Factory Banking

Exploring The Manufacturing of Digital Value

Forword

The initial coin offering (ICO) which began in July 2017 with the launch of Coeval, the first kind of derivative utility token to be brought to Blockchain, has for many investors marked what is one of most emotionally-driven, personally-invested undertakings of their investing lifetime. For myself, equally, the emotional and financial commitment that it has taken to see the project through to conclusion has been unprecedented in all of my 17 or so years as an entrepreneur.

In the past 6 months, my team and many others of us have endured a level of pressure, a requirement for singular focus and what has ultimately come to be a scale of self-realisation that can surely not equate to that which is incurred in the course of making any other comparable alternative investment.

With the deployment of the MNY smart contract this month of March 2018, for which participation has been whitelisted to those who exchanged their Waves tokens in to any of the valid wallet addresses during the latter half of 2017, we begin to mark an end to the journey we have collectively undertaken over the past 9 months. COE, an additional ERC20 smart contract which exchanges for MNY, FUTR and FUTX, will be deployed during the early part of the second quarter of this year. And with that, it is time to leave to rest what has been for most of us one of the most challenging periods of early-to-mid adulthood.

I would like to thank a number of people who helped bring the project to conclusion, who stood by me and offered me council and who tolerated what were at some points I am most certain my own almost unbearable levels of bipolarity. Here I will stop short, however. Naming individuals will only serve to cause more harm than good at this stage in what has been such a tumultuous political process, I fear.

Irrespective of whether you currently occupy the status of being a friend or foe – or something in between, most likely – then if you are one of those such persons, please know that to me personally your contributions, your advice, your endurance (for as long as it was reasonably possible to endure the self-serving madness I so often seem to bring to everyday life, at any rate) were never overlooked and are not forgotten. Your contributions are truly valued for they are what gave the creative ecosystem that resulted in this, the first ever delivery of real value on Blockchain, a chance to foster the first sort of growing pains as might be incumbent upon such a process of potentially radical and game-changing innovation.

For despite the challenges that this project has faced I have shared some truly enjoyable moments of comradeship with some of the brightest, most strategic, and certainly most varied group of people I shall in all likelihood ever chance to encounter upon in such a relatively consolidated period of time.

In the end, we delivered albeit to a rather silent marketplace what is nevertheless an innovation that anyone who took the time to support and engage with the various projects concerned can be proud to call the first demonstration of real value delivery on Blockchain. It may be some time for this point to settle and take shape in the crypto market, but it remains my firm belief that over time, this is what will happen.

That I will not be actively administering the process only serves to reinforce the project’s true character as that of a decentralised product base. Thus what we leave you here with and what we leave to offer up to any stray crypto enthusiasts who happen to come upon this webpage in the form of The Factory Banking Project marks the first ever delivery of value via the financial engineering of enhanced payment utility.

I understand that this moment was for many meant to be a New Year-style celebration, and that instead it seems by comparison to expectations a distinctly more sombre occasion. To those who feel this way, I offer the following observation: that there is no curtain call here is because the show is not over – it’s just the beginning. The Acts that follow will be written by the communities and individuals who write them.

Equally, what unfolds will be directed by the course of actions that dictate how this value ultimately flows from the source to the mouth of the stream, wherever on the Blockchain that may be. It is time now for us all to take depart of the harbour, to set sail and to see in what direction it is that she ultimately leads us. The Project that is laid out in detail in this White Paper is now under the capable stewardship of Matthew Topham, who was one of the first of those to take part – and take actual capital risk – and the first to show the promise of running the first of what will be many of such FactoryBanks.

Welcome then to the first Proof-of-Value (POV) concept to ever be launched on Blockchain. POV is a synthetic protocol, meaning that it doesn’t employ the addition of new software but rather, it harnesses the fullest potential of existing software that has already been developed by some of the most skilled engineers in the world, to produce value results that are simply unparalleled and without any precedent.

The central notion that drives POV is that everything, given a context, holds some sort of tradeable value due to the constant asymmetry of circumstance that exists necessarily between buyer and seller. Therefore, while Blockchain assets do not hold adhere to our conventional ideas of value, they do have value. Ethereum has a value; so does Bitcoin Cash; and so does Monero or Z-Cash (let’s not speak about the artificially-pumped Bitbomb here). POV seeks to identify what that value is and encapsulate it in a form of real asset value, most commonly via exchange with a separate reference asset.

It took us, a group of about four, those myself among which who collectively can be considered the original Factory Banking development team, a total of 9 months to conceptualise and put into product edifice the first POV product ever rolled out on Blockchain. This product was Futereum (FUTR). In addition, there were the 40,000-something words of the White Papers you will find attached to this page that were painstakingly pored over, that pain compounded by the back-and-forth trans-oceanic arguments late into the night over the vagaries of the ideal algorithmic representation of short-, medium- and long-term value as well as a dwindling product budget. Beset as we were at the time with lawsuits and tightening revenues as a result of severe attacks to the project, we persevered.

In the end, it was worth the effort, as you shall see evinced in the coming months and years as many more POV products begin to appear all over the Blockchain in various different forms. It is the case that with most value products that you discover on Blockchain – and central to this, of course, are the soon-to-be-born security tokens – that the Factory Banking Project creators are in some way involved in the design, launch, and application of nearly of all such assets that you will come into contact with. We have chosen now to fall into step behind the cameras, but for those who are professionally involved in Blockchain development projects, we will therefore continue to meet you at industry conferences and such.

While that may be all very well for the other senior executives and developers who are immersed twenty-four seven in the schizophrenic creative destructive process of building things on a rapidly moving ledger, which itself is a series of constantly shifting tectonic plates that one is well aware at any moment may give way to a Richtertastic market quake; what about you, the community of investors who stand to gain the most of all from such developments? While we will still be checking in on on the original and first of many such FactoryBanks, as I stated in my previous letter down below on this same page, it was clear it was high time to hand over the reigns to someone who can lead what we have created henceforth into the future.

Throughout this journey, since that very first week of July in 2017 when we first launched Monkey Capital to great fanfare, throughout the demise of the market on the Waves Blockchain, under the intensity of multiple attacks from all directions, oftentimes giving me with full force a taste of my own medicine and equally oftentimes coming and virtually slumping on my study beanbag for a 2-hour chat about whatever it was of interest that day that appealed to both of us to speak about, emerged someone who became something of a friend who’s shoulder was there for me to metaphorically rest my head for a second in between the madness.

It is quite peculiar as a project creator how one gets to see one’s ideas unfold and take shape in the minds of the people who adopt the innovations. Chief among the minds concerned who understood the importance of what we were trying to achieve – which was ultimately to make Blockchain sustainable over the long term by conceiving of a way to represent value on it – was one Matthew Topham. Matthew struck me initially as a sort of Bill Gates-meets-Hunter Thompson; he was half the geek who represented most of the crypto community and half the animal that came out after dark on a Harley to tear up the tracks with the rest of the Hell’s Angels.

For such an individual, it is often hard to put one’s finger on what their talents are initially, so various and alternately directed – not to mention independent of thought entirely – are they. But after time, one begins to recognise what it is this type of person can do, and the answer to that is, almost anything he damn well chooses to. Matthew was the first to discover the true value of Futereum X smart contracts, parlaying around $60 one morning into over $6,000 by mid-afternoon by single-mindedly farming over half the first level of the smart contract’s supply and selling the tokens that day for a premium on Cryptopia.

Matthew and I have been through our ups-and-downs personally throughout this project, bound as we were to being both somewhat emotional, quite perceptive, and ultimately intellectually-biased advocates of truth. In the end, he was one of the few remaining gentlemen within the community who I was pleased to call a friend of mine. When Matthew not only expressed an interest in leading The Factory Banking Project after my departure recently, but actually went out and advocated independently with a tirelessness and bravery of spirit the likes of which a Marvel comic superhero would find challenging to match, my inner spirit lifted an inch towards that open crack of light that was breaking through the dark room of development warehousing.

The Factory Banking Project has no more a deserving, competent or genuinely well-intentioned leader than Mathew Topham. Matthew is what those of us who were in crypto back in the early 10’s remember it as being full of; partisan, anti-establishment, conspiratorial, intelligent, counter-culture and give-a-s%&* when it least matters while seemingly caring when it most does. These are the qualities of a great leader and now therefore, I am proud to say, they are the qualities of this project too, for their indelible ink is forever imbued in some way via Matthew on the still blank pages of the narrative that lies ahead to be told.

Matthew Topham will make the finest ambassador for what is at least a starting point of true value innovation on Blockchain, of that I am quite certain.

 

DMH | London, March 2018

 

Introduction: Family Values

There has been no shortage of confusion, not least of all on the part of regulators, when it comes to the status of digital assets. Therefore, we seek here upfront to help define such status and role that these assets play in the newly emergent crypto economy.

On July 25, 2017, the Securities & Exchange Commission issued an investor bulleting stating that, among other things “a virtual currency is a digital representation of value that can be digitally traded and functions as a medium of exchange, unit of account, or store of value”. The Commission went on to characterize the issuance of such mediums of value exchange as being “issued by a virtual organization or other capital raising entity” adding that “a smart contract serves to automate certain functions of the organisation.”

In the same report, the Commission advised investors to “ask what your money will be used for and what rights the virtual coin or token provides to you. The promoter should have a clear business plan that you can read and that you understand.”

Less than six months later, in December last year, the SEC stopped a number of Initial Coin Offerings (ICOs) in their tracks, but most notable of all was a California restaurant offering utility tokens that doubled-up as multi-level marketing-style customer (token purchase) recruitment rewards. What was notable was the SEC’s comments about Munchee’s top management activities: the tokn was “marketed to people interested in those assets [the tokens] – and those profits [from the token sales] – rather than to people who, for example, might have wanted MUN tokens to buy advertising or increase their ‘tier’ as a reviewer on the Munchee App.” The token profits would involve “significant entrepreneurial and managerial efforts of others”, according to the SEC. Because of this, among other things, the tokens qualified as unregistered securities.

An investor who may have been diligently following the SEC’s advice from January and had thus scrutinized Muchee’s management team and business plan, and who had determed the individuals to be capable project leaders might have been a little surprised to note the return of the MUN tokens shortly after contributing to the ICO. That it was the same government agency that had initially instructed the investor to pay close attention to where the money was being deployed and for what purpose it was being used, and to make a judgement based on a project’s business case who now seemed to be implying this was not appropriate no doubt created more than a little confusion.

More puzzling still, in neither case was the Commission either right or wrong. Digital assets are indeed a “store of value” but smart contracts, which seek to synthetically replicate Blockchain payment mechanisms on a lighter-weight platform, have nothing at all to do with any of the “functions of an organization.” Similarly, while Munchee’s management ought not to have been implying that their own corporate profitability was relevant to their token offering, advocating that investors would be able to make a profit does not in and of itself transform a utility token sale into a full-fledged securities offering.

The challenge is one that requires a proper definition before absurdity takes hold. For it is clear that no one is participating in an offering of any sort of digital asset without having at all in mind the idea of selling later on for a profit. And yet the SEC seems to be most displeased about any sort of claim of future profit share from the purchase of utilty tokens on the part of promoters: that same December, the agency filed fraud charges against Canada-based Plexcorps founders for promoting a 1300% return on their utility tokens and a handful of other similar cases. It referred back to a July 2017 report in which the agency cited Stock.It’s use of the Decentralised Autonomous Organisation (DAO) to raise capital “with the objective of operating as a for-profit entity that would create and hold a corpus of assets through the sale of DAO Tokens to investors.”

These sorts of dichotomies have given rise to something resembling more than a mere mild absurdity in cryptocurrency circles, whereby one is by inference expected to issue and to purchase utility tokens that are tradeable on crypto exchanges around the world without any utterance of the intention of making a profit from doing so.

Clearly, this is simply not the case and rather than leave the subject of profit as a grey area, it would seem to be much more practical to define the sort of profit and the way in which profit occurs that is acceptable for Blockchain-based utility tokens than to suspend what is otherwise an inordinate amount of disbelief. It is our aim here to clarify these very issues and crystalize much more definitively the definition of a token offering as understood from the point of view of having predominant Blockchain utility.

When Vitalik Buterin composed the Ethereum White Paper in 2014, Blockchain technology evolved from being a somewhat geeky side-interest among coders and anarchists opposed to governmental fiscal controls into a commercially-manageable, potentially fully-fledged industrial-scale technology capable of handling a substantially increased number of payment transactions throughout the world. What is more, the sophisticated smart payments it enabled were made possible with a simple laptop and not much else.

What this meant was that in actuality, all of a sudden Blockchain solutions went from looking like bulky, standardised and expensive mining hardware obtainable via mail order from specialist manufacturers to negligible-cost, customised software that was easily available online. When a technology experiences such a dramatic shift in user optimised delivery it generally signals the dawning of a radical innovation, and so it was with Buterin’s Ethereum.

Since the deployment of the first smart contract in 2016 however, there has been nothing in the way of radical innovation in distributed ledger technologies. There has of course been plenty of money raised in initial coin offerings (ICOs) and not a few additional Blockchain innovations have been proposed and even developed over the past couple years, but by and large all of the activity that you see today was enabled by or copied from one source: the Ethereum Virtual Machine.

If that sounds surprising, then consider this: since long before Ethereum, right back to the point 9 years ago when Satoshi Nakomoto published the Bitcoin White Paper, the amount of value innovation in digital assets ahs equalled exactly zero. That’s right – despite nearly half a trillion dollars in market growth, over 1,000 different digital assets that have been created to trade on more than one hundred Blockchain currency exchanges, not one innovation has moved the dial an inch in terms of technological value innovation from the early days of the creation of Bitcoin.

This is to say in effect that, unbelievable as it may sound given the extent of financing made available to Blockchain solutions in the recent past, digital currencies are still valued, bought and sold on exactly the same basis that Bitcoin was bought and sold 9 years ago. Specifically, this means that buyers and sellers of digital currencies use only one criteria to pour billions of dollars into these digital value units today as they did to snap up hundreds of thousands of dollars of Bitcoin on Japan’s ill-fated Mt. Gox exchange in 2010: their best guess that the price of what they are buying might go up a bit more than it did yesterday.

That’s until today.

That the token might result in the purchaser of it making a profit is not necessarily in and of itself a regulatory problem. The issues arise when the token becomes disentangled from its core function as a mechanism of payment and instead seems to resemble a passive income investment that benefits the holder no matter what.

In Blockchain circles, one hears a lot the term “utility” thrown about, but what does this really mean? Utility is a type of functionality specific to a product’s manufacturing. A car stereo or a television has an entertainment utility; an automobile or a private jet has a transport utility etc. For Blockchain assets, the function is one of being a payment utility. Satoshi invented Blockchain as a means of manufacturing a method of unique and non-forgeable payment for use across the world by anyone, no matter their domestic, political, racial or whatever other conditions. Thus, Blockchain as a ledger based technology is understood to be a method of manufacturing payment.

For a payment mechanism to be valid, value must at some point in the utility equation be loaded onto the object in the same way as for transportation to be justified as a core utility, speed must be applied to the product. This is different however to saying that a car must perpetually be in motion and increasing in acceleration all the time, or even that it must be varying its acceleration constantly. If that were the case, a transport utility would resemble something that looked much more like a planet or a comet, and would assume a very different sort of utility – it would in effect have a satellite utility. Just as a transportation vehicle cannot be considered to be in the same class as a satellite operator, and must therefore be handled differently, so it is the case with Blockchian assets and securities. Specifically, the asset must be first and foremost predominantly a method of payment before it is anything else. Therefore, a dividend-loaded, guaranteed and/or management-enhanced token defeats the purpose and, one must concede, point, of justifying such utility in the first place.

That is not the same thing as saying that a token cannot be considered to be a profitable purchase item, however – it can. We believe we have found the perfect middle ground to the ambiguity that has been stirred up around this subject lately in our innovation of a new sort of payment utility – the manufacture of a profitable payment.

Profitable payments are a strange occurrence in conventional economic environments, since they only really occur in situations where there is either hyperinflation or hyperdeflation in one of the currencies being used to pay for goods or services. In cryptofinance however, hyperdeflation and hyperinflation are very much the norm in terms of everyday economic conditions.

This is because while they are structured for the most part like commodities, with finite supply sources and tightly-held (non-liquid) stakeholder clusters, they are traded against one another indiscriminately in the way that standard payment utilities – i.e. sovereign currencies – are. This unique status makes Blockchain assets the perfect profitable payment source.

By employing the concept of profitable payments in their utmost extensive use-cases within smart contracts, the token family is an innovation I conceived over a period of years beginning sometime in 2014. The delivery of the first half of the first token family system ever built was in January this year, marked by the deployment of the first utility derivative – FUTR, and its sibling token, FUTX.

In a nutshell, the system takes the form of an inter-dependent variety of smart contracts that form a combination of independently-operational but co-dependently operable token exchanges.

By virtue of harnessing the value of the most heavily-traded digital payment units created using distributed ledger technology (e.g. Ethereum), the model allows a cryptocurrency investor to evaluate and forecast the likely price performance of the gross payment utility of any currency.

What is really groundbreaking about the token family is that the measurements and forecasts of value in tokens such as Ethereum, NEO, EOS and others are not calculated with some weird new esoteric employment of financial knowledge, but in the exact same way that the earnings forecasts and net asset values are calculated of a share on a stock exchange. Still, even while the token’s utility can all-of-a-sudden be ascribed a value, there is no securitisation of any token employed whatsoever. You hard that right: at no point in the model is any digital asset remotely made comparable in functionality to the securities with which they can now be directly compared and valued side-by-side.

A token family is a composite of four tokens that are all playing essentially different functions within the system. These four token functions are broken down into their respective origins, which is to say, into seed, embryo, child and parent smart contracts. A seed is a token such as ETH – literally the value seed of the model. An embryo token is a token such as COE, which swaps back for a mix of Fuetreum and Monkey (MNY) tokens. A Parent, such as MNY, is accessible to only a select few investors who are pre-selected (in this case via submitting Waves based tokens into various wallets throughout 2017). A Child token is one that is open to anyone – the source of value the whole world participates in.

What makes the innovation so potentially exciting is not the swaps transactions in themslves. It is the end product of all this token harvesting intra-swap.

So in the particular case of our own token family, Futereum, often called by its symbol FUTR, a derivative utility token, is exchanged with Ether in a regressive Fibonacci pattern throughout 10 levels. That means that in level 1, a sender of 1 ether receives back 114 FUTR; in level 2, the amount received in exchange for 1 ether is just 89 ether etc. At the end of the year FUTR can be swapped back via the child smart contract on a pro-rated 1-for-1 basis with the Ether held in the smart contract.

When you consider carefully what this innovation achieves, the core value proposition of the token family is nothing less than to make various types of payment utility – such as Ether, for example – all-of-a-sudden measurable as a form of value-assessed financial markets traded solutions. 

A question often asked of us is: why do we beileve that a lack of securitisation a good thing for Blockchain as far as it is permissable to ensure the maintenance thereof? Mostly, it’s because the Blockchain is a manufacturer and provider of digital payment services, not of digital payee services. So, by putting securities on the blockchain, all you are doing is creating an explosive number of esoteric team-built tokenised offerings al scrambling to compete with one another on how much more they can raise than the next guy. In other words, an ICO market with a bit more Wall Street thrown in in place of the usual innovative spirit.

To suggest with a straight face that this is a step in the right direction when it comes to fostering entrepreneurship takes no small amount of effort: in fact, it completely defeats the point of the ledger payment technology from the outset. My team and I are working on bringing security tokens to market but the work involved is far more extensive than simply listing earnings on the distributed digital ledger. 

In the case of the token family, we are offered the real deal when it comes to payment utility innovation, which is to say, a seris of popular (ETH- or even ZUR-based) payment transactions harnessed into an identifiable payee-actionable value system wherein all tokens can be valued on a net asset, price/earnings and even earnings per share basis, all while remaining entirely unsecuritised. 

It’s probably fair to say this is progress among our current state of affairs. That is to say, Factory Banking looks pretty visionary among regulatory bodies who don’t understand the law, financial institutions who don’t grasp the technology and consequentially, an increasing number of private investors who haven’t got a clue about the price they are paying for something they have no idea about how to value anyway. 

1.0 The Value Coeval

1.1 Gold For Nerds

In January 2009, as the stock markets were in the midst of clawing their way chaotically and blindly towards an uncertain bottom, while people all over America and Europe were being tossed out of their offices without a paycheck and forced to abandon their homes after a single month’s missed mortgage payment, the instigators of these heinous events were getting bailed out with money the same individuals losing all they had worked for had paid in taxes over decades of compliant labor.

The beneficiaries of the government funds included the biggest financial institutions in the world — the same ones that had brought about this economic Armageddon in the first place. Citigroup, Bank of America, Barclays, Lloyds Bank, Royal Bank of Scotland, to name only the most famous of them, were getting more than a trillion dollars of cash from their sovereign governments to tide them over the rough patch while their chief executives were in many cases still getting multi-million dollar salaries, or would be again after a token annual pay hiatus purely for PR purposes.

What is more, in order to facilitate these grandiose sums, central monetary institutions were printing money in previously unprecedented quantities, flooding their own economies with huge potential inflationary pressure.

For the anonymous programmer who had spent two years formulating the conceptual rules of and writing lines of ground-breaking new code for the world’s first digital currency, the timing could not have been more opportune to test his product out on the market. Thus, one cold winter day early that year Satoshi Nakomoto — a pseudo name for the anonymous programmer known affectionately among geeks simply as “Satoshi” — put up the first of many paginations of open source code for his new currency bitcoin with a simple one-line observation: “Chancellor on brink of second bailout for banks.”

