The Patent That Wants to Fix Crypto’s Volatility 5 386

The number of blockchain-related jobs posted on LinkedIn more than tripled last year, according to CryptoCoin News. And blockchain patent filings more than doubled. Companies and individuals alike are innovating, exploring the blockchain’s well of possibilities. Major fintech companies, meanwhile, are gobbling up blockchain patents like they’re going out of style. But cryptocurrencies themselves still have yet to see a mainstream embrace.

The main problem with crypto right now is the same problem people have been talking about since Satoshi Nakamoto said Let there be Bitcoin: volatility. And ever since Bitcoin’s dramatic rise and fall around the turn of last year, cryptos have become virtually synonymous with wild fluctuations.

This reputation has given Bitcoin specifically, and cryptos in general, a mixed reputation. By now we’ve all heard the songs of praises from evangelists and the sour sneers of financial titans alike. Crypto is exciting because it’s unstable; crypto is unrealistic for the same reason.

The Primary Criticism of Cryptos

According to Eric Lamison-White, founder of the investor’s crypto intel platform Pareto Network, volatility is the “primary criticism of cryptocurrencies.”

But he doesn’t think it has to be that way. What if you could stabilize your crypto accounts? Lamison-White says the risks of owning cryptos are “easily mitigated by a variety of hedging techniques that are available in all other asset classes.”

He proposes treating crypto accounts like more traditional assets. “Hedging with options, futures and swaps allow for stable value or any risk profile that an owner or even a speculator would desire.”

That’s the idea behind his patent, filed in 2014, for a structure of interconnected accounts. The system “removes volatility from owning cryptocurrencies,” Lamison-White says, transferring its fluctuations into a hedge account. Here’s how it works.

Lamison-White’s System

The system requires at least two accounts: one for your cryptos and one you’ve funded with fiat currency, let’s say $400 US dollars. These accounts connect to a network of decentralized nodes, which measure the amount of cryptocurrency you have from moment to moment. If there’s any drop in the crypto’s value, the system automatically deducts from your $400 in the other account and transfers it to compensate. When the value of your crypto goes back up, the system re-deposits back into your fiat account.

This holds the value of your crypto assets steady, while transferring its volatility to your hedge account.

What makes it unique compared to other trading systems is that crypto assets can be divided into infinitely small portions. “A futures contract on oil costs $80,000 for example, although a trader only needs to put up maybe $4,000 as a minimum,” Lamison-White says. “This is because the contract represents the price of 1,000 barrels of oil or something crazy.” He notes that even hedging stocks are usually offered in units of 100 or 1,000.

Not so with crypto, where the “infinite divisibility of the asset itself” makes hedging much more finely tuned. Because cryptos are pure math instead of physical assets, “arbitrary sized contracts can be traded just as easily with larger contracts.” One future could represent one bitcoin, for example, but you can also trade in .01 increments. With fractional futures and options, people with very small amounts of cryptocurrency can be shielded from price fluctuations in a way that had only been available to the wealthiest and investment banks for most of the last millennia.

The System at Scale

The system gets even more interesting when you make it scalable. According to Lamison-White, you could have multiple people funding and connecting to the same hedge account, each using it to stabilize their own crypto accounts. Alternatively, you could connect multiple hedge accounts to a single crypto account. Suddenly the possibilities extrapolate, like tinkertoys, developing into an interconnected network of crypto- and fiat-funded accounts, with a variety of owners controlling their assets at a variety of access points, everything regulated with the intelligence and transparency of a decentralized ledger.

Patents Like This are Attracting Corporate Giants

There’s a feeding frenzy going on for patents like these. Visa filed a patent for a B2B blockchain payment system, Mastercard developed its own blockchain patent for anonymous transactions, and Wal-Mart has come out with a few as well. But it’s Bank of America that’s gobbling up the most. With claims to at least 43 live blockchain patents, the financial giant holds more than any other person or company.

Whether they’re just trying to get a leg up on the future of tech, or positioning themselves to harangue the little guy with barrages of lawsuits for intellectual property rights, we’ll just have to wait and see.

