(Originally posted March 7, 2019, on the Crowdfunding Professional Association’s website.)

The purpose of this memo is two-fold:

• To highlight the possibility of risks to banking and finance sectors arising from new financial instruments based on blockchain technology; primarily from novel financial accounting methods and products called “stablecoins,” digital tokens, and cryptocurrencies.
• To encourage regulators and policymakers to engage blockchain thought leaders, product developers and the community in general to better understand the economic and policy implications of public, private and permissioned blockchains; their application to banking and finance regulations; and how innovation may be encouraged in a safe, sound and responsible manner.

Like any technology, blockchain can and may be used to improve a variety of operational, identity, security and technology challenges that the future of digital banking, business and society face. Blockchain technology is also poised to create new and increasingly clever methods and economies for value, commodities, assets, securities and a slew of yet-to-be discovered financial instruments and products. However, no leap in technology and finance is ever made without risk. As policymakers and stewards of the current and future digital economy and ecosystem, we have an obligation to our constituents and the global banking and finance community to guide the growth and adoption of emerging fintech technology in a safe and sound manner.

To that end, three areas that have the potential for regulatory and compliance issues as companies such as JP Morgan Chase, embrace and develop blockchain technologies to leverage digital tokens, cryptocurrencies and novel accounting systems such as the so called “JPMCoin,” are highlighted:

Stablecoin — The industry needs a common definition. There is presently not an industry definition of a stablecoin, digital token, or cryptocurrency. Before it is even possible for governmental agencies to draft useful regulations the industry must come up with common definitions. We believe that establishing a common definition is an important step to growing a rich and innovative framework and sandboxes for not only novel blockchain applications but other emerging fintech technologies.

Fractional Reserve Banking and Stablecoins — How will cryptocurrencies, digital tokens and stablecoins be treated in an ecosystem of fractional reserve banking? Much like the introduction of collateralized debt obligations, synthetic credit default options and other novel, complex financial instruments, the introduction of institutional “stablecoins” and digital tokens may present hereunto unknown risk. As technology evolves to facilitate machine learning, artificial intelligence, high speed frequency trading and novel blockchain applications such as “stablecoins,” careful consideration should be given to how these blockchain applications (and other emerging technology) may unintentionally encourage risky behavior that creates systemic financial risk and operational risk that undermines confidence in markets.

Operational Safety & Soundness — The creation of institutional stablecoins, digital tokens and cryptocurrencies poises new financial safety and compliance questions. From the basic, “How is the value of these stablecoins determined?” to: “What are the standards for digital token custody?”. To the more complex questions of: “Can the terms stablecoin, digital token and cryptocurrency be used interchangeably?” to: “How will these instruments be reflected on company balance sheets, managed day-to-day in accounting systems and taxed?”

Conclusion

Emerging technology such as blockchain promises great leaps in operations, transparency and accountability. However, as we prepare to leap headlong into these technologies we should also consider where we will land.

We encourage regulators and policymakers to engage banking, technology and compliance leaders to better understand the implications of private-permissioned decentralized ledger technology (aka blockchain) and what steps we can take now to encourage and enable innovation, while also landing safely in the future of banking, finance and an electronic cash-less ecosystem.

Authors:

Grant Gulovsen, Esq., Attorney at Law, Gulovsen Law Office, [email protected]

Maureen Murat, Esq., Of Counsel, Cogent Law Group, [email protected]

Samson Williams, Adjunct Professor, UNH School of Law, [email protected]

Supporters:

Wesley Williams, Attorney at Law & Consultant

Olta Andoni, Esq, Attorney and Adjunct Professor at Chicago-Kent College of Law

Roxana Nasoi, Co-Host, The CryptoLawPodcast

Crowdfunding Professional Association Legislative & Regulatory Affairs division

Last week JP Morgan announced that it had developed its own cryptocurrency, the“JPMCoin”. Lost in the much of the noise about whether or not the JPMCoin is a real blockchain or cryptocurrency is the fact that, for mainstream blockchain adoption, the announcement is a big deal. Don’t get me wrong. The JPMCoin is no more a cryptocurrency than say Fortnight’s V-Bucks or your airline miles are. However, for blockchain the technology (even if JPMorgan isn’t actually using a blockchain) the mere mention of the possibility that blockchain like tech is being adopted by the 6th largest bank in the world, a meaningful way, is a big step towards mainstream adoption.

