Orchid continues to catch my attention with its updates.
Not only do they want to use the blockchain’s revolutionary technology, but they want to do something revolutionary, which is create an Internet that is free from surveillance and censorship.
They’re working a blockchain edge with a lofty goal. And they have an edgy tone, which I like. This is the kind of thing they tweet about it:
Imagine on a daily basis video cameras on street corners recognize your face & track all your movements. You have to complete a survey about your ethnicity, religious & “cultural level." This is not a sci-fi show but a reality in China. https://t.co/3soKuglyvN via @nytimes
How do they plan to create a surveillance-free Internet?
As described in their FAQ, Orchid will be an open-source network that runs on top of the Internet.
On this network, bandwidth contributors can activate their device as a “node” and share surplus bandwidth. Bandwidth consumers can then pay for access to this open-source layer and pool of bandwidth using Orchid’s token.
The same FAQ explains that Orchid is a “just-in-time VPN chained together” in which the proxies and relays don’t know the identity or IP addresses of the customers. And this means neither the traffic or payments on Orchid’s layer can be monitored by another entity.
Orchid’s whitepaper describes more fully how this anonymity works:
. . . proxy chains in the Orchid Market naturally separate information about the source of data from information about its destination; no single relay or proxy holds both pieces of information, or knows the identity of someone who does.
In addition to technically separating the data’s source and destination, Orchid’s intention is to have so many bandwidth contributors as nodes on the network that it will be next to impossible for any entity to track, analyze, and hack the traffic.
And this is why Orchid’s token, and the process of rewarding bandwidth contributors with tokens, is key to growing Orchid’s set of nodes large enough that it can resist any manipulation or attacks. In other words, incentivize them.
Orchid, it seems to me, is in a group of blockchain-focused startups, including Blockstack and Filecoin, that want to “reboot” the Internet so it can achieve its potential as an open, level playing field that protects individual rights, but adding something completely novel in the process.
Blockchains, with their tokens and cryptoassets, are micro-economies.
What’s cool about that is it’s possible to analyze these micro-economies to determine the value of a given token or cryptoasset today and in the future.
Several people in the blockchain universe with financial analysis backgrounds and skills are building early frameworks to value these tokens and opensourcing them.
And startups, or established businesses that want to add a token to their business model, such as a project called PROPS from YouNow to decentralize video applications, are using these early frameworks to figure out the right economic model for their particular token offering.
Things are moving fast.
My interest is to use and contribute to these valuation frameworks to invest in blockchain-driven businesses and social initiatives. I’m also interested in taking the complexity out of these frameworks, moving the complexity to the background, so that more and more people can participate in these micro-economies.
Fundamentally, blockchain applications and their tokens are for everyone. They’re digital communities with digital money and, most importantly, a level playing field. They thrive on network effects, smart governance, and the principle that anyone can participate and therefore value is distributed among all participants.
You may or may not care about blockchain technology and its micro-economics, thinking it’s boring, arcane, or over your head.
But what I’m pretty sure you do care about is having more options, more wealth, and more freedom for yourself and the people you care about. That’s what this blockchain and cryptomoney thing is all about.
In order to participate in these micro-economies we need a framework, a valuation framework, to guide us. And it’s emerging right now.
A conceptual framework is like a map. It’s a frame of reference that defines the most important things in a system so you can evaluate and achieve a desired outcome. Specifically, a valuation framework, and the mathematical model that emerges from it, is a way to value an asset relative to the other components in the system.
What does a valuation framework for blockchain tokens and cryptoassets looks like?
The equation of exchange looks at the relationship of four factors in an economy.
The four factors are an economy’s money supply (M), the frequency with which a unit of that money is spent in a period of time, which is referred to as velocity (V), the average price (P) of the products and services in that economy, and, finally, the quantity (Q) of transactions.
The idea is that these four factors, given how one influences another, can serve as the skeletal framework for valuing a blockchain based micro-economy.
The equation of exchange is written this way:
If that’s true – if MV=PQ is in fact a good way to value a blockchain’s token economy and individual tokens – the exercise one needs to go through is to determine the values for each variable, what the “M” monetary supply is, what the “V” velocity of the money is, and so on. In many cases, you need to make assumptions about what’s driving the calculation (e.g., what the “P” price will be for an available resource) for each variable.
Taking advantage of the equation of exchange is not a trivial exercise. And it’s not the only aspect of a valuation framework. It’s the core. But the point is that using a valuation framework is very doable and it’s well worth the effort. It’s a very powerful tool.
“Quality inputs, quality outputs” is what it comes down to. Let’s take advantage of the equation of exchange, and a broader valuation framework, to identify, use, and support the best blockchain projects and communities out there.
First you realize how much potential there is in blockchains and tokens.
