When Kitties Jamm the Ethereum Network

Today Mr. Positive Blue and Mr. Negative Red meet Mrs. Inquisitive Brown to talk about Blockchain Performance. Mr Neutral Black has taken a look at the scene and Mr Technological Green is around just in case. Mr Market Purple has joined today for a beer.
- Today I was sending some ether to the Game Flip token sale and it seemed that I just could not get the transaction through.
- Oh, yes, there is a known issue these days, the network has so many transactions that you would need a huge gas price.
- What's that?
- You pay a fee for the transaction to be mined on the Ethereum network. If you set that price too low, it will take a while for any miner to be interested in processing it.
- You can see the recommended prices here at gas station.
- I see. So, why is the network congested?
- Well, typically very large ICOs or lots of trading in particular moments. But on this occasion there is kind of a funny side effect of a DAPP called Crypto Kitties (https://www.cryptokitties.co/)
- I know that one, prices for kitties are mooning now.
- How do you know?
- Oh, see, you can see the major burners here and the first one is that DAPP / game.
- But, is the Ethereum network really that vulnerable?
- Yes and no. We spoke the other day about companies that try to use it as a payment network for regular purchases and how that is still not possible. However there are projects like the Plasma Protocol and the Raiden Network that are already providing solutions.
- That's good, I would not like to be in a market where a cat can ruin an operation.

Why SETHER is not getting my ETHER - Oracles and Vaporware

(to all purposes, this is fiction)
Today Mr. Positive Blue and Mr. Negative Red meet Mrs. Inquisitive Brown to talk about mainstream payments. Mr Neutral Black has made a through reading of the document and Mr Technological Green is around just in case. Mr Market Purple has joined today for a beer.
- I read the SETHER White Paper, and I have quite a few questions now.
- This project comes from a company that works in social networks analytics and plans to develop an Social Networks Oracle.
- They seem to have a good team, good programmers.
- The product is much needed.
- But, what is an Oracle?
- Do you know about Smart Contracts? Remember, those are programs that are coded into the blockchain and can be called and executed in trust-less manner?
- Yes, we spoke about them a while ago in the Quantstamp entry.
- Ok, these contracts are very good at dealing with information that is already on the blockchain, but they need to interface with other "real world data".
- For example?
- If you want to make a blockchain payment for an add in Facebook, the smart contract that does the payment needs to know that the add has been published.
- Oh, OK, and that would work also with other stuff?
- Indeed, sports results, exchanges quotations, ... anything.
- SETHER is developing an API so that smart contracts can use it as an Oracle for events that happen in Social Networks.
- It has huge potential. Is a much needed tool with hundreds of use cases.
- The technical base seems also quite good.
-So, should I invest?
- I would not.
- But, why? It sounds terrific!
- These people are great programmers, but their business proposition to the investor is awful. Firstly, there is a huge hardcap. If it is reached it would mean valuating the tokens (not even the company) (they sell 50% for a hardcap of 165,000 ether, currently all tokens would be 132M USD in value).  Second, there is no softcap. They claim that the project will go on no matter what the contribution is.
- What are the consequences of this?
- As investor, I do not know how much am I paying for what percent of the tokens. That is, if I put 1 eth, what percent of property (of tokens) do I have. It is blind investment. Also, not having a hard cap an claiming that they would do the project anyway means that they do not need my investment, so they are just using a good opportunity to get additional funds to try to do a faster development.
- That approach to software engineering is not adequate for innovation. The rationale behind this is "let's get as much money as possible so we can hire a workforce as large as possible to finish this".
- So... is that possible?
- No. It does not work like that. Growth has to be managed or the chaos will eat up the funds with meagre results.
- Are there any other red flags on this project?
- Well, not really a red flag, but there is going to be a huge competence and this guys do not seem to have a good market strategy nor a pre-existing customer base.
- So... they won't succeed?
- They may succeed, but the risk does not match the reward. Particularly with that ridiculously high valuation of a software that does not exist.
- If the software does not even have a prototype (they only have a proposed API definition), the team is good but not world class, there are not pre-existing clients, no strategic partners... I have to agree, the valuation is not correct. I am out. 