Satoshi’s comment might have been short, and might not have been particularly poetic (“I’m better with code than words,” he once admitted) but accompanied as it was with a whole string of code for what looked like the first ever serious attempt to design a unit of financially usable value outside of the existing mainstream monetary product base, and coming as it did right in the eye of the most reprehensible lack of action on the part of major governments to provide for their individual people and small businesses versus their most powerful and prestigious international institutions, the message rang out louder than if Satoshi had climbed to the top of Big Ben, London’s centuries-old clock tower, and had locked his arms around the rope and swung the gong against the bell with the force of his whole body weight.

Indeed, the message that Satoshi was sending that day to the whole market along with his source code for bitcoin’s currency was clear as the bright spring morning that lit up London’s four century old spiral towers as their steeples reflected and then disappeared in the yellow-white sunlit glare of the River Thames.

That message went something like this: If there’s a multi-trillion dollar bailout for the plutocracy going on right now, then here is a multi-trillion dollar bailout for the people.

Bitcoin was everyone’s bailout, and it was a multi-purpose bailout, too. It was a financial bailout, a political bailout, a bailout from the culture of institutionalization in general in which the vast majority of all generations since the industrial revolution had before now been compelled to enlist as part of the convention of professional and personal improvement, but who now found themselves poorer off in return for their participation.

If you thought that it was only the rich who got perks in life, then you were wrong. Bitcoin was your bailout, was what Satoshi seemed to be saying. You just had to come and get it.

In time, when an increasing number of market participants realized that this was the case, while others rose up in a call-to-arms to embrace its economic merits, it would collectively be worth billions of dollars. Bitcoin will in all likelihood probably be worth trillions of dollars given more time to disseminate throughout the financial system.

But on that day at the beginning of 2009, it was cheaper than a single share of any of the bankrupt institutions that the governments of superpowers across the west were bailing out. It was free.

Bitcoin is not free any more, but it’s still the people’s bailout from the regimen of the political and economic paradigm of the post-industrial revolution era. It is also a tip of the cap towards the oncoming force and consequent values of the technological revolution that shepherds us more emphatically every day into the world we are inevitably headed. It’s a bailout from the economy of the past, and a pass into the economy of the future.

1.2 A Brief History of The Post-Industrial Economy

It is no a coincidence that Bitcoin was born right in the eye of the storm of the subprime crisis. When economic chaos strikes, it’s not uncommon for new monetary trends to emerge. That is, after all, how the gold standard came into being.

During 1873–1879, hundreds of businesses folded, banks shuttered their doors penniless, and ten states declared bankruptcy, in a half-decade long period permeated by several violent economic shocks that was known, until the 1930s, colloquially as the Great Depression.

While the crisis of 1873–1879 was in a way the first international monetary crisis, it actually generated a net growth of money supply of 2.6% per year in the United States of somewhere in region of $40 million annually. How that happened amid such apparent cyclical turbulence has a lot to do with the economy we now find ourselves becoming a part of.

Before the late 1800s, the monetary conditions of sovereign economies were more or less unconnected from one another (or even, in many cases, conversely connected, with one country’s loss being very much the source of another’s windfalls). But with American industrialization fuelling the growth of Western Europe, market-based economics had begun to take hold. And so, when on May 8, the Vienna stock exchange collapsed, and was closed for a 3 day long period, it started in motion a series of panics and busts all over the western world, ultimately culminating in a lethargic deflation that threatened to stifle growth altogether.

What happened was that the prices of goods fell even as the money supply grew in value. Meanwhile, wages rose over 20%, but unemployment rose steadily.

Economic historians are often puzzled by this conflicting set of events. Was it a depression, given that unemployment was on the rise for over half a decade? If so, then what kind of recession results in increased wages?

Murray Rothbard, an American libertarian economist, gives the most revealing explanation for events during the years leading up to the implementation of the gold standard. In his 2002 book A History of Money And Banking In The United States, Rothbard claimed that there was no economic depression in the 1873–1879 period, just a realignment of economic forces, ones that ultimately generated huge productivity in the form of massive infrastructural growth such as real estate development constructions and the introduction of the railroads. This infrastructural productivity in turn promoted an increase in both net national output and net capita output, he explains:

[Economists] have overlooked the fact that in the natural course of events, when government and banking system do not increase the money supply very rapidly, free-market capitalism will result in an increase of production and economic growth so great as to swamp the increase of money supply. Prices will fall, and the consequences will be not depression or stagnation, but prosperity (since costs are falling, too) economic growth, and the spread of the increased living standard to all the consumers.

Rothbard hit on a point that beforehand, went largely overlooked: specifically, that production could be more aggressive in terms of growth than the supply of money. In recent history, we have tended to think of periods of a lack of liquidity as a bad thing and an overflow of it as good. But the period of 2008–2013 showed us a somewhat different version of events. During this period, for most people it felt as if liquidity had come to a complete breaking point, and for a short while, that was the case.

But very quickly, from around the mid-point of 2010 onwards, it became clear that major corporations were sitting on piles of cash. In August 2010, the Federal Reserve reported that U.S. companies had stored away $1.84 trillion of cash and liquid securities. By March 2013, nearly a full three years later, they were still hoarding a stunning $1.45 trillion on their balance sheets. Clearly, there was lots of liquidity in the financial system, but given that these companies were in a mode of caution, very little of it was being fed back into the system in the form of employment or investment: in fact, the unemployment rate for graduates was 5% lower than it had been more than 10 years ago.

Naturally, during this time the activities of technology entrepreneurs were pretty much the last thing on the minds of government officials, who had a macro-economic meltdown to focus on correcting. And because the largest companies weren’t hiring, they didn’t get much of a glimpse into the seismic innovative developments that were happening in people’s basements around the country, and more widely, the world. But surely enough, even while economic conditions remained superficially bad, at the same time, an innovative environment of sorts was bubbling up. Cities not regularly associated with innovative development but which had been hit hard by the subprime crisis began to shine: in 2012, Chicago tech firms raised just under half a billion dollars as a new start-up got founded every 24 hours. The amount raised by those companies doubled to more than $1 billion in 2013.

Many of those companies, such as CoinMap.org and 7Bucktees, were focused on providing services to bitcoin, which was steadily rising in value. In Seattle, CoinLab, a bitcoin mining technology, got half a million dollars in venture funding in 2012. Innovative deals were getting funded; it seemed, just not in the traditional exchanges and markets.

This brings us to a potentially powerful observation when considered in context of Rothbard’s statement about productivity growth outmatching the money supply, for it seems that this is exactly what was going on here during the period of the recent economic recovery. Only the underlying currency being swamped by productivity wasn’t the dollar, but rather it was bitcoin. This explains why despite a dearth of liquidity in the wider system, and despite the gruesome employment growth in that period, there was in fact a surge in the value of bitcoin, which jumped in price more than any other asset in history in a comparable time period. This poses a serious question about the role of sovereign currencies in terms of stimulating growth in and recuperating gains derived from innovations associated with venture currency innovations. In fact, there is reasonable evidence that the dollar has a lesser impact on value production in venture currencies than does bitcoin.

If you compare the universe of 400 or so currencies to the value of bitcoin on a daily basis, and then make the same comparisons of these currencies to the dollar, it becomes clear that the currencies far outperform the dollar in growth terms than they do comparatively in bitcoin.

While much of this is undoubtedly due to the fact that many of these currencies, by virtue of their construct, will tend to be classified according to bitcoin’s headline value and trade in a way that is somehow pegged to the bitcoin, it is notable that in periods when bitcoin underperforms the dollar in terms of percentage gains (i.e. it falls in value), competing venture currencies still outperform the dollar on an increasing basis even if bitcoin has remained substantially unchanged for long periods preceding the move downwards.

This suggests the dollar is not the benchmark unit against which innovative productivity is revolving or acting, but rather that some other, more central force of economic gravity is guiding the pattern of disruption, since the venture currencies are rather referencing the time-averaged stabilization of the bitcoin price as opposed to the immediate movement of its headline value.

In a sense then it’s possible to see that perhaps one of the conditions for innovative productivity — the type that transforms cultures via an onslaught of radical technologies (such as railroads and new financial systems, for example) — is in fact that it is increasing at a faster rate than the growth of the monetary economy.

It’s possible to see more clearly how the lack of government and big corporation interference might have provided the ideal harvesting ground for alternative currencies by looking a little closer at the events in the period that followed the 1873–1879 economic anomaly.

When the gold standard came into being in 1879, for a decade afterwards, prices continued to fall and wages soared yet higher, over 23%. But it also had another, more comforting effect on society: there was an abrupt halt to the tide of unemployment that climbed throughout the 1873–1879 period. In fact, the labor market began to grow fairly aggressively.

Still, aside from 1873, which was several years before the gold standard was put in place, the years 1884, 1893 and 1907 all represent years of banking crises and economic panics that nearly destabilised the system on a number of occasions during those years and in their immediate aftermaths.

The economist George Selgin has pointed out that these shocks were the direct result of the massive increase in excess demand for monetary surplus in an environment that was inadequately tight as a result of banking regulation. In other words, it appears that both the introduction of the gold standard and as a result a drive towards increased regulation, while stabilising unemployment and simultaneously maintaining growth in the economy, did as a result cause periods of intense speculative panic.

When we think of how the price trajectory of bitcoin has fared since its inception in 2009, it’s possible to see that in some ways, the more pervasive it becomes, the more it stabilises in value while at the same time, the more vulnerable it seems to exogenous shocks.

In one respect then it looks very much like bitcoin is acting almost exactly the same way in terms of being a piece of supporting infrastructure for a whole new branch of venture capital initiatives today as gold did for the development of railroad and real estate project developments during the late 1880s. Except there’s a key difference: the President of the historical period, Ulysses S. Grant, was a libertarian thinker. It was second nature to him and his party to embrace a pegged dollar economy in such a radically evolving time if only to ride out the pursuant growth period and decisively steer the course of the whole economy upwards. The same cannot be said for the approach of governments since, however.

During the period of 1933–1971, the dollar was not a FIAT currency: it was technically backed by a quantifiable amount of gold. However, the gold standard was abandoned partially by Franklin D. Roosevelt on June 5, 1933.

By then, the innovation and disruption brought about in the economy via the industrial revolution had long set in and fizzled out, and Roosevelt wisely feared that the domestic economy’s growth prospects of the day might be hampered by such an onerous weight around the neck of what was something at best hyper fragile. He chose to partly unpeg the precious metal from the dollar, fixing it at $35 per ounce.

In 1971, on August 5, nearly a century after the strange debacles of the industrial revolution had caused surging unemployment and rising productivity side-by-side in the days of President Grant, the task fell to President Richard Nixon to abolish the gold standard altogether. It was still just thirty-five bucks an ounce.

Immediately afterwards, unemployment rose, to around 8%, but so did inflation, driving down the value of the dollar and creating hellish social conditions as a result. Meanwhile, the price of gold, now available to buy in the midst of a fear-stricken market economy, skyrocketed to $850 per ounce.

This financial deadlock that the U.S. found itself stuck in was in many ways the reverse crisis of the half-decade of the 1870s: wages kept getting higher and higher, and in turn the money supply was getting sucked up as prices exploded. Productivity all but fizzled out. You could forget about innovation altogether — people were practically living on the streets.

Fast-forward in time to 1980. Ronald Reagan’s brand of hard-hitting deregulation took the wind out of the sails of the gold price, which came back down to earth, while stock markets surged and wages increased.

Employment sprung up from the midst of the economy like water from a high-pressure tap that’s turned on right to full. From 1982 to 1987, the United States added 18.7 million jobs, the highest ever in a comparable time period. Unemployment, which fell to just over 5%, was the lowest it had been in 15 years.

As a result of all this, the stock market during the 1980s tripled in value, after a decade of barely moving a tick.

The United States is the world’s leading laboratory of economic social experimentation. It has given rise to two separate scientifically generated economic mega-cycles within a century and a half: first, the industrial revolution, and more recently, the technological revolution.

Every time it does so, it harnesses power and bleeds a little of it away at the same time as it experiments with just the perfect policy mix to foster innovation and growth. Because every world’s economy is in some way powerfully tied to the progress or decline of the United States, the impacts of its legislative and economic changes are felt in every country around the world.

Over the years, it’s fair to say that economic conditions have steadily gotten more stable, while exogenous shocks created by speculators have become less threatening. You don’t feel it every time a hedge fund collapses, whereas you most certainly would have if one of the country’s biggest sea merchants were washed ashore with all its homeward-bound loot back in 1814.

But that has come at a steep cost, one that has in effect been ongoing since the introduction of the gold standard in 1879. The cost of stability has been increased regulation. That is to say: more rules. And more supervision to enforce the increased number of rules.

With the gradually rising tide of rule-based economics came a kind of hyper-centralization of power at the expense of the sort of free market capitalism that once spurred an economy into an unprecedented state of innovation.

An institutionalization of cultural values set in firmly during the 1950’s-1980’s, even as the technological revolution began to sprout up in its midst, calling out for a shift back towards pre-Roosevelt era economics.

The sweeping progress of regulation and centralized governance was a hard nut to crack once it was put in place, however. So much so that it ended up cracking all the other nuts once it got a little fire in its belly.

Thus, instead of passively guiding economic policy in accordance with the principle market actors, as central bankers were originally supposed to, during the era of President Clinton administration Federal Reserve Chairman Alan Greenspan effectively began to speculate on the likely outcomes of various policy implementations that he took in accordance with the executive office.

Essentially, Greenspan bet big on the direction of market behavior, no differently to the way a day trader sizes up a series of stock positions. Figuring that low interest rates prolonged over decades would not lead to irresponsible borrowing but rather, to a sort of self-regulation that would in turn guide more prosperity and responsible lending, he would tweak U.S. borrowing rates very slightly depending upon the financial quarter, always trimming them back when they crept a certain amount higher than their one-year average increase.

Since policymakers had become investment bankers all of a sudden, corporations began to treat them as such, pitching them lucrative lobbying and special interest contracts like red-hot IPO deals.

This strange private-public hybrid, all held in place by a series of laws and rules which permitted huge personal self-enrichment while holding government office at the expense of objective policymaking, was ultimately sold to the public as the best possible means of ensuring ongoing economic stability.

Which was a little boring, but most people went along with it. Then, the economy blew up in 2008. People were turfed out of their homes onto the streets by burly private security contractors, while those who had worked for the past 40 years and diligently plied their savings into their stock portfolios every month found their retirements in jeopardy, or at the very least, delayed indefinitely.

Instead of breaking tradition with hyper-centralized policymaking, however, the newly-elected President Barack Obama did the opposite: he latched onto the side of the broken banks, automakers, insurers and health care providers. He firmly bolted the fate of himself and his government to America’s corporations, buying them up and regulating them to the maximum.

This suited the modern Democrat political agenda, which longed for something of the taste of the Clinton days again.

Americans got promised change, but in fact they got much more of the same: increased centralization and the restoration and rebuilding of economic regulatory order. (Like I say, centralization is a hard nut to crack. It’s made of something much more resilient than gold, that’s for sure.)

But the economic crack had created an opening, a chasm in a system wherein there was something much more powerful building up. The United States was now connected up with two huge, socialists outposts: China and Russia. Much like North Americans, Chinese and Russian citizens were weary of the expanding centralized order dominating their daily lives. They were more interested in making personal connections and impacts upon the world in which they lived.

Instead of allowing for free-market economics to take its course and to push productivity into overdrive around the money supply, however, as Ulysses S. Grant had done in 1873, Obama rigidly held the free-market animal in his grip even as it roared and clapped its jaws around his hands and wrists in an attempt to break free. Attempts to snoop on Americans’ every-day phone calls in the name of security and a zealous desire to prosecute would-be do-gooders around the world such as Julian Assange and CIA whistle-blower Edward Snowden only fuelled the anger of an increasingly disaffected public which had found fellow sympathizers all over the world, in communist tyrannies. As with most new alliances, the personal bonds created between minds strengthened the resolve of those who lay outside mainstream economic participation.

The fact was, in some ways the White House should have seen this coming, given that the Democrats put technology’s network evolution in play a decade ago. Technology had long gone from being an obscure science to being something that now embodied an innate and unique set of creative possibilities and functions, and those effects were widespread and varied enough to catch on when given the impetus and means to do so.

Thus, in the midst of this last desperate attempt to micro-supervise the populace while macro-centralizing the financial system, the animus at the center of a new global libertarian order gnawed hard until it ripped the chain off its neck and ran into the codified underworld to initiate its own monetary order.

Governments today do not function as slimmed-down policy guidance councils, the way they did at the turn of the century. That’s why bitcoin sprouted a venture capital movement all on its own, despite government help, as opposed to with its backing.

The monetary agenda of governments today, big and small, all over the world, is total control. This micromanagement of the global fiscal and social policy agenda is the single approach that more than any other, threatens to erode the superior status of the sovereign superpower more than anything else.

1.3 Byzantine General's Problem

Given that the Wikileaks was receiving millions of pageviews a day by the end of 2010, and that Satoshi’s currency was still worth just 10 cents per bitcoin, one would have assumed that he would be highly agreeable to seeing the news that Wikileaks was openly accepting donations in bitcoin after receiving a flood of inquiries to that affect.

But Satoshi Nakomoto, the anonymous programmer — or, some now speculated, consortium of programmers working together under a single assumed identity — was if anything, disappointed by all the attention. Most of all, Satoshi seems to have feared that the association of bitcoin with an operation such as that of Wikileaks would jeopardize the future survival of the currency which was just then beginning to gain something of a cult adoption online.

“It would have been nice to get this attention in any other context (rather than being associated with WikiLeaks). WikiLeaks has kicked the hornet’s nest, and the swarm is headed towards us,” fretted Satoshi, as the attention began to reach the outer edges of the mainstream media sites.

In an uncharacteristically demonstration of something bordering on hysteria, Satoshi even appealed to the founders of the covert news organization to stop the giving his innovation all the free advertising: “No, don’t bring it on.” He wrote: “The project needs to grow gradually so the software can be strengthened along the way. I make this appeal to WikiLeaks not to try to use Bitcoin. Bitcoin is a small beta community in its infancy. You would not stand to get more than pocket change, and the heat you would bring would likely destroy us at this stage.”

Satoshi was learning the first lesson of free-market economics: it doesn’t matter whether a commodity is “ready” or not for adoption: if its purpose fills a potential role, then more often than not, it will gravitate to the point of center of the fulfillment of that goal. Immediately.

This is why central banks, regulators and segregated types of market actors have gradually been introduced to the global financial system over the past century: for the most part because otherwise, stocks would climb irrationally high (indeed, they already do despite the involvement of mediating parties), sovereign currencies would zigzag against one another in value (as do those of venture currencies aside sovereign ones, although not against one another, as we shall see later) and commercial financing with stable interest rates would be all but impossible to come by.

Simply put, a market economy is rational only towards the objective of fulfilling its immediate requirements, not towards attending to its overall, long-term necessities. If people can realize a 100% return today right away at the potential expense of the company, as opposed to a 1000% return in five years to the benefit of its employees and customers, they will much more often pick the first option. Speculation and spending always prefers close-range action. That, after all, is how the subprime crisis got going.

But donations on a mass-scale to Wikileaks didn’t collapse bitcoin’s functionality or its value as Satoshi feared, nor did bitcoin get its plug pulled out from the wall by regulators, who were on the contrary, powerless to stop it and more than a little surprised by its ascending influence.

Instead, over the following 3 months, bitcoin posted its largest-ever quarterly gain. By the end of February 2011, one bitcoin had reached price parity with the U.S. dollar. By June the same year, even after the currency experienced another potentially destabilizing event in the form of a flash-crash on the (back then, only) public exchange server at Mt. Gox, where it was bought and sold, bitcoin was going for $17.50.

The massive increase in value despite the technological flaws inherent in the product and its surrounding architecture served as the first indication that financially, the currency was a viable long-term harbor and converter of economic value. Simply, its easily-transferable, low-cost characteristics clearly made it preferable to a sovereign-issued alternative for payment, at least by a growing niche of adopters for a certain specific sort of payment.

It is hard to overstate the significance of this. That the currency might be appealing from a purely speculative standpoint is nothing new: after all, there are always gamblers in the global capital markets willing to take a risk on something untested on the basis that they might make an outsize return even if the potential downside is that they might also lose the entirety of their investment.

But the Wikileaks payments, which amounted to several million dollars, showed that a large number of bitcoin’s holders were using the currency for payment. The requests to Wikileaks to accept bitcoin as payment meant that a wide number of people actually chose to hold bitcoin in a serious quantity before they chose to hold their own sovereign currencies or even before they chose to hold stock of publicly-traded companies, both of which were far more reliable an investment and much easier to obtain at the time than was bitcoin. Something was shifting in the economic geology of the global market place.

The resilience of the currency’s price in the aftermath of the Mt. Gox flash crash indicated that rather than be the cause of over-buying or over-selling, the exchange’s servers were merely experiencing growing pains as a result of the increased volumes that had been accumulating steadily on both sides of the fence.

This early confidence that bitcoin’s owners accorded it seems to have attracted another group of buyers who were interested in using it for the same purposes — in other words, for making fast, easy, cheap payments for goods online.

