethereum out of Luxembourg and MyEtherWallet out of the United States. For those that are curious what this looks like in practice. Please visit the following link MyEtherWallet — View Wallet. Then copy and paste the following private key into the dialog box as shown below.

7df51ad6b5dfaa276c8b4806b3358a2539fd5d6a8481a0429f98daf97e54fb19

If you have completed this short exercise, you will have successfully accessed a real-world Ethereum wallet! Feel free to play around with it at your discretion. No one should send money to this wallet as anyone on the internet could have this private key now.

While the above website is the actual URL for MyEtherWallet, beware as there are a number of fake URLs that appear to be exact replicas of the real sites that are again designed to steal your private keys and your crypto. It is very easy to mask https://www.myetherwallet.com with https://www.myetherwallct.com or https://www.myethcrwallet.com in emails, Slack channels, or by just putting a textual link on top of the URL. These scams are raking in lots of money all the time! Do not fall for them.

b) Hardware Wallet. Hardware wallets can be compared with a secure dongle or RSA SecurID hardware tokens that plug into your computer. Essentially, you plug in this device to your computer in order to access and sign crypto transactions. The physical device is required and without it, you cannot send your crypto from these wallets. Two of the most common are the Ledger Nano S made in France and Trezor by SatoshiLabs out of the Czech Republic. These are generally considered very secure, but there have been scams where people have received fake ones by second hand distributors specifically designed to steal your crypto. Note, there are no known reports of these companies themselves distributing fraudulent devices. This is NOT part of their business.

c) Paper Wallet. You can run a website offline and generate a private key for your cryptocurrency of choice. You print the document holding your private key and store the document securely in a vault, safe, or under your mattress. Note most people consider this wallet to be used in the fashion adding as many funds as you like, but only withdraw once. You can only use a paper wallet via service that allows you to import your private keys. For a quick tutorial on how this is done, please check out these articles from CoinDesk.com and BitcoinPaperWallet.com.

d) Full Client. A less commonly used solution is running a full client of the blockchain. For example, you can download and run a Bitcoin or Ethereum blockchain on your local computer. In order to do this, you must have your computer connected to the internet and synced with the blockchain. If this of interest to you, please take note that the Bitcoin blockchain including databases indexes is about 170 GB and for Ethereum it is over 330 GB and growing. You also have to maintain custody of your private keys that are run on the wallet attached to your client. For up-to-date- tracking of this blockchain size, this website on bc.daniel.net.nz is an excellent source.

e) Thin Client. If you are determined to run the blockchain locally, one solution is a thin client implementation. This will allow you to interact with the blockchain while only maintaining the headers of all the blockchain transactions. It requires considerably less data than the Full Client, but still requires you to be in sync with the blockchain and maintenance of your private keys in order to access your wallet.

4) Friend equivalent. If you choose to give your crypto to a friend or ask them to invest your hard earned fiat money in crypto on your behalf, recognize that you are trusting them with the custodial management of your money. They must first be above board and someone you would trust with the crown jewels. They will more than likely be using one of the above methods for storing your crypto, which I would argue is THEIR crypto, until it is transferred to you and you take custody and overall management of it. I can’t tell you how many people I hear of who are taking this route, and really don’t understand the implications of trusting someone else with their crypto!

5) Mobile wallet equivalent. While PayPal and Venmo are touted as being great payment solutions with excellent mobile adoption, there are similarly a number of mobile wallets and web browser-enabled that will help you store and transact in your crypto. Some of these wallets include Electrum or Jaxx. While these seem convenient, I have heard of a number of hacks especially with hackers getting administrative control over your devices. For example, Android phones can be rooted so that software administrator updates can be run in the background on your device. For more information on rooting see this link here. I have heard of hackers getting access to your mobile applications via this rooting configuration and emptying out wallets. If you hold crypto on a mobile Android device that is rooted, disable rooting, or take your crypto off of these wallets immediately!