The Sophistication of Ponzi Schemes - ORMEUS COIN

This is fiction to all purposes.


Today Mr. Positive Blue and Mr. Negative Red meet Mrs. Inquisitive Brown to analyse ORMEUS coin. Mr Neutral Black has made a through reading of the document and Mr Technological Green is around just in case. Mr Market Purple has joined today.

- I just spoted a great opportunity! It is an investment in an existing bitcoin mining facility that is producing half a million USD in bitcoin and is going to expand. It would go like 100x the price and produce dividends right at the beginning. It is this one. What would you say?
- Well, the market for the coin has gone strongly up last week. It is quite amazing. Frankly, I have made a few quick operations for a 15% return in one day.
- I have seen the telegram channel. They just posted videos and pictures of the facility. It is inmense!
- I have seen those videos too. I have also checked on-line.
- So, is it good?
- Well, technologically speaking, they claim in their White Paper that they will deploy an smart contract to grant dividends to investors. If you are running an operation like this, that would be peanuts... kind of the first thing you would do.
- There are a few warning indicators on this one. The less important ones are poor Bitcointalk announcement page.
- Actually, what I found is far more distressing for those who invested. Firstly, there is a company called Ormeus Global, that is linked to this development. The business they claim to be inn is wellbeing and people developing their inner potential... and the like.
- That does not seem like the kind of company that would develop a technological venture in the Blockchain.
- However, it does sound like the type of company that would develop a Ponzi.
- A Ponzi?
- A scheme based on paying previous investors with the money from future investors... until it blows up.
- But... I have seen the videos and pictures of the Bitcoin farm.
- Just look closely. They showed a video of a bitcoin mining farm. No corporate image at all, no founder image shown in the video, no team, ... It even looks like a digital makeup.
- Oh, there is a board that says ORMEUS in one of the pictures.
- Take a closer look at that one. It is as fake as it gets. It is not even half decent photo-shopping.
- Oh Oh.... seems like those people who are buying a x10 ICO are not going to like this.

The Bankera ICO - Numbers and numbers

Today Mr. Positive Blue and Mr. Negative Red meet Mrs. Inquisitive Brown to analyse the Quantstamp ICO. Mr Neutral Black has made a through reading of the document and Mr Technological Green is around just in case.

- What can you tell me about the Bankera ICO?
- In short, from a crypto-currency exchange they want to build a full bank. A very small one as per today standards, but clearly intended to capture the growth of the crypto-market. They have already some relevant licences and they need to get the rest.
- Is it a good product?
-I can't say. The exchange is there, but they plan to offer accounts in crypto-currencies. Why would anyone want to keep Bitcoins, or any other alt, in a bank? Other than that, same products as any bank out there.
- On the positive side, they have an exchange working and a seasoned and large team.
- Why don't we do some numbers?
- Sure. Just a very rough estimate. Tokenholders receive 20% of the net revenue of Spectrocoin and Bankera.
- In their blog they say they are giving 100k a week of net profit as today.
- I wonder how with a team of 50 people to pay for, but let's take their word for it.
- Perhaps the cards business is going well.

