🤷 Opinions Katya Michaels

Institutional Investment in Crypto: Interview with LGO Markets’ Hugo Renaudin

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Crypto exchanges have to combine technological innovation with regulatory compliance to attract institutional investors
Institutional Investment in Crypto: Interview with LGO Markets’ Hugo Renaudin

As the cryptocurrency market expanded dramatically in the past year, institutional investment has become the elusive white whale of the crypto space, potentially capable of transforming the entire industry. However, a number of conditions have to be met before that becomes possible – namely, a clear regulatory framework and platforms that take steps to comply with those regulations.

The Legolas exchange, founded in France and based in New York, is launching a specialized platform for institutional investment, LGO Markets. The new platform aims to combine aspects of traditional financial exchanges with security innovations that Blockchain technology can provide. CryptoComes spoke with Hugo Renaudin, CEO of LGO Markets, about the prospects and implications of institutional investment in the cryptocurrency market.

Crypto regulations and attitudes in France

Katya Michaels: Different countries are in very different places right now in terms of cryptocurrency regulations. Where does France fit on a scale between a crypto-friendly environment like Malta on one end, and the US on the other?

Hugo Renaudin: I would say France sits in the middle. The framework for ICOs is pretty smart now – there is a license that you get. If you are a startup and you don’t have that license, you are forced to communicate that to the buyer.

What’s difficult when you have a crypto business is to have a bank that supports your operations and allows you to sell cryptocurrency to fund your account. For various reasons, a lot of banks are a bit cautious about that, and the regulator which is regulating the banks is not the same as the regulator that’s regulating the ICOs. Everyone is not on the same level, but still I think the regulating bodies are pretty open to innovation in this space.

KM: In terms of the general attitude from the government, the academia and the entrepreneurial community, is there a lot of enthusiasm for cryptocurrency in France?

HR: The government is definitely business friendly, but France is not a country with the highest adoption rate when it comes to technology. Even though we have a lot of entrepreneurs, French people tend to be a bit cautious. A lot of people are definitely looking at it.

We have a high level of scientific culture in France, a high scientific awareness. People look at projects in a very technical way and there is a lot of criticism for those that raise a lot of money while not being at the proper technical level.

However, the French community is enthusiastic about entrepreneurship in general, and the cryptocurrency and Blockchain space in particular.

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KM: What is most different or most surprising for you in the US fintech system as compared to France?

HR: The first thing is the scale of the American financial system is so much bigger than the French one. Something that’s not surprising, but different in the US, is the strength of the SEC. The AMF (l’Autorité des Marchés Financiers) is by no means as strong as the American regulator. The SEC is super powerful and it’s super important to be very compliant with them.

There are more different types of actors here – small businesses and financial companies, more small firms, small brokers, small banks. There’s a multiplicity of actors in the financial world in New York – less of that in France, just because the market is smaller.

Another thing is that traditionally the financial industry in the US is more open to adopting new technologies such as cryptocurrency. The financial markets for Bitcoin are likely to happen first in the US and only then in France.

Specifics of institutional investment

KM: You’ve said that LGO Markets is a next generation crypto exchange – what does that mean? What does it introduce that hasn’t been done before?

HR: We are not reinventing the wheel here. If you look at the cryptocurrency exchange ecosystem, it’s done in a very strange way. The architectures of a cryptocurrency exchange and a traditional exchange, like the NASDAQ or New York Stock Exchange, are very different.

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Crypto exchanges like GeminiCoinbaseKraken, and Bitfinex have millions of users, millions of direct connections. This means a huge risk in terms of security, huge problems in terms of KYC and AML, and in terms of custody it makes it impossible to segregate the funds.

These exchanges have all the funds aggregated in one big bank account that belongs to the exchange.

Effectively, cryptocurrency exchanges are not only exchanges, but also custodians. This doesn’t make any sense from a traditional financial perspective.

Exchanges should not handle the custody risk on behalf of their clients, and clients should not trust exchanges to hold their funds.

When you look at how the NASDAQ stock exchange is structured, they have a lot fewer clients, maybe hundreds or thousands, not millions. These clients are all institutional – brokers, market makers, funds. They are all regulated. They have their own clients as well, but there are very few direct connections to the exchange.

Because of that there is less security and KYC/AML risk. You can open what’s called a brokerage account, which belongs to the client and allows them to trade on the exchange. That’s the setup in the traditional exchange space. Exchanges are not custodians in the stock and equity world.

We take this architecture, which exists in the traditional financial markets, and we apply it to the cryptocurrency asset class.

As I said, we are not reinventing the wheel, we are just taking the same old model that works very well in the equity world and applying it to the cryptocurrency space.

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The architecture is not an innovation per se, but the way we handle custody is. We do not store cryptocurrency for our client. Instead, we designed a client wallet that can be thought of as a brokerage wallet. If you hold Bitcoins in your personal wallet, you can send those to the brokerage wallet and use them to trade.