All the evidence indicates that the gains in the period of December 2010 — mid-2011 were very likely then the result of this early adoption of the currency as a payment mechanism, rather than as a tool of speculative value, which was a later event.

Satoshi should have been popping the champagne cork open. For instead of instantly getting mauled in a thirst for sudden liquidity the minute it rose substantially in value, new units of the currency were being steadily generated into the market of owners who were snapping them up and sending them about the internet. Many stocks cannot experience more than five-fold gains over a period of one year before collapsing in value. The same is true of numerous other assets.

Bitcoin had risen nearly 200 times in value, had experienced a temporary blip in accessibility (in the Mt. Gox flash crash), and still showed signs of accumulating price stability even as it rose further all within less than 9 months. If you ask a market professional specializing in any other asset class to give you a comparable example without a price correction following more or less immediately they would be completely stumped.

Then there was the fact that despite having been embroiled in the Wikileaks scandal, it nevertheless had regulatory authorities completely so stumped and bewildered what to do or how to legally blunt its use that instead no one did anything. Rather than become the short-term arbiters of the currency’s fate, as market economics would commonly dictate in such a cross-section of events, it was instead a phenomenal achievement and a crucial early feather in the cap for bitcoin’s chances of long-term survival.

In addition to the fact that it defied what are common economic realities, the growth of bitcoin in its first years was a sign that the currency was indeed serving a type of purpose that its sovereign cousin was at the time neglecting or simply unable to. Instead of flooding towards purchases of HD TVs and iMacs, it seemed to be serving pockets of innovation and disruption, funding projects and initiatives either directly or indirectly that challenged the existing status quo of a particular industry convention, especially in the case where providing solutions to media and political governance practice had for a long time begun to stagnate (such as in the case of providing the bulk of donations to Wikileaks for its radical whistleblowing news service, which was simultaneously being given the cold shoulder by mainstream publications such as The New York Times and The Guardian after having initially entered into content syndication agreements with both).

Indeed — servicing innovation was the centrifugal spark that was lighting the innovative fire underneath the coals of the currency’s rapidly heating up price ascension against the dollar. For soon, a number of other copycat venture currencies such as Litecoin and Peercoin would come into being, all containing slight modifications and variations of the original bitcoin source code that were designed with specific purposes and alternate adopters in mind.

The innovative breakthrough as far as bitcoin as a peer-to-peer currency is concerned is in its solution to something known as the Byzantine Generals Problem. While Satoshi and other programmers have gone into great detail about the variations of this problem and its methods of being solved, suffice it to say that it is a problem, which has to do with the question of how to prevent counterfeit bitcoin. Counterfeit money is and inevitable and primary problem associated with establishing a currency, of course, especially with one such as bitcoin, which has no physical uniqueness to determine visually whether it is real or not.

The solution that Satoshi came up with to the Byzantine Generals Problem was, in a nutshell, to organize the network so that multiple numbers of “miners” — those who minted the digital currency units with computer hardware in order to sell them for profit — would have to validate every single miners’ newly-produced unit of currency. What is more, this validation process was fixed in computer code, so there was no possibility of miners conspiring to counterfeit units in an under-the-table collective bargaining agreement. Because bitcoin is all part of one great code, it is impossible for a single bitcoin to be counterfeit and accepted by a fellow miner, mathematically speaking.

In other words, the computer did the mathematics to create new currency units; while other miners had to do the processing to make sure that the mathematics was in accordance with the mathematics they had done themselves when minting the currency.

It was nothing short of genius, and it was for this realization foremost among any other that bitcoin — and its copy-cat venture currency counterparts — were rewarded early on with having a sustainable and genuine component of value. For if it was harder to counterfeit a bitcoin than it was to counterfeit a dollar, and if bitcoin was inherently deflationary versus a dollar market which had just been expanded several-fold as a result of government intervention in financial markets in recent years, then it stood to bear that one bitcoin was indeed worth more than one dollar. In fact, it was common sense.

By design, bitcoin’s environment is the antithesis of the modern monetary system that governments have painstakingly set out to build over past two decades in the era of highly identifiable electronic market transactions as an attempt to crack down on money laundering schemes. And yet at the same time it harnesses the most disruptive aspects of the global banking system in order to achieve this distinction while embracing a holistic transparency that is highly appealing. It is this combination that in part made bitcoin so pervasive so fast.

For a start, bitcoin is a peer-to-peer payment mechanism, meaning there is no middleman involved in broking the transfer between parties, and as such there are no transaction cost associated with moving it about. That in itself is disruptive to banking.

Then there is the fact that bitcoin itself doesn’t really exist at all: the only proof of it being held in a digital wallet where it resides as property of its owner is when it is moved about. A long, complex series of numbers, the results of irreversible and unalterable equations produced at the point when every block of 25 bitcoins is produced, or “mined”, by powerful computer hardware, represent the components of these various transactions between peers.

These computer codes together form something called the blockchain, and every bitcoin’s unique code must match up to its particular place in the equation there in order to determine its authenticity. Bitcoin miners, who run the computer hardware to generate new bitcoins for profit, are responsible for validating every code that is transacted. That of course means that bitcoin is completely dependent on its miners for the currency to have any peer-to-peer value at all, since if everyone stopped mining bitcoin tomorrow, no one would be there to validate the codes when a user sends a payment.

For the moment, the miners are content to mine new bitcoins and perform this service for free. But mining as an activity gets exponentially harder the more bitcoins are mined, and there are only ever 21 million of the coins that will be produced, supposedly by around 2040. What happens when the bitcoins all get mined, then? How will these authenticators get paid then? Simple: by that time, posited Satoshi, the miners will begin charging transaction fees for the process of validating peer-to-peer payments. It’s a truly free-market system in that sense, leaving the market itself to regulate its own activities and decide upon the appropriate price points as it evolves.

Ironically, that was exactly Fed Chairman Alan Greenspan’s same approach with leaving interest rates so low throughout the 1990s. He figured that market economies worked in their own best interests the majority of the time and as such were best left alone. The potential consequences of this type of free-market self-governance for bitcoin we will look at later in the book.

For now, imagine the block chain as one giant mathematical equation constantly being solved by millions of computer hard drives all over the world, which in turn produces more bitcoins, and think of all the individual peer-to-peer transactions as little chunks of the sum of that long equation in what appear to be individual SWIFT codes. And that is pretty much what a bitcoin is: essentially, it’s a SWIFT code that most previously delivered it into the account where it resides without being the monetary unit itself.

For those who had tired of the order of an establishment that had become morally, intellectually, politically, and now monetarily, obsolete, the broader socio-economic potential of bitcoin’s innovative spring was nothing short of the great leap forward that their ancestors had once made in the 1800’s. It’s important to engage the political perspective that combined to create the reality of this new money in order to grasp the core consequences of its utility.

Despite his reticence about users sending the currency to Wikileaks as a form of donation towards Assange’s rising legal costs spent fighting the U.S. government on appeal of a classically bogus rape charge, many of the insights and messages that Satoshi shared with bitcoin’s community boil to the top with an unmistakable hyper-libertarian, anti-establishment zealotry. They also display the ideas of someone — of some group — that was very aware of the global context of economic development, not just the technical implications of cryptographic encoding as far as financial systems were concerned.

His observations about the central properties of currency hit a root nerve that few in the financial world are daring enough to acknowledge: I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something.

Indeed, people tend to adopt currencies where there is some sort of inherent end-user value there, depending on the community in which they are serving. This is, after all, why the U.S. dollar itself is so powerful: almost everyone in the world wants to come to America, given the opportunity to do so (even though they may not admit it). That fact alone gives the dollar so much global value.

By coming up with bitcoin, Satoshi was able to recognize two things about the evolving global marketplace that would inherently give a new unit of easily transferrable currency value regardless of its ultimate properties just so long as it was mobile and secure. His first insight was to recognise that everyone in the world wants money for more or less the same end-purpose today: to pay the rent, to buy a car, to feed their kids, and so forth. Prior to the opening up of the world’s largest emerging markets, this was not necessarily assumed to be the case. Many farmers merely wanted a more abundant crop-season: they could not imagine wanting the sorts of material items such as an iPhone that their grandchildren in Shanghai today covet.

Secondly, he recognised that while this newly-widened base of middle class consumers continued to blossom, their means of establishing the sort of wealth that could ultimately purchase them these sorts of goods were likely to at some level require a form of innovation, or at least, initiative. And innovation, at its core, is scarce without having any sort of intrinsic value.

It is often remarked upon how much choice millennial consumers have over ones of previous generations. Part of the consequence of this increased choice is that the concept of job stability and a permanent physical community are rapidly disappearing. As a result, consumers’ worlds are becoming inherently more self-sufficient, at least on the level that requires them to make more complex decisions earlier on about their choices. No longer is it so common for example for a child anywhere in the world to rely on the basis of what one’s parents do to influence seriously their own career decisions. This is only recent: less than fifty years ago over 75% of middle-class Americans followed in one of their parents’ footsteps professionally.

Thus, in a world where increasing numbers of people are interacting with one another collectively while making ever-more individual choices and decisions for themselves, there is an enormous variation of decision-making going on in order to achieve what are essentially the same end-goals.

In such an environment, a currency is merely a means-to-an-end, as opposed to the means itself. This conceptual recognition of the changing function of monetary service was a crucial insight of Satoshi’s that before he came along, went either unnoticed or denied as being outlandish by mainstream economists.

It’s also clear that Satoshi understood a great deal about liquidity constraints and the dangers they posed on an environment of intense innovation. In one comment he refers to the actions of the Hunt brothers, two silver traders who got caught out in 1980 when they attempted to buy so much silver that short-sellers spotted an opportunity to make money when they realized that the brothers were buying much of the commodity on margin and could not possibly reduce the extent of their holding fast enough if the price collapsed, given the exorbitant amount that they held.

Given these sorts of considerations, and the deeply contemptuous suspicions that he held for government authorities, Satoshi seems to have gone deliberately out of his way to have designed a currency unit that was at once low-key (he discouraged immediate promotion of the currency, at least at first), well-secured, and below-the-radar of most peer-to-peer networks. This was all engineered to comply with an overriding political standpoint, as he explains in one of his final messages to the public: Yes, (we will not find a solution to political problems in cryptography), but we can win a major battle in the arms race and gain a new territory of freedom for several years. Governments are good at cutting off the heads of a centrally controlled network like Napster, but pure P2P networks like Gnutella and Tor seem to be holding their own.

All of a sudden, and virtually overnight, swarms of people accustomed to the stangnant 5% returns of a stock market found themselves rich beyond their wildest dreams, the direct beneficiaries of Satoshi’s community bail out thrown to the feeding frenzy of the global capital markets.

When in the last quarter of 2013 bitcoin went to $1000, reddit, an online forum popular with bitcoin fans, featured prominently one by a self-acclaimed bitcoin millionaire. “with today’s rise in bitcoin I’m officially a millionaire,” wrote the author, forgetting to punctuate his sentence in the excitement of the moment.

“I’m gonna cash out over the next 30 days. I’ll keep 50 % in bitcoin gold and silver for long-term and the remaining 50 % for a house and vanguard. Thank you bitcoin! You changed my life.”

How was this new currency changing so many lives, however? Until now, no one has yet attempted to answer this question.

1.4 Knowledge & Capital

One of the most satisfying things that I hear said about the Monkey Initial Coin Offering (ICO) experience is how educational it’s been to those who have partaken in it. After all, inasmuch as it is potentially an extremely profitable business opportunity, Blockchain represents much more than mere windfall profits. Mostly, since it is so new still, it’s a chance to learn, first hand and up-close, just how an entire industry evolves. Not just that, but it’s also the chance to meaningfully take part in the evolution of that industry at the same time as you are learning. That Monkey is doing both these things makes me feel it’s all worth it, especially on the days when hell and high water are coming close to the shoreline.

If participating in Monkey’s wild ICO ride has been educational for those who have come to it with merely the expectation of flipping a token, imagine what it has been like for the one who wrote a white paper in June in the hope that someone might take pay a passing interest in the value configuration models offered within. Hosting Monkey has been a massively educational experience personally and professionally for me. It has brought me into contact with a wider range of extremely smart people of all ages, backgrounds and skill-sets than I have encountered since perhaps the days when I lived in New York City, during my second Master’s degree.

I think it is quite often assumed that because I love knowledge and prioritise it very often over capital, that I don’t have an interest in making money. Of course, this is not the case. I love making money. I am, after all, an entrepreneur. That’s what is in our DNA – the drive to make a serious, game-changing amount of money. But as someone who loves making money, and who happens to be pretty skilled at doing it these days, it must be said, I have come over the years to learn an important truth with respect to the art of creating millions of dollars of capital wealth. That truth is as follows: while money is always available to be made and is pretty much the same whenever you make it, the process whereby knowledge is accumulated and applied has vastly different outcome.

When it comes to engaging knowledge in commercial combat, timing is like else but dramatic in orientation; you’ll capture an entire theatre of ADHD teenagers if you get it right, but only a handful of weary housewives coming home from school car pools if you don’t. Of all the lessons I have learned, this is perhaps the most fundamental one of all. For depending on the time you acquire and apply practically a given piece of knowledge, the outcome of your circumstances is likely to vary hugely. If you knew how to develop a website in 1995, that was a very different story to knowing the same thing in 2005.

Capital accumulation in and of itself however is not time-sensitive, and therefore requires less importance than society places upon it. Having money in 1999 vs. 2005 merely meant that you were most likely investing in internet stocks as opposed to west coast housing projects, both of which would meet dire ends within a couple of years anyway. What I mean is, there was no socially-significant differential variable in having money in either decade (nor, indeed, is there in the present one, either) – in all cases, having it just means your chances of making more of it or of losing more of it are increased.

In other words, capital accumulation is a means by which the means is the end in and of itself. With knowledge, the means becomes the driving force behind propelling real opportunity into effect. By doing so, you can engineer the most advantageous, and even unrealistic-sounding outcomes.

Building websites in 1995 made Marc Andreessen, then a scruffy San Francisco 20-something, the owner of multi-million dollar giant Netscape, which kicked off the dot com boom (a cultural revolution in and of itself); Jerry Yang, who possessed the same knowledge, created a sizeable empire in establishing Yahoo! on a near-identical basis; Jeff Bezos and the guys at Amazon fared pretty well, too.

Fast-forward to 2001, and you will find the game was more competitive already. Google’s co-founders emerged in the aftermath of the dot com crash, and look how much more knowledge they were required to bring to the table to get a seat at it. Instead of just a website with some cool-sounding buzzwords representing revenue potential, by then it was necessary to have something of substantial scientific substance to bring online, in their case a massively complex and uniquely-tailored search engine algorithm the likes of which it took two combined PhD theses to develop.

My point is that if you love making a large amount of money, then forget about the capital you have right now, or need tomorrow to start your next initiative. That’s completely besides the point. It’s a Red Herring. It doesn’t matter what you have now, or don’t have now. All that matters is that the timing of the knowledge – and by association, the application of the skill-sets – that you possess is being correctly and efficiently applied to a given task. If this is the case, you will create millions of dollars of wealth out of thin air.

This was the case with Monkey. With an initial investment of $2,000, which purchased me a headline Platinum Listing status on ICO promotions website CoinSchedule.com, I was able to utilise a wealth of theory on Blockchain value configurations I had spent weeks – months – labouring over in private and a combination of aggressive charm and proactive intelligence to launch Monkey into the multi-million – and soon-to-be, multi-billion – empire it has fast become in what was actually just a couple weeks.

I have never needed to worry about funding the project as frankly, it was completely self-financing by the second week of operations. By its fourth week up-and-running, the project was throwing off so much cash that we were able to purchase Monkey.com for a 6-figure sum and were busy building our own digital asset exchange into the back of it. In this way, Monkey is testament to how knowledge today of how a Value Coeval works can multiply your means of making money in a fraction of the time it takes ordinarily or without possession of such knowledge.

Quite simply, I applied my own theory to a project, and it worked just as expected. If you want to make money, it’s worth paying attention to what a Value Coeval is, because it’s the kind of time-sensitive knowledge proposition the proposition that has that multiplier effect built into it. Understanding a Value Coeval is that fundamental a source of Blockchain’s capital-essence that it demands comprehension, by entrepreneurs everywhere, at least at the most fundamental of levels.

Because that is what we who are engaging in Blockchain economics are on – a roundabout of equivalent value configurations, where costs are equivalent, knowledge application is constant, and returns are exponential. It’s what will make Monkey and a number of other similar companies household names over the next decade. This is nothing less than the era of coeval value.

1.5 The Value Coeval

The Blockchain maybe the first instance in which cooperation – as opposed to competition – is truly engaged as a value configurative process. One of the core tenants of value is that it is configured according to a competitive paradigm.

This has been the general consensus of the business community since Michael Porter published Competitive Advantage in 1985, in which he sought to define the core form of value creation down to its first principles in his modelling of the Value Chain: “Competitive advantage grows fundamentally out of value a firm is able to create for its buyers that exceeds the firm’s cost of creating it,” Porter wrote.

In 1999, two Norweigan academics, Oeystein Fjellstad and Charles Stabell modelled two alternate forms of value configuration, with the modelling of a Value Shop and a Value Network.

In the case of these two paradigms, what was striking – though somewhat overlooked at the time – was that the processes of knowledge-sharing and network-overlapping in reality indicated a less competitive framework for management creation of value.

For example, in the case of a Value Shop, a consulting firm built into the fabric of an accountancy firm (Arthur Anderson) or a hardware developer (IBM Consulting) was a natural value-overlap which did not correspond to a traditionally vertically-integrated management process (since there was no industry vertical being annexed here):

In the case of a Value Network, one or more networks could easily overlap to bring many more users into contact with one another, as has been the case recently with the evolution of social networks (where a new network will accept users to log in to their network via a larger incumbent, such as is the case with Medium, a social blogging network, and its acceptance of Twitter and/or Facebook sign-ins):

The divergence from markets of competitive to markets of cooperative customer acquisition is undeniable. What has been less clear up until now is how value is created via a legal, paradigmatic cooperative advantage. The Blockchain, by integrating all three Value Configurations, may be the first example of a real revolution in how markets evolve from competitive to cooperative status.

 

While the Blockchain is clearly a Value Network by design, via utilizing a knowledge- intensive process (i.e. solving an equation with supercomputers) to create a unit of tradeable value (a Bitcoin, Ethereum, Ripple etc.), it is similarly a Value Shop and a Value Chain at the same point in time. We might call this new Value paradigm a Value Coeval, in that it concurrently and progressively interconnects all three value configurations to produce a rather unrecognizable form of value.

1.6 The Bitcoin Blockchain As A Value Coeval

Bitcoin’s Blockchain can be viewed as a “closed” Value Coeval, in that the process whereby it creates and delivers value to its end-users is both tight-knit and simplistic from a inbound- outbound logistical delivery process: a unit of value is created on the network via the correct calculation of an equation, after which it is delivered to a “miner” of units. A bitcoin in other words, can be said to possess a core form of “Network Value”.

1.7 The Ethereum Blockchain As A Value Coeval

In the case of Ethereum, and by association other token-based units of digital value storage, the value creation process is more complex. Specifically, the value configurations herein are expounded, with the network still functioning as the core engineer of value, but with the “chain” (inbound/outbound logistics) aspects of the value configuration being distinctly enhanced to integrate alternate forms of value:

 

An ERC-20 compliant token is a token that runs off Ethereum’s network protocol, and which is modelled on Bitocoin’s network protocol and run off a separate Blockchain of its own. An ERC-20 token possesses both Network Value and potential Securitized Value via means of its employment of “smart contracts” that allow escrow-style facilities to be optimized and engaged.

 

Ethereum was developed as a result of Bitcoin’s blockchain; ERC-20 tokens (launched as “ICOs”) are run off Ethereum’s network. There are now nearly 800 virtual coins and tokens available, all tradeable with one another in value chain style dynamics. The evolutionary trajectory since Michael Porter’s modelling of the value chain is clear: value has gone from being supply-chain based, to knowledge and network-based, to what it is evolving into as a result of Blockchain-enabled networks: supply-chain, knowledge-intensive and network- based simultaneously, or coeval.

 

Due to the inherent knowledge/network functionality of the Blockchain, this coeval value appears, rather than being competitively positioned by design, to be one that thrives off cooperative management process. At the same time, competitive positioning of the technology’s value attributes is alive and kicking, with units of digital value all trading against one another on multiple exchanges across the world.

 

In this way, the Blockchain appears be the first example of a cooperative value configuration working in markets of perfect competition.

1.8 The Age of Factory Banking

Probably the most overlooked question in the field of digital assets todays is:  What is a token?

First of all, a utility token is distinct from a share, nor is it currency exactly. It is not money. It is rather a form of assigned value. This form of value when digitally-assigned without promises is known as a cryptocurrency.

There is a big difference between money and value. It is possible to have negative money and positive value, as anyone with margin on securities or mortgages on property will be able to tell you.

The reason someone might hold these two apparently contradictory stances is clear: the holder believes that the value held will over time appreciate at a significantly accelerated rate against the negative cash position assumed on the other side of their personal balance sheet. Historically, this is a smart position to assume.

As examples from the stock markets have shown, over the long term, value trumps money by an outstanding rate of increase. A cryptocurrency, in its purest form, is not a security either, nor any other form of asset which has been made readily available to a commercial investing public. It makes no promise, bears no dividends, and has no intrinsic value property associated with it other than the utilizable value property of the underlying network.