- So, if invest..what do I get in return?
- Most likely there will be an initial pump and dump. One way to get something back is to sell it quick.
-  I mean long term.
- We do not know how many tokens will be sold, and you don't really know your stake in the company.
- Let's assume that they reach the hard cap of 152 Million euros.
- That sounds like a huge ICO.
- How does that money go back to the token holders?
- The only guaranteed stream of revenue for the token holders is 20% of the SpectroCoin and Bankera net revenue. Bankera net revenue is likely to be zero for the moment. Spectrocoin last week revenue is claimed to be around USD 100k. 20% of that,  20k, will be divided among tokenholders, that is around USD 1 million a year
- But they will grow in the future won't they? How much does that revenue need to grow to give, lets say, a 10% per year for token holders?
- Currently is 3%, after the ICO, with all that new money... they would need to do really well.
- They would need to grow a lot.
- Do you think that is possible?
- There is a good perspective in the sector. Basically, there is not much of a sector at the moment and is going to be built.
- What happens if they sell much more in the ICO?
- Then is more difficult to reach a interesting return, but also more likely to grow.
- Do you think these numbers are good?
- For a start-up with a running product, yes.
- Is the team solid?
- They are experienced.
- Good advisors?
- I would say ... decent, not excellent.
- I do not know who are the shareholders of Bankera nor Spectrocoin.
- Apparently three entrepreneurs. Is a UK-Lithuanian company
- What could be the problems here?
- Well, if traditional banks are threatened they will develop similar services. Bankera would have the first to market advantage, and may even get bought.
- As a token holder, if it is bought, do I get anything?
- Well you see, there is no guarantee of participating on that. They new owner could potentially decide not to compensate token holders because a token is not a share.
- Well.. that's far away I guess.
- But, is this ICO good or not?
- It looks fine, the problem is that I do not see any institutional investor or if there are, I do not know who are they.
- Also, consider this: since they are selling 20% of the revenue, they are valuing the company at 600 million euros if they reach 150 million euros of token sales. Right now the revenue is 1 million a year. It is a big act of faith to invest with those numbers.

The value of Utility Tokens - CryptoTickets

(this, to all effects, is fiction, not advice).
Today Mr. Positive Blue and Mr. Negative Red meet Mrs. Inquisitive Brown to analyse the value of "utility tokens". Mr Neutral Black has made a through reading of the document and Mr Technological Green is around just in case.
- I have seen many ICOs that sell tokens that will eventually be used to provide a service or buy goods.
- That is right. CryptoTickets, Genesis Vision, WaBi,... and many other.
- My question is, the sales argument for an investor in the ICO is that since those tokens will be used to pay for services if the services are extended and demand grows the value of the token increases. Is that true?
- Well, that is a market law, if you have a limited supply of something and more people want it, you can ask for a higher price.
- Well, I do not agree.
- Why? That is kind of common sense!
- The amount of tokens is fixed, but each one of them can be used many times. The offer of tokens is de-facto infinite because they are not consumed but recirculated. For example, an event organiser or an artist that is paid in tokens will immediately change it for fiat, to pay in the "real world".
- So the only chance for an increase in value is if they decide to hold the tokens?
- I would say that is just speculation.
- Put in even simple terms please.
- Shakira agrees to get paid in tokens 
- That would be difficult to believe.
- Just, accept it for the moment. Shakira sells 1 ticket for 10 TKT tokens. Immediatly goes to the market and gets, let´s say 50 USD to pay the crew, site, etc... So the token has been bought for 50 USD by the client and has returned to the token market for 50 USD.
- That is simplistic, there are many factors to take into account.
- I agree, but basically that is what would happen, and that would add not a penny to the value of the token.
- So, there is no increase in value possible?
- Actually, there is. An event organiser has to own a certain amount of TKT tokens to use the platform.
- Oh, ok, so at the end of all this complex model lies the idea of the event organisers buying the tokens and, at in the end, paying for this new system, at a premium, rather than using the existing platforms.
- That is right in my view.
- And in return they get the value of controlling the sale price of the token, resale and having a system to manage all this.
- I think this is a very risky investment.
- I think there is a good chance for a great reward.
This system actually seems interesting for event organisers, as it allows them to vote and have some control over the middle-man and the development of the sales channel.
In any case, be very careful when you buy a token. Many times you are not buying a "share" of the profit, and, in the worst cases, you may be buying a worthless token or buying for a value that would take years to recover.

ICOs to stay away from... Metronome, Pundi X, Stack, WaBi...

To all effects, consider this fiction writing. By no means is financial advise, endorsement of products nor anything remotely close to that.

Today Ms Inquisite Brown,  Mr. Negative Red and Neutral Black meet to discuss a few incoming ICOs....