There are a few other high-priority items to address.

a. Loss of your private key. Now that we have covered many of the ways that you can maintain custody of your crypto, a burning question that many people ask is “What if I lose my private key?” There is no easy way to say this other than you have completely lost access to ALL the crypto that was in the wallet that you no longer hold the key for. That’s right COMPLETELY unrecoverable. The key is 64 hexadecimal units long. It is simply not possible to recreate your specific lost key so that you can access your funds.

b. Physical Security. On a related note, if you have any of your private key materials in a physical location, think about fire and theft. What if your computer, external hard drive, USB flash drive, or any papers that hold private key information is lost in a natural disaster or stolen from you? This is a very real concern. It is estimated that accidental loss represents 25% of the Bitcoins that are in circulation, and hence no one has access to them. If that statistic is true, that would represent approximately $18 billion dollars of value that is unrecoverable. For a touching story of how someone lost $4.8 million dollars with of bitcoin this way see this Gizmodo article.

User Transaction Error. I sent my crypto to the wrong public key address, or I sent my crypto to a blockchain contract address by accident. Yes, once again, the crypto you sent is unrecoverable. Transactions are final in this space.

A quick note on sharing your public key. In order for you to receive money in that wallet, you have to give people your public key. It is perfectly acceptable and common practice to make your public key known to those whom you need to transact with.

In closing, guard your private keys until the end of time. DO NOT give your private key to anyone unless you trust the individual 100% to act on your behalf and that they are at least technologically savvy enough to undertake best practices. With that private key, they can send your money anywhere at their discretion. As earlier noted, once the transaction is confirmed - all transactions final and irreversible.

My 6 custodial recommendations and parting words are

1. Trust few!
2. Keep your money off exchanges.
3. Assume most of the computing units you are working off of are already compromised in some way or will be soon.
4. Use encryption on any files or folders where you store your private keys.
5. Use hardware wallets where you can.

And while there are more secure measures that can be taken, these are excellent starts.

You now have a much firmer grasp of the real risks holding cryptocurrency. Understandably, this is a lot to process, especially if you are new to the space. While it may seem untenable to even hold cryptocurrency in the first place, let me assure you that billions of dollars of value are transacting daily and millions of people around the world are securely doing so. The cryptoverse can be exciting and fun, but it is not without risk. The more money you have this space, the more real these risks become.

Holding Cryptocurrency — The Real Risks was originally published in HackerNoon.com on Medium, where people are continuing the conversation by highlighting and responding to this story.

Rarely, in the history of mankind do we as a people fundamentally rethink money. Over the last 10,000 years cattle, cowrie shells, metal coins, and gold were all used as units of exchange. Just over 80 years ago the US was on the gold standard. And while paper-based fiat currencies have existed for some time, this type of legal tender, issued by government decree, has continued to reign supreme.

The Value Behind Fiat Money

We should take a step back and ask ourselves what gives any of today’s fiat currency value? Why is it that on every US bill the upper left-hand corner says “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE?” More importantly, why do people believe in this form of money and continue to transact in it?

Short of getting deep into macroeconomic theory, a US dollar or any fiat currency is essentially a government tax credit. Believe it or not, tax liabilities give paper money value. The US government levies trillions of dollars in tax liabilities annually, and accepts US dollars as the method of payment. The confidence in the US monetary system as well as the ability to accurately and effectively enforce the tax system upon layers of transactions that occur domestically and internationally, effectively give the US dollar its value. Additional factors such as the overall monetary supply, inflation and interest rates also, play a role, but for the purposes of this article we will not go deep in this subject matter.

Electronic Transactions

Now that we can accept that fiat money holds value, the larger story of modern money is that we as a people are often banking electronically and relying on the balances of our accounts to be accurately maintained.

Many of us make electronic transactions every day. We don’t give it a second thought. We are often paid by our employers via ACH transfer. We commonly use debit and credit cards to pay for goods and services as well as use our ATM cards to withdraw cash from our checking accounts. If we need to send money from our banks immediately, we can execute an electronic wire transfer. And popular payment applications such as such as PayPal, Venmo, and Square Cash are commonly used to make peer-to-peer transfers.

Regardless of which electronic transfer service we use, we are putting our faith in the underlying financial processing systems to accurately and efficiently credit and debit our accounts, ultimately reflecting the correct account balances. And by doing so, we have been conditioned to accept that electronic payments are money.