As you consider this here are a few points you can confidently share with your colleagues and friends:

1. The #JPMCoin isn’t a #blockchain or a #cryptocurrency
2. That doesn’t matter because JPMorgan’s modern day #DigitalAbacus does solve real business problems and proposes real operational cost savings, aka revenue generators
3. #Swift, #WesternUnion & #DeutsheBank should be concerned because when the worlds 6th largest bank adopts a means of saving X% on #settlement, #creditcard, #remittance and #banktransfers this could directly cut into their core revenue streams
4. Because JPMorgan didn’t adopt #blockchainlike technology for accounting, for the greater good of transparency, trust, blah blah blah
5. They did it for operational efficiencies that would translate into revenue 6 Coincidentally, Ripple rejoices! As the #JPMCoin validates their entire business model as only the 6th largest bank in the world can.

Too, JPM’s entry into the internal/private permissioned psuedo #blockchainworld of operational efficiency disrupts Ripple’s competitors. This is a blessing for Ripple, as it is easier to take down a global banking middlemen (Swift) if another global banking titan (JPMorgan) decides it wants to cannibalize its fellow banking middleman.

In conclusion, if you look beyond the hype you’ll see a landscape of operations & technology innovations, with incremental process improvements that = real $$$$. Too, you’ll see an international chess board where the major players are strategically positioning their businesses to take advantage of the most efficient (profitable) and complementary services available. Stay tuned. Blockchain in finance and banking is just getting started. Next, regulatory hurdles.

About the Author

My name is Samson Williams. I am a Professor at the University of New Hampshire School of Law, human and an anthropologist at Axes and Eggs. You can follow me on Twitter or Instagram @HustleFundBaby and on LinkedIn. I encourage you to share this post and feel free to tag me in relevant post. Finally, I would say thoughts are my own but I probably stole them from a woman. #mansplaining #equalpay

I love hearing the enthusiasm and joy in the voices of first time home buyers who are going to save money, bond and remodel their house together. Brand new doctors, seasoned lawyers, accountants, project managers, the boldest of GenX and Millennials who grew up swinging VR joystick in lieu of hammers. But they’ve watched Property Brothers and Love It or List and have the best database of YouTube videos for home remodeling in their entire subdivision or building. They even park in the “Pro” section at Home Depot and have their very own monogrammed Leatherman construction gloves.

You can remodel your own home. Even “just” your kitchen or “just” your bathroom. You can read and have all the resources at your disposal. But don’t. Don’t even fucking think about it. Remember how you tried to cook Thanksgiving dinner last year and ended up burning up your kitchen, which is why you need to replace it? Those were simple enough directions too, right?

But what does this have to do with blockchain and more importantly your business?

Glad you asked. Well, your business is like your house. Blockchain is like a remodel. You can do it yourself. You’re after all a pro at your business. But your business isn’t blockchain. Your business is shipping, consulting, farming, logistics, banking, money exchange, insurance, lending, maybe even selling pizzas. Your business is a business. Your business isn’t a way of doing business or a business tool like blockchain. Your business is a way of generating you income to provide for your family, workers, community, financial security and future. It ain’t a way to decentralize any of those, unless you want to find out what a “decentralized” retirement looks like. (Hint, think working poor at 75 years old. #GigEconomy).

So! Before you decided to attempt to blockchain your business, ask yourself, “Could I remodel my house?” 99.99% of the time the answer is “Fucking, hell, no!” You should no more attempt to “blockchain” your business than you should remodel your house. So what do you do?

Hire a professional

Can’t afford one? Then you’re not ready to remodel your house or “blockchain” your business.

By the way, do you even know what the fuck “blockchaining your business” even is? I’m like an expert in this industry and I don’t recommend 99% of businesses “blockchain” any part of their business. Cause did you know you can “blockchain” parts of your business operations, functions and processes and not the entire business? I’ll tell you a secret, blockchain is just a tool you use to do your business. It ain’t a business itself, a panacea for customer acquisitions or guarantee of increased sales or revenue. It’s like a hammer that’s shiny and brand new, but in your hands it’s more likely to tear giant holes in your business’ model, customer base and revenue streams.

So, like you would a plumber, carpenter or WiFi guy, before you go to “blockchain your business” hire a professional. Cause the funny part is once (if) you blockchain your business, then you’ve got to run your business. Remember, blockchain isn’t your business. Your business is. Don’t allow the hype of DIY tech nerds get you wild with excitement leaving you swinging a proverbial sledge hammer through your internal operations and revenue streams.

