Monday, March 24, 2014

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

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

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

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

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

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

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

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

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

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

A new crypto currency paradigm

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

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

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

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

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

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


Saturday, October 12, 2013

Interview on Digital Fundraising School with Lee Schneider

Here's an interview of me by Lee Schneider as part of his multi-session Digital Fundraising School.

Monday, June 24, 2013

State crowdfunding and state banks will moot the JOBS Act

We have a signed federal law allowing Americans to access securities crowdfunding, as per the JOBS Act.  But as usual, Congress passed the baton to the SEC to pile on yet more regulations before crowdfunding becomes available to the general public.  And the SEC is sitting tight, dragging this thing on as long as possible.  Entrepreneurial liberty is being "sequestered".  But this is perhaps the best thing that ever happened to crowdfunding.

The crowdfunding component of the JOBS Act started as a really elegant, tiny change-set to the securities regulations, when it originally surfaced through Rep. McHenry as H.R. 2930.  But by the time it emerged as part of the JOBS Act, it was gummed up with a lot of additional provisions.  The final insult to injury however, reeks of crony capitalism.  The SEC granted accredited investor platforms relief from broker/dealer registration, yet the word on the street is that all general investor platforms will likely need to be registered as broker/dealers and be regulated by FINRA.  Thus there will be a sizable burden and economic disadvantage for all the players in general investor crowdfunding compared to sites like AngelList.  Mark Mohler nailed this in his Crowdfunding Law blog piece last year, "Investment Crowdfunding in the U.S. is Dead Before Arrival."

Now for the good news; forget the JOBS Act, the real economic and entrepreneurial leadership is happening at the state level.  There are two parallel trends, which together offer America the greatest economic promise of the last century.  And those trends are state-wide crowdfunding legalization and state-owned banks.  While these are currently happening as independent activities, I believe we will see a pattern emerge quickly whereby states adopt both of them concurrently.  In the crowdfunding camp, at least four U.S. states have recognized the value of forging ahead with their own state-wide crowdfunding legalization, something they are allowed to do provided the investors and businesses operate within their states.  And by the way, keeping the business economics local is a nice proposition from the perspective of a given state.  Georgia and Kansas have already signed off on crowdfunding legalization.  North Carolina and Washington have introduced proposals.  I expect the next legislative cycle to be a banner season for other states to submit proposals and sign their own into law.

... [read remainder of article on HuffingtonPost or VentureBeat]

Tuesday, June 18, 2013

Activism taps big-time crowdfunding

Activism has long suffered the same curse as does the starving artist -- so much heart and so little capital. Until recently, that is. Tapping crowdfunding in a big way, activism has re-emerged in a bigger, bolder form. And now it has both heart and capital. Everywhere there is turmoil, we see this trend emerge, reaching out to people and money to make a much more effective impact. Following are just a few select examples, from across the globe, presaging what is expected to be an even larger social phenomena throughout 2013.

UK/Global. "The People's Voice: A free global internet TV & Radio station." This project blew past the £100,000 goal in the first 6 days, attracting the likes of comedian/actor Russell Brand (it doesn't hurt he has 1.7 million facebook likes). Just getting warmed up, they announced a new goal of £300,000.

Egypt. Mosireen is a non-profit media collective & workspace in downtown Cairo, "born out of the explosion of citizen media and cultural activism in Egypt during the revolution." Mosireen trains journalists, screen films and does archival work. Their $40,000 goal was reached, and their YouTube channel was the most viewed non-profit channel in the world in January 2013 and the most viewed non-profit channel in Egypt of all time.

US. Court Stenographer for Bradley Manning's Trial. The Freedom of the Press Foundation pushed for a crowdfunded stenographer to attend the Bradley Manning trial, given that the military refuses to release transcripts of their own. They're most of the way towards a $100,000 goal and the judge ruled that their stenographer would be accommodated in the trial. As a result, transcripts of the trial are being put online.

NYC/Turkey. "Full Page Ad for Turkish Democracy in Action." Inspired by Turkish civil rights demonstrations, New York supporters raised $108,000 (on a goal of $54,000) for a full-page ad placed in The New York Times, which has already been accomplished.

Spain. Enraged by the near collapse and bailout of Bankia, one of Spain's largest banks, activists crowdfunded a law suit against Bankia's former chairman, Rodrigo Rato. Along with a successful raise of €18,359, organizers used Twitter to recruit many Bankia shareholders and former employees to testify in the lawsuit.

[read at HuffingtonPost]

Monday, April 22, 2013

Sirius documentary a break-out event for two-stage film crowdfunding

A very powerful two-stage model is emerging in crowdfunding films, one that finally allows fans to participate economically. Sirius, the documentary from Dr. Steven Greer based on decades of work from the Disclosure Project, looks to be the break-out event for this new model.

In the first stage, Sirius used the contemporary perks-based crowdfunding to finance the production of the film, using both Kickstarter and their own donation mechanism. But the second stage is where it gets really interesting, thanks to their choice to use Yekra for video-on-demand (VOD). Fans can participate in the distribution and virality of the film, by signing up for the affiliate program, receiving a commission on revenue generated via VOD. So in this stage, your network can translate to real financial value.

[continue reading at]

Monday, April 15, 2013

Building Community Projects With Crowdfunding

While a lot of buzz surrounds crowdfunded games and gadgets, a growing trend is in the use of crowdfunding to build community oriented projects. After seeing some real life examples, one might wonder why we don't allocate a percentage of tax revenues to a pool, which is then allocated by the public to crowdfund local, state and federal projects -- the ultimate in empowering people to create their own future.

One of the projects which kicked off this community crowdfunding trend, raised $1.4M to build a Nikola Tesla Museum on the land formerly occupied by Tesla's famous Wardenclyffe Tower in Shoreham, New York. But community projects don't all have to be large-raise projects -- many of the smaller ones are making material and positive impacts. Perhaps a small sampler of the many that have occurred or are ongoing will serve as an inspiration to those who have a community need, but are looking for a mechanism to obtain funding. Keep in mind that crowdfunding can offer much more than money -- many projects involve obtaining human capital, especially community-oriented ones. You don't need to fund what other people are willing to help design & build!

 [Continue reading at Huffington Post]

Tuesday, February 26, 2013