The Cryptocurrency Connection

What does this have to do with cryptocurrencies — Bitcoin, Ethereum or any other digital currency that transacts like them? Put succinctly, it has everything to do with them. While they may not be great at being stable stores of value, I will demonstrate here that they are valuable in and of themselves.

For just one moment believe that if you pay someone with something called Bitcoin, the transaction will be processed and cleared, and your recipient will receive the payment that you are sending. Upon successfully accepting this belief, you have already passed the first major hurdle of believing in the value of cryptocurrency.

Not surprisingly, this might not be that much of a conceptual stretch, as many of us can’t explain how current day financial transactions are processed and cleared at any technical level today. Similarly, other than being unfamiliar with cryptocurrency as a whole, do you really need to know how the underlying transaction processing system works to trust it? I would argue not. You just have to know that it works.

Qualities of Money

The next logical consideration is to further examine the qualities of money as they relate to cryptocurrency. According to J. Singh the top 8 qualities of money are general acceptability, portability, indestructibility or durability, homogeneity, divisibility, malleability, congizability, and stability of value. In addition to these qualities, we will also consider the qualities of rarity, counterfeit-proof, transferability, and uncontrollability by authority.

Acceptability. These currencies may not currently be an acceptable form of payment for a cup of coffee or a house, but they have highly liquid markets whereby cryptocurrencies can be exchanged with real-world fiat money such as US dollars.

Portability. Bitcoin and others can be easily and economically transported from one place to another. You actually don’t have to carry anything with you, but 64 characters that range from the number 0 through 9 and the letters A through F. You must guard these 64 characters with the highest levels of security, but that piece of data is the only thing that is required for you to be able to transact with your cryptocurrency holdings.

Durability. Cryptocurrency is highly durable. So much so that it can be programmed to operate in nearly any fashion thereby optimizing its utility in the environments where it is used. Generally speaking, cryptocurrencies do not deteriorate as a result of wear and tear. For example, one Bitcoin will always be one Bitcoin. A single Bitcoin or any other denomination thereof cannot be worn down and no longer be used as a unit of transaction.

Homogeneity. Cryptocurrencies are completely homogenous and thereby fungible instruments. There is no difference in the exchangeable value of any two equal quantities of the same cryptocurrency.

Divisibility. Most cryptocurrencies are more divisible than conventional fiat money. One Satoshi is the smallest fraction of a Bitcoin that can be sent. This is a hundredth of a millionth of 1 Bitcoin, or the number 1 with 7 zeros that preceding it. Assuming a Bitcoin value of $4,000, one Satoshi represents $0.000040. That seems like an unreasonably small amount of money to send to anyone, but yet it is still possible to do so.

Malleability. While this term dates back to the notion of money being able to be made into convenient shapes for maximum exchangeability, how does invisible sound? What could be more malleable than something you cannot touch or hold in any physical sense, but still maintains most of the properties of money.

Cognizability. Are cryptocurrencies easily recognized? This is not simply answered due to their newness, but the branding associated with cryptocurrencies is growing and more and more people can identify the symbols for Bitcoin and Ethereum. More specifically, if someone were to send you any denomination of a Bitcoin, would you be able to recognize it. Assuming you had a Bitcoin wallet it would be impossible to fail to see that your Bitcoin wallet account was credited by the amount received.

Stability. Bitcoin and many other cryptocurrencies have not done a good job as a stable store of value. There have been tremendous volatility swings in the exchangeable value numerous cryptocurrencies. And while Bitcoin and Ethereum are touted as being two of the most stable, they too have undergone significant spikes in value. If they were to lose half of their value in a few days or even a few hours, this would not be considered to be outside the realm of possibility. To further the risk profile of cryptocurrency, in the event of technological failure at scale, it is possible for the currency to go to $0, and effectively have no exchangeable value.

It is important to note that for many cryptocurrencies this is considered to be a very unlikely, if not statistically improbably occurrence, short of a malicious attack that overtakes the supporting technology infrastructure and prevents it from coming back online. Furthermore, the threat of quantum computing attacks are on the horizon. If these attacks do manifest into reality, they have the potential to disrupt or even destroy our current financial system let alone the financial system created by cryptocurrency.