Hire a professional. And much like building a house, don’t start by hiring a painter to lay the foundation. Hire a General Contractor to guide you through the process. And whatever you do, do not let the plumber and electricians (coders and programmers) charge you by the hour. As then, it’ll take three times as long, cost 10 times as much and your odds of being electrocuted when you drop a deuce are high.

Who is a “Blockchain General Contractor”? Axes and Eggs of course.

Blockchain plumbers, carpenters, electricians, painters, engineers and designers: Chainhaus — they’re your one stop shop. But you can always go to the Home Depot of Blockchain Deloitte Ireland.

Fly by night, Tim the Tool man, unpermitted, lien inclined, blockchain enthusiast.… On the advice of our legal counsel (www.cogentlaw.co) I won’t name those decentralized con artist. But they probably showed up to give you an estimate driving a Lamborghini and offered you custom views of the moon. So you know who they are.

Conclusion

Stick to your business. It’ll ultimately make you more money.

Oh, and if you need a real Construction General Contractor, visit www.mattbeth.com

My name is Samson. I’m an Adjunct Professor at Univ of New Hampshire School of Law, human and an anthropologist at Axes and Eggs, a Washington, DC based Think Tank and digital advisor. If you like what you read, share it! If you disagree, share what you know or how you feel in the comment section below. Feel free to hit me up on Twitter or Instagram @HustleFundBaby or follow me onLinkedIn. Finally, I would say thoughts are my own but I probably stole them from a woman.

The 3 key ingredients for attracting investors to your crowdfunding (ICO/STO) campaign  

Below is a redacted and slightly edited and updated version of a memo provided to a client regarding how to attract investors to their business, in mid 2017. For background, they’re a 5 year old private investment firm, whose stock is traded OTC and who invest in startups focused on blockchain tech. To further this model they were exploring additional ways to raise capital, specifically to acquire more startups. Below is a high level framework of what investor “whales” are looking for. This is not investment advice. These are redacted insights into what you should be considering if you’re looking to also engage potential investors in your business enterprise.

If you don’t have time to read it all, I’ll summarize: It still takes money to make money.

Note — all crowdfunding campaigns (regardless of if you call them ICOs / STOs) require a legitimate business model, tangible solutions to real problems, market size worth investing in and the potential for 100x returns. Otherwise, whales aren’t interested in 10x returns.

Samson Williams, Principal, Axes and Eggs

Magic Whale Formula: Online presence + In person Conferences + 100x return potential + Influencers = Investors (Whales)

Online presence — A strong online presence is needed in effort to build awareness of your business and business model. A strong presence is also required as upwards of 90% of your online followers will be either bots or individuals who you have in fact paid to follow you. Bounty programs don’t generate actual clients/customers. Of the 10% remaining, less than 10% of those will take action to directly invest in your business. However, early and passionate adopters are needed to help attract and grow fast followers.

Conferences and Fast Followers — In person appearances at conferences are needed to build

1. Awareness and  
2. Trust

People simply do not invest in people they are not aware of (duh) and don’t like. If someone does not like you, they cannot trust you. People only engage and do business with people they know, like, then trust. For instance,

when is the last time you bought something from someone you didn’t know and trust?

Influencers — ICOs and STOs are simply crowdfunding. However, in this paradigm of crowdfunding it is not based on the delivery of goods, products and services. Rather, participation in ICOs/STOs is predicated on the expectation of the future delivery of goods, products and/or services. There are no blockchain products/services currently on the market. In this ecosystem of hype, Influencers play a key role as the trusted voices within the community. Whether or not they should be trusted is moot. Influencers (e.g. Ian Balina, Suppoman, DecentralizedTV etc…) role in the ICO/STO ecosystem is to provide what seems to be rational / quantitative analysis of blockchain based projects. However, because no actual DLT projects exist, they are in fact mere purveyors of opinion, on the future of research and design in the application of DLT technologies. But — people like them. They embody and project the essence of “success”, despite the clear lack of any empirical evidence of success beyond the ability to pump and dump a given crypto/project. Despite the lack of products and evidence of success, people like Influencers and they trust their opinions. So much so, they give them their money.

In conclusion, Humans don’t trust data. Humans trust how they feel about other humans.