In terms of technology, it’s a two out of three multi-signature wallet. That means there are three keys that exist, and you need two of these keys to initiate transactions. That itself is unusual and something that exists on our exchange only. In terms of custody, we are the only exchange that allows our client to hold their Bitcoin.

Another innovation is on the price discovery. When we built LGO, there was a lot of media coverage about cryptocurrency exchanges manipulating the price. Many people believed that they had been front-run by exchanges, that the price had been manipulated and that they lost money because of it.

We use Blockchain technology to actually prove that we do not manipulate the market. We get orders from our clients, send those orders to a Blockchain, wait for it to be validated, retrieve it, feed it into our system and then we trade.

Our clients can check that their order has not been erased, has not been front-run, has not been manipulated. We guarantee the transparency of the price on our exchange.

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Evolution of cryptocurrency exchanges

KM: Many crypto exchanges are striving to become part of the established financial system However, as they become institutionalized, do you think that crypto exchanges as a form will still have a rationale to exist?

HR: It’s a very interesting question. We see cryptocurrencies as a financial asset and we treat them as securities in our operations. It’s all about processes and technology. I think that cryptocurrency exchanges that exist right now don’t have the architecture which is fit for the institutional world. Those will likely disappear or stay at the retail level. That’s not to say that crypto exchanges which are geared toward the institutional investor, like ours, will disappear.

Holding cryptocurrencies is not the same as holding securities – there are technological issues which can be a barrier to entry for traditional stock exchanges. You have to marry both worlds.

KM: What are some of the specific features that institutional investors are looking for in a crypto exchange as opposed to retail?

HR: First of all regulation, so that institutional investors can trust the exchange. The second thing is custody. As an institutional investor, you are managing your clients’ money and you are required to prove that you are managing the risk of how you store money. This custody aspect, the way the funds are stored, is super important for institutional investors. Price transparency is essential as well, because you need to show your clients that you are giving the best price.

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KM: What are the implications of institutional investment for the market?

HR:

Institutional investment will tremendously increase the market capitalization of the whole asset class with additional inflows. It’s going to change the volatility because there will be less panic trading.

With professional trading, there is strategy and it is more rational. So, I also think that all the bad assets, the bad coins, those that have no rationale behind them, those that are scams  – will get sorted out eventually.

The future of crypto investment: lessons learned

KM: Some ICOs like Tezos, though backed by real technology, can face post-ICO issues with internal conflicts. Do you think this is a typical conflict that we are likely to see a lot?

HR: I think the Tezos conflict is not going to happen again. First of all, the setup of the ICO with the Swiss foundation was crazy. You don’t need to do that anymore – you can do an ICO in France, or in other countries. In terms of the structure of the ICOs and the legal context, it’s getting more rationalized now, although it doesn’t solve the issue of governance in the crypto space.

You have to think of it as Internet 1996-97.

The industry is not where it can be yet. There have been a lot of bad projects, there will be a lot of bad projects. The question is what we learn from the mistakes.

With Tezos we learned that the setup was absolutely crazy and a tech company doesn’t need that much money.

These are healthy problems because in a way they allow you to cure the whole ecosystem Those are mistakes that will never be made again.

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KM: Given what you’re working on, you must believe that clarifying regulation and compliance is a necessary step forward for the cryptocurrency space. In general, what conditions in a country ensure that it can stay on the forefront of innovation?

HR: The most important thing is to give a clear definition of what cryptocurrency is and create a regulatory framework. It’s very difficult for institutional investors to buy Bitcoin or any other cryptocurrency for this simple reason – they don’t know in which regulatory “box” it belongs.

It’s about being smart – allowing new actors and favoring them to enter the market, punishing bad actors, helping good actors to build their product and ease their regulatory burden. There is a lot of value to be made in the space, in terms of jobs, in terms of wealth creation for individuals and society as a whole.

It’s tough because sometimes regulators don’t fully grasp the whole technological aspect. They often stop at the fact that it was used on the dark web, used for money laundering.

KM: Sometimes it’s difficult from the other side as well, because in the crypto community there is a feeling that it was created to be regulation free.

HR: Sure, but if you want Bitcoin to have an economic reality, you need to be pragmatic about it and you need to somehow let the regulators find a good framework. Because if Bitcoin is only going to be used on the dark web and things like that, it will never be a reality. If you want Bitcoin to be widely used, then you need to validate it with countries and legal authorities.

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Crypto Community Must Unite, Speak With One Voice to Make Movement Successful

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The past year has brought incredible things but has also revealed weaknesses in the cryptocurrency movement.
Crypto Community Must Unite, Speak With One Voice to Make Movement Successful

For the crypto community, 2017 is marked by both astounding progress and disturbing imbroglio. Bitcoin has broken into the mainstream financial market with the launch of Chicagoan futures products. New investors flocked to exchanges unprepared for mainstream interest, bought up all kinds of coins and excitedly participated in conversations.

The crypto community may have never seen so many new curious members joining since Bitcoin’s inception in 2009. At the same time, the Bitcoin Cash hard fork pitted one part of the community against another, with anxious onlookers stuck in between. Governments are also beginning to watch the surge of investor interest with wariness.