Rarity. Are cryptocurrencies rare? One might argue that they are becoming ubiquitous, and to some degree that is correct. This past year has proven to be one of the highest growth years for cryptocurrency with over 850 active cryptocurrency listings on CoinMarketCap, a well-known cryptocurrency real-time tracking platform. And while taking a quick look at ICO Alerts, it is easy to see that there are hundreds more due to come out over the next few months alone. The actual number of cryptocurrencies is not all that important right now, what matters is the specific cryptocurrency that we are examining.

Cryptocurrencies can be considered to be programmable money, as in they take on the rulesets and characteristics of those who have designed the system which they transact in. And in each particular case, one must assess rarity and determine if the digital asset in question passes the test. Some score higher than others. In the case of Bitcoin, it is very rare as in the maximum number of Bitcoin that will ever exist is just under 21 million. Considering that there are over 320 million people in the United States, and approximately 7.3 billion people in the world altogether, it becomes immediately evident that not everyone in the world will ever own 1 Bitcoin.

Counterfeit proof. Is it possible to make counterfeit cryptocurrency? This is an interesting question. Under normal circumstances, the short answer is “no.” One cannot make counterfeit cryptocurrency, but it is possible to disrupt the overall technology that supports the underlying cryptocurrency.

And in the case of a currency where the underlying units of value are regularly created and destroyed, it is possible that a malicious actor could gain control of the technological capabilities to create and possibly destroy the units of value at their own discretion. Surprisingly, if this were to occur, it would be a “real creation” of the underlying cryptocurrency. Unfortunately, this “real creation” of the digital assets would have been done maliciously, thereby failing to adhere to the principles and governance model set forth by the presiding organization.

Transferability. This is one of the greatest value propositions for cryptocurrencies. They are highly transferable. While every cryptocurrency operates somewhat differently, Bitcoin transactions typically clear in less than 1 hour and have been as low as within 10 minutes over the past year. There are exceptions to these processing times, but generally speaking, this is not a matter of days.

Voluntary and Uncontrollable by Authority. Are you free to spend your cryptocurrency as you see fit? Given that you maintain the custody of your cryptocurrency, you have absolute control over when and where to send your cryptocurrency. No authority can execute a transaction with your cryptocurrency. In order to do so they must have your private 64-character string. Admittedly this does become challenging especially in the case of IT security compromises. This character string needs to be protected, otherwise an actor other than yourself can gain access to your cryptocurrency.

Poor Unit of Exchange, Still Valuable

Now that we have given some attention to the above qualities of money, two of the biggest concerns mentioned above are stable store of value and acceptability. It is no surprise, as these are highly correlated qualities. As one can reason, it does not seem logical to voluntarily send or receive payment in a currency that is not likely to be a stable store of value.

While some entities may be willing to take the risk associated with accepting payments of this nature, this is risky, and not aligned with sustainable accounting methods and successful business operations. While Bitcoin and others continue to have exchangeable value, their lack of stability has made them poor instruments for the exchange of goods and services.

So if cryptocurrency does not generally act as a stable store of value, and it is not readily accepted for goods and services, does it hold real-world value? Yes, they do hold real-world value.

Otherwise, cryptocurrency as a financial category would fail. We may not be doing well on the unit of exchange test, but we will be seeing more cryptocurrency-based payment methods in the years to come. A number of them are at your disposal today, and even better systems are in the works.

Disrupting Fiat

As we reflect on why fiat money holds its value, one might have observed that cryptocurrency is not legal tender and not governed by the debts and underlying tax system of any sovereign nation to date. Consequently, in a plethora of cases, it is also not accepted today as a method of payment.

The cryptocurrency experiment then begs the question, is it possible to have a valuable digital asset that is not backed by a sovereign nation, decoupled from the notion of being considered a tax credit, and fails at being a universally accepted method of payment?

The past 8 years have proven to us that the answer to this question is a resounding “Yes,” and I see no reason for that to change. The underlying technological systems, governance, and controls in place have given cryptocurrency enough of the qualities of money to validate as a secure and controlled system for exchanging value amongst its participants. While the number of cryptocurrency users today remains small when compared to the users of money around the world, the users of cryptocurrency are growing in their numbers.

