Blockchain Investor Manual

Book excerpt: Every now and then a new technology comes along described as having both great promise and great threat, as a means of social liberation or as a means of outright fraud. The internet, for example, drew this bold cataclysmic forecast from Ethernet co-founder Robert Metcalfe in 1995: "I predict the Internet will soon go spectacularly supernova and in 1996 catastrophically collapse." In the fall of 2008, another technology which has increasingly witnessed such a stirring of opinion and attention, referred to as both "blockchain" and "cryptocurrency", was introduced to the world via the Bitcoin whitepaper. The technology has catapulted from a relative fringe of recipients on the cypherpunks mailing list to current adoption trends at some of the world''s largest financial institutions and social media platforms like JPMorgan and Facebook. In parallel, the market capitalization of traded cryptocurrencies has grown to more than a quarter of a trillion U.S. dollars, with futures contracts referenced to Bitcoin listed on the Chicago Mercantile Exchange. But how can the new entrant sort through the noise on social media and elsewhere, when icons of the business world like Warren Buffet and Elon Musk have radically different takes on it, the former referring to Bitcoin as a "delusion" and "rat poison squared", the latter "quite brilliant"? Even within the blockchain space so-called "experts" can''t seem to agree on the meaning of loosely thrown around terms and phrases like "decentralized" and "digital gold"―or even on "blockchain" itself. The purpose of this book is to cut through the noise, providing an analytical, neutrally voiced basis for understanding this new technology. It is our strong belief that individuals and institutions should understand what they are investing in. Toward that end we also provide a durable overall cryptocurrency valuation framework, offering a fresh perspective for the seasoned analyst too. The chapters are organized as follows: 1, "Money and Systems," provides a history and analysis of money and monetary practice, and how this relates to systems. 2, "Basics of Computing, Networks and Cryptography," is an overview of the technological building blocks upon which Bitcoin and other blockchain protocols are being built, and the mathematical functions which gave rise to the name "cryptocurrency". In 3, "How Bitcoin Works," we dive right into the inner workings of this first blockchain protocol. 4, "Competing Blockchains," provides an overview of subsequent blockchain alternatives, wherein the reader will discover more about many of the other oft-mentioned alternatives like Ethereum, EOS, and IOTA, and categories of cryptocurrencies like Privacy and Stablecoins including Facebook''s Libra. 5, "Role and Power of Government," covers the relevant aspects of currency, banking, commodity, securities, and tax law treatments globally. 6, "Trading Cryptocurrency," is for the type of investor interested in actively trading relatively liquid markets. It will also be of more general interest to other investors as it highlights supporting blockchain infrastructure and channels for accessing cryptocurrency from traditional payment means, and cryptocurrency as a portfolio asset. 7, "A Blockchain Economy," describes a vision where decentralized systems of all kinds including Finance, Social Media, Real Estate, Healthcare, and the Internet of Things form the basis of the global economic system. 8, "Network and Its Value," applies network theory as an approach to model and value a cryptocurrency. Now that the reader has a sound understanding of the underlying technology, a vision of the future dominated by it, and alternative valuation approaches, 9, "Investing in Blockchain," will help in identifying focus areas and key investment themes. 10, "Summary and Conclusion," reviews the preceding chapters, while highlighting other less technical social forces acting upon the future of blockchain technology.