Communication, governance necessary

Everything that happened last year, the good and the bad, should serve as a wakeup call for people that consider themselves part of the crypto community or even those who think they can just hodl some crypto, sit on the sidelines and watch. This is paradoxical considering the trustless nature of Blockchain, since making cryptocurrencies work requires communication, negotiation and ultimately governance. In fact, governance may be most important of all, as the canceled SegWit2x and the four-year scalability debate has shown. Even more ironic is that the crafting of a healthier ICO market may require anarchists to sit down with government officials.

So far, communication and the ability to work together is lacking in the cryptocurrency community. Instead, what we have are mysterious whales doing unknown things in the marketplace and Wild West pump-and-dump Telegram channels. Unifying voices are lonely and quickly drowned out.

While it’s probably wise to constantly look out for one’s own interest and reputation, it’s probably not wise to only look out for oneself. All who remotely care about the intermediate-term prospects of crypto would better serve themselves and others as both a member of a newly rising community and member of a new form of economy.

Community must unite

Bitcoin was born as a rebellion against the existing financial system. The roles of cryptocurrencies and tokens today are less clear. One way or another, as more money pours into coins, government action from different parts of the world is almost sure to follow. What will be the community’s reaction then?

At the end of the day, no one can stand alone.

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Why ICOs Are Uglier, Worse Stock Market: Opinion

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Here, on Blockchain territory, we are thought to be making a revolution. Horseshit. In fact, what we are doing here, is uglier, worse stock market.
Why ICOs Are Uglier, Worse Stock Market: Opinion

 

Here, on Blockchain territory, we are thought to be making a revolution. Horseshit. In fact, what we are doing here, is uglier, worse stock market. The thing is, many businesses (along their private investors) that opted for ICO, literally put their balls into the crocodile jaws of the speculators or have no intention to come up with a product whatsoever.

Most of the recent crashes have a simple explanation: trading in money is more profitable than any meaningful job or enterprise. It didn’t matter if someone’s profitable, employs people, has a product, only stock quotes matter. The totally Nietzschean situation of a clown replacing a priest as a central figure.

Bad enough, but… Amazon has lost 95 percent of its stock price in 2000 dotcom crash, and look at it now. The company continued running, its stock recovered eventually and Jeff Bezos is one of the richest persons in the world today.

What if Amazon’s everyday operations depended on its stock quote? Like, any stuff you buy on Amazon, is valued not in dollars, but in fractions of their stock? “What’s this dishwasher price? - 10 mAMZN.” Funny? But it is the case of many ICOs, who think to have escaped the SEC supervision by claiming their tokens are utility, not an investment instrument.

Now, remember George Soros attacking the pound sterling? If a national currency of a first world country can be brought to its knees by a bet (trading is essentially betting), how about a small-time coin used to pay for a certain service? One can imagine a small-time, by Wall Street standards, trader playing George Soros with crypto assets under certain conditions. It is imminent that futures and short trading on major crypto assets are to become available. Brokerages already allow borrowing BTC for short trading. It is risky, given its volatility, but with a little help from an AI, why not? Tokens will be probably available to borrow, too.

How you could kill Filecoin

Let’s look at Filecoin ICO, the biggest, the savviest and one of the greediest ICOs of 2017.

Raised hell lot of money in 2017. At the start, there’d be maximum 280 mln tokens on the market (80 mln pre-sell +  200 mln ICO), and another 280 mln FIL held by Protocol Labs and Filecoin Foundation. Advisors and other pre-sale participants have bought their FIL at max price $0.75, and the general public was paying up to $5. There are already enough skeptic commentaries on Filecoin model both financial and business model (1, 2) but let’s assume that the product is live, have actual users, and is listed on exchanges.

It is self-evident that bullish speculation may kill Filecoin’s business. If there’s steep growth of FIL valuation, there will be less incentive to spend FILs, and also, the price of storage may increase beyond what users are willing to pay.

Miners would rush to offer more storage, but fewer people actually spend FILs to pay for it, so organic demands diminishes. The reliability of the storage service suffers, and the word gets out, sending a negative signal to non-user (investor) FIL holders.

By this moment, a savvy operator has already sold their bought FILs, fixed profits from the inflated price, borrowed it from the brokerage, preparing for the plunge. Then borrowed tokens are sold below market value. If the splash is big enough, a panic ensues.

Filecoin Foundation will then start buying FILs back in order to protect their business. If FILs drop, there’d be less incentive for the nodes to provide storage, so the underlying product becomes unreliable even more.

Giving up and gutting it

So Filecoin foundation may end up in the position of Bank of England in 1992 - buying pound sterling until it gives up. The token price plunges and the initial operator buys it on the exchange, returning it to the brokerage.

Essentially, the same people who brought the prosperity to Filecoin will gut it, if there’s an opportunity.

Anyone with sufficient access to media and enough money can play the same game with anything, including the very Ethereum or Bitcoin. There is no law on the crypto arena, so no holds are barred (including insider trading) - since everybody keeps pretending tokens aren’t securities.