A cryptocurrency is a blank canvas when it comes to value – you can paint on its face whatever picture you wish. A security, by contrast, has a very fixed definition of value: specifically, it is a claim on the assets or earnings of an incorporated entity.

A token has no such ability to restrict value, but neither does it contain these restrictions in terms of value, either.

The fact that there is no intrinsic value to a token is among the token’s strongest and weakest characteristics. On the one hand, there is no basis for sensible or rational valuation analysis. On the other hand however, because of the inherently unfixed properties of its unitized value, there is a whole range of value attributes that can be built into it, and virtually no limit as to the extent of depth or breadth of value that can be applied, either.

This latter aspect to the token – that it is essentially a blank sheet – is what has drawn a large majority of Millennial-generation individuals into the digital asset scene. Simply, for over 20 years, inflation has been growing at a substantially higher rate than has wage growth in most of the world. At the same time, the number of jobs available to the average skilled worker has been falling.

Combined with the effect of a much higher rise in education relative to the previous population-heavy generation, the Baby Boomer’s; the Millennial generation is one that is smarter, worse off financially and less in demand corporately than any generation in history. The effect of this has been that upon leaving University, most people today cannot afford to rent a condominium without some form of parental financial assistance, let alone purchase their own, while they remain underpaid relative to their cost of living, or simply unemployed, for long periods of time.

Naturally, a generation that harbours more intellectual ability and arguably, a much higher ratio of creative and scientific talent than any that has come before, is not likely to willingly accept such a status quo before seeking solutions elsewhere.

Thus, as increasing numbers of digital assets followed the launch of Bitcoin in 2011, and digital forms of financing became more possible via the introduction of crowdfunding, it was predominantly this population that began to ascribe its own form of innovative, growth-oriented value to concepts that are entirely foreign to all other generations that precede them.

The reason that the concepts of value inherent in the token are foreign to almost everyone except this core group of underpaid, overeducated talent is because the circumstances in which this group finds itself are entirely unique.

For despite more education, more creative ability and access to much more efficient and intelligent scientific resources than any other population in history, most find themselves in financial difficulty and lacking in demand of commercial opportunity or employment on a regular basis.

The token is the population’s response to such circumstances: it is the blank canvas upon which creative, technological and educated classes – whatever their financial or local social status may be – drew themselves towards in finding a new form of value.

Naturally, the token, being the response to this generation’s social circumstances, is one which addresses the immediate requirements that such circumstances might entail.

Specifically: It generates significant returns over comparatively very short periods of time via harnessing the combined properties of all value configurations, and by being essentially a network device that continues to harness those properties perpetually. This fact enables large numbers of Millennial participants to join without endangering the chances of others’ success. This is unlike a housing or share market which due to the limitation of its rules and structural constraints, quickly overheats.

Trading operates 24-hours a day, and does not favor one geography or region. While today this is a relatively obvious concept, it is only so for Millennial generation participants – trading is considered work by most other generations, and as such, not for the evening. This antiquated definition of work began disappearing as companies stopped providing the same level of commitment and loyalty to the individuals they employed.

Value and functionality are flexible and easily built into a token, with multiple technological adaptions made possible. Partly due to this, the token is a unit that can be passed freely over borders in digital format, an essential characteristic for a generation that is largely interconnected by focus group, interest and/or physical.

Since 1450, we have experienced 3 economic revolutions: the commercial revolution of 1450-1750, the industrial revolution of 1750-1950, and now, the technological revolution, which will phase into a biological revolution in about 30 years, briefly, before transitioning into an intelligence revolution:

For this to happen, processes must be highly connected, they must be automated, secure, and must be adaptive to extreme velocities. Only the Blockchain configuration has the potential to manage such a commercial transition – simply, any other method of financing growth that we have tried up until now would crumble in an environment wherein 2 more major paradigmatically-serious economic revolutions will come about in less than a century from today.

Each revolution has its own form of banking, characterizing its method of making sweeping changes. Factory Banking is so labelled because of the unique way in which the value issuance and cashier technology – the Blockchain – is also a factory of value.

Before this point, manufacturing has always happened separately to sales and marketing (one comes before the other). In Factory Banking, the Blockchain makes the process simultaneous through instant automation – at the same time as the mining process is happening, a value configuration of the Blockchain is ascribing automatic market demand to the resultant product.

 

Since the development and launch of Ethereum and ERC-20 compliant tokens, over $600m have been raised from Initial Coin Offerings (ICOs). Investors have noticed broad-based returns of 5-10x capital invested.

However, contrary to contemporary perception among new entrants to the digital asset market, this trend in successful, widely-crowdfunded ICOs is not confined to Ethereum’s network protocol. There were ICOs before Ethereum even existed, that took place on the Omni protocol, the Counterparty protocol.

The NXT asset exchange has been very active; up until 2014 Peershares also featured successful ICOs (NuShares and B&C exchange).

In fact, when considered in the context of recent history and of the overarching development timeline of the Blockchain more generally, the events of 2017 really amount to a second wave of ICO popularity that came to a halt temporarily during an aberration in the digital currency market from 2014-2016 after Bitcoin’s market value dropped about   % or so.

Up until 2014, NXT was spearheading the ICO market, with hosted issuances totalling more than $150m worth of tokens on what amounted to around $80m worth of NXT digital currency. To put things in perspective, this was at a time when Bitcoin was just $500. As a consequence of these and other factors (such as the natural exponential evolution of token utility among online users), post-2017 ICO popularity is not necessarily immediately ascribable to Ethereum’s protocol novelty, despite the ETH price increases being at least superficially ascribable to a certain renewed enthusiasm for digital assets.

Rather, I would seek to explain this latest wave of popularity in the token market as a more fundamental search effort for sustainable platform evolution and best-execution capability of the underlying technology being engaged in the process of the listing and wider utility and reliability of the functionality of the token as its own sui-generis asset class.

Despite the strength in the token market, offerings remain thin on management experience, business strategy and detailed execution timelines. In many cases, big-picture proclamations (e.g.  we want to be the world’s first decentralised bank remains the status quo sales pitch. Specifically, although smart contracts enable the payment of dividends, this feature is redundant as it essentially just transplants a pure capital market process on the Blockchain, leaving a capital asset without any valuation mechanism, which is pointless.)

At the present moment there is an opportunity to offer tokens on the market over the forthcoming years that are not only benefitted by the rampant growth of the digital asset market as a whole, but furthermore by the current performance of the assets underlying cash flow positive supported ICO issuances, despite the sector’s failure on the whole. Before looking at how such a solution might be configured however, let’s pause to consider the principle concerns with the ICO landscape that have been observable in increasing frequency recently.

1.9 The Initial Coin Offering Phenomenon

Initial Coin Offerings, or ICOs, are the new fad of the digital asset space. However much securities regulators might caution the token’s potentially securitised status, if applied correctly, a clear chasm of difference lies between a security and a token which is traded on the Blockchain. I have pointed out before now a number of differences with respect to a security and a token. To recap:

A security represents a fixed form of value only: asset value, income value, or some sort of derivative thereof whereas a token can represent any sort of value-utility construct

Whereas a security is a capital markets instrument, its utility being only ever the value inherent in it, a token may have other forms of utility

The token presents an infinity paradox that a security does not; whereas a security is value-utility, a token, being in effect utility-value, distinguishes itself apart from a security by binding the securitised nature of financial product offerings on the Blockchain in an apparently never-ending circle wherein the final product is neither value nor utility. Clearly, if a token was a security this paradox would not exist; it would simply be value-utility

There has been some evidence lately in the form of official legal challenges to the notion that tokens are securities, both in case studies of publicised legal opinion by law firms representing ICO participants and also in the form of legal professionals writing on this subject in the main stream press.

Still, it is clear that the Securities & Exchange Commission is on the hunt for unregistered issuers of what might be deemed potential securities: Prostar, a celebrity/social media entertainment token issued by two tech developers in the United States, was voluntarily folded by the founders after the SEC warned that they may qualify as potential violators of financial services law. The case of Prostar was surprising for a couple of reasons; first, far from being an instrument of value-utility, the token in question appeared to have quite strong utility-oriented characteristics, being as it was a type of celebrity voting device and not in and of itself having much inherent value inbuilt in the model; second, the entrepreneurs, barely past adolescence, had only raised $50,000 in their ICO. What stuck about Prostar was centrally, it’s employment of a mechanism known as the Decentralised Autonomous Organisation (DAO).

The employment of DAO structures has been a hot topic for regulatory authorities who regard them as a potentially criminal violation of securities issuance law. A DAO is essentially a form of special purpose vehicle (SPV) that is established in a non-legally-structured format to avoid the process of management having any responsibility associated with cashflows raised for a specific project.

That is not the same thing as saying that management wants no control over the cashflows however, and herein is the problem with DAO structures – management wants full ownership rights over cashflows passed through DAO structures, but none of the hassle associated with the legal responsibility of managing it. Needless to say, this is a highly unsatisfactory position for both investors and government authorities alike: millions of dollars of people’s cash sat under the direct control of a few individuals who, if anything goes wrong, simply wash their hands of the problem and claim that the structure which they are employing is decentralised, and therefore, no one in particular’s responsibility at all.

When considered thus, it is clear by looking at the Prostar case that the SEC’s attempt was less concerned about the amount of money raised and more bound up instead with the process of ensuring some form of precedent was set whereby the founders of a structure employing DAO-structures took some form of ownership over its set-up.

The point was not to go after a case where big money was at stake, in other words, but something of precisely the opposite: to create ownership precedent of some form in a case where the money raised was so inconsiderable that fighting the Commission would seem like nothing other than sheer folly.

DAO structures are most certainly at the heart of legal disputes over the regulated/non-regulated status of ICOs, at least for now.

But it is my contention that this need not be the case at all, nor that it is in anyway an essential or even beneficial structure for ICOs to adopt. To be certain, the days of Crypto being an unregulated section of the financial services landscape will not last forever. Ultimately, there will surely be some form of regulatory oversight.

This is arguably much-needed, for despite the liberties enjoyed by those working check-and-balance-free, it is those liberties that are giving rise to so much social aggravation in the industry, whereby one party attempts to ruin another’s reputation based on nothing more than heresay and subjective opinion, or where a group of traders decide to attack the product or market of a competitor without exercising restraint over the extent of their actions. Still, until that day, digital assets remain in legal limbo, somewhere between cash, a security and an everyday consumer product (the regulation as it will be applied will probably be done so with these coordinates in mind, once it comes around).

DAO structures are not just an inefficient method of raising capital, they are legally an unnecessary extra risk. DAO structures require that a certain sum of money is raised for a project from the general public in the form of cash or cash-like assets such as Bitcoin, and that as it is raised it is placed in a specific wallet. A management team then administers the cash raised like any other management team raising capital by issuing equity, except, because the cash is raised via the DAO structure, none of the rules of accountability apply to such management executives. Clearly, this is neither a tenable or desirable case.

Since Monkey Capital – the precursor to Monkey – began its own ICO process in July 2017, I have assiduously avoided the employment of a DAO structure. In fact, in the original White Paper, I suggested an alternate structure to the DAO, that being a Value Coeval, so named after the namesake value configuration of the Blockchain I developed in 2014 as part of an early study of digital asset valuation.

Contrary to the DAO, the Value Coeval was designed not to bypass securities law, but to legally circumvent it by ascribing responsibility of ownership of the capital raised to a specific party. Thus, the Value Coeval had a third party which administered payments and receipts from the project to both management and investor alike.

A Russian copycat fund management set-up later employed this exact model and successfully managed to find a US legal firm to give them the all-clear on the structure’s non-security status. Actually, all I did was to employ a share-denominated Limited Partnership in place of the project’s “decentralised” structure, and in doing so I had in effect created a structure more decentralised and legally-viable than any other to date.

Thus, the employment of a potentially illegal form of fiduciary evasion is not prerequisite when it comes to raising capital for an ICO. However, neither is it necessary to raise capital in the way in which it is currently done either. Here, I am of course talking about the method of capital raising known popularly as the “Dutch Auction” method, where a project is made open for funding for a specific time period during which investors make contributions in coins and tokens and receive back (usually via smart contract) some form of alternate tokenised capital-utility.

Since the very start of my involvement with the ICO process, I have stood firmly in opposition to the Dutch Auction method of capital raising. That is because it is wholly-insufficient for project financing. For a start, no sort of valuation is predetermined about the project in advance when this kind of capital raising method is employed. This fact alone should be enough to deter even the more risk-prone of investors from contributing to such schemes, for if the managers of a project don’t understand how much their project is worth, how will they ever know the appropriate amount of capital (or as the case may be, capital-utility-value) to return the initial contributors participating in the Dutch Auction?

They cannot and thus all projections, plans and warranties made by the management must therefore be considered to be from the outset either false or negligent claims. Second, the Dutch Auction is open to considerable risk of theft. Time and again, Dutch Auction capital raises have shown themselves to involve some sort of successful or partially-successful attempt by hackers to access a wallet containing large sums of crypto in the form of would-be investor contributions.

Third, Dutch Auction raises are impractical from a capital markets listing standpoint. Specifically, either the project is listed at cash value following the raise, or any initial rise in the value of the tokens purchased at the ICO is likely to be followed by sharp sell-offs. There is no attempt whatsoever by those holding Dutch Auction raises to utilise the capital for business growth projections; rather, the emphasis seems to be on pilfering the coffers of the wallet at the ICO by the DAO-enabled unaccountable management team.

If all this begins to sound like pretty hair-raising stuff, that is because it is. Dutch Auction capital raises are a redundant way to go about value creation. Yet they are central to the employment of the DAO. This co-dependence of the DAO on the Dutch Auction method of raising capital (or on similar variants of it as proposed by Vitalik Buterin, which ultimately amount to the same end result) means that as long as ICOs are pushed in the direction of decentralised management structures or in the direction of glorified crowdfunding campaigns, the two are more or less inseparable unless either you register the token for sale as a security and employ the securities exemption act that Monkey Capital did during its ICO, or you develop a more sophisticated SPV-enabled centralised actively-managed value proposition to deliberately circumvent in a legal way the SEC securities regulations.

However, what if Dutch Auctions were not employed in ICOs at all? What if, instead of raising capital via a crowdfunded pre-project raise, a capital raise was conducted on market. It is my strong contention that this was the greatest discovery that Monkey made during the Summer 2017 ICO process, and the one for which throughout the month of August, its competitors tried their hardest to make it pay most dearly for.

 

The Blockchain market, encompassing all digital assets, is expected to grow by over 60% per year over the forthcoming 5 years, to a 2021 estimate of $2.3 billion (MarketsAndMarkets). Of this growth, a sizeable portion may be attributed to ICOs. Consider that there is around $110 billion in current market value, and there is approximately a 53x growth multiple on projected value. This is probably inflate by around 75% or so.

However, much of this inflation – maybe up to 90% of it – is probably equally a reflection not of market overpricing but inappropriately-directed market resources. For this reason, the contents of this paper are extremely important: how they are handled amounts to whether there will be another 2014-2017-style slump in the Blockchain development market, or whether continuous growth will be allowed to occur. If things stay as they are now, the former will happen. If we develop appropriate market-based solutions to the ICO process however, the next five years could see value increases in underlying Blockchain solutions up to the $10 billion level, which would justify market prices of tokens today.

During 2017, there has been reported an unusually exponential growth curve in the ICO market that is most likely false to a large extent. According to data provided by Smith+Crown, contributions to ICOs rose by almost 200% during the second quarter of 2017, to just under $120 million. Meanwhile however, the total number of ICO projects funded dropped by around 25%, to just 17 fully-funded token offerings.

This data is misleading to say the least. A literal reading of the numbers would result in the conclusion that in Q217 there were 17 projects that received an average funding amount of $7 million each, with the remainder receiving negligible amounts of capital. in the first quarter of the year the number of ICOs funded was approximately 23, with committed funds totalling $40 million, giving an average of $1.74 million per funded ICO.

Thus, while the amount of total funding for ICOs rose just 2 times over the next quarter, the average raise shot up 4 times in size. The problem with this is that as we have observed, the number of ICOs funded dropped commensurately by a quarter.

It is simply illogical to think that a market would see spikes of such magnitude in funding, both on a total funding and an average funding basis with a commensurate drop in individual projects funded. Smith+Crown suggest the largest projects are receiving the lion’s share of proceeds, but the data doesn’t suggest this at all. In fact, it shows a more – not less – distributed average, with the average rising twice as fast as the total amount raised across fewer ICOs.

Everex, a microlending platform headed up by Jean-Baptiste Decorzent, was introduced to the author by a Silicon Valley-based programmer who had personally participated in the ICO in July 2017 and who had also purchased COEVAL and MNY and wanted to introduce two of the founders of his favourite ICOs.

It was a genuinely kind gesture, except the value proposition that the introducing party seemed to present – that the two firms could establish an operating synergy together – seemed to be secondary among Decorzent’s priorities.

“It has been and is still an epic time for us. In July 24th  at 11am UTC+1, we launched our main Token Sale campaign and raised over $26.5 million. We also got an investment from an the Holley Group into Everex for half a million, plus further options to a few millions more from major banks,” wrote Decorzent gushingly in his introductory e-mail.

 “First, Thank you for your interest, indeed Everex has successfully raised significant amount of money to move to the next levels,” he stated in the e-mail. “However, I have always advocated that Everex needed the right balance of crypto contributors (crowdfund) and equity investors (smart money). To my humble opinion, business angels and VCs would be a tremendous advantage/asset for Everex’ mid and long-terms approach.”

There are two things that seem bizarre about the claim of raising in excess of $26.5 million here. First, the singling out of Holley Group’s $500,000 participation presumably means that this was the largest single contribution, while references to “further options to a few millions more” certainly doesn’t sound like capital raised, but rather, ongoing discussion as to capital being raised.

Second, for someone fresh off the back end of raising such a large sum of money, Decorzent’s introduction seems unusually solicitous here. This would make sense were the company to have not got anywhere near $26.5 million at its ICO but nearer the $500,000-mark; after all, the latter doesn’t last long when you’re beefing up operations.

It’s probably a fair bet that Everex’s Asian microlending platform ICO obtained about $1 million or so of real funding, in other words. Considered in the light of the Q117 average of $1.7 million per ICO (and this is likely inflated somewhat too), this $26.5 million makes much more sense than it does among the Q217 $7 million average bracket.

The point is not to single out Everex as the guilty party here, but rather to charge the market as a whole of being guilty of fabricating the same fiction with respect to their raise amounts. The answer as to why firms may choose to take this course of what amounts essentially to lying to the market is simple (and even defensible given that they have investors already committed): the tokens are likely to fare much better in on-exchange trading post-ICO if the perception of the public is that the raise was a high one.

Further compounding the potentially higher-than-likely Everex numbers, consider Digital Developer’s Fund (DDF), in which Monkey sunk 1000 Ethereum and to which the author personally contributed a further 250 or so Ethereum on July 24, around the same date. This ICO ultimately announced a closing raise of just 6000 Ethereum, what was at the time around $1.2 million in USD terms. Even this number is almost certainly overinflated by around 25% or so (that money simply being allocated to insiders on the ICO).

The suggestion of larger-than-$2 million capital raise events at ICO stage seems to be more fiction than fact, and certainly, the elusive $100 million ICO doesn’t exist at all. Logically, this makes sense: companies raising capital according to very precise discounted valuation criteria on the public equity market with equally good performance prospects cannot raise a fraction of this sum of money very often; it is highly unlikely that ICO candidates can therefore do so in such a high quantity.

I strongly believe the Securities & Exchange Commission (SEC) has not become involved in regulating or interfering with ICOs simply because of the fact that they are aware of how little money is actually being raised by the supposed 8-figure or 9-figure ICO candidates.

With so little of the public wallet purchasing such issuances, they don’t present any real regulatory risk – it’s that simple. The only time we have seen the SEC take an active anti-ICO stance seems to have been not because of any specific sum raised – the ICO in question, Prostars, raised only $50,000 – but rather because the Commission sought to target the method of capital raising known as the Decentralised Autonomous Organisation (DAO) which we discussed in the previous Paper.

If the DAO is clearly in the sightlines of the regulatory bodies, and there isn’t really much money to be had raising cash via Dutch Auction most of the time anyway, why hold an ICO? The answer is simple: because the tokens themselves when traded on any number of Crypto exchanges ended up garnering real value, which can be sold by founders for Bitcoin or Ethereum and then the proceeds used in a completely legitimate fashion to fund personal lifestyle and/or private businesses as the seller of the tokens sees fit.

That is the real objective of most “in-the-know” ICO participants – not to raise huge sums of cash materially from investors, but rather, to get to market as fast as possible.

Hence, as a result, commensurately with the increased raise amounts you have seen the time period in which the ICO is open fall dramatically to in some cases, just a period of minutes. This is yet another mathematical improbability: the chances that the time a fund raising event is open would negatively correlate with its total raise amount is close to zero.

ICOs are still in abundant supply – in fact, so much so that at the time of writing, TokenMarket had listed a total of 48 ICOs scheduled so far for the forthcoming financial quarter (Q417). In this sense, clearly the news of “mega-ICO” events has had an effect on the ambitions of would-be entrepreneurs who wish to raise capital via a Blockchain-enabled solution.

The issue, as we have discussed in the course of this paper, is that such ICOs are either destined to fall far short of their founders’ anticipated hopes or they will only succeed at generating the founders any real investible return once they are brought to market.