Whether or not Lamison-White anticipated the blockchain patent arms race, he was ahead of the curve, filing for his patent in 2014. It could be the thing to finally put skeptical minds to rest about the viability of crypto assets. And with big financial institutions like Bank of America placing a premium on innovative blockchain patents, he may have spun ether into gold.

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I grew up in the Silicon valley under the technological mentorship of Steve Wozniak. I'm a proud member of the Choctaw Nation, I've lived, worked and traveled all over the world, and I now write in the Pacific Northwest.

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The First SEC Strikes Against Unregistered Crypto Firms Are Here 4 348

And so it begins.

For the first time ever, the Securities and Exchange Commission has issued a violation to a hedge fund manager for its investments in digital assets. They found Crypto Asset Management, or CAM, a California based crypto portfolio manager, operating as an unregistered investment company while claiming to be SEC regulated. Further, the SEC says CAM was falsely marketing itself as the “first regulated crypto asset fund in the United States.”

Over a four month public offering last year, CAM’s Managing Director Timothy Enneking raised upwards of $3.6 million based on this claim, and invested 40 percent of the fund’s assets into cryptocurrencies, thus operating the fund as an unregistered investment company. CAM received a cease and desist order, with which they complied, and the SEC fined them $200,000. CAM agreed to pay the fine without admitting to or denying the SEC’s findings, and offered buy backs to investors.

The Fall of TokenLot, the SEC’s Second Target

Tuesday the SEC also charged Michigan LLC TokenLot, which closed down at the end of July, with operating as unregistered broker-dealers. TokenLot called themselves an “ICO Superstore,” which co-founders Lenny Kugel and Eli L. Lewitt promoted as a space to buy into ICOs and trade tokens on a secondary market. Through their platform, over 6 thousand retail investors traded more than 200 different tokens which, by the SEC’s standards, qualified as securities and therefore fell under SEC regulations.

It’s the first time the SEC has enforced last year’s DAO Report, which warned traders that digital assets like DAO tokens would be considered securities, and subject to regulations as such. After the SEC’s charges, TokenLot started refunding payments to investors for unfilled orders and began the process of closing down, also without admitting to or denying charges.

Lightened penalties include $471,000 for the company, plus interest, and $45,000 each in personal fines to Kugel and Lewitt.

“The penalties in this case reflect the prompt cooperation and remedial actions by TokenLot, Kugel, and Lewitt,” says SEC Co-Director of Enforcement Division Steven Peikin.  “TokenLot, Kugel, and Lewitt provided valuable information to Commission staff, stopped the conduct, and refunded money to investors.”

Making Examples, or Starting a Crackdown?

The SEC could be making examples of TokenLot and CAM, but there could be more of a crackdown coming.

The charges emerge after the SEC subpoenaed 80 cryptocurrency firms earlier this year, including the $100 million cryptofund of Michael Arrington, founder of TechCrunch. While not indicators of misdoings, the subpoenas were tells that the SEC was working out its terms for coming indictments.

Securities Investigations Extend Beyond US Borders

Also earlier this year, the North American Securities Administrators Association (NASAA), an international investor protection agency, initiated ‘Operation Cryptosweep’ to target fraudulent ICOs and crypto investment products across the US and Canada.

“While not every ICO or cryptocurrency-related investment is a fraud, it is important for individuals and firms selling these products to be mindful that they are not doing so in a vacuum,” says Joseph P. Borg, President of NASAA and Director of Alabama Securities Commission. “State and provincial laws or regulations may apply, especially securities laws. Sponsors of these products should seek the advice of knowledgeable legal counsel to ensure they do not run afoul of the law. Furthermore, a strong culture of compliance should be in place before, not after, these products are marketed to investors.”

The NASAA operation has already resulted in over 200 investigations and 45 enforcements, as of last month, to the applause of the SEC.

The SEC’s own first strikes arrive amidst a crypto slump, as several leading coins, including Bitcoin, Ethereum, and Ripple, are exploring new lows.

“U.S. securities laws protect investors by subjecting broker-dealers and other gatekeepers to SEC oversight, including those offering ICOs and secondary trading in digital tokens,” Stephanie Avakian, Co-Director of the SEC’s Enforcement Division says. She encourages developers of businesses in digital asset trading to contact the SEC “for assistance in analyzing registration and other securities law requirements.”