Back in 2000, I was a faithful reader of fuckedcompany.com, a fresh corporate recruit in a cheap suit, half-world away from the Valley. It was somehow gratifying to see them suckers suffer. It seems that this long forgotten pleasure is bound to return.

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Federico Pistono: Bitcoin’s Power Structure is Very Robust, Altcoins Are Test Bed

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The prominent researcher, investor and speaker brings a practical approach to his vision of the future
 Federico Pistono: Bitcoin’s Power Structure is Very Robust, Altcoins Are Test Bed

After Google’s public demonstration of its AI assistant some two weeks ago, waves of shock, denial and censure rippled through the media. Audiences seemed unprepared for the progress made by artificial intelligence while they weren’t looking.

Federico Pistono, however, foresaw this moment, and the many similar moments we will undoubtedly witness in the near future, as far as six years ago, in his bestselling book "Robots Will Steal Your Job, But That's OK: How to Survive the Economic Collapse and be Happy."

In addition to researching the societal implications of artificial intelligence on the evolution of society, Mr. Pistono is an entrepreneur, investor, startup founder, public speaker and most recently, Head of Blockchain at Hyperloop Transportation Technologies- a company that is working on the first supersonic land transport. He took a few minutes out of his busy schedule to speak with CryptoComes about Bitcoin’s prospects, surveillance states and why he might take some time before writing another book.

Complex systems

Katya Michaels: Among all your diverse interests and achievements, what is the thread that ties it all together? What would you say is the unifying theme of your research?

Federico Pistono: Probably it’s trying to understand complex systems. They are very easy to disturb and usually when you do, you disturb them for the worse.

No one understands complex systems really, and very few people have any idea of how to tweak the variables just slightly to improve the whole.

In a sense, for me, it's about trying to understand the laws of the universe on different scales.

The traveling banking problem

KM: Obviously, your exploration of these subjects began before cryptocurrencies and  Blockchain technology proliferated, probably even before the release of Satoshi’s paper. When did you first discover Blockchain and how did it fit into your research vision?

FP: Cryptographic hash functions have been known for 20 years. When I studied math in university, I learned about the traveling salesman problem, which is essentially impossible to solve. When I read Satoshi’s white paper, I found that there was some circumvention mechanism.

I didn't even understand the implications of it on the economic scale, at the time. There wasn't a lightbulb moment, it was more of a process of piecing things together and trying to envision some of the implications.

Societies reach an equilibrium point of technological development.

For example, when we could only do banking through paper, you couldn't scale as much because it's an organizational problem. Computers allowed for the creation of worldwide banks and online payments, but then it stagnated and hit the limit.

After PayPal, there wasn’t really any innovation in the banking sector, that was as big as it could get with just the Internet. And PayPal didn’t really change anything in terms of the structure of power. It allowed more fungibility and more access to small credit for people without bank accounts, perhaps, but that was about it.

Now with Blockchain, you change everything– literally. Let's say you live in a country that you think is stable, and then one day you have to leave because the economy's collapsing or some dictator is coming after you.

If your money is in the national bank or in a bank that's controlled by the national government, your money is gone. You can’t move it, you can't take it with you, in fact, it can be taken away from you, like what they did in Greece.

With Bitcoin or another crypto, you can literally remember ten words in your head, and you take your money anywhere.

False dichotomy of Blockchain vs. crypto

KM: Between Blockchain technology and cryptocurrency, which are you most excited about? Or do you not separate them?

FP: I think it’s a false dichotomy. It’s like saying “are you more excited about TCP/IP or the worldwide web?” You need one for the other.

KM: I suppose the argument is– cryptocurrency can't exist without Blockchain, but Blockchain has other applications.

FP:Blockchain is a database. The database by itself doesn't have any value or any utility. It's just a way of storing data unless you build something that acts like a cryptocurrency or token.

Whatever you call the thing that you are connecting the dots in, crypto or token, it represents something which runs on something that looks like a Blockchain. We're going really into semantics now.

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Altcoins are a test bed for Bitcoin

KM: Bitcoin was the original cryptocurrency built on a Blockchain. What are your favorite post-Bitcoin or post-Blockchain platforms?

FP: There are a lot of cryptos that have very interesting properties, but to be honest, I think Bitcoin is doing a great job. The Lightning Network is expanding rapidly. Rootstock are smart contracts on Bitcoin.

I see most other crypto as a test bed for Bitcoin. You try something, if it works out, then you take what's good of it and integrate it in your code base. That's what Bitcoin is doing.

I mean, Segregated Witness was first explored in other cryptos, like Litecoin, and then it was integrated into Bitcoin. The same thing with Lightning Network. Smart contracts came off colored coins, onto Ethereum, and now they're doing Rootstock. Zero-knowledge proofs used by Zcash and Monero - there is support for that on Bitcoin.

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The value of Bitcoin is that it's so widespread. The hash power is unimaginable compared to the other cryptos. That's not to say that other coins don’t need to exist, but I think that Bitcoin will transform and eventually become the de facto standard for a global currency.