In the case of COEVAL, and subsequently MNY, Monkey Capital front-ran this process – at first almost by accident, and then subsequently in the case of the latter as a deliberate response to the market conditions of the former – by selling the tokens over Waves Decentralised Exchange (DEX) at lower-than-average (per ICO) market value.

The effect was to create an enormous rise in the value of COE, and, before market manipulators sought to destroy the value of both, at first in MNY, too.

The knock-on effect of this effect was to create a surge in trading volumes, whereby at the end of July COE and MNY combined represented in excess of 85% of all Waves DEX $2 million + average daily trading volumes even as the prices of both were in decline as a result of the market manipulation forced on them by those wishing to undermine the market-based ICO process.

Why would someone deliberately attempt to destroy an ICO which had created in excess of 15,000% of value for initial purchasers? Simple: if everyone was to go about doing the same thing, market expectations would not be on the part of the founders for multi-million dollars sums but rather, on the part of the investors for multi-thousand percentage point returns. This represents a highly undesirable position from the perspective of the venture capital firms that are playing the “ICO game” off against an unknowing market alongside a few “insider” whale investors.

The reason that the Monkey Capital (non)-ICO event generated such enormous controversy for a non-event wherein the majority of people made far more money than the ones who lost saw dissipate afterwards as a result of the market manipulation was simply that it undermined the entire market-based model on which all the large Dutch Auction-DAO model ICOs are effectively premised. The point here is not undermine the Dutch Auction / DAO-based ICO approach. I have already succeeded in doing that earlier. The point is to make it clear that when it comes to raising capital on the Blockchain, because of the inherent design of the technology’s protocol, market-based capital raises are the only way in which decentralized structures work efficiently in any way whatsoever.

As I pointed out earlier, Factory Banking tends not to be a good source of generating cashflow if you approach it from the old-fashioned perspective of ploughing money into advertisements and hoping for the best.

 

This is because the supply-demand function is fundamentally different on a Blockchain. That there are so few who know this today – or worse still, believe it to be true in the first place – is testament to how easy it is for companies to get away with lying to their ICO contributors about how little money they are really raising via the crowd.

 

A Blockchain’s modus operandus revolves around the principle of altering the supply-demand equation so that it is not a question of supply quantity meeting demand uptake, but rather, of how demand is engaged in order to maximise supply take-up. In other words, supply-demand equations look more like demand-supply equations, where demand is already present by virtue of a user engaging with the network to begin with. In such a scenario, the key consideration is not where or how to locate the demand for a product or service, but rather, of how to enable its latent commercial properties.

 

To be sure, this aspect of the Blockchain holds tremendous appeal to many would-be business owners. The problem is that the erstwhile entrepreneur equally misunderstands the practical application of it. Think back to near the very start of this paper, wherein we discussed the early Bitcoin adoption. In that scenario, Bitcoin’s own creator was unable to stem the tide of users who were sending Bitcoin to Wikileaks in order to quickly (and perhaps anonymously) support the site’s mission to expose Big Government misconduct.

 

This is a classic case of demand-orientation being more powerful as a result of the technological capability of the network than supply capability. Usually, it’s the other way round: in supply chains, if the seller doesn’t want to deliver you a product, you simply cannot source it.

 

In Blockchain economies, that is not the case: in the event that there is no supply available over-the-counter or on exchange for a particular digital currency, a user can simply plug in a mining rig, mine the coin, and use it right away (at least for now that is the case with most mineable Crypto). This demand-orientation has become so pronounced it has led to the deployment of smart contracts all over the world on the Ethereum network, in what is nothing short of an attempt to synthetically recreate the manufacturing process of digital coin mining in a fraction of the time.

 

Because of the novel proposition that via the utility of manufacturing a unit of value alone, someone can immediately potentially generate substantial financial value, the process has led to an influx of improperly considered, ultimately useless, low-quality Utility/Value propositions where the community employing the offered service is more or less unengaged in the act of work they are meant to be performing with respect to their value production goals. In turn, very little value is actually created and thus genuine utility soon falls into decline.

 

A good recent example of a redundant utility proposition on the Blockchain is social blogging network SteemIt, which encourages users to post short articles that are topical on Blockchain in return for a fee. Equally, those same users are pay to be able to “upvote” or “downvote” articles they do or do not like, and they are rewarded by the “crowd” if their articles achieve a certain number of “upvotes”.

 

Partly due to the lacking liquidity on the SteemIt network (there are not that many high-quality writers who enjoy being tied to such amateur-centric writer platforms) but mainly because the users are posting for the most part, useless headline content or content that resembles spam or at the best, deep conspiracy, the platform is, after hitting an initial novelty bump, now falling into deep decline.

 

SteemIt will eventually die out, and so will many other similar low-quality Blockchain networks, where making money, rather than performing the underlying service proposed as part of the Utility/Value proposition, is the driving motivation for action.

 

Given most people’s central requirement seems to be that they generate additional cashflow then, but that they don’t want to do much for it, it is useful to step back here and ask ourselves: is there a way in which we can create a type of synthetic utility? If there is, then there would be far less need for redundant Utility/Value proposals where the utility concerned adds nothing but extra utility without the production of value attached to it.

 

When we consider the essence of how a digital currency is brought into being, via core mining activity, and view a smart contract as a synthetic mining application as opposed to as means of sending, retrieving and storing data, we discover that Factory Banking in truest sense is nothing less than value mining.

 

Value mining is in turn a form of synethetic utility. This utility lies in contrast to the analytic utilty we encounter in everyday life. That is to say, the utility that we derive from a manufactured unit of digital value pertains in some sense to itself even while we are using it as a mechanism of payment.

 

Blockchain reverses the constants that we take for granted in everyday life; there is utility without value on Blockchain, but there is no value without utility. And yet that utility is in and of itself reflexive in every sense: a payment utility is a method of purchase activation but is also the value that is enabled in the transaction. What happens then when we make that unit of utility which we ascribe some hypothetical value to the object of purchase in itself? The answer to that question is what all us Blockchain evangelists the world over are trying to figure out. That’s the crux of coeval value.

2.0 Bitcoin’s Price Deflation

2.1 The End of Bitcoin

When Bitcoin was first introduced to the world in 2009, there was no official launch of the first Blockchain currency. The act of “offering” coins to Crypto buyers really came into being in 2014, as new Blockchain-based digital currencies were introduced on the NeXt exchange and the Omni platform.

Ultimately, this short-lived period of hype in initial coin offerings was quashed for 3 years in a “Crypto recession”. Even during this period, crypto offerings were relatively hard to come by. In fact, Vitalik Buterin’s $10 million raise for the Ethereum project was conducted more in the style of a traditional crowdfunding campaign, and much less so as a Crypto offering. Ultimately, Ethereum’s success was what reignited the Crypto landscape, as the currency soared in under two years from pennies in value to settle around $400 a token.  

During 2017, ICOs made a comeback after 3 years and became a mainstay feature of Crypto, with exchanges charging fees of up to $150,000 for listing placements. Over 200 individual ICOs purportedly raised over $2 billion during 2017, culminating in a post-ICO average return for Crypto investors of 1,320% once listed on Crypto exchanges.

The effect was to create a huge uplift in the price of Bitcoin, which became a default mode of value storage for many of the ICOs that were receiving increasing levels of funding. Compounding gains in Bitcoin by year end was the introduction of financial futures contracts predicated on long-side Bitcoin bets. The result was that by the end of the year, Bitcoin was rising over $15,000, from a starting point in January of barely over $700.

2.2 Searching For A New Bitcoin Replacement

It is clear that alternatives to Bitcoin are required if Crypto is going to retain the broad momentum it has experienced in 2017. If not, another 3-year long Crypto recession may be what lies ahead. Note that the ideal alternate Blockchain currency would not be a token issued in the form of an ICO, since this would make it just like any of the other 1000 Crypto that are supposed to be traded against it.

Ideally, the Bitcoin alternative would have some sort of legacy from the pre-$1000 Bitcoin days, around 2013 or earlier. It must be a relatively unused Blockchain and maintain a more complex mining algorithm so that too much supply does not dilute the coin’s growth.

This coin can be “re-offered”/presented to the public as a debut trading pair and as a speculative unit of value on exchanges with high volumes and active trading participation.

2.3 Alternate Pair Exchanges (APEs)

This White Paper introduces principally two new concepts unknown to Crypto until the present: the Alternate Pair Exchange (APE) and the Secondary Coin Offering (SCO).

The notion of APEs springs from the idea that with Bitcoin’s massive ascent in value and Ethereum’s commodity-like qualities, the current modus operandus of most exchanges, whereby all Crypto is traded against BTC and/or ETH, is simply outdated and redundant. In fact, is leading to a dramatic undervaluation of altcoin pricing.

Bitcoin is becoming unaffordable to many retail investors, as evinced by the rise of BTC’s share of the $200 billion-plus market from around 45% earlier in 2017 to up to over 65% of the entire market by year-end.

The massive increase in Bitcoin’s market share hampered altcoin trading volumes and price increases for the final quarter of 2017, so that even very large ICOs such as Presearch, a Crypto search engine part-founded by the Ethereum co-founder Anthony D’Iorio, traded only $100,000 on its first day trading on HitBTC in December. People are scared to give up their BTC in exchange for something speculative, basically.

An APE is not a decentralised exchange such as Waves, where one can trade any currency pair against another as one wishes. Rather, a specific coin is selected from outside the regular large-capitalised remit of Bitcoin and others. Cryptopia is currently the closest example there is to the APE, with offerings of Litecoin and DOGE as alternative trading pairs to Bitcoin.

2.4 Secondary Coin Offering (SCO)

The reality is that one or more new Cryptos are required with a near-complete similarity in terms of technological functionality, but which are faster to send and receive than BTC, cheaper to purchase with none of the depreciation-exporting qualities as Bitcoin has presently.

Ideally, a vintage Crypto from 2013 or before is preferred as this will contain the widest possible network of mined coins, as well as a number of lost coins that have been trapped in cold storage wallets on discarded hard drives etc. as this artificially constrains supply, making the coin easier to gather market capitalisation momentum even as it is increasingly used to purchase other Crypto.

The proposed way in which this Crypto once identified might be “re-launched” to gain sufficient attention from the Crypto community is proposed as being packaged as part of an SCO.

An SCO would not necessarily constitute a direct offer of the coin to the public (although it could vai a number of mechanisms discussed within this paper), but would conceptually give the Crypto the ideal platform upon which it may be re-marketed in a present tense context, in light of the Bitcoin market share dominance problem, or in light of Ethereum’s gas-burning effect. Ideally, this SCO would allow such a coin a legitimate place on an APE which featured 2 or 3 alternative trading pairs to Bitcoin and Ethereum. 

If we are to introduce new trading pairs to Crypto, the new Bitcoin-supplement must not be a replacement for Bitcoin itself as a primary mode of value storage and transmission online, but rather as a cheaper, easier substitute where there is less concern vis-à-vis security etc. and which has the consequence of creating less of a burden on Bitcoin’s Blockchain’s network protocol.

The problem here was very real by December 2017, with over 200,000 transactions going unprocessed in a backlog of unfilled transmissions of Bitcoin by the start of the month. Many transmissions went unfulfilled for as long as 2-3 days due to the burden the network was suffering from as a result of the rising demand for the digital currency by institutional buyers.

It is worth stating here that a coin that would be a suitable replacement for Bitcoin would not be so much a commodity as a simple method of value transmission. In other words, it would not “burn” in the way that Ethereum does, which makes the currency wholly unsuitable for trading. Rather, it would simply issue a finite number of units, but preferably far more units than Bitcoin does.

 

2.5 Zurcoin

Zurcoin was introduced to market on December 30, 2013 by developer Shai. The digital coin was introduced with the following parameters:

 

Max Supply: 126,000,000 Zurcoin / Block Mined Every 42 Seconds / Block Reward 42 Coins (decreasing 50% every 1,500,000 blocks) / Premine of 500 blocks (given away) + 1 million coins donated to a Zurcoin Faucet / addnode=50.116.55.60

 

“i’m new to crypto currency so i maybe screwed things up” added Zurcoin’s developer somewhat comically on the coin’s Bitcointalk introduction post. As for much of tech innovation, the relatively curt personal marketing style of the introduction of Zurcoin disguised a much more compelling and history behind its development.

Zurcoin’s script is almost entirely based on a currency called Quark. Quark was relaunched SCO-style in July 2017 in what may be the first SCO to date. The coin has a controversial legacy.

Quark was launched 6 months ahead of Zurcoin, and by December 2013, when Zurcoin was just emerging onto the scene, Quarkcoin by then boasted a $50 million market capitalisation. Technologically equal to Bitcoin, Quarkcoin’s supply was issued all upfront and intended to be distributed over time by the coin’s developers over a vast range of Crypto buyers. The unorthodox move, which represented a philanthropic response to what the developers perceived to be nefarious centralism on the part of Bitcoin’s major holders, attracted the attention of leading Australian economist Bill Still.

“It’s just like playing a classic penny stock but one which has the chance of following Bitcoin’s climb upwards” said Still, introducing Quark on his weekly show that Advent.

“It’s the product of the wild west; we think it’s a fairer system and a better distribution (than Bitcoin’s) … Cryptocurrencies are here, they are a fact, they are not going away; I just think they could be a little better designed in terms of serving the people than they are now,” Kolin Evans, Quark’s lead developer, told Still on his show via Skype.

“So you would like a more decentralised form of Cryptocurrency than Bitcoin’s was when it was implemented … [because] it’s obvious now that only huge server farms can mine bitcoins effectively,” Still countered.

“Bitcoin went from zero to hero so it suffers from that problem that it was the first-of-the-first. It’s well-intentioned … but it requires specialised software to mine which means it is fantastically centralised,” Evans explained, using mock air quotes. “So, most of the bitcoins in existence could be owned by as few as 100 people.”

That interview and the resulting press it accomplished in courting pushed Quark up to one of the biggest Cryptos on CoinMarketCap.

What happened next is still to the present day the subject of much controversy. There is a contingency of developers who claim a conspiracy existed between Evans and Still wherein the two colluded to “dumped” Quark and make a quick killing out of an over-hyped market following the press and subsequent enthusiasm generated in the Crypto community surrounding the coin.

The much more likely explanation however is Evans’ rather stranger one: he maintains that the wallets in which most of the Quark was stored for future delivery were hacked following the Still interview. The source of the hack, says Evans, was the big Bitcoin stakeholders who wished to wipe out any potential challenge to their (back then still tenuous) lead as the world’s number one Crypto.

The hackers, according to this account, unloaded all the previously-escrowed Quark onto the market, destroying the Crypto’s core value proposition completely, and they used the proceeds of the sale to repurchase huge quantities of Bitcoin, pushing it up over the $1000-mark for the second time in history.

The claim is credible. At the end of that year, the massive unloading of millions of Quark follows a circumspect pattern to that of Bitcoin’s price rise. Quark was sold heavily into the market between December 13th – January 14th. Between December 18th – January 6th, about the way through which the heaviest of the Quark selling would have occurred, the daily traded volume of Bitcoin doubled overnight after a post-Christmas sell-off and pushed it over the $1000-mark from just $560 beforehand.

I knew Evans very well and worked with him closely during 2014, in which period I designed with him a predictive equation for Bitcoin’s mid-2017 price which turned out to be right on the money: $2469. Evans was one of the most intelligent, brilliant minds I have had the pleasure of working with, and I finally understood the way he must have felt at the end of 2013 when a similar sabotage was wreaked on a token I introduced to the market via Waves DEX following its ascent to 0.5 BTC (the highest price a Crypto had ever gotten to since Quark held the record of 0.25 BTC, ironically) in the same month as the equation we had developed 3 years prior hit its price forecast on the bullseye.

Zurcoin has almost the entire opposite trading history to that of Quark, since the developer modelled half the mining algorithm on Bitcoin’s. The effect of parsing half a fork of Bitcoin and half a fork of Quark was one which produced a steady, slow stream of multitudinous coins that rarely traded more than $100 in volume per day over the course of the 3.5 years before I loaded up on it.

Zurcoin’s original source code on Github had a message which the developer ascribed into the code itself. It went something like, “We miss you, Daniel.” This explains the reason the coin was created – as a technological tombstone to a close friend of the developer who had passed away. The two used to call one another Zur, and hence the name Zurcoin. Because of this explanation which existed in the original Github profile, I believe that the coin was never “pumped” or abused on Yobit exchange, where it traded for years without any volume whatsoever.

Zurcoin is then a version of Quark – which itself is an economically-superior but technologically-identical digital currency to Bitcoin. When combined with the observation that it has gone completely untouched for the best part of its entire history it becomes clear that Zurcoin is in essence a living Bitcoin fossil with a significantly less deflationary supply. In other words, Zurcoin is a profoundly more decentralised currency than is Bitcoin with the same robust Blockchain technology powering it. Zurcoin is the ideal alternate trading pair, in other words, for introduction into a world of Bitcoin-centric deflation.

Evidence of Zurcoin’s more equitably distributed status are born out by the large spread of holdings. There are over 56,000 total wallets that hold Zurcoin, by far the majority of which belong to miners, but which only count approximately 10 million coins in number.

The remaining 75,735,727 other coins that do not belong to miners belong to a group of 440 wallets. Of these wallets, the largest holder is in possession of 6,389,409 coins (8.44%) while the smallest holder owns 1,100 coins (0.001%). The average holding of the 440 top wallets is 172,127 coins, with a standard deviation between averages of 601,229 coins. While this is admittedly a rather high standard deviation, it must be taken into context with the observation that many of these coins have not moved in very long periods of time and represent coins that haven’t been in circulation for years.

Zurcoin had undergone around 5-6 months of trading with an average daily volume of $33,000 by December 2017, and had an average daily market capitalisation of around $250,000.

While still small, this compares to $31 average daily volume and $16,000 market capitalisation before my hedge fund bought into the coin in the summer.

This re-offering could be considered to constitute the coin’s Secondary Coin Offering (SCO). By definition, an SCO should only be ascribed to a coin which never had an Initial Coin Offering.

In this way, it is a replacement for the non-event that the ICO failed to become. Zurcoin fits this definition perfectly and can thus safely be launched by means of a website revamp, additional public relations, a new white paper – which it is you are reading now – and other standard marketing fare for the coin. After that it can be introduced to new exchanges.

As a result of the interest that such purchases generated in Zurcoin from miners and the wider Crypto media, CoinGekko listed the coin and Cryptopia offered to have it trade on exchange. Bigger exchanges such as HitBTC and possibly Binance would be the logical next destination for Zurcoin, and the listing of the coin on these exchanges combined with a public relations-offensive would likely see the digital currency improve a similar number of times in value to that which it did during 2017.

If this was the case, then around $100 million + market capitalisation would be achieved. Utiliting the coin in ICOs as payment capital would also significantly increase Zurcoin’s payment utility.

Another development for Zurcoin will be for it to be the denominating Crypto asset against which other altcoins are traded. In other words, if Zurcoin pairs were readily established on a few leading exchanges, the price performance of the coin due to its improved payment utility would be greatly enhanced.   

This would be especially true if a number of traditional exchanges could be persuaded to become Alternate Pair Exchanges (APEs) as a result of introducing Zurcoin along with a couple other potential contenders. Zurcoin, for instance might be introduced as alternate trading pairs along with Litecoin for example, under the premise that the coins would help stimulate altcoin trading volumes due to their less value-intensive consumption of the market and implied export of price inflation as their widespread popularity as trading and ICO payment pairs becomes established.

Among the discussions held for the future of Zurcoin are the possible installation of a Counterparty application which would give the Zurcoin blockchain token-making facilities as well as write specific digital agreements, or programs known as Smart Contracts, and execute them on the Zurcoin blockchain. Smart Contracts are a revolutionary technology which opens the door to endless possibilities. By using the Zurcoin’s decentralized ledger network and Counterparty’s built-in scripting language, real-world scenarios can now be transformed into code and executed automatically with no need for an intermediary.

Further under discussion is the possibility of converting Zurcoin’s Blockchain protocol from a Proof-of-work to a Proof-of-Stake mining algorithm. The best example of POW around is Bitcoin; perhaps the best example of POS is Peercoin. Both are the first-of-their-kind assets. In the past 3-year period, bitcoin has risen around 2100% while Peercoin is up about 170% by comparison. Clearly, by making increases in supply so readily available so easily to holders of the coin, POS Blockchains ultimately undermine the value exponent of the utility factor in the coin.

ZURCOIN is a POW coin that has laid dormant for 4 years; after it was purchased in August over a period of around a week by a single purchaser with approximately $250,000 in funds, and by other buyers following suit, the coin came to be actively-traded and showed regular trading volumes.

Despite the relative value erosion that wallet mining can cost a coin, there are certain advantages to it. POS mining is more efficient and it is also cleaner and easier for the user than POW mining since it takes place while the coin is stored inside a Blockchain wallet. By converting ZURCOIN’s Blockchain into a combined POW/POS Blockchain the coin will achieve scale dominance at the same time as retaining its value during the second act of the coin’s growth trajectory, which is set to be very large.

Despite the huge rise in the price of Bitcoin, there are signs that it may become less appealing to investors as an asset to be held in any quantity largely because of the deflationary tendency of the coin. As Bitcoin begins to deflate in increase of supply, so its price begins to rise at an exorbitant rate. The problem with this is that it has the net effect of exporting inflation onto the rest of the Cryptocurrency landscape.

This is because while a high Bitcoin price is attractive for those holding presently who wish to sell, it is significantly more expensive to buy in any whole (or even for some, standard fractional) quantity. Multi-fractional purchases are not appealing psychologically to buyers either.