Then you buy some Bitcoin and Ether and maybe some Ripple or Monero. Next, you follow someone you trust, or who at least looks like they know what they’re doing, into an ICO.
You’re more convinced than ever that a decentralized Internet with digital currencies and assets not only makes sense but is very likely to happen. You’re committed to the next step.
Naturally, you want to know what makes one project and token valuable over another. But how do you know?
What indicates that a token, a cryptocurrency or, more broadly, a cryptoasset has long-term value?
If you know where to look, the research and analysis for tokens, and what’s being called “cryptoeconomics” and “cryptofinance,” is starting to emerge. These emerging disciplines allow you to evaluate a particular token beyond any excitement and noise surrounding it.
And luckily, in the spirit of open source, much of this research is being freely offered so you and I can make smarter investments. For example, Smith + Crown, a research group in Portland, Oregon, is providing excellent research and analysis on “Bitcoin, blockchain technology, digital currency and cryptofinance.”
If you want in-depth research on these topics and more it’s there for you to consume. This includes a full breakdown on the what, where, and when of upcoming ICOs, token sales, and crowd offerings.
Yesterday, Smith + Crown posted a detailed report on Aigang’s fast approaching mid-November token sale. Aigang is using smart contracts to provide “fully automated insurance products.” Specifically, they want to provide insurance for internet-connected or Internet-of-Things (IoT) devices.
This research on Aigang and its ICO, written by Weston Anderson, is illuminating and gives you a much better feel for why fully automated insurance products would be useful. It’s also a great starting point to assess whether the people and technology behind it give you confidence.
Ideally, you would be able to take great research like this and plug it into some kind of overall framework, one that allows you to evaluate a token over time and, more importantly, see patterns for all available tokens.
Fortunately, these “valuation frameworks” for tokens are also being developed by people like Chris Burniske of Placeholder Capital and Spencer Bogart of Blockchain Capital, in which key questions are asked like
Does this token actually have a reason for using a decentralized blockchain?
How big and active is the open source developer community contributing to it?
Does the token do a great job of giving access to, and facilitating use of, the digital asset it represents (e.g., Ether as access to smart contracts)?
What’s the token’s ”velocity” or, in other words, the frequency it’s used within a given period of time?
I think it’s easy to see how these type of questions, and the algorithms they suggest, are exteremely powerful when unified in a reliable framework for evaluating and valuing tokens. It essentially becomes a dynamic dashboard for choosing and investing in tokens and cryptoassets (or reallocating these investments) as they mature over time.
So if you combine the rich, timely research described at the beginning of the post with the right valuation framework, you’re in business.
What’s amazing about the Blockchain is that it’s recreating money.
It’s not just helping transition money from the physical to the digital world. It’s turning money into tokens.
Tokens are a superior form of money.
Tokens are programmable, divisible, and shareable.
You can use a token to request support for something you want to do, and if that something is perceived as worthwhile, you’ll get support from people who
Want to go all-in on what you’re creating
Don’t understand (or specificially care about) what you’re creating but want to bet on you
See the crowd is “voting up” what you’re creating and follow along
Contribute for purely speculative or uninformed reasons
What’s remarkable is that for the first time anyone can request support through a token for something they want to create and theoretically anyone can participate. I’m not talking about all the scamming that’s going on with ICOs, I’m talking about something more basic.
Yes, we had crowdfunding and kickstarting before the Blockchain and its tokens came on the scene, but this is next level because of the way the Blockchain is engineered and a token is designed with code, math, and some unique intention.
Tokens are the easiest and coolest way to exchange value among all 7.4 billion people on the planet. So eveyone can, and eventually will, participate in the token economy.
The token economy will create more value for all of us, and more quickly, than anything we’ve seen up to this point.
I saw Joe Lubin speak about Ethereum at an event in late August.
I didn’t know who he was. What I noticed most of all was how patient he was answering question after question from people after his talk.
It makes sense to me now where that patience comes from after watching his keynote fro the recent Ethereal SF event. His vision for the Blockchain, Ethereum, and the “venture-production studio” he founded called ConsenSys, is both deep and broad.
Clearly, the Blockchain, tokens, and cryptoeconomics are animating so many people right now becasue it’s literally allowing us to create a better Internet, redefine money and assets, and potentially engage everyone and everything in a new type of value exchange.
And of all this in a world that badly needs it.
Personally, I keep looking for the key elements of the Blockchain and its tokens so that we can help it take off and achieve “escape velocity.”
When you hear Joe talk at Ethereal SF, in the video below, these elements become vividly clear. He talks about
Building a future consisting of decentralized economic, social, and political systems
Why it’s valuable and necessary to enfranchise all of the people on the planet
By building a global society of ubiquitous stakeholders, people’s lives will be grounded in something they care about
From that base, people can build their own future, which builds our collective future
And in the second half he talks about unfreezing capital, how organizations of all kinds are working together to build a shared infrastructure, how governance is poised to radically change, and why this all leads to an economy that creates much more value more quickly.