KM: You are an investor in Bitcoin yourself?

FP: Yes. It's got a lot of momentum and the way the power structure is organized makes it very robust. With Ethereum, 20 people could essentially decide its fate.

Most cryptos are centralized, even though they like to say they aren’t. Bitcoin is maybe the only truly decentralized currency right now. They can never agree on anything. It takes two years to get to any decision. Well, that's what democracy is– slow, inefficient, messy, but eventually it gets it right.

If you have a benevolent dictator, you’re quick, you're agile, but you may get things really wrong. Litecoin is a great example. I think Charlie is a great guy. He's very smart, he's the prototype of the benevolent dictator and he got most of everything right.

But if one day he flips or someone else takes over, it may go very wrong very quickly because it’s more centralized. Bitcoin has so many competing interests that you have to find a solution that fits most people. That’s the process of large coalitions.

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Quis custodiet ipsos custodes

KM: Blockchain can be a tool both for complete transparency and complete privacy, depending on how it’s used. How does society make sure that Blockchain is used for good rather than for questionable purposes?

FP:It’s the oldest question in the book– who watches the watchers? Quis custodiet ipsos custodes.

What if you have corrupt institutions, not in the sense of bribes, but corrupt in the moral sense? The UK is becoming a surveillance state, for example. They order ISPs to block certain sites and keywords, certain ports and protocols. People use VPNs to do anything of significance in the UK. There are hundreds of thousands of CCTV cameras everywhere. Same goes for China. The US is moving in that direction.

When you have these kinds of institutions running society, then it's pretty obvious that they will use Blockchain for further expansion. But I would imagine it will be different in a country like Norway or Estonia, which is already using the Blockchain for voting and in medical records.

From vision to adoption

KM: Since your book came out six years ago, have you amended your thoughts in any way? Has humanity disappointed you or impressed you favorably?

FP: What changed is my understanding of how things are working. I think it’s a little more nuanced now. Here’s something that I think most people don't understand. You see something not working and you think– “but it’s so easy, if they just did this!” And yes, maybe.

But how you get people to make the changes is the real issue. It’s not enough to recognize that things aren't working and they could be working better if everyone suddenly acted in another way. That's what a lot of activists do and that was also my problem. “But the solution is so obvious! Everyone can see this. We should just tell people about the solution, and then it would become crystal clear!” No, it's not.

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First of all, the solution that you're envisioning may not necessarily bring the results that you want.

Because systems are so complex, tweaking in the smallest way and continuously checking how that impacts the system that you are perturbing may be the only way to actually change it effectively.

KM: Even when people are presented with clear facts and explanations, they are not rational actors or judges.

FP: Not only that. Most people are not rational. Most people are not even educated enough to understand what you're saying. And sometimes, the more educated you are, the better you are at confirming your own biases.

It’s about root causes. You think you found the root of all the problems, but then you come up against irreducible complexity. Also, if attacking the root cause takes limitless amounts of money and energy, essentially what you're saying is you're never going to do anything. And the only way to perturb the system upward may be to act on the leaves and have it trickle back to the roots – like an upside down tree.

KM: Since you have amended your vision somewhat, is there another book in the works?

FP: Well, one of the things that I amended was my readiness to pontificate.

KM: You're still giving lectures though.

FP: Sure, but I'm reducing the scope of the grandiosity of my goals somewhat. I feel like I'm more down to earth now. I still havе the visions and I’m trying to bring it all home.

It's the difference between someone who has a grand vision but has not developed it and someone who is now building organizations and realizing how difficult that is.

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Hyperloop

KM: Does being head of Hyperloop’s Blockchain department fit into your practical approach to changing the world?

FP: I think the project is one of the few that are actually likely to change the landscape of our cities in the near future. It's a bit like the introduction of trains or planes for the first time– that really changed the way we live. Beside space travel, I don't think there is anything else of that significance in terms of changing the landscape of cities.

Electric cars are going to change a lot how we live in cities, and Hyperloop is going to change how we move between cities and what distance we consider to be our immediate circle.

Some studies show: the amount of time that people are willing to spend commuting without getting annoyed is 25 minutes. This is true now, it was true in the 1950s, it was true during the Romans.

So the constant is time and the variable is distance. Now, in twenty-five minutes you could go 200 kilometers or more with the Hyperloop. We can connect cities like we connect neighborhoods now.

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CryptoComes Women in Blockchain: Crystal Rose on Blockchain Island, Governance and Open Data

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Technologist and Blockchain entrepreneur Crystal Rose talks about open data standards, ICO governance and changing the advertising model
CryptoComes Women in Blockchain: Crystal Rose on Blockchain Island, Governance and Open Data

 

Crystal Rose is a technologist and entrepreneur who has been part of the tech community since middle school, but that familiarity has not put her out of touch with the obstacles faced by women in technology.

As co-founder and CEO of Sensay, an AI communications platform and SENSE, a Blockchain protocol that recently completed a successful ICO, she has direct experience of the industry’s challenges and prospects.