- The first one is Metronome. Intends to be a new multichain crypto with a low inflation ratio. However, it is a RC20, Ethereum compatible token and the founders leave to the comunity any further development. No funds provided to it.
- I have read the white paper. As I understand the economics behind it, is a clumsy scheme to give 20% of whatever you invest to the founders with no return. The token is basically backed by the ether that buyers put into it minus 20% for the founders.
- Nothing left to ask.

- What about Pundi-X?
- The underliying technology is not ready and will not be until Ethereum goes PoS. 
- Why is that?
- Ethereum token processing speed is not ready to commit transactions with that volumen in a few seconds, which is what most people would expect when paying for a cofee or a pair of boots. Not to mention the hours delays that could happen on a saturated network.
 - Correction: After this conversation Pundi has integrated the NEM protocol and now it is functional.

- Oh, but it seems that the Stack project and the STK token are just addressing that problem.
- Exactly, they are addressing the problem, but have no solution at the moment nor any Minumum Viable Product nor code, ... Vaporware at a expensive price. Probably Ethereum PoS will short the problem far before them.

- Let´s change the markets... what about WaBi?
- They sell what will possibly become the fidelity points of products that potentially will use an electronic anti-tampering device.
- Is the device good?
- Probably, the problem being that they are selling a token whose value is not related directly to the sales of the device but to an undefined loyalty program: it lacks any real value and may never have it. I would not go there.

103 - Ecosystems and Cryptocurrencies

Today, Mr Philosopher Black, Mrs Newby Blue and Mr Sceptic red meet in the Pub and start talking about "Ecosystems"...

- Ecosystem, that sounds to me like frogs eating flies and squirrels gathering nuts.

- Yeh, well that´s kind of my idea of cryptocurrencies anyway.

- It kind of makes sense to call ecosystem to what normally would be the stakeholders. You see, cryptocurrency, like Bitcoin, do need a "habitat" to survive and thrieve.

- You mean, they need computers to live in?

- Not exactly. They definetly need infrastructure, such as networks, computers, etc. But, do you remember waht we spoke about here regarding what is value in criptocurrencies?

- Yeah, well it did not make any sense... you are giving value to things that do not have it! Bitcoin is tulip-mania.

- I guess we could say the same about printed paper: nothing but colored stamps. For the moment, I would like to know more about ecosystems.

- Well.. as I was saying, there are a few things that provide value to any criptocurrency, and that is linked to the concept of value. First of all, is the trust of the users. There are many types of uses and all of them provide value.

- Oh, anyway, most people are just speculators...

- Even speculating is a value. Some currencies are a vehicle to invest. Lately, ethereum and the ERC20 tokens allow easy investmenting for the masses.

- And many scams!

- Surely, that too. But you see, these people, entrepeneurs and investors are part of the ecosystem. They provide value to everyone by using the cryptocurrency.

- Oh, yep, I think I can see your point there, just like normal money is used to invest.

- Correct. Also, you have the exchanges. Having the support of large exchanges, or at least one, makes a lot of difference. The easier it is to trade, the greater the network effect we spoke about in the value of cryptocurrencies. Also, they are very powerfull actors when forks occur, but that is a different story.

-  Oh, I have seen the exchanges list almos anything nowdays... just look at Etherdelta and the ERC20s. It just does not make sense to have so many tokens listed!

- Mmm... it does make sense, just as it makes sense to list millions of items in eBay or Amazon. But anyway, there are many other actors in the ecosystem, such as the miners.

- Everybody is talking about mining and how people go crazy about it.

- Is just a waste of time I heard, to much work for little profit.

- We should speak about mining some day, but regarding the ecosystem, the miners play a significant role when deciding where a criptocurrency is going to go when updating and deciding which chain are they are participating in. Have you seen the typical windows service packs and updates?

- For sure, and also the Android Apps upgrades. Sometimes they are good and sometimes bad.

- Well, in the cryptocurrency space the software upgrades can be quite controversial, because they inevitably favour some people and damage others. Miners support the version (they call it fork) that is best for their interest.

- I think that miners do nothing I should be removed from the ecosystem.