Approval, mention or investment by Influencers in the crypto/blockchain space, as trusted members of the community, are a prerequisite of having accredited & institutional investors participate in your crowdfunding offering. As without their involvement it is highly unlikely that anyone will a) know your offering exists b) like it c) get excited enough to engage you and d) trust you enough to give you their money.

Lastly, don’t forget that in all cases you need to show:

1. What problem the business is resolving
2. How the solution is unique
3. How business will make its first dollar and when
4. What the return/profitability of the investment will be
5. Admit you’re issuing a security (whether its called an ICO/STO) and follow all applicable securities laws

Minimum 100x ROI Potential

You’ve got to show that these businesses have a 100x return potential. Anything less really isn’t worth the paperwork for whales. The shorter the return window the better. Keeping in mind securities laws.

So What ?

Options for achieving the magic for attracting whales in ICO/STO crowdfunding projects:

Option A - Pay an influencer. Up front cost of $$$ — $$$$$ minimum + $100k to $1M for listing on an exchange (Reminder — this was written in mid 2017 and figures are not reflective of 2019 market conditions)

Option B - Become an influencer. $$$ — $$$$$, plus a two year process. Hit or miss. As you will need to establish credibility thru investing in crowdfunding deals that 10x or greater, as well as.

Option C - Support an influencer. $$ — $$$. Two to three month process. Identify a lesser known influencer and form a strategic partnership to support growth of their brand. With the clear deliverable that they support your crowdfunding initiative when you do it.

Option D - Make an influencer. $$ — $$$$$. Two + year process. Identify someone who has the bonafides and feel of an influencer and introduce and promote them to the community, with the expectation that they’ll promote your crowdfunding campaign when the time comes.

Option  E — Do not engage, support or create an influencer and see how it plays out.

(Client Name Redacted) Recommendations

1. Refine the NAME REDACTED brand ($$)
   1. Hire a branding person
   2. Update the website and create marketing collateral
   3. Great examples:
      1. www.www  ( client of ours in Germany)
      2. www.www
      3. www.www
2. Engage an Influencer
   1. See options above
3. Plan a proper world tour (similar to Ian Balina’s World Tour)
4. Capitalize Name Redacted
   1. Create a fund specific to cryptocurrencies / blockchain
      1. Allows others to invest in fund and/or NAME stock
      2. Spread message via magic whale formula
      3. Redacted line.
5. Allocate $1M for strategic investments:
   1. $200k — $300k of strategic crowdfunding investments, tbd
      1. LINE REDACTED
      2. The investment is for the publicity
      3. Would recommend focusing on distressed assets, that align to NAME REDACTED acquisition of IP
   2. Make ten, $100K dollar investments in startups considering using blockchain
   3. As a requirement of the investment, they must use NAME REDACTED blockchain and promote its use
   4. These 10 firms become marketing pieces for NAME and NAME
      1. For instance: NAME REDACTED is looking to leverage blockchain for their real estate endeavors. They have a community of 30K+
      2. A $100k would buy some equity investment in them and push/promote NAME and NAME into their 30K community
      3. NAME REDACTED DC/China based firm ran by NAME REDACTED. Chinese ICO influencer, who moves more $ than Ian Balina but isn’t as well known as he is Chinese. $100k in one of his startups would bring his and his network’s attention
      4. Other examples include: www.www  (gets NAME into BIG ASS EVENT next year) , NAME REDACTED (video gaming community) NAME REDACTED
6. These actions would allow NAME REDACTED to build its brand, and accomplishes:
   1. People become aware of NAME REDACTED
   2. They can get to like it and its mission, vision and values
   3. LINE REDACTED  
   4. Without this strategic investment NAME REDACTED will have great difficulty raising its stock price, as others in the Asia Pacific area jockey for position, spotlight and investor dollars. Such as Tin Men Capital, out of Singapore, makes first close of US$100M B2B startup fund; invests in Overdrive IOT, Globaltix.

Yes, this requires capital to be invested directly into building NAME REDACTEDs brand and market presence. In order to move the needle on NAME REDACTED stock price back towards $30+, it is advisable to allocate funds strategically, make strategic high growth potential blockchain startups and  coordinated activities from a single source, to ensure that they have the maximum impact possible.

Sincerely,

Axes and Eggs

End of Memo

——————————————————————————————-

In short, it still takes money to make money.