Any of the many crypto firms still operating unregistered would be wise, at this point, to square up.

These Entrepreneurs Are Building the Blank Canvas of the New Internet 5 938

We need a new internet. This HTTP stuff is left over from the ‘90s. It’s corporate controlled in the post neutrality world, susceptible to government censorship, inaccessible to many with nearly half the world’s population still unable to connect. It increasingly needs a more streamlined makeover.

Or at least a little house cleaning. How many apps can we possibly have? How many passwords and accounts? How much content can we cram in here? What do we do with the ever growing graveyard of dead links, old MySpace accounts and cat memes, to say nothing of the emptying, generic cruise ship we call Facebook drifting steadily away from relevance? One possible answer: clean the slate. Start again. This time with something more efficient.

Imagining the Internet 2.0

By some indicators, blockchain could be the thing to supplant the internet as the de facto way we create, communicate and store data. But how will we see it widely implemented without it first becoming more user friendly to the layperson? SMBs and entrepreneurs don’t necessarily have a background in programming, nor have the skills to set their business up on the blockchain. Learning to program or hiring a team of blockchain devs isn’t always within reach to the average SMB, to say nothing of individual artisans or small nonprofits.

By contrast, consider how easy it is to start up a website. You can do it in a few hours, thanks to software platforms that make it easy. You get your URL from GoDaddy, a visual template from WordPress or SquareSpace, who also might bundle in your ecommerce space if you haven’t set that up with Shopify already. It’s because of these SaaS and PaaS third parties that we can web.

If we want to go blockchain, we’ll need a third parties like these to help facilitate it. So where are these platforms? Who’s building them?

The Deregulated Ecommerce Toolkit

Well, Eric Tippetts, for one. Tippetts expects the 2020s to see a shift to blockchain much like the 90s shift to the information superhighway and the 2010s shift to mobile. To speed things along, his company NASGO has created a toolkit called BlockBox, the goal of which is to be the ‘GoDaddy of blockchain’ so people and businesses can start building.

Through BlockBox, which Tippetts cocreated with a development team, you can find and secure a blockchain domain address, like you would with a URL, adapt your existing website for blockchain, and create a custom token. Instead of having to wrap your head around lines of code or hire a dev team, it just takes a couple minutes and a couple hundred bucks.

Tippetts describes NASGO itself as “a decentralized hosting environment that allows content to be seen in every part of the world, opening up blocked boundaries for communication and collaboration.” It also includes a platform for decentralized apps (DAPPS) that could compete with Apple and Google’s app stores.

Their website repeatedly emphasizes the deregulated nature of the product, ostensibly gearing their platform toward the “businesses, developers and consumers” of a sharing and open ecommerce.

A Platform for Public and Private Good

Amber Baldet’s company Clovyr has similar goals, but with a distinctly different tone. She wants people to use their DAPP platform to “build the systems we want to see in the world.”

Baldet left JP Morgan Chase, where she was hired to spearhead their out-of-character blockchain experiments, to found her startup. She recently testified before congress about blockchain regulation and the importance of protecting human rights and privacy early on, while the technology is still in its infancy.

She says that there needn’t be a divide between public and private interests when it comes to blockchain. “It’s very divided, the people that are building things for public chain and people that are building things for ‘permissioned’ or business enterprise kind of chains,” said Baldet in an interview with Fortune. She says that nomenclature isn’t helpful, “because it creates this kind of animosity where we’re saying that big business is on one side and the people or the proletariat are on the other side, when really it should just be about information residing where it makes sense and creating security boundaries that are logical.”

Building a Blank Canvas

In a way, the blockchain is a platform much like the internet itself, a canvas available for anybody to use, whatever their interests and intentions are.

So whatever direction the blockchain internet-nouveau of the future takes, if that’s really what we’re in for, people like Tippetts and Baldet are the architects of its structure. It’ll be up to the rest of to fill it up with content. Hopefully good content. Bring the memes, leave the corporate derelicts.

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