We believe that Zurcoin’s POW-POS fungible Blockchain may be the answer to the polar opposite, but equally problematic isses that Bitcoin and Peercoin suffer from.

In the case of Zurcoin, following the trajectory of both Bitcoin and Peercoin would have resulted in a 1200% price rise over the last 3 years; these are standard high returns looked for by Crypto investors.

Therefore we see this fungible dual-currency scenario as being a potential solution to overly-aggressive value return and overly-aggressive value erosion see in POW-POS assets.

If Zurcoin was to rise by the the same amount next year as for the last 6 months, we would be looking at a $400 price per ZUR. At this point it is a well-established APE pair.

2.6 Using The FactoryBank To Make Bitcoin 3.0

The following is a potential Roadmap outline for how we might convert the existing Zurcoin Blockchain into a candidate for Bitcoin 3.0 with full Bitcoin functionality:

 

  • Q4 2017: List on Cryptopia, Update White Paper and Website

 

  • Q1 2018: Hard Fork of Zurcoin and cut supply with a 1-for-100 reverse coin split; thus 870,000 Supply + 250,000 premined coins + up to 1.49m coins mineable via POS and via POW (POS: 100 coins per node is mineable). Total Supply: 1.49m Zurcoin.

 

  • Q2 2018: Undertake Secondary Coin Offering (SCO) of the 250,000 premined Zurcoin produced in the fork and begin development of Counterparty application on the protocol

 

  • Q3 2018: List Zurcoin on 3x more exchanges (target Binance, Bittrex & HitBTC) and finish development of Counterparty application on the protocol

 

  • Q4 2018: Engage ICOs in the process of accepting Zurcoin as means of payment and as value storage

 

  • Q1 2019: Begin to enlist Zurcoin as a trading pair on Alternate Pair Exchanges (APEs)

 

It is clearly established that bitcoin is exporting massive price deflation across the Crypto landscape. At the same time, few digital assets have laid uninterfered-with for sufficient time to build a deep and wide network without being overly-centralised in the way that Kolin Evans pointed out had happened in the case of Bitcoin (indeed this is a major part of the reason for the Bitcoin price deflation effects now).

Zurcoin offers the Crypto world not just a second chance at an uninterrupted Bitcoin-type price escalation, but a clear and profound opportunity at the same time for the market to recorrect back to one whereby altcoins are fluidly traded against inflationary assets that simulate the overall price direction of the market.

Bitcoin’s underpinning of the market will enable the somewhat higher degree of flexibility that Zurcoin will require as it improves and continued to expand among increasing numbers of APEs across the trading landscape.

 

3.0 The Futer of Crypto

3.1 Harnessing The Value of Smart Contracts

The objective of employing Zurcoin in the FactoryBank was to manufacture Bitcoin 3.0. The goal of the subsequent engagement of the FactoryBank on Blockchain is turning our sites to Bitcoin’s tail-chaser: the smarter Ethereum Virtual Machine (EVM). In the Futereum Project therefore we start by laying out three specific Blockchain build-out objectives:

 

  • Build a replica Ether-equivalent token with a dramatically-reduced supply for use within a more financially-sophisticated community of adopters (FUTR) in order to expand the use-case of the Ethereum network in terms of initiating new value-events. This is in response to similar expansions of smart-enabled Blockchain technology use-case expansions that have been taking place with respect to the development of currencies such as XRP, EOS, ICX etc.

 

  • Build for purchasers of the Futereum digital currencies a more equitably-distributed ownership of Ether which is the digital currency of the Blockchain which Futereum is powered by. At the same time, we acknowledge that earlier and more active participants in the FUTR mining process should receive a disproportionate share of this equitable distribution of Ether.

 

  • Build a range of value-enhanced utility tokens that are powered by the Ethereum Virtual Machine and run multiple Futereum Smart Contracts as a result of harnessing the combination of the primary two aims on PoW-style mining protocol algorithms. Our aim is to empower the value-enhancement potential we believe is inherent in the Ethereum smart contract solution source code and which we think is currently being underemployed to a very substantial degree in terms of the core development of next-generation Blockchain solutions.

 

The Fibonacci sequence is a numerical order based on the algebraic function Phi first discovered by Leonardo Pisano and published the Italian mathematician’s 1202 book Liber Abacci.

 

The ratio comprises a mathematical formula whereby the previous two numbers in the sequence combine to give the result of the subsequent answer to the equation ad infinitum:

 

1 + 1 = 2

1 + 2 = 3

2 + 3 = 5

3 + 5 = 8

5 + 8 = 13

8+ 13 = 21

13 + 21 = 34

21 + 34 = 55

34 + 55 = 89

55 + 89 = 114

 etc.

 

The sequence was first postulated by Pisano as a means to understanding the potential infinite increase of rabbit populations in rural areas, and it is today used to underpin many of the world’s most sophisticated financial markets trading algorithms.

 

A wide number of professional Crypto traders also rely heavily and in some cases exclusively on Fibonacci-regressive technical analysis today to formulate alpha-generating trading ideas and approaches.

 

Futereum Smart Contracts must contain two apparently contradictory functions which must be equally satisfied in order to justify the utility of the tokens that are purchased in the form of Futereum Utility Tokens. Those functions are the ones as set out in our second Blockchain build-out objective:

 

Function 1 = The smart contract results in a more equitable distribution of Ether than before it was employed by the user

 

Function 2 = Initial miners and high-frequency miners of Futereum Smart Contract tokens should stand to benefit more from this equitable distribution

 

The paradox is resolved by means of employing a Fibonacci equation inside the mining algorithm of the Futereum Smart Contract.

 

In the event of the Futereum Smart Contract for Ether (FUTR), we employed the equation as an expression of the amount of FUTR an ETH receives in the process of mining the smart contract.

 

We achieved this by progressively decreasing the amount of FUTR mined per ETH sent to the smart contract as the mining level is increased:

 

Level

FUTR

FUTR/ETH

ETH

1

1,000,000

114

8,772

2

990,000

89

11,124

3

960,000

55

17,455

4

910,000

34

26,765

5

720,000

21

34,286

6

650,000

13

50,000

7

560,000

8

70,000

8

450,000

5

90,000

9

320,000

3

106,667

10

170,000

2

85,000

Total

6,730,000

500,067

 

In the example above, which represents the actual number of Ether employed in the mining of the FUTR smart contract, 1 million FUTR initially distributed across a range of miners who collectively contribute 8,772 ETH; subsequently, 990,000 FUTR are mined by a total of 11, 124 ETH etc. Naturally, the progressive difficulty (cost) of the mining process is only compounded by any price increase in ETH.

 

In this way, the Fibonacci equation driving the FUTR mining algorithm of this Futereum Smart Contract creates an identical mining effect to Proof-of-Work (PoW) mining, where difficulty of a coin’s mining is subject to two factors, those being the cost of the unit of value being mined and the relative age of the Blockchain at the point of mining.

 

To date, we have not been able to discover a more efficient mining protocol type than PoW. PoW is such an effective method of digital currency mining precisely because over time it forces the miners into higher cost-per-unit mining equations, resulting in an intrinsically higher cost (price) per coin. Economically this process produces a greater expansion of the network underlying the mining process.

 

This PoW-likeness of the FUTR does not in itself result in a more equitable distribution of Ether to the FUTR miners however. Therefore, to achieve this using the Fibonacci sequence we employed in the smart contract development, we embedded an exchange function at the end of a fixed period in time after the last mining of the smart contract took place.

 

If all the FUTR produced by the smart contract is mined in under a 12-month period, then at the end of month 13 a temporary function is enabled in the smart contract whereby a FUTR holder is given a brief period of time to exchange the amount of FUTR held for a percentile-wise equivalent amount of ETH held in the smart contract since the point when the FUTR was mined.

 

This percentage-equitable exchange of FUTR with ETH held in the smart contract, when combined with the Fibonacci equation that is the basis of our mining algorithm, results in simultaneous equitable distribution of Ether to FUTR holders as well as preferential treatment of early and regular FUTR miners, since those who mined FUTR in the initial period of the smart contract and those who mined FUTR when ETH was relatively cheaper in value and who are thereby likely to be the most active miners gain more than late-stage one-off miners of FUTR.

 

It has been a relatively popular occurrence recently for developers of Blockchain and smart contracts to premine a portion of the token supply as a means of rewarding themselves or the foundations they represent in financial terms for the work undertaken at point of development.

 

We are uncomfortable with the concept of premine for the reason that it tends to lead to a moral hazard effect, whereby the party who is the beneficiary of the premined tokens is usually excessively rewarded versus those holders who either mined the tokens or who purchase the tokens on an exchange. As a direct consequence of premine containing such a developer-biased value function, core developers who ought to be safeguarding the value of the projects they undertake to build frequently accept offers for their tokens on exchanges which are far below an acceptable market price for that of their customers, and this substantially undermines the utility token price over time.

 

Therefore, instead of premining the FUTR smart contract, we developed a fee schedule based on achievement of actual mining levels being achieved over time. Assuming 10 Levels of mining difficulty being achieved over 12 months, with an additional one-off charge for product development, the fee schedules we developed is as follows:

 

  • Monthly Charge: 0.4% for Month 1-12 (there is no fee for additional months)

  • Level Cost: 0.6% per Level 1-10

  • Administrative Fee: 5%

These fees, which comprise a total of 15%, are removed at source upon mining of the FUTR in ETH tokens. We find this a more effective approach to rewarding the smart contract developers and the foundation than the premining alternative, principally because it incentivises us to mine and hold FUTR with the ETH received by way of the small fee payments charged instead of selling out the order books on exchange with the premined tokens.

 

Despite its futures-contract enabled value functionality, FUTR is first and foremost a utility token which enables the miner to partake in forthcoming next-generation Futereum product releases (see Part 8: Roadmap for specific guideline dates). Therefore, once the exchange of FUTR-ETH has taken place, the smart contract enables a new cycle of product development to begin via starting anew from the 144 FUTR per ETH Level 1 mining algorithm. Several possibilities emerge here:

 

Possibility 1 is that a large amount of ether is retained inside the smart contract due to a lot of un-swapped FUTR. If this is the case then all remaining Ether will reside in the smart contract for the duration of the next cycle whereupon it will contribute to the increased amount of ETH swapped per FUTR. Combined with the inevitable occurrence of a decrease in circulating supply of FUTR due to FUTR getting lost in the usual ways (being sent to wrong wallet, holder of wallet losing private key etc.) we see this aspect of FUTR product design as holding a substantial long-term economic benefit for FUTR.

 

Possibility 2 is that many late-stage FUTR miners will mine the requisite minimum FUTR not in order to partake in the exchange of FUTR for ETH at the end of the current mining cycle but rather to take advantage of future product releases. We are especially excited about this aspect of the FUTR for it justifies the product’s core utility as that of a token which enables participation in the Futereum ecosystem and doesn’t just function as a Blockchain-enabled utility-focused futures contract equivalent (although this economic benefit of holding the token very much exists and will appeal to a large number of FUTR miners).

 

Possibility 3 is that the next-generation Futereum product releases will have to be significantly more complex in terms of their mining algorithm build-out as a direct consequence of encouraging people to mine FUTR tokens to take advantage of the new product launches. We have prepared for this event and indeed, FUTR-A, FUTR-B etc. product releases can be expected to have game-changing swaps utility functions that are not yet even available on Blockchain. At this point in time we have fully-designed the next Futereum product release (around April – June; see Section 8: Roadmap for more) and are working on the second smart contract presently.

 

In summary, FUTR has economic benefits for both unique miners of the tokens (those who would mine FUTR purely to exchange the token for Ether at the end of the term) and significant further upside for those looking to rise the wave of future Futereum product releases.

3.2 Background of Futers

With the advent of futures contracts for Bitcoin being offered by CBOE and CME, utility tokens on the Blockchain that have leveraged product assimilation are an inevitable next-stage introduction. The increasing volumes of Top 10 Coin Market Cap listed Crypto are drawing attention from a wider financial audience and as these volumes continue to rise, so will the interest from financial markets investors follow suit.

 

A $100 investment made at the start of the year when spread across what were in January 2017 the leading 10 cryptos by market capitalisation would have equalled nearly $25,000 by the year-end. Despite the desire for securitisation on the part of many investors in Blockchain assets as a result of such huge increases in value, such actions are more likely to undermine gains long term, and lead to funding droughts. Plus, purchasing securities that are separately traded on regulated exchanges somewhat defeats the original purpose of Blockchain investing.

 

Traditionally, Blockchain has been a haven for those who for one reason or the other, do not wish to participate in the regulated financial exchanges. At the same time, it is not viable to list securities on the Blockchain today since the Blockchain, being a technology, fundamentally offers utility as a prime feature whereas securities markets offer no utility at all except for the value traded in them.

 

If you put value-enhanced (e.g. dividend-paying, revenue share, asset backed etc.) assets on the Blockchain, you run into 2 obstacles:

 

  • You may be creating a security under United States securities laws and this asset may require registration before being sold

  • Even if you do register the asset it won’t fundamentally have any constructive impact on the protocol on which it resides, the Blockchain; possibly even, it will have a negative impact if this activity is perpetuated

 

Blockchain holds the potential to enhance tremendous short-term value to such an extent that many are using the payment ledger system purely for the purpose of speculating on future payment utility trends. Due to the nascent characteristic of the technology and the potential for mainstream worldwide payment integration with adoption currently limited to a tiny fraction of the population, speculative gains on Blockchain assets are proving to be unbeatable across any other asset class.

 

Therefore, how do we harness future gains which may be set to continue at an even more accelerated pace, while simultaneously in the process contributing to the innovation of alternate payment utilities without detracting from them in the form of Blockchain securitisation?

 

Futereum has created a smart contract on the Ethereum network which wherein tokens are mined according to a Fibonacci algorithm throughout 10 different stages (levels) where difficulty is measured primarily in the cost of mining the new smart contract tokens. The new token, called the Futereum (FUTR(/X)), is produced when Ethereum (ETH) tokens are sent to a smart contract address. Once all the FUTR(/X)s are created by this process, depending upon what period of time it has taken miners to produce all the available FUTR(/X) tokens, the FUTR(/X) tokens will be entered into a swap with the ETH which is stored securely in a smart contract for the duration of the FUTR(/X) mining process and up until such an exchange takes place. The process then begins anew.

 

Due to the fact that the process is ongoing permanently, with ETH and FUTR(/X) tokens intermittently switching back and forth between one another, and the addition of a Fibonacci equation in the mining algorithm, which miners of the round’s initial FUTR(/X) tokens to obtain many more FUTR(/X)s than later ones (as with classic Proof-of-work mining algorithms), there is both traditional Blockchain payment utility in the issuance process as well as continuous functionality of the asset exchange model, bypassing the requirement for securitisation.

 

This bypass is achieved primarily via the implementation of core Blockchain mining utility in the form a token wherein other alternate utilities can be applied at a later date (such as community-building programs, development of alternate product offerings etc.)  but also in the permanent state of the token as a Blockchain tool (i.e. it is not a contract with pre-functional expiration, and it is one which is furthermore exchanged back and forth with another non-securitised Blockchain asset).

 

At the same time, as a result of the addition of the Fibonacci sequence being placed in a mining algorithm which is designed to function in a way that operates similar to a forward swaps contract (futures contract) does in commodity markets, FUTR(/X)s can be employed in numerous speculative and price hedging events as a result of their financial markets equivalent functionality. The resemblance of FUTR(/X)s to derivatives contracts is remarkable, as FUTR(/X) tokens operate like leveraged bets on the price of the asset which is used for payment and which is received back at the end of the cycle of FUTR(/X)-ETH exchanges.

 

This is as a result of the earlier FUTR(/X) purchasers receiving a disproportionate share of ETH at the point of exchange. For the late-comers, however, the FUTR(/X) may offer a utility token alternative that is not solely dependent on ETH price direction for miners of the current cycle’s FUTR(/X) tokens will be offered an opportunity – either via employing FUTR(/X) tokens themselves in similar gains or by means of having their mining addresses whitelisted – to participate in similar new issuances of leveraged-style token utility with respect to a wider variety of Blockchain assets. New releases will be announced at the rate of approximately one per 5 completed levels of FUTR(/X) mining by The Factory Banking Project’s core development team.

 

For the past year at least, increasing numbers of teams pursuing initial coin offerings (ICOs) have attempted to add value into their token sales nearly always in the form of securitised traditional methods – either via offering dividends to token buyers, or by promising to undertake token buybacks using revenue shared with the funders of the ICO, or some such similar utility to the Blockchain, and rather, these offerings seem to encourage a decrease in net participation per capita of new entrants to the Blockchain in lieu of the expectation of forthcoming returns created by management teams in the same way as that which takes place on the stock market.

 

This is dangerous because left to its natural extent, net participation per capita falls at an alarming rate when people are offered the chance of financial returns for nothing more than their speculative monetary contributions in a given project. At this point, the potential utility mechanisms that are being created on Blockchain distributed ledger protocols will simply die away. As a result, returns in digital asset markets will drop to less dynamic levels and more importantly, as a result project funding will almost completely dry up.

 

FUTR(/X)s are the first in a line of a number of unique value-enhanced utility hybrid innovations that The Factory Banking Project aims to release in order to serve the increasing numbers of financial speculators who are interested in the high returns offered by Crypto, at the same time as maintaining a core utility focus that consistently adds value to the underlying technology which is enabling the foundation of all these gains – the Blockchain.

3.3 Overview of Futereuem Smart Contract (FUTR)

Futereum Utility Tokens are a first-of-a-kind marriage between financial engineering and Blockchain engineering, and are the most appropriate response to the recent introduction of these leveraged Blockchain-underlying derivatives contracts introduced to the securities markets for the first time in 2017. In this paper we use the term FUTR(/X) to indicate all Futer products that will be released down the line, denoting in particular Futereum and Futereum X. Readers are cautioned however that mining cycles vary for both. Specifically, FUTX mining cycles are about 1/100th those of FUTR, altering the functionality somewhat of the token but fundamentally adhering to the Blockchain build-out objectives we outlined in Section 3.1.

 

Futereum Tokens are placed into [Block*Token] structures and purchased from a smart contract by Crypto investors. A smart contract issues new tokens on the Ethereum Blockchain and as ETH is submitted to the smart contract when it triggers the issuance of the new tokens. It is the same basic concept employed in Initial Coin Offerings (ICOs) except it is ongoing even after the ICO period and there is no fixed ICO.

 

In the case of an Futereum Token, Ethereum (ETH) triggers smart contract sending out the Futereum Tokens to the same address which the Ethereum came from, and the smart contract then captures and securely stores the Ethereum tokens for a specified duration. At a date in the future comprising 13-37 months (depending on how quickly the levels become fully-mined, See Sections 1.4 & 4.3) FUTR(/X) is then swapped back by the holder for a commensurate amount of Ethereum percentage-wise as that which the FUTR(/X) holder exchanges relative to the total supply of FUTR(/X) in circulation.

 

Month

Level

FUTR(/X)

FUTR(/X)/ETH

ETH

USD/ETH (e)

USD (Gross)

USD/FUTR(/X)

Jan

1

1,000,000

114

8,772

 $750

$6,578,947

 $6.58

Jan

2

990,000

89

11,124

 $750

$8,342,697

 $8.43

Feb

3

960,000

55

17,455

 $1,000

$17,454,545

 $18.18

Feb

4

910,000

34

26,765

 $1,000

$26,764,706

 $29.41

Mar

5

720,000

21

34,286

 $1,500

$51,428,571

 $71.43

Apr

6

650,000

13

50,000

 $1,500

$75,000,000

 $115.38

May

7

560,000

8

70,000

 $2,000

$140,000,000

 $250.00

June

8

450,000

5

90,000

 $2,000

$180,000,000

 $400.00

July

9

320,000

3

106,667

 $2,500

$266,666,667

 $833.33

July

10

170,000

2

85,000

 $2,500

$212,500,000

 $1,250.00

Dec

Total

6,730,000

500,067

 $18,000

$9,001,208,837

 $1,337.48

 

For example, if there are 6.73 million FUTR(/X) in circulation, and the holder exchanges 673,000 FUTR(/X), then given a total of 197,908 ETH (not including the 15.3% fees as per Section 1.3) stored in the smart contract, the holder will receive back 19,791 ETH in exchange, irrespective of what price ETH was at the point FUTR(/X) was mined or what price was paid for the FUTR(/X) on exchange.

 

The extent of the returns embedded in FUTR(/X) phi-based algorithmic mining is easy to overlooked at first.  What makes Futereum Tokens so profitable for traders is that the value mining process is set up to take place over a series of levels wherein progressively decreasing numbers of “blocks” containing progressively increasing numbers of tokens per block are mined via an equation which represents an exponential decrease in the number of Futereum Tokens issued per ETH sent to the smart contract.  As there collects over time an exponentially falling number of tokens within each block, over time value mining the Futereum Tokens becomes much harder (more expensive) a la traditional POW or POS.

 

For holders of Futereum Tokens, any acceleration in the increase of Ethereum market price is compounded for everyone – even for the very last contingency of Futereum miners – so that by the time the contract swaps the Futereum Tokens with Ethereum coins, Futereum token holders themselves will simply be many more times profitable for the average investor than will buying Ethereum itself.