Hope you found that interesting and hopefully helpful. Remember that as you go to build your business you can investing the marketing dollars to engage influencers, become influencers or devine a different marketing and engagement strategy that works for your good, product or services. No two offerings are alike. So don’t be afraid to tweak the Magic Whale Formula to fit your specific needs. If you find you need help with your magic marketing formula I recommend contacting [email protected].

Cheers and happy hunting!
@AxesAndEggs

M

I owe Jack Shaw a favor. It’s one of those, “This one time in Cambodia…” type of favors. We won’t speak of it beyond perhaps a nod and wink. It’s not written down anywhere; the details of such are so vague as to be almost non existent, while encompassing the known universe. It expires upon death, of the sun; and can be redeemed whenever and by another person who need only walk up to me and say, “Jack Shaw sent me. He says to tell you ________”. And tada, that favor has been redeemed for value.

Jack would call this favor a “marker.” It’s more valuable than your house, the Empire State Building & 100k Bitcoins combined. It can even be redeemed for something even more precious, my time or an opportunity or access to my network. You know, those things that money can’t buy. Well, you can lease my time from time to time.

Favors, markers and promises are humanities’ first virtual currencies.

They’ve gone digital recently, as Jack might redeem his marker via a WhatsApp or WeChat text message.

Favors and promises aren’t financial obligations per-say. They’re moral debts that can be redeemed for things of intrinsic, monetary, social and/or actual value. Now, here is where things get a little weird. The thing about “money” is that it doesn’t have any value. It’s actually a reflection of a moral debt. Hence why the US dollar is backed by the “Full Faith and Credit of the US Government” and not say, gold or wheat. You believe…that people will feel obligated to pay taxes and in turn the government will collect these social obligations (aka favors) for the good and benefit of The People. This moral obligation is part of that “Debt to Society” you’ve heard so much about, are obligated to pay, but don’t recall actually signing up for.

Long ago, these virtual currencies of favors, promises, social obligations and credits were turned into what we now regard as money. Not because paper money or coins had or have any intrinsic value, but because for trade beyond one’s family or clan, it’s easier to convey/store and document the value of Sam owing you two chickens, using cash as that documentation (or store of value). As you extended to him a two chicken line of credit.

“Credit” is just another favor or marker with terms.

Coins and “Banknotes” (because people wrote down how much credit they gave you) were just the earliest form of noting and coming to consensus on how to document these virtual currencies of favors, markers, promises and credit.

Overtime, what favor or credit money represents has been lost. We’ve been conditioned to simply believing (Full Faith and Credit) that paper money has intrinsic value, when it simply doesn’t.

Paper money isn’t backed backed by anything other than your faith.

Hence why inflation is such a troublesome concept for most. It challenges the fundamental principles of your faith — every time the government prints more paper money. It extends to itself (and then to you, via banks) made up and virtual favors by the billions. They are favors and markers with no value behind them; lines of credit with no chickens attached. So when these virtual chickens come home to roost, as actual value, guess what? There aren’t any chickens, just a whole lotta hungry believers.

Everybody believes in this system of virtual currencies of credit, favor and marker collection, except the banks and the corporations who effectively pay zero in taxes, while simultaneously collecting trillions in credits from people and then turning those virtual dollars into “real wealth.” Think real estate.

Fun fact/Tangent: Why is real estate called “real?” Hint: It has something to do with the fact that money has no value (isn’t real) but shelter/housing does. We’ll talk about how banks and corporations got out of their social contract at your expense later.

In conclusion, as we’ve a lot to consider now, virtual currencies aren’t anything new. They’re as old as favors and promises. Digital money (much like paper money) doesn’t actually exist. It’s actually easier to “print” digital dollars than paper dollars. One requires paper and ink. The other? Well, just add another few zeros and tada! #InstantCash!

So do me a favor…next time someone tells you that Cryptocurrencies are a sham, smile at them because you now know that money has no value and the government can make as much money up out of thin air (with a side of faith) as it can add zeros to a ledger. Then, ask him/her if you can borrow two live chickens. You promise to pay them back.

My name is Samson. I’m a Professor of Blockchain at Univ of New Hampshire School of Law, human and an anthropologist at Axes and Eggs, a Washington, DC based Think Tank and digital advisor who answers your questions when Google can’t. If you like what you read, share it! If you disagree, share what you know or how you feel in the comment section below. Feel free to hit me up on Twitter or Instagram @HustleFundBaby or follow me on LinkedIn. Finally, I would say thoughts are my own but I probably stole them from a woman.