CryptoComes caught up with Crystal after she spoke on the Women in Blockchain panel at CryptoBlockCon 2018 in Los Angeles.

Katya Michaels: I heard that you started coding when you were eleven, which makes you not just a digital native, but a coding native. Do you think that being comfortable with the technology from so early on makes it easier for you as a woman in tech?

Crystal Rose: I think being in the space early and being really naive helped a lot. When I was a teenager, I discovered hackathons. At that point, it was just people getting together, creating products or sharing code. It wasn't until I was 19 or 20 that someone actually mentioned to me that I was the only woman out of a hundred people participating in the hackathon who wasn’t a sponsor or working at a booth.

After that realization, I started to seek out more women and try to understand - is it that women are fundamentally not interested in engineering? Or is it really exclusive? I think it's a combination. There is definitely an intimidation factor if you're not comfortable with the “boys club” elements of it.

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Bringing men into the conversation

KM: How do you feel about the “women in Blockchain” discourse?

CR: It's super challenging for me because I would rather not see us segregating ourselves even further. For instance, the organizers of this conference pulled me off the first panel today to put me on the Women in Blockchain panel. As a result, there were several panels with only men and one panel with only women.

I think it would be interesting if we included men on a Women in Blockchain panel to get their perspective, to understand the challenges from their side, to empower them to bring more women into this space.

Events created specifically for women in the industry are helpful for us to make connections, but we also have to take the next step- which is integrate. When I host dinners for women in crypto, I encourage men to come and participate. One good approach is to invite men, but also ask them to nominate a woman who is a candidate for the space and bring her along.

If you look at the C-suite in any industry, it is challenging for women to break through to the top level. It’s good to point that out, but without creating more exclusion. I’d like to bring the topics around to the men- ask them how they are encouraging women entrepreneurs, how they are investing in women. I want to see men step up to that conversation.

Opening doors for women entrepreneurs

KM: You are a partner with an all-women investment group, Artemis. Who are the members and what makes this experience unique?

CR: So, Artemis is 11 women from all over the world who are entrepreneurs in their own right - primarily in technology, but other sectors as well. This is a side project for everyone involved, just coming together to really understand investing in cryptocurrencies, in ICOs, and in Blockchain companies.

At this point, I consider it more of a learning club rather than a venture firm. We’re here for all the women who are entrepreneurs and are unsure in the space. We'll go through the diligence process in a really kind way and open that door.

One of the things about women is we tend to have a higher standard. Being an angel investor myself for about five years now, having people come and pitch to me, women are always more polished. But the detrimental part of that higher standard is that they might not come to the table early enough.

KM: In fact, there is research showing that women need to be extremely sure of their competence before putting themselves out there, while for men that threshold is much lower - something that has been called “the confidence gap.”

CR: Well, that research is super valid then, because that's exactly how it is with the pitches. Men might be only 50 or 30 percent there with the idea - and they give the pitch anyway. Women will only pitch an idea when they think that the chances of success are extremely high.

But when you're raising angel money, you've got to have a higher risk tolerance. You've got to say, “Hey, I want to bet on this thing and I want to go for it.” I think it would be great to see women stepping up with ideas earlier because you can validate them faster, you can get through that cycle faster and get to the next stage. We want to see women accelerated.

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Giving back for long-term solutions

KM: Have you noticed a difference in the approach taken by women versus men to adding value in this industry?

CR: I think it’s related to the likelihood of women taking high risks in things that are uncertain.

Men want a higher return, but they don't really have as much of a vested interest in the idea or the company. Maybe this is just a blanket statement, but I feel that women want to see a longer-term solution.

Men, a lot of the time, have this rocket booster mentality - I just want to get something out of the gate really fast, go to the moon, maybe it's not sustainable, maybe I've burned a bunch of fuel on the way, but it doesn't really matter. For women, it’s more of “how can I positively impact the world sustainably over a longer period of time?”

Women want to see growth and also have a harder stomach for sticking it out long term. I've seen a lot more female entrepreneurs unwilling to give up their business when it's clearly failing compared to male counterparts.

KM: You have been nominated for the Golden Token Female Leader of the Year Award. Is that exciting for you? Should there be more recognition for women, or is it just a golden star that doesn’t mean anything?

CR: That's huge, I'm extremely honored. I strive to put out a positive message and encourage everyone to ask questions and learn. Even when I stopped doing hackathons to build things, I kept going back as a mentor because I saw this need for women to be encouraged to work on something and not be afraid to fail. Out of that, I ended up doing LA Startup week, a free event to encourage entrepreneurs who either didn’t have the resources or were afraid to come out and get to that next stage. So I think recognition is huge.

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Global governance

KM: You are on the board of the ICO Governance Foundation. What do you think is in the future for this model? There seem to be two approaches- comply or insist on freedom.

CR: Or keep changing the acronym! TGE, token generation event, that's what it's called today.

The reason I wanted to get into the governance side of it is because I realized that in a global economy we have to collaborate, and understanding the global ecosystem is really important. I am fortunate to have been at the table with different governments, with Congress, the SEC, the SFC in Hong Kong. We are still operating in a world where global trade is very challenging and that is detrimental to the entire space.