 

In the example detailed in Figure 2 where 1 million Level 1 FUTR(/X)s are purchased for $6.58 each at a gross cost of $6,578,947, we assume an Ethereum price appreciation in 2018 that follows Bitcoin’s previous-year rise. As a result of this substantial price increase combined with the Fibonacci algorithm in the mining function of the FUTR(/X), by January 2019 the same FUTR(/X)s purchased for just shy of $7 million 12 months earlier could be exchanged for $1.25 billion of ETH. This represents an uplift in value of nearly 19,000% vs. around 2300% for ETH over the same period.

 

Because the process of FUTR(/X) mining is set up in levels of difficulty wherein progressively decreasing numbers of “blocks” containing progressively increasing numbers of tokens per block are mined via an equation which represents an exponential decrease in the number of Futereum Tokens issued per ETH sent to the smart contract, for speculators who are confident the ETH price is headed northwards FUTR(/X)s present a potentially incredibly profitable option for early- and mid-stage players (Levels 1-8).

 

Even for late stage players, gains are likely to materialise without the level of risk exposure a purchase of the underlying Ethereum tokens would potentially leave a Crypto buyer. Over time an exponentially falling number of tokens is mined within each block and the Futereum Tokens becomes therefore much harder (more expensive) to mine as for Proof of Work coins. Further, any acceleration in the increase of Ethereum market price is compounded for everyone holding FUTR(/X)s – even for the very last contingency of FUTR(/X) miners – so that by the point when the contract swaps the FUTR(/X) with ETH, the vast majority of Futereum token holders. end up with multiple times the profits than they would have buying just Ethereum.

 

Core Blockchain utility is as a payment service. This is what Blockchain was designed for by Satoshi and it is how the most effective Blockchain innovations always work – primarily as alternative payment utilities. FUTR(/X) offers a highly enhanced version of the core payment utility derived from POW mining. This is because FUTR(/X) is mined on levels wherein the cost of mining constantly fluctuates. Assume that in order to make revenue, a website charges customers for goods and services but accepts FUTR(/X).

 

To make this easy for customers to understand we have created a FUTR(/X) dollar unit (F$). The F$ is not a token or a currency issued but rather an algorithmic measurement of fluctuating value: F$1 is equal to the amount of FUTR(/X) one ETH is currently mining at whatever level it is currently in. So for example, F$1 in level 1 is 114 FUTR(/X); in level 2 it is 89 FUTR(/X) etc. When the mining cycle renews the algorithm takes over so the amount of F$1 decreases to 1.3 FUTR(/X) in what would become level 11 if there was one.

 

At least at first, what is the difference between a F$ and an ETH? The answer lies in whether the FUTR(/X) is about to be mined or is already mined. For once the FUTR(/X) has been mined then it is the F$ that becomes the relevant denominator of value for payment, not the ETH. For example, if the customer mines F$1 for 1 ETH in level 1 in order to pay for a service that costs this much, if he waits until level 2 in order to make payment then F$1 is only 89 FUTR(/X), and hence he has made a real saving of 28% for this short wait.

 

By harnessing derivative utility, whereby mining becomes more or less expensive to do partly as a result of the ETH price and partly as a result of the mining level, FUTR(/X) offers merchants and service providers a way to charge less to their customers even as they potentially receive more in return.

 

Note that this is a more ambitious product roll-out that is likely to have a number of unintended consequences and effects, and as such, this will not take priority over the other aspects of this White Paper.

3.4 Functions, Gas Costs & Events of Futereum Smart Contracts

The Futereum smart contract is an ERC20 compatible token contract.  It also dispenses tokens and safely holds an Ether balance until it is time to dispense Ether.

Accepts Ether transferred to the contract address (0xc83355eF25A104938275B46cffD94bF9917D0691) and immediately dispenses FUTR(/X) tokens according to the current tier.  Note the following: This function consumes more gas than a normal transfer. You must use a wallet that supports ERC20 tokens that you control.  Do NOT use an exchange wallet.

The Ether remains in the Smart Contract and the fees are deducted.  The remaining Ether balance cannot be removed.  There are also no self-destruct methods on the contract. The Ether remains until the deadline is passed.

Each time a token is transferred, the time Is checked against the end time.  If 12 months passes and the tiers are not filled, the deadline is extended to 36 months.

When the deadline is reached, the contract then waits for 1 month.  Neither Ether nor FUTR(/X) is dispensed during this period.

When the deadline is reached, the contract accepts FUTR(/X) tokens transferred to its address (0xc83355eF25A104938275B46cffD94bF9917D0691), burns the tokens, and dispenses Ether. Do NOT use an exchange wallet.

 We have tried to reduce gas costs were possible, however, given that this process is largely automated, the transfer and fallback (mining) functions require some additional gas in some cases.

 

We recommend transferring using a method that calculates gas for you.

  Here are some estimates (not guaranteed to be accurate):

  • It usually costs around 37k gas. It cost more if the state changes.

  • State change during transfers make the transfer cost around 55k – 65k gas.

  • Swapping tokens for ether costs around 46k gas. (around 93k for the first account to swap)

Transferring ether to the contract triggers the fallback function that mines the tokens. We recommend transferring using a method that calculates gas for you.

Here are some estimates (not guaranteed to be accurate):

  • It usually costs around 90k gas. It cost more if you cross a tier.

  • Maximum is around 190k gas.

  • Note: Transfer from a wallet you control. DON’T send from an exchange wallet!

 The following are the basic technical commands employed by the Futereum Smart Contract:

Unnamed (fallback) Function

The fallback function is called when you transfer Ether to the contract address (0xc83355eF25A104938275B46cffD94bF9917D0691).  It requires more gas that a normal transfer because it calculates the tiers, the FUTR(/X) token amounts, and dispenses the FUTR(/X) tokens.

transfer Function

This is a ERC20 standard transfer function.  It has 2 additional capabilities:

 

  • It checks the state of the contract based on the time and the tiers. It changes the state as necessary.

  • It handles the sending of tokens directly to the contract address (0xc83355eF25A104938275B46cffD94bF9917D0691) when it is in the Ether dispensing state.

tier Function

Returns the last completed tier.

currentTier Function

Returns the current tier (this is the value of tier + 1) unless tier 10 is complete.  This is for convenience.

endTime Function

Returns time of the next deadline (in Epoch time).  This is updated for each different state. 

The length of each period (from contract creation time) is:

Dispensing Tokens

 12 months

Dispensing Extended

 36 months

Wait

 1 month

Swap Tokens for Ether

 5 days

extended Function

Returns a Boolean value indicating whether the token dispensing period has been extended because all tiers were not filled in 12 months.

wait Function

Returns a Boolean value indicating whether the contract state is in the 1 month waiting period before the swap.

swap Function

Returns a Boolean value indicating whether you can send tokens in for ether.

restart Function

Restarts contract.  Token holders retain their tokens.  Anyone can call this function.  It can only be called after the swap period is over.

payFees Function

Pays any outstanding fees to the foundation and other addresses.  Anyone can call this function.

 

event Transfer(address indexed _from, address indexed _to, uint _value);

Standard ERC20 Transfer event.  Also logged when tokens are mined.

event Approval(address indexed _owner, address indexed _spender, uint _value);

Standard ERC20 Approval event.

 

event Mined(address indexed _miner, uint _value);

Logged when FUTR(/X) tokens are mined.

 

event WaitStarted(uint256 endTime);

Wait period before swap has started.  The end of the wait period is logged.

 

event SwapStarted(uint256 endTime);

The token swap to dispense Ether has started.  The end of the swap period is logged.

 

event MiningStart(uint256 end_time, uint256 swap_time, uint256 swap_end_time);

Token mining has started.

 

event MiningExtended(uint256 end_time, uint256 swap_time, uint256 swap_end_time);

Token mining has been extended because the tiers were not filled.

3.5 Non-Securitisation & Utility of Futers

Within securities markets, there are three forms of value one identifies on a regular basis: core value (net asset value), which is the price as asset is worth at the break-up/fire sale point, exchange value/market value, the price one may obtain for the security on an exchange or in the process of exchanging it for some form of alternate value (usually FIAT), and derivative value, the price of an asset’s value relative to that alternate asset or function which it is representing.

 

All 3 values listed above might be at any one time completely different. For instance, a company’s core value might be $1 billion, it’s market value possibly may be even higher – possibly up to twenty times or more so – being predicated on its earnings forecast. The company’s derived value would be the difference between the core value of the asset and the exchangeable value.

 

If for example a company was pegged to earn $50m on $1 billion of assets and it traded for a P/E of 50x earnings, its core value is $1 billion, it’s exchange value is $2.5 billion and its derived value is $1.5 billion.

 

A similar test can be applied to payment utility, except in the case of utility assets there is no connection between the core utility and the derived utility other than that process whereby the core utility of the asset can be engineered to produce an alternate – and reflective – type of payment utility.

 

If we map the FUTR(/X)’s three types of utility as we did for the value constructions of a hypothetical security, it becomes clearer where the lack of securitisation is evident in FUTR(/X) tokens:

 

Core Utility – For use within the ecosystem belonging to The Factory Banking Project, such as whitelisting future product launches, participating in community events etc.

 

Exchange Utility – The utility derived from buying and selling FUTR(/X)s against Bitcoin, Ethereum, DOGE etc. on exchanges such as Cryptopia and Binance

 

Derived Utility – A reverse-exchange utility in the sense in which it is applied: instead of being an exchange utility where the FUTR(/X) is sold for a sum of Ethereum (whereby it is used as a mechanism of payment for such Ethereum), here the token is swapped for a utility it has previously derived from at some point in an earlier event (in this case the example references the mining of the FUTR(/X) itself which is swapped back for the ETH that mined it).

 

It is clear from the utility mapping exercise performed above that core utility and exchange utility function very similarly to their value counterparts. However, in the case of derived utility, there is no fundamental linkage between any sort of valuation process and the functionality of the token whatsoever – rather, derived utility is merely a more advanced form of exchange utility, whereby an exchange has taken place at some point in the past and is then re-enacted. For the derived utility to have security status, it must meet one of the following conditions of the HOWEY test:

 

  • It must be an investment of money

  • There must be an expectation of profits from the investment

  • The investment of money is in a common enterprise

  • Any profit comes from the efforts of a promoter or third party

 

First, there is no investment of money at the outset, but rather a mining of FUTR(/X) with the use of ETH. Second, although there may be an expectation of profit on the part of the FUTR(/X) miner, that being at the point of the re-exchange of the FUTR(/X) with the ETH used originally to mine the FUTR(/X) or via sale of the FUTR(/X) on a major crypto exchange where it is listed, it is not the foremost reason for the token purchase.

 

FUTR(/X) is purchased to take advantage of future products offered by The Factory Banking Project for which ownership of FUTR(/X) – and especially, early ownership of FUTR(/X) – is given considerable preference. If FUTR(/X) by means of being re-exchanged with the ETH in the smart contract yields a capital gain at the end of the term of the current 10-level mining round then this is fortuitous. It is worth noting that there are not even any profits yielded as a result of any of the abovementioned transactions either, since there was no initial “investment of money” in the first place. As for the third point, this is clearly a non-sequitur here.

 

Insofar as the fourth point is concerned, The Factory Banking Project does not receive any portion of any profit. It receives a flat fee paid in ETH at the point at which the FUTR(/X) is mined. The foundation receives compensation for its services providing the development and product advancement of Futereum tokens long before there is any evidence of the FUTR(/X) miners being able to capitalise materially on their FUTR(/X)s. (They would be vale to of course either as a result of exercising the exchange utility or the derivative utility inherent in the token.)

3.6 Roadmaps. Fees Expenditures & Other Considerations

For every ETH received, the Foundation holds a multi-signature for the purpose of effecting any urgently in demand any technical issues. At the point when FUTR(/X) is mined, a one-off fee of 15.3% is subtracted from the smart contract pool of ETH employed in the mining process.

 

Half of this pool of revenue will be used towards paying for research and development of the Foundation’s project(s); a quarter of the pool will be used by the Foundation to invest in external businesses / Blockchain / projects, especially into areas where there may be future synergy with respect to the growth of the Foundation’s product offerings and / or involvement in developing Blockchain applications in general; an additional quarter of all revenue remains left over in the form of savings.

 

Out of this revenue the Foundation may at times employ the ETH received in the process of mining its own FUTR(/X)-based tokens as well as in providing investment capital for ; this type of investment capital for venture capital funds and projects  with similar interests.

 

In terms of apportioning a Roadmap, we the creators of the Factory Banking Project suggest the following guideline as one that might most expediently offer the Futereum Smart Contract the best chance of success. Note that this Roadmap is not set-in-stone, but rather offered by the Creators as a guide:

Note: FUTR(/X)-A and FUTR(/X)-B are generic names for a next-generation Futereum product launch and not the name of the actual tokens. This is an approximate one-year plan. After the period following two subsequent successful product launches, depending on market conditions at the time, we may launch a FUTR(/X)-C product but the product launch dates have not yet been planned. We will announce them during the course of 2018. The Factory Banking Project does not guarantee that these deadlines will be accurately maintained. The annual roadmap illustrated here serves as a guideline only of intended product launch only and is subject to the influence and timing of external events (e.g. severe changes in market direction / conditions). After FUTR(/X)-ETH swap takes place the process begins anew.

 

With the above plan in mind, the following are 5 highly plausible scenarios for ETH in coming 12 months. We forecast a pretty substantial amount of value churn and generalised boosting of highly-integrated software platforms such as ETH, EOS, ICON etc. We also forecast a high volume in FUTR(/X) towards the more difficult end of the mining period for the reasons described herein.

 

Scenario 1: ETH begins a late-year rise like Bitcoin had in 2017 and FUTR(/X) miners in the late levels begin to aggressively mine FUTR(/X) in order to get whitelisted for other Futereum product releases and in order to activate the swap on month 13. If Ethereum is rising as fro Bitcoin in late 2017 in the Q418 period and miners snap up the last lots of FUTR(/X) in order to take advantage of soaring ETH – and by extension FUTR(/X) – prices, then the resultant increase in value for Level 1 stage miners comes to around 19,000% in a 12-month period by the end of January 2018.

 

Scenario 2: Level 8-10 FUTR(/X) miners do not swap but instead leave a significant portion of the Ether inside the smart contract to roll over for the subsequent year. If this is the case then there will be an additional 781,733 ETH left in the smart contract the following year for swapping. At Bitcoin’s current price, that is approximately $2,006.83 per FUTR(/X). This scenario would justify a $14 billion valuation for FUTR(/X) in issue, making it the world’s 10th largest Crypto by market cap in current circumstances. The return for Level 1 miners in this scenario rises to 33,233%.

 

Scenario 3: All the FUTR(/X) is mined prior to July 2017 and the Ether price touches $18,000 per ETH in 2018. In this scenario, it is likely that if continued price appreciation were dominant that a large portion of FUTR(/X) holders would exchange at the end of the month 13. However, there is a good chance that either: no exchange would take place for a large portion of FUTR(/X) as the FUTR(/X) holders aimed to mine the early levels of the subsequent mining cycle or that there would be a massive price drop around the time of the exchange. If the latter were the case then likely the FUTR(/X) price would drop from $1500 to around $400 in the mid-term, presenting an attractive entry point for buyers.

 

Scenario 4: A hedge fund with a view that Ether is likely to touch $18,000 later in the year mines all levels 8-10 and then subsequently mines most of levels 1-5 of the following mining cycle. If the hedge fund in question was to make such purchases they would come to between $300m – $1 billion. While these sound like large numbers, by speculating on Ether itself the fund would stand to gain about 5 -6 times the amount of FIAT in the event that the trade was successful. The FUTR(/X) mining option described however presents the fund with a much more attractive alternative; a smart contract which has a liquid market on a major Crypto exchange and which exchanges to Ether at the point of delivery (most likely at the end of the second cycle after 24 months) with a return of $98 billion. There is simply no other way an institutional investor could expect such a large return on such a liquid basis Crypto or in any other asset class without assuming extra debt and costs.

 

Scenario 5: ETH rises in value to $2000 before plummeting to around $400 at Level 7. By Level 10 at the year-end ETH price has regained to $4000. This scenario would mean that 98.5% of miners from levels 1 – 10 would be in profit which would not necessarily be the same case were they holding underlying ETH that they sold out in the interim. Miners who stood to make the most money would be those early-stage miners who continued to mine FUTR(/X) while ETH fell back. For instance, a miner who mined FUTR(/X) every other Level from the first Level until the penultimate one would end up in such a case with a roughly 2000% return on an underlying asset that had increased just 500% in value after falling to 50% of its present-day value for half the year. The scenario illustrates well how FUTR(/X) can not only be employed in generating alpha coefficient returns but furthermore, how when it is used in strategic repurchase plans it actually protects Crypto buyers from market downturns by magnifying potential upside

3.7 The Birth of Blockchain Utility Derivatives

The presence of simultaneous leveraged value characteristic and complete lack of securitisation of The Futereum Token is what we believe to be the FUTR(/X)s most innovative quality.

 

We foresee the foundation building substantially in the future on top of multiple Crypto products and applications utilising such a model as it functions just like any exchange-traded POW currency, with a fixed cost base that progressively rises, while simultaneously enhancing by many multiples over the performance of the potential returns of the holder versus a prospective holding in the referenced Crypto employed in mining it and thereby setting such cost.

 

All the while, value is held in a non-securitised form in a secure smart contract. We believe it is this sort of function for which a smart contract was designed; that is to say, for the enhancement of value production via a new utility discovery and not purely for the purpose of safety in fundraising as it is more commonly used in ICOs today.

4.0 The Naked Host of The Internet of Things (IOT)

4.1 The Birth of The IOT Economy

In May of 2015, we attended a Blockchain conference in Hong Kong at which one of us gave a speech outlining the future of Factory Banking. On the last evening, one of the forum’s keynote speakers took me aside unexpectedly and gave me some unsolicited but very welcome advice.

 

“Daniel,” he told me, the successful start-up entrepreneur of more than one established Blockchain company; “if you want to lead Blockchain into its next phase of development, then spend the next two years studying the financial markets. They are coming for Crypto. Maybe not today, maybe not tomorrow; but when they come, they will come with a bang.”

 

We thought so too but in fact the wait seemed longer than expected. When Bitcoin reached $5000 and there was talk in the air about the launching of futures contracts for a new era of Crypto-savvy investors, we knew it was the moment. we were ready.

 

Throughout the last two years studying financial markets closely, spending time with my Uncle’s best friend on the trading floor of one of the world’s most prestigious banks, we have come to learn a lot about how successful markets are born – and how they die.

 

At the heart of all financial mechanisms is the idea of “possibility”. Securities do not trade, we were surprised to learn, on the basis of what they are built of in the present, but rather of what traders from New York to Tokyo may think of what they will be built to look like in the future. Like a supermodel, it helps a lot if what is being traded is a blank canvas upon which any form of personal or requisite ascription can be easily drawn.

 

Brilliant engineers, we believe, are like brilliant artists – they lack a sense of resolve where one is appropriate, which enables that spark to light up a digital corridor when others are grappling for the way out. we believe that engineers are to be protected by senior management, and not the other way round. 

 

The unknown quantity that is Crypto, despite being shielded from the light of sovereign regulators, is no less brutal than the one many financial markets traders wade around. Money is a scarce commodity after all, and where there is scarcity there is an unusually high degree of hunger.

 

However, as with so often in life, the hunger of traders, I soon realised, was not for the most of the time, one for any genuine sort of nourishment, but rather, for fulfilment. From the lonesome round equity-swaps dealers desks to the rectangular bond arbitrage floors, traders are on the hunt for what has not yet been found.

 

This pattern is not exclusive to financial markets. Since 1602, since the founding of the first joint stock company, named the Dutch East India Company, the frenzy for potential returns has often blinded the reality of fundamental utility, which is the only true source of value beyond sovereign hegemony. For 94 years after the DEIC was begun, the company paid dividends ranging from around 15% to nearly 70% per annum. The company soared on its debut Initial Public Offering – up 1200% – only to collapse by two-thirds upon the realisation of the market of its latent potential. My family, who originally come from North India, were direct beneficiaries of the hopeful speculation of British traders on spices. Ultimately, of course, the whole enterprise ended up in what became the Opium Wars, perhaps the most profitable illicit enterprise undertaken by a sovereign body to this day.

 

When analysed against today’s most proficiently-regulated equity markets (up over 300% since subprime housing blew valuations apart) and indeed, against Crypto markets, which regularly rise and fall by equal percentages in similarly short spaces of time, one is forced to ask oneself: what is it that drives these huge swings? Nearly everywhere, one finds the same single answer in my experience: speculation.

 

We like to think as entrepreneurs that we are utility-providers, especially so in the case of tech. But the truth is, we provide the impetus for utility, which is first founded upon the ascent of value. This is not a popular idea, but it is a perfectly true one. For self-interest dictates that utility is only meaningful to us when it results in some immediate value movement.

 

This sociological reality explains perfectly a number of market aberrations, in particular the persistence of intense venture capital speculation on what amount to pure ideas, and the rush in markets of exchange-traded goods of those with an indefinable or opaque quality. Cash shells, as they are known in the United Kingdom and Asia, or blank check companies, as they are called by North American speculators, are some of the core components of this tendency of capital to alight at the door of uncertainty in the hope of larger reward.

 

In the previous 24 or so months, I have watched my Uncle extract fees as high as 67% of capital raised, merely for providing the service of listing such companies at multiple times the cash they are holding on balance sheet. In one particular case, the sum concerned reached over a billion-dollars. This is standard practice apparently in the course of business in financial markets such as Hong Kong, San Francisco and London.