It’s a low key but fascinating keynote that points to a blueprint of this rising “Internet 3” and tokenized economy. It’s just 24 minutes long and well worth putting down your phone and watching!
Jessica and Alex did a great job of giving us a snapshot of the state of cryptocurrencies.
Prompted by Jessica and questions from participants, Alex talked about things like
the value of blockchain-token forks (which is counterintuitive when the upcoming Bitcoin fork seems so controversial)
the proliferation of crypto investment funds (which jumped in number in the past twelve months, he said, from about 10 to 100)
ways to analyze the value of a cryptocurrency (e.g., transaction velocity)
how traditional investors are trying to position themselves to participate in this new asset class
and so on.
One moment that stood out for me on the call was when Alex didn’t have an immediate answer to a question, which was, what are the use cases you’re seeing for cryptocurrencies?
He paused to really think about it, and the caller who asked the question said something like “And if you don’t have an answer to the question, that’s an interesting answer, too.”
Two Drivers for Token Valuations
We’re all trying to make the connection between the value of these tokens (Bitcoin has a dollar value of $5,715, and Ethereum $295, as I write this) and what the value could (and eventually will) be based on.
What’s the business model for these new protocols and tokens? Very related, how will the thousands and millions of people who are just living their lives be able to use blockchains and cryptocurrencies?
But the fact that Alex (and many others) don’t have four or five killer blockchain-token use cases at the tip of their tongue isn’t what many people assume it means. Many assume the value of tokens is mostly due to speculation. Not so.
What’s actually happening is that the Blockchain (with a capital B) layer of the Internet is being built from scratch as a protocol (one with a distributed system and security based on asymmetric cryptography). That alone is attracting enormous investment from development teams and investors, which is reflected in the price of the tokens (along with various levels of pure speculation).
Another driver is people around the world are increasingly gaining confidence in the tokens, side by side with dollars or other fiat currencies and other asset classes, as a store of value. This use of cryptocurrency is less obvious to those of us living in the US because the dollar is quite stable.
What if you live in, say, India, are even relatively wealthy, and the value of the money in your checking account decreases overnight by thirty percent due to a decision by the government?
So the buildout of the Blockchain as a better Internet, and, second, using the cryptocurrencies as a store of value, are two reasons why many tokens have accrued a lot of value.
A Third Driver for Token Valuations
The third reason tokens are increasing in value, though, does, in fact, have to do with use cases, but these are early use cases, what I even think of as proto-use cases.
These earliest Blockchain use cases aren’t specifically for users. Instead, they address how to do things on and for the Blockchain better or in a more sophisticated way. These are important advances in the Blockchain like cross-blockchain transactions, user-driven governance, and pervasive security.
Polkadot, is a great example of this type of early use case, with its goal of being a “decentralized home for diverse chains”. Decred is another, an initiative to provide “community-based governance”.
And it makes sense, right? In order for the Blockchain to do everything we want it to do, and more, then the initial use cases need to be one step before use cases for the end user. They’re precursors, proto-use cases, to satisfying needs for you and me in a scalable way.
Soon, these early use cases will start to show up on the Blockchain in a way that end-users can take advantage of.
Yet even in this phase for early use cases, it doesn’t mean there aren’t some really amazing use cases for end-users starting to emerge.
Use Cases For You and ME Are Emerging
For example, check out Alex Miller, CTO at Grid +, talking about how they’re using the Blockchain to give consumers access to wholesale energy markets, combining AI and IoT, to intelligentlly interact with changes in energy prices.
Why use a blockchain for this use case?
There are a number of reasons, but one Grid + points to is that fundamentally blockchains allow people to have complete control over their own assets and easily exchange those assets with other people.
So a blockchain satisfies this first and second principle of decentralized value exchange – individual asset control and asset exchange – allowing you and I, in this case, to buy and sell energy, including energy we collect and store, on an open market.
Although this blog is about the blockchain and its “cryptoassets” this post is about what happened last week in the game of Go.
The Chinese game of Go is a way that Google’s AI team from DeepMind is testing the edges of what’s possible.
There are many great pieces written about Google’s latest incarnation of AI called AlphaGo Zero, like this one in the New Scientist, but I don’t think anything captures what happened like the reactions of human Go masters who were soundly defeated by the AI.
What distinguishes AlphaGo Zero from AlphaGo is it trained from scratch, playing against itself, rather than learning in part based on watching human games.
As the New Scientist piece above explains: “Three days and 4.9 million such games later, the result is the world’s best Go-playing AI.”
After losing to AlphaGo Zero this is what Ke Jie, the world’s reigning Go champion, posted:
After humanity spent thousands of years improving our tactics, computers tell us that humans are completely wrong. I would go as far as to say not a single human has touched the edge of the truth of Go.