The ICO Governance Foundation works on creating a governance system that everyone can adhere to and live by. In this space, you have to self-govern and have integrity, but the other side is influencing the government. We need to be the voice that says, “Hey, this is what all the companies want.”

Governance happens two ways. It's not our job to sit back and wait for rules be created. It's our job to help formulate these rules, so they are most beneficial to the companies, to the people and the government.

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Open data standards and decentralization

KM: A wider adoption of the technology should help with governance because eventually, the population will be significant enough for the regulatory bodies to work with.

CR: Yes, but I think that's going to be a really tough challenge as well. I'm excited to be at this stage because I feel like it's the dawn of the Internet. No standards have been put in place for a lot of this.

At Sensay, we’ve had a lot of trouble with our data partners when every data stream is different. So we started the Blockchain Data Alliance, which is a group of people who are all building large-scale data-driven Blockchain projects to create open standards. We don’t want to continue to silo people and have them build essentially centralized systems. The whole point is distribution and decentralization.

KM: In your opinion, which platform is currently the leader in terms of smart contracts and decentralized apps?

CR: I like to say that I'm poly-chain. I think that each one is valid for its own inherent reason, but we chose Ethereum and the ERC 20 token. You can't actually code anything on top of Bitcoin, and Ethereum is the most accessible to the most amount of people.

But now we're seeing a lot of challenges with the transaction time and with the fees for our needs. We need to be able to do micro-transactions, so we are going to be announcing in a couple of months that we're moving to the EOS chain. EOS offers faster transactions and we've been really happy with their code base.

For me personally, EOS is the clear next big winner just because the technology is good. I think you've got to bet on who is creating good technology over who is creating hype.

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Changing the advertising model

CR: I'm really happy to see that all of the ads have been banned from Google and Facebook.

KM: You're a fan of that decision?

CR: Huge fan. Fundamentally, as a company, it's against our ethos to advertise. We won't allow advertisers on our platform because that changes the quality of what we transact. Our purpose is to let humans find each other based on their knowledge.

We do have brand partners like Nike who we're working with to figure out how brands can talk to people with their permission and allow them to benefit from the interaction. We can leapfrog the process of Nike buying an ad, then the publisher, like Facebook, getting the money, with the user never getting anything other than the ad.

Instead, Nike can talk to the user directly, and if the user agrees, Nike pays them. It’s removing the intermediary. I'm sure a lot of the intermediaries are very unhappy about this, but advertising fundamentally changes the results of things.

I think we're going to watch as the current decades-old advertising model starts to unravel and I'm really excited to see it change.

KM: There is a view that the ban is not going to affect the honest players because they grow their own communities and they don't need that kind of mass advertising.

CR: I believe that fully. I wouldn't have considered spending money for the acquisition of someone to buy a token because we want people who are just interested in the product and a community that’s going to stick around with us. It's not a speculative point. It’s more like, if you love us and want to be a part of this, you’re in it for a longer game.

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Puerto Rico- Blockchain Island

KM: What's your most exciting project at the moment?

CR: Мy heart is in getting every human to become their own sovereign entrepreneur. And that's what our original mission with Sensay was - to connect people together to freely share their knowledge and get a value for it.

I’m looking at communities of people now and my biggest passion is Puerto Rico, where we are doing Restart Week. Having seen what kind of impact Blockchain can have on a place that is in need of literally every resource - that's a really big mission.

Of course, there are serious challenges that don't get solved with the Blockchain - like power lines broken and roofs ripped off by hurricanes. But when you have things like money being donated to charities and disappearing, or food never being delivered, that does get solved with something like a transparent, immutable ledger system.

I think this is our first time seeing such a massive scale social impact project. We're bringing in not only resources and people and talent, but also capital in a meaningful way.  

We're helping to create laws that are friendly to people who want to run businesses, to help improve the system.

It would be really great if we could see Puerto Rico become an example of how the Blockchain industry can be applied collectively, all in one place - a kind of “Blockchain Island.”

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The Ridiculously Centralized World of Crypto

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Cryptocurrencies decentralized nature is becoming more and more theoretical, whereas, in practice, it is an incredibly centralized space dominated by a few men
The Ridiculously Centralized World of Crypto

Brandon Chez is a thirty-something old programmer allegedly living in New York. His name is not immediately recognizable, yet the domain name that Brandon owns and the website he maintains and controls is the gravitational center of the universe of cryptocurrencies.

It is CoinMarketCap, a website launched in 2013 that has become the source of information for millions of users in possession of billions of dollars. 300 mln of its monthly visitors make their decisions based on the data from CoinMarketCap. And their decisions affect the market big way.

In January, the site decided to expel South Korean exchanges from its listings, without a warning or any sort of orchestration. As a result, the whole crypto market capitalization fell some 20 percent, and the panic spread, leading to a big sell-off by uninformed traders.