- At the end of the day, you need to have a distributed network, that is the essecence of a public ledger technology, and , for that, you will need to provide an incentive for the nodes and the validators. They are rewarded in several ways that we could talk about some other time, like Proof of Work, Proof of Stake, Proof of Importance,...

- And who else is there?

- We still have to list the users of the currency, the development teams and, in some cases, the hardware manufacturers.

- This seems like a jungle where everybody runs arround in circles without knowing where all this is going.

- Oh, it is quite the opposite. The ecosystem is highly "political" in the sense that there are  new initiatives continously and all the actors try to act in their best interest. Typically, the users want ease of use and security. Investor want high returns. Hardware manufacturers want to jump into the business, but some of them are unsure as of using their powerfull brands in projects that they do not control nor understand fully.

- Well, this is leading us nowhere...

- The conclusion is that when you consider how "good" is a Cryptocurrency you need to evaluate what actors are influencing it and how. Right now Bitcoin is heavily influenced by large miners, wereas Ethereum has a strong development team and leaders influence.

- But, is this not an endless fight?

- You see, that is precisely why this is an ecosystem. Not everyone in there agrees nor wants the same thing, but surely they all depend on each other to make bitcoin and other currencies strong.

Bitconomics 102 - Where is the value AKA "We have been here before"

Value is something difficult to see. When  Mrs Newby Blue, Mr Sceptic Red and Mr OldEntrepeneur Brown meet the conversation jumps from "grandpa´s tales" to a late friday pub night brawl .Using a women character as a new-by is random, no intention behind. Also, if you are not British replace pub with any other meeting place.

- I am telling you, Bitcoin and all the Alts are just nothing, a cheap piece of software that are going nowhere!

- Well maybe, I have aready spoken with Mr Philosopher Black here and I am still doubtfull about all this thing. 

- Oh... you see this white beird I have, well, I was here when there was no internet at all and I have seen a few things before the Cryptocurrencies boom.

- But this is surely different... everyone says is revolutionary.

- All? Nah.. just a bunch of carpetbadgers and cybercriminals!

- The problem is that, once more, we are in a territory where we do not yet know what is value and what is not.

- How is that? Value is always something clear.

- Oh, no no my young friend... I still remember when nobody could really put a price on Yahoo, Altavista and others.

- Alta-what??

- A thousand years ago, in the 90´s, there were more that one search engine out there. They all had funny names like Altavista, Terra and Yahoo. This was a bit after the formation of the oceans and right before Google and when there was no e-commerce.

- Wooow, no ecommerce, really??

- And... listen because this is true as isnumeric("abc")=FALSE... listen I say, TELEPHONES DID NOT HAVE INTERNET AT ALL.

- Ooooohhhh

- Yeah yeah, very interesting, but what does it have to do with Cryptocurrencies??

- Well, back in those days, nobody could put a price on those search engines, nor for that matter, to any of the web pages. And that was because they almost had no income and nobody knew which one would win the race nor how would they ever make money. It still happens nowdays with UBER and others.

- I see.. so .. how did they solve that problem?

- Several things were tried.. for example valuing the pages for the number of pageviews, since that would eventually be used for advertising, then only by unique visitors, then by engangement,... Many of this metrics are still used nowdays.

- But none of those are alive today right? So they were bluffs.

- Well that is a different story really, but my point is that WE STILL HAVEN´T FOUND THE WAY OF VALUATING CRYPTOCURRENCIES.

- That is because they have NO VALUE. It is impossible that something is 25% more in value in just a week or vice-versa.

- Hold on... so why can´t we agree on a price for these?

- For starters, the ownership is unclear. Many of them have consensus governance. Also, we still do not know what will survive the test of time. As I told you Astalavista was the Bitcoin of its time, but the Google guys invented a far superior system that ate them alive.

- So playing cryptos is just for fools... they will all dissapear eventually...

- I would rather say that we still don´t know which ones will survive, because a consensus on what is value and waht is not is starting to become more clear. Also, the users are forming communities that will lead the future developments.

- So, the cryptocurrencies of the future are not here yet?

-  We don´t know, but it is going to be interesting times again.