And, separately, this is what Gu Li, a professional Go player from China, posted:
AlphaGo has completely subverted the control and judgment of us Go players. I can’t help but ask, one day many years later, when you find your previous awareness, cognition and choices are all wrong, will you keep going along the wrong path or reject yourself?
Go is at least 2,500 years old so for the reigning Go champion to say “not a single human has touched the edge of the truth of Go” is flat out remarkable.
And for a highly skilled and respected player like Gu Li to feel that everything he knows about the game is “all wrong” and question how to even continue is equally so.
Playing AlphaGo Zero clearly seems to have pushed these two Go experts into the most existential state of reflection possible.
Why am I writing about this on a blog about the blockchain? Because as goes AI so goes the blockchain.
In Patrick O’Shaughnessy’s Hash Power, Episode 3, though, you hear a more positive take on forking blockchains.
Patrick introduces the idea of forking as an adaptive process at the start of the episode:
We hinted at how innovation in blockchain may happen faster than elsewhere. This is because of two phenomenon: funding and forking.
Forking is when a network splits into two paths. Like the recent schism of Bitcoin into Bitcoin and Bitcoin Cash. Forking allows a sub-community to alter a protocol and continue forward in a different direction, with new rules or features.
Think of forks like genetic mutations in the evolutionary chain, experiments which will be tested in the real world and will thrive and survive or die.
Later on, he talks with Fred Ehrsam, who is an investor and a co-founder of Coinbase, about seeing forking through this adaptive lens.
It’s such an intriguigng concept, particularly as it relates to markets and behaviors that I’ve quoted Fred at length (starts at 43 min, 15 sec):
You might describe a fork as sort of a parallel universe, or an alternate reality perhaps, where at one point in time they were the same thing, and now they’re two or even more different things.
Basically, if you think about blockchains as metaphorically similar to organisms, orgamisms evolved over time by having some DNA, and then some changes, some random mutations, are slowly introduced to that DNA over time, and as a result you try a bunch of different sub-types of that organism over time, some work really well, they live on, they continue to evolve, some die.
So you get this constantly adaptive behavior and these things become stronger and stronger. They obviously co-evolve with their environment too so it’s not just in isolation.
And that’s what’s really exciting about these blockchain based protocols is not only can anyone create them or access them, but they evolve just like organisms in the same way where anyone can fork them, you know, analogous to sort of the mutation in the DNA, and as a result you get to try all these different sub-types of one general idea quite quickly.
And it turns out that since blockchains are software they tend to operate more at the speed of software than the millions and millions of years than we’ve needed for the evolution of organic orgamisms.
One maybe practical way to think about this is, I think that through blockchains we will be able to try hundreds if not thousands of times more types of economic and governance systems, then we have in the last hundred years [my emphasis in bold] of the quote unquote real world.
There’s a guy Brad Burnham, who confounded Union Square Ventures, who said something to me once that has really stuck with me, which is basically that market structure is the highest point of leverage that he can think of. In other words, the way in which a market is constructed really determines all of the behavior that emerges out of it.
In addition to forking, other ingredients in blockchains may lend themselves to adaptability through things like ways of selecting leaders, voting, compensating “players,” and governance.
For example, Olaf Carlson-Wee of Polychain Capital talks about how blockchain decentralized autonomous organizations (DAOs) could be a more blockchain-native way to connect talent and resources to achieve common goals in the future.
If you haven’t listened to all three episodes of Hash Power, you’re missing out. So many great questions and insights from Ari Paul (BlockTower Capital), Juan Benet (Filecoin), Naval Ravikant (MetaStable Capital), in addition to Fred Ehrsam and Olaf Carlson-Wee, and many others.
(If you’re interested in blockchain and its coinage, and you don’t yet get Coin Sheet from Dmitiry, you should. It’s dialed in.)
This post on hacking caught my eye because of my post yesterday on the original Bitcoin white paper, which (in the white paper itself, not my post) explains how it’s both technically difficult for dishonest nodes (or miners) to hack the blockchain, but they are also economically deincentiivized to do so.
Hackers are likely to make more money doing a great job securing and extending the Bitcoin blockchain like everyone else.
Mohit Mamoria is suggesting the same principles can work when it comes to denial-of-service (DDoS) attacks.
He points to a company called Gladius that is using the blockchain so that “thousands of computers across the globe can share their excess bandwidth, storage, and resources, in order to fight back against DDoS.”
If users could earn from DDoS protection, and if it becomes more expensive for attackers to execute their botnet attacks, will it stop DDoS at its tracks eventually?
In other words, can we create blockchain systems and apps that make it technically hard and expensive to hack and create havoc and, as intriguingly, incentivize at least some of the blackhats to help strengthen the system?