We have traversed quite a history of money when we consider cattle, gold, fiat, and now cryptocurrency. The crypto markets are still in their early stages, and we will have growing pains along the way. Ultimately, I’m confident that the future of money does include cryptocurrency. They are uniquely valuable, and I will argue that they will continue to be so, for many years to come.

Yes, Cryptocurrencies are Valuable was originally published in HackerNoon.com on Medium, where people are continuing the conversation by highlighting and responding to this story.

When examining the crypto financial world, it is important to understand that it uses technology — a host a processes, systems and software in order to facilitate the transfer of digital assets. In the purest of forms, the crypto financial world does not need sovereign nations or commercial banks to operate as gatekeepers of the monetary supply or provide the generalist financial services roles that they do today. What crypto financial systems do need is an army of talented, trustworthy software developers that have the ability and willingness to self-govern and deploy systems that function as designed.

For those who have been following along since 2009 and even those who are new to the game, Bitcoin and blockchain in general have been the genesis of the crypto revolution. These are not one and the same, but they do rely on each other. While Bitcoin has taken the limelight as the darling of cryptocurrency, it has also gained a lot of controversial attention in the press. Undoubtedly, it has been “the shot heard round the world.”

My intent here is not to inform you of what blockchain is or why you should believe in Bitcoin or any other cryptocurrency for that matter. My intent is to pull back the wool, that years of conditioning, has placed over many of our eyes. We have grown up, matured and received most of our financial teachings in a post-gold standard world, where fiat money reigns supreme. It has been and continues to work, but, do not for one moment believe the system of checks and balances is that much different than what has already begun to manifest in the crypto world. The general economic principles that we have all come to understand about how financial systems work exist in both financial worlds.

Identifying Control

We are in the early stages of a hard conflict between the legacy financial world and the modern crypto financial world. For those that see it as otherwise are missing the larger point. This is not about speculation and a select few becoming very wealthy. This is not about hardware, software, or technology in general. This conflict is deeply rooted in systems control, order and stability, and overall prosperity and well-being of the masses.

Begging the Question

The question that many of us are asking is “What role do central governments and banks play if one day there was a diminished need for their presence or involvement in the global financial system?” and “How can a modern economy function if peoples’ assets are being held in cryptocurrency versus traditional fiat money?” We may never see a day where this occurs. And that is fine. I am not positing that this will occur. But the elephant in the room is that this is not outside the realm of possibility. And that possibility scares governments, regulators, and the banks alike.

The Coffee Test

What utility does a cryptocurrency have? Most of these digital assets do not pass the “Coffee Test.” I cannot go to my local coffee shop and purchase a cup of coffee with my Bitcoin or any other cryptocurrency. For the most part, this is completely true. The user adoption curve and supporting infrastructure has not matured enough overtake the convention of debit and credit card payments and the general usage of cash. Mark my words. This is changing, and the coffee shop around the corner will soon in fact be accepting your cryptocurrency. It will take time to get there.

Realizing Value

One of the greatest problems with these two financial systems living side by side today is that in order to extract value from either of the ecosystems you have to use fiat money to acquire digital assets and consequently a crypto holder generally has to convert back to fiat if they want to realize value. This is an unfortunate state of affairs.

In today’s legacy world, you can exchange a myriad of goods and services for fiat money and in the crypto world, you generally cannot. As we go further into this transition period, there will be less and less reason for crypto holders to convert back to fiat.

Consideration for the Future

We are a long ways from that reality. I do not expect most people to be getting paid their wages in Bitcoin any time soon. But accept that some people are currently getting paid in digital assets, and more and more crypto will become part of our lives. The question then ensues, “What will the balance of power look like in the short run? and more importantly, in the long run?”

If I were a gambling man, I’d be holding some crypto, just by some off chance, I am right and we are on the brink of one of the largest financial revolutions in the history of mankind. Or it’s not and then it is just business as usual. This part of the story is yet to be written.

Transitioning from the Legacy Financial World to the Crypto Financial World was originally published in HackerNoon.com on Medium, where people are continuing the conversation by highlighting and responding to this story.