Making Sense of Cryptocurrencies - Bitcoin and Tulips - Bitconomics 101

Have you notice that when someone tries to explain what a Cryptocurrency is starts by speaking of blockchain, distributed ledgers, Merkle trees (which sounds too much like certain German leader) and other concepts that are unknown to the average human?


Further more, even some influential and experienced leaders conclude that all of them (starting with Bitcoin) are "the fools gold" or Tulip bulbs just because they are trying to compare with what they know.


To really make sense of CC (Cryptocurrencies) we should start by ignoring completely the underlying technology an think in much more simple terms. Curiously, that will give us a hint for a correct economic model of Cryptocurrency and to understand all the fuss created last year.


The conversation between Mrs Newby Blue, Mr Sceptic Red and Mr Philosopher Black goes as follows (using a women character as a new-by is random, no intention behind).


- What is that thing I've heard 'bout...Cryptocurrency?
- It is SOFTWARE.


- Just that?? Seriously??
- Well, yes and no, it is software just in the same manner as PayPal is just software or the Java Virtual Machine is just software or Wassap is just software.
- I told you, all this is just nuts and "tulip mania" you will loose all your money if you buy crypto.


- But then it must be a very complex and sophisticated software with exclusive technologies?
- Nope, most of it is open source and not very complex as per todays standards.
- See? Nonsense and speculation.


- Then... why do cryptocurrencies have huge market value (market capitalization or market cap if you preffer)? Are people crazy by throwing their money in a simple software.
- Exactly
- Well, time will tell, but people are not buying software. They are buying UTILITY.


- What do you mean by UTILITY?
- Different cryptocurrencies offer different use cases.
- Yeah... the main one is being scammed and robbed.


- So if I buy Bitcoin for example, what do I buy?
- You are buying the ability to transfer value within a NETWORK of users.
-  Oh, comm'on we all know that is just for pot sellers and fraudsters.

- Well, that is true, it does have the utility to hide your money and transfer it internationally with little restriction at the moment.
- But that's illegal!
- It is, but nonetheless, it is an utility.


- But if the software is simple, open source, anyone can create a new "coin"
- Yep! They are worth nothing!
- The key to understand the value lies in NETWORK and ACCEPTANCE. Bitcoin has a huge acceptance. Its value as a "branding name" is inmense because lots of people have at least heard about it. Bitcoin has a huge network of people that move it and accept it.


- So, If I create a different currency I would need to start from zero and build a brand and a reputation right?
- That would be right. In fact, most of the new tokens and "cryptos" out there understand this fairly well and create bounty and affiliate campaigns during their launch.
- Oh oh oh... this is clearly a Ponzi scheme in which people buy because others buy!!

- And also, I would need to run a network, right?
- You would need to involve a sufficient number of nodes and users. They value of a network is exponential to the number of users.


- Sorry?
- If two people use a network is not very useful because I can only interact with one other. If 10 people are on a network I can interact with 9 people, so it is x9 more useful, etc...


- I see, so Bitcoin is the best currency, right?
Bitcoin is not technically the best currency out there, the network consumes lost of electricity, it is not fully anonymous like Monero or Bytecoin, the miners have a huge control over the community and does not incorporate extra utilities like other cryptos such as Ethereum, XEM, etc... However, it does have the largest network of acceptance.
- Bitcoin will fall, it is just a matter of people realizing that it has no intrinsic value!!


- Fiat money is coloured paper (de facto, not even that, but an electronic note on a bank's ledger), in fact governments play with its value constantly by using inflation and printing at their will.


- So bitcoin will rise forever?
- Long term speculators hold bitcoin because they believe that the ACCEPTANCE and NETWORK effects will increase exponentially, thus the value will also increase exponentially.

- They are just fools!
- I do not think they are fools. It think they have made an educated guess of the future and made a bet on it. For the moment, it is a good bet.


- But there must be surely drawbacks....
- Oh, if you mean there is risk, of course there is! Technological risks, competing currencies, regulatory risks (laws), ... But if you think that the reward is greater than the risk, buying long term makes sense.


We will continue this conversation here