Centralized information manipulation

In fact, any moves by CoinMarketCap play a big role in how the markets behave. The ranking system of CoinMarketCap has often been called into question, as its effect can greatly affect things too. The calculation of circulating supply is vital information, yet the way in which it is calculated is shrouded in mystery, and often could be erroneous. Any change in the value of the circulating supply of any project has a direct effect on the capitalization of the project and on the price of the project's coin. Direct, immediate effect.

The speculative nature of the cryptocurrency market and the high competition between coins for investors mean that knowledge and information is king. Information centers like CoinMarketCap has such a strong hold on certain sectors and coins that could be considered virtually indispensable. And yet, they are also incredibly centralized!

But what about the three pillars of Blockchain and cryptocurrencies which are supposed to be transparency, anonymity and decentralization? These are the factors that have made this new technology so enticing in the first place, attracting millions of individuals making their headway in a digitized world largely controlled by overbearing big corporations.

The decentralized nature of cryptocurrencies was intended to give power back to the common man. No longer does your money have to be controlled by an intermediary or a centralized structure like a bank; Blockchain was supposed to be an ultimate middleman to end all middlemen.

The Blockchain and crypto space is getting bigger by the hour and it’s a network of communities consisting of independent individuals. The communities do actually strive to be as decentralized and transparent as possible and work with what they have - from settling in at various crypto subreddits like r/cryptocurrency and introducing public moderation logs for transparency to building their own platforms like U°Community.

They now feel a part of this important decentralized movement as they take power away from the centralized banking system. But so far they have simply traded a Wall Street bank for an Internet bank as some of the biggest and most popular exchanges are in reality centralized and thus have full control over the users' funds.

A person entering the cryptocurrency space looking to buy their first bit of Bitcoin would more than likely go to a popular exchange, such as Coinbase in the US, deposit money to the exchange and trade that money for their digital currency.

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Authoritarian heroes

More advanced users who want to trade in altcoins could go to another major exchange, Binance. What started as an unknown Chinese exchange in late July 2017, is now competing for the number one spot in the cryptocurrency trading volume.

CEO of Binance Changpeng Zhao has the flair of a rock star with a slight touch of a Robin Hood. Zhao, better known as CZ, has famous in the crypto community when he saved thousands of Binance’s users from the travails of the Viacoin pump and dump affair.

In March this year, a major phishing attack struck Binance as some naive or greedy users recklessly used for trading ready-made bots that were laced with malicious phishing codes. Anyone was able to download these bots from GitHub, input their private keys, and begin bot trading with an eye to make a profit.

The malicious code gave hackers access to people’s assets, but more importantly, it allowed them to control the bots in order to pump and dump a coin. The bots bought as much as they could of a low liquidity and obscure coin named Viacoin. The attackers accessed the phished accounts on Binance and dumped all the crypto on balance of the accounts into Viacoin via market buys.

The price of Viacoin soared multiple hundreds of percents in minutes. Then the attackers sold the pumped Viacoin for Bitcoin and attempted to withdraw their funds in Bitcoin.

Then stepped in CZ. Accounts were frozen permanently, trades were reversed, funds were returned and the attackers’ funds were donated to charities. All's well that ends well? CZ was lauded as a hero, he repelled the attack, saved the users, punished the attackers, and as if it weren't enough donated the funds to a charity.

Judge, jury and executioner

But, just because it sounds like a happy ending does not mean that it should not be scrutinized. Essentially, CZ was at once judge, jury and executioner. He used total control to dish out his justice… No democracy, no decentralization, just one man at the pinnacle of control.

Let’s be frank. Major cryptocurrency exchanges are centralized and operate like digital banks anyway. Their centralization brings about another aspect, less pronounced but no less scary because of that.

Coinbase collects sensitive personal information on its clients, it has the ability to freeze accounts, it charges fees for its services, it can be hacked and it can even collapse with all of its users’ money in it. These are exactly the same problems that normal banks have, aren’t they?

It gets even worse with decentralized exchanges which operate with a thin veil of decentralization. A company called Bancor, which claimed to be a decentralized exchange, was recently hacked and had their users’ funds frozen. Straight away, there is something wrong here as a decentralized exchange should never have this power… and yet, they did that while still continuing to call themselves decentralized.

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Decision makers

To call the cryptocurrency space entirely decentralized because of the Blockchain decentralized nature is a strawman fallacy. There are multiple examples of how a few people rule the entire space.  Why is that happening? Partly because in this nascent space, there are still a few pioneers, few names that control certain spaces by default - for many, Binance is a synonym for “crypto exchange,” and CoinMarketCap is another word for “crypto market data.”

These pioneering companies sit at the top of their game without much competition and little precedent or repercussion for actions - which is a prime environment for centralized control.

Anyhow, the modest two men, Changpeng Zhao and Brandon Chez, have already shown to have made huge moves in an ecosystem that prides itself on being decentralized and thus, technically, immune to individual manipulation and control.

The fact of the matter is that in theory, decentralization exists, and can operate perfectly well in an ecosystem that prides itself on it. But in practice, that is not the case. People are inherently controlling, and enjoy the power and pride that comes from it.

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