 

Uncertainty may present risk, but it also presents the possibility of an outsize return. It seems that for all the “hedging” and risk management you hear talked about so often, most of what goes on in the nerve centres of the world financial markets is all about going “long”. That is after all presumably why people who work for investment banks are much richer than the rest of us: they take more risk. At the same time, however, another thought continued to occupy my mind – how is it that certain individuals take more risk and come out on top than others?

 

The answer to that important question – which is the purpose of this paper – lies, it seems, at the intersection of the maximisation of value enhancement with the reduction of erosion of core utility.

 

This history is emblematic of the foundation of Bitcoin’s 2500% rise in the past 3 years, and indeed of the rise of Crypto’s entire plethora of listed tokens. Since 2015, the number of available utility tokens has risen over 10 times in quantity while the market as a whole is up in value by the hundreds of percentage points. Utility has become the buzz-word as speculators from conventional financial markets have increasingly fled towards Blockchain in search of the uncertain – but profoundly awesome – returns that this market provides.

 

This history should serve the reader of this White Paper with the necessary philosophical and hopefully, not-too-burdensome financial background required to understand the nature of the project that is the subject of this discussion: the enlistment of a pure blank utility token supported by a cutting-edge environmentally-clean, ultra-efficient technical substance on the Blockchain. Here begins the search for the next level in value realisation. If it is anything like all historical markets, the reverse coin offering token will be simply the best performing token in the shortest space of time to be listed on Blockchain exchanges in many years yet and to come.

4.2 Problems Associated With ICO Value Equations

Blockchain is rapidly transitioning from a utility-oriented payment processing mechanism to one whereby individuals are increasingly engaged in harnessing the inter-payment processes in a game of cat-and-mouse value production.

 

While there have been impressive rises in leading Cryotos such as Bitcoin and Ethereum as a result of this, what is much less recognised is the extent to which such value-chasing is currently eroding the wider Blockchain landscape.

 

ICOs, once the domain of exciting new utility offerings that promised to increase the amount of user participation on the Blockchain protocol to which they were tied, are now becoming something of the opposite. Increasingly, entrepreneurs are chasing fast-money Dutch Auction capital raises and using excessive amounts of premined tokens to cash in on the back end after receiving their Crypto investors funds.

 

The effect is one that, left to a great enough extent, will have a morally corrosive – and as a result, ultimately financially detrimental – effect on the utility proposition of the Blockchain.

 

It may seem like an irony that our solution to utility erosion of post-ICO token issuances is to strip utility away entirely, but when something is not functioning in a meaningful way, it is usually the best approach to abandon it altogether. Certainly, this is the case from a financial markets perspective.

 

By stripping off utility for the period in which the post-ICO token is not fundamentally being employed in any meaningful activity (such as being used on an exchange to pay trading fees or as “gas” for wallet transfers, for example) the net effect is to create the awareness of an alternate form of utility.

 

This new form of utility, which, while very securities-like is non-securitised as a result of its non-promisary status, is significantly greater than any proposed weak utility that many current ICO tokens have.  The reason is very simple: what utility the token possesses is one of an interest-bearing, potential value-event utility that is intrinsically tied to the community who owns the token. Historically, the most successful Cryptos have traded this way.

4.3 The Failure of Proof-of-Stake (POS)

As is commonly the case with Crypto innovations, what is most overlooked by the community adopting them is what the financial regulatory authorities are most aware of. No truer is this statement than in the case of Proof-of-stake Blockchains. In fact, it is so frequently overlooked by Crypto participants that POS Blockchains lend themselves to potential securitisation of Crypto assets that many in the United States are still blithely unaware that employing a Master Node to engage in voting activities with respect to the ordinance of the Crypto concerned is in itself engaging in an unregistered securities transaction. Similarly, engineering the Blockchain by way of harnessing the redistribution of anything that resembles a profit made on an individual vote-based transaction is also a violation of securities laws.

 

Securities laws as defined in the United States except in very specific circumstances do not permit the unregistered dealing of assets for the purpose of utilising such assets as tools employed in the redistribution of earnings or in converting such asset holders into stakeholders.

 

POS Blockchains, by virtue of Master Nodes and smart functionality that enables such events to take place instantaneously, thus arguably pose the greatest legal threat to Blockchain projects crossing over the lines of securitisation. However, this is not to suggest that such Blockchains must be employed in this way to function or necessarily even function as such in terms of every-day usage. In fact, the core utility proposition of POS Blockchains is in their in-wallet mining ability. By simply storing a Crypto in a wallet, the holder becomes the beneficiary of more of that Crypto.

 

A POS Blockchain transforms what is a value chain process – the act of mining Crypto as per Proof-of-Work Blockchains – to one of a value network proposition pretty much from the outset. We do not ever intend to cross the line of financial securities regulation. On the contrary, we see this as redundant and unnecessary. It is enough that the POS Blockchain functionality alone lends itself harnessing Crypto production in an interest-bearing capacity (as opposed to an inflation-eroding one in the case of POW Blockchains).

 

The close assimilation of the core POS utility with modern financial services products is a benefit in and of itself for our project, and we have absolutely no requirement to employ it in any sort of future profit sharing activity.

 

An unintended consequence of offering a saver a rate of interest that is appealing is that the saver rarely removes the value from the source of that interest production for the purposes of investing it or spending it. Why should he, after all – he is already investing just by saving alone. This results in an overall economic weakness with respect to the Crypto mined in POS Blockchains – specifically, it doesn’t circulate that much.

 

RCO’s are by definition the maximisation of short-term value to the detriment of fundamental immediate utility. On top of that, there is a high level of economic uncertainty attached to their prospective future value. Without any current core utility, or any utility-in-progress being built into the RCO, it is essentially being employed for a period of time as a non-securitised object of value-utility. In other words, it is in effect a security that has none of the beneficial attributes of being a security.

 

What is especially exciting about the juxtaposition of these two challenges is the way they seemingly resolve one another. For while the high level of value uncertainty is apparent – prior to the RCO token being employed in an exchange for a token of genuine utility at a significant premium – POS substantially de-risks the period by offering the speculator an ongoing reward for assuming the risk of holding without fundamental utility. Similarly, because of the combined attributes of the higher level of uncertainty that exists with respect to the pre-exchange period and the eventual expectation of a value event on the part of the speculator, there is likely to be a much higher rate of circulation of the RCO token than is usually the case with tokens of POS utility.

 

In other words, we foresee that the increased risk of owning a token without any temporary utility being applied to it is offset by the interest-accumulating principle of the POS mining process while the anticipated value event in the near future acts as a market trading stimulant. The combined interactivity of processes herein could not mimic more closely the spirit of securitisation, and yet, the fundamental blank utility of the token combined with the lack of any promise of there being any value event whatsoever clears the token of such classification completely.

 

We expect this to result in a significant appreciation of the RCO token prior to any potential value event in the form of a token exchange, buy-out etc. by an appealing Blockchain utility token provider. In this way, we believe shortly after the point of listing on major Crypto exchanges that we will have solved a fundamental flaw with respect to ICOs; that is, namely, that they very seldom increase in value following the offering. Thus, our RCO token offering may well turn out to offer a preferential method of engaging Crypto participants more safely, profitably and ultimately, considerably more successful in the exercise of short-term value production than is currently the case.

4.4 Differentiating Value Delivery From Token Dividends

We must here delineate between token delivery and token dividends. In the case of POS, new tokens are mined as, in effect, utility dividends. This is conducted by way of storing existing tokens inside the POS Blockchain wallet. As we have discussed, this has a corrosive effect on value as more supply is issued to market that the POS miner does not value as highly. It is however possible to harness a POW Blockchain – which has a more intensive utility – to emulate a POS Blockchain wallet mining process. This is achieved by way of installing a drip in the smart contract that delivers tokens purchased at ICO into the wallet of the buyer over a specified period of time.

 

It is common for POS digital ledgers to issue tokens in the same way as a POW Blockchain – that is to say, aggressively in the initial phase, followed by a gradual decline in delivery. We do not find this to be a logical fit with the  We think there is good reason however to reverse this equation and deliver tokens on a slower basis initially, climbling over time to a more aggressive delivery schedule as the token is the beneficiary of more real utility prospects.

4.5 The Holistic Option Synthetic Token (HOST)

Token Ticker Symbol: HOST

Supply: 35,000,000 Tokens

50% for sale (10,500,000 tokens)

30% for management and projects (6,300,000 tokens)

20% for other (4,200,000 tokens) (+ extra % tokens remaining)

 

The following represents a Five-Tier Distribution each representing 10% of the total (contributions for 2 days in BTC):

 

TIER 1: 0.00001 = 1 token

TIER 2: 0.0001 = 1 token

TIER 3: 0.001 = 1 token

TIER 4: 0.01 = 1 token

TIER 5: 0.1 = 1 token

 

For example, if a purchaser sends 30 ETH and the project receives a net total of 3,000 ETH, then:

 

0.1% of tokens are at 5 cents

0.1% of tokens are at fifty cents

0.1% of tokens are at five dollars

0.1% of tokens are at fifty dollars

0.1% of tokens (10,500) are at five hundred dollars (2 tokens)

 

In the example given here, a total of 22,222 tokens was purchased for an average price of $4.44 per token:

 

  • The highest expected listing value would be the total value of the tokens at the most previous purchase price ($500), yielding a profit of $495.56 per token, or $11,012,334.32 (using the average price per token of $111.11 this number becomes $2,469,086.

  • This is the level to which the tokens are likely to fall immediately following the listing.) Clearly, this sort of value increase will lead to an immediate sell order being placed on market.

In order to prevent too much of this, the token distribution will “drip” into the subscribers account on a per week basis at differential per quarter rates for one year as follows:

 

  • Q1:24 tokens per day ($120 per day at market; $1.2 per day at median; $26.66 at mean)

  • Q2:22 tokens per day ($1110 per day at market; $11.1 per day at median; $246 at mean)

  • Q3:22 tokens per day ($11,110 per day at market; $111.1 per day at median; $2,468 at mean)

  • Q4:22 tokens per day ($111,110 per day; $1111.1 per day at median; $24,690 at mean)

Gains and losses according to different price and timeline metrics can be represented thus:

 

  • Market: $10,800 + $99,900 + $999,900 + $9,999,900 = $11,110,500 (+222,110%)

  • Median: $108 + $999 + $9999 + $99,999 = $111,105 (+2100%)

  • Mean: $2,399.40 + $22,200.3 + $222,120 + $2,222,100 = $2,468,819 (+49,276%)

  • Penultimate: $10.80 + $99.99 + $999.90 + $9999.90 = $11,110.59 (+122%)

  • Lowest: $1.08 + $9.99 + $99.99 + $999.99 = $1111.05 (-78%)

In all but the very last scenario, the speculator at the ICO stands to gain. The minimum price per token for the purchaser to break even is around 25 cents; above that point, the purchaser is in profit.

 

By delaying the delivery of the largest amount of tokens until the year-end, by which time multiple projects have been able to annex the token via the RCO process, the idea is to halt any detrimental price activity until after utility has had time to take effect in the token’s fundamental and market value.

4.6 Time-Enhanced Value Distribution Systems

It may be the wise words of Sun Tzu that we embrace therefore; “Opportunities multiply as they are seized.”

 

Thus, our model whereby drip fed tokens staggered across a variable price range, exemplifies utility as a mechanism of time-enhanced payment.

 

We have of course seen The Factory Banking Project enhance value via means of expression of underlying value, but what we haven’t seen anyone do yet is enhance core value via time alone.

 

And yet it is time itself we most often lament as our greatest strife when it comes to investing! Given enough time, we all end up dead, either way – and the same is true for wealth accumulation, too.

 

We hope that time-enhanced utility value is a thing not just of the future, but of the present. We in the present need time, at least insofar as cryptocurrencies are concerned.

 

For time is nothing other than the Naked Host upon which we hang the temporariness of each of our existence.

5.0 Proof-of-Value (POV)

5.1 The Birth of Blockchain Value

In 1.0 The Value Coeval  we looked at the origins of Blockchain, the hypothesis of Factory Banking and specifically, we identified a value coeval proposition on which decentralised economics took place, and specifically which the blockchain enabled. 

 

In 2.0 Bitcoin’s Price Deflation we discussed various possible stimulae for the re-issuance  of a legacy Blockchain asset similar in quality to Bitcoin with a highly distributed ledger via 4 years of previous POW mining activity but with low trading participation. In this paper we identified specific strengths of the POW mining protocol versus the POS mining protocol.

 

In 3.0 The Futer of Crypto (and by extension 4.0 The Naked Host), a completely original, previously unseen swaps model is revealed via way of configuring Ethereum smart contracts. Ultimately, what is conceived is a Blockchain token swaps application that by virtue of reorganising delivery relative to receipt of core cryptocurrency used to pay for the issuance of new tokens, results in a higher value being obtained for the purchaser than was used to pay for the original tokens.

 

In summary, we have therefore identified the following:

 

1)    A paradigm within which value is created on the Blockchain 

2)    Specific advantages of proof-of-work (POW) versus proof-of-stake(POS)

3)    A way of expressing these POW advantages without complex new technologies

 

Proof-of-value is a synthetic mining protocol. This means that we do not employ in the process of “mining” any of the sort of complex tech builds that the construction of traditional POW and POS mining applications entails. As such, no command-line protocol exists as it does in standard software build-outs. Rather, POV uses the commands already installed in the smart contract technology to replicate Blockchain commands.

 

Rather, we use the full functionality of the Ethereum Virtual Machine, a smart Blockchain, in order to produce the effect of a POW mining protocol with the same identical value advantages of POS (e.g. environmental efficiency in production of tokens).

 

The problems we have solved by identifying and putting in place a Proof-of-Value synthetic protocol are almost unbelievable in scope and size, and yet every single one is justified by the work undertaken to date:

 

– Scams – by backing all new digital assets with value it is not possible to sell “worthless tokens”

– Costly and difficult POS hybrid integration 

–  Destruction of fledgling POW mining cottage industry

– Risky and economically inefficient consensus mining 

– Regulatory risk (in USA) of running Master Nodes

– Network efficiency (over-capacity) 

– Blockchain forking 

– Inefficient pricing of new digital assets

Proof-of-Value (POV)

5.2 Synthetic Mining Protocols

Synthetic application of the technology is important at some point in the innovation cycle or else the temptation is to over-build. The process of over-building Is ultimately self-canabalistic, as Clayton Christensen points out in his theory of disruptive innovation. A disruptive innovation is one with “lower gross margins, smaller target markets, and simpler products and services that may not appear as attractive as existing solutions when compared against traditional performance [but] because these lower tiers of the market offer lower gross margins, they are unattractive to other firms moving upward in the market, creating space at the bottom of the market for new disruptive competitors to emerge.”

 

This description fits synthetic mining protocols perfectly. POV synthetic mining protocols are less eye-catching to the technologist than master node-enabled proof-of-stake Blockchains with multiple consensus mining algorithms, for sure, since they are in effect just tradeable smart contracts and escrowed POV digital assets.

 

However, the lacking in complexity, the more defined context of value that is inherent in such synthetic digital assets (as a result of the value held in smart contract for the duration of the token’s life-span), the infinite issuance possibility of such smart contracts, combined with the infinitely lower complexity of such synthetic mining protocols, will ultimately make them the number one class of Blockchain mining algorithm employed in digital asset issuance and trading.

 

The fourth and final step of this 9-month experiment produces the most efficient form of Factory Banking yet, whereby value is created simultaneously at the point of manufacture even as it is realised either in immediate short-term arbitrage gains or in medium-/long-term price efficiency (deep value) gains by the smart contract value miner.

 

The POV synthetic protocol has a number of additional technological advantages implied in it that address current network overcapacity problems. These, in addition to the value production mechanism described above are the subject of the fourth and final White Paper in the Factory Banking series: Proof-of-Value: A Synthetic Mining Protocol For Blockchain (WP4-V).

 

Value Mining (Proof-of-Value) – Factory Banking Model

Value is never naked: it is always integrated by way of reference or relative sum. Therefore, the stronger the integrated fabric of the synthetic mining pool, the more value it has over the longer term.

 

FUTR is a savings token (ICOs, base trading pairs etc.)

FUTX is a commerce token (arbitrage, trading opportunities etc.)

MNY is a membership token (privileges)

COE is a super-synthetic token (redistribution of savings, profits and privileges)

 

Here is a visual representation of our integrated value model:

5.3 Synthetic Blocks

The horizontally-positioned lines between which POW and the synthetic products commingle, and the lines at which synthetic POV tokens swap with super-synthetic tokens we call synthetic blocks.

 

Synthetic blocks are grouped into levels, which are subsequently re-packaged into cycles. At the end of each cycle a swap-back is offered, but this can also result in a retention of the synthetic or super-synthetic.

 

In general, it is to be expected that the higher the retention ratio of synthetics is over the core POW unit of currency used within the value system at the end of every cycle, then the higher the demand for super-synthetic swaps.

5.4 Synthetic Chains

Synthetic chains refers to the nature of the synthetic in reference to its position to the underlying POW protocol. A super-synthetic is a synthetic chain; a synthetic is another synthetic chain. In other words, the synthetic chains are structures that exist behind the synthetic blocks and on top of the POW protocol. When synthetic chains are interactive synthetic blocks are dormant and vice-versa.

5.5 The Fibonacci Dimensions

Phi-dimensions is a term we ascribe to the conceptual-physical distance that exists between any two units of value that exists by a distance of phi apart from one another. The Factory Banking model proposed here is intended to be completely integrated so that the phi-dimensions between the model are equally apportioned to the Fibonacci upon which they run.

 

Thus, ETH and COE procures MNY and FUTR, MNY, FUTX combined when all fed with ETH produce integrated value via COE. The initial value is ETH therefore. Note that is nothing is mined it can have no value; if it is mined it automatically has value it beings onto this synthetically integrated “mining grid.”

 

This paper introduces the concept of phi-dimensional ratios. We are not sure whether or to what extent phi-dimensional ratios are an integral part of value modelling for payment technologies (or indeed any other form of market-based value modelling).

 

To create Phi dimensional ratios we posit that the algorithm should always begins with the Fibonacci and always refer back to the Fibonacci but should be inclusive of its own particular extension or retraction of Fibonacci mathematics.

 

For example, in a Phi-dimensional algorithm wherein the first level is extended by 22% the resultant formula produces 139.08; then, in the second level, 0.78070157 is multiplied by this number since this is the phi-dimensional distance between 89 and 114:

  

To ensure the algorithm is truly phi-dimensional, algorithm variance divided by the real variance of the resultant numbers in the final algorithm should always equal approximately 0.62, which is our closest pared ratio to Phi.

 

Because of the way in which the Fibonacci atrophic number series is coordinated relative to directional flow of value (i.e. it becomes gradually more expensive, then falls back and then gradually begins again to become dearer) it is our contention that Fibonacci is simply the most customised mathematics for value modelling that exists today. Phi-dimensional ratios become important when we begin to create multi-directional synthetic crosschains.

5.6 The Birth of Crosschains via Synthetics

Ultimately, multiple instances of synthetic Blockchains are possible utilising various smart Blockchain software and the core cryptocurrency on which the Blockchian being synthesised is hosted. These synthetic will Crosschains all contain various different F-layers and loops between forward and optional synthetic directions require a phi-dimensional algorithm calculation, since depending on cycle speed and other factors of the synthetic being wrapped inside the next F-layer, different synthetics will mature at different points in time.

The maturity date of the various components of the subsequent F-layer synthetic structures may have a profound impact upon value realisation of the synthetic over large extents of time (i.e. years) as the roll-over fees begin to kick in. In such instances, faster cycle speeds can be addressed inside super synthetic structures with variations in the phi-dimensional algorithm used to value mine them.

 

Phi-dimensional algorithms may need not be confined to Synthetic Crosschains however. In the example above, take COE. Although the initial miners will get a spectacular payoff, without any extension of the algorithm around level 5, the true probability of profiting off value mining beyond that point would be slim in a foreseeable space of time unless the cycles were considerably shortened.

Conclusion: Next Generation Value Innovation

This paper is not your conventional Blockchain White Paper. It is not likely to be received with popular acclaim. At it’s heart, the message is one that preaches less is more, when Blockchain is predisposed to serve the opposite idea. With so many of the Millennial generation jockeying for the same top spot among the clamour of what is the world’s largest generation in history, the idea that we should scale back, cut slack and reinvent by going direct to the source of value, disregard most of the venture capitalists and their billions in prize money for the lucky entrepreneur is not one that is likely to settle easily.

 

But that’s the truth of it. Almost every single innovation that exists on Blockchain today does so as a replica – an exact copy most of the time, not so much an adaption as an outright forgery of value – as the next innovation. Is this sustainable? Not likely.

 

And so the question becomes: what is? After all, as discussed earlier in this White Paper, ours is the most proficient technological and academic generation in history, and we have the most number of mouths to feed, those being both those of our own and those of our parents and children, too. There’s 7 billion mouths to feed and about 1 billion of us to feed them all, all jockeying for the same position.

 

Value production on such a scale must by definition be synthetic or else it stands no chance of having any success. That the value that is produced within the recommended series of innovations herein is not in any sense real is not the creators of the project missing the point, it is the entire point to begin with. Only by purposefully manufacturing value, in the same way that we manufacture food, water, furniture, consumer goods and everything else available for ourselves today, do we stand any hope of making it over the bridge as a united society. We need a new value chain proposition.

 

That’s why we have the Blockchain.