Nike CEO Phil Knight has used “you can make any mistake once” as a core of his management style.  It would be interesting to see if Knight would consider the recent mistake of Equifax worthy of his one mistake mulligan.

In case you missed it, Equifax, one of the top credit reporting agencies in the world, which houses not only a lot of our personal and financial data, but also our credit scores.  They recently had a data breach that exposed the personal information of 143 million Americans.  The US Federal Trade Commission issued this “what to do about it” report (https://www.consumer.ftc.gov/blog/2017/09/equifax-data-breach-what-do)

 

It is going to be interesting to see how this unfolds.  An interesting historical reference from a few years ago was the Target stores breach of 41 million American credit cards.  There are some pretty major and obvious differences between the two (credit card is one thing – going all the way up stream to the credit reporting agency is much worse in many respects), but one key piece is that Target lost the trust of a lot of their customers who have never returned.

For Equifax – the short-term implications are clear and unsurprising – lawsuits are flying:

“Meanwhile, Equifax continues to be slammed with lawsuits over the data breach. The latest financial institutions to sue are the $79 million-asset Bank of Louisiana in New Orleans; Aventa Credit Union in Colorado Springs and First Choice Federal Credit Union in New Castle, Pa.”

These bank lawsuits are important for a reason that might not be obvious – that gets to some of the longer term implications.  Banks already spend at least $20, sometimes into the thousands, just to add a new customer.  They are required to run a number of checks that verify the customer is who they say they are (the Know Your Customer, KYC, requirement https://en.wikipedia.org/wiki/Know_your_customer) and they need to know where their money came from as part of the Anti-Money Laundering (AML https://en.wikipedia.org/wiki/Money_laundering#Anti-money_laundering) requirement.

 

The banks are mad because they are concerned their KYC/AML costs are about to go through the roof – and it’s not a cost they can pass on to the customer.

 

To their credit – the credit reporting agencies have been making efforts to make their data more secure.  In May, they announced that they were using blockchain technology and a company called SecureKey to pass data more securely. https://www.econotimes.com/Equifax-TransUnion-join-Canadian-blockchain-identity-network-trial-685195.

 

One of the reasons blockchain is such a great step here is because trust is a core aspect of blockchain. And Trust is what Equifax has lost at this point, just as Target lost trust.  There are many articles – and William Mougayar’s book The Business Blockchain does a fantastic job of describing it.

But there’s a problem with this approach.

 

This Canadian blockchain solution assumes the customer is trusted.  But that’s what just got blown up.

 

This is a “first mile” problem, meaning that banks, and everyone has to assume they can trust nothing about their information and go back and start the KYC/AML process over again for each customer because they can’t trust anyone right now.

 

To make matters worse, they probably aren’t going to be able to ask all of their customers to come back into the bank and re-authenticate their identity to re-establish them from a KYC perspective.

 

What they need, is a KYC/AML solution that customers can do just using their own phone, or any smart mobile device.  This solution has to check a government issued ID like a driver’s license or passport (and it has to make sure it is valid, and hasn’t been tampered, and that it’s not expired, and that it’s actually present) and then compare that with a selfie photo that can be matched to the ID (and lots of checks need to be run on that – that the person is actually there and that it’s not a photo of a photo).  The bank also needs to be sure the phone itself is trusted and that the selfie is actually in the secure enclave of the phone (something which cannot be hacked).  Further – to protect against future attacks, even though blockchain can and should be used to track the trust of the identity that has just gone through another KYC/AML check – the personally identifiable information, PII, of the individual should remain on the phone – where it cannot be hacked.  One of the strategic architectural flaws of Equifax is that all of the data was in one place – so like breaking into a bank vault – you only had to hack one “door” to get all 143 million records.  When you keep all of the PII on the 143 million phones of the individuals – hackers then would have to hack 143 million doors – and in this case with information being on the secure enclave – they are not hack-able.

 

So there you go – that’s the long term solution for Equifax and banking and 143 million Americans.  Oh, by the way, that’s what AuthenticID does.  Today  (hear about their blockchain plans http://tokens.authenticid.co) 

Our phone is practically ringing off the hook right now – and a lot of the calls are coming from investment bankers and hedge fund operators.  It’s no surprise once you look at the pieces.

If you have met one investment banker – you have met them all – they are usually incredibly well educated, well dressed, drive fast cars, and have incredible rolodexes because they are machines when it comes to making money.

 

And if you ever saw Pixar’s Finding Nemo – you may remember the friendly shark Bruce who is fine until he gets a whiff of blood and then like a light switch he turns into a killing machine in a way that only a shark can.

 

That’s pretty much where investment bankers are with the current ICO market.  They smell the money.

 

If you are not aware if the current ICO craze, there are hundreds of millions of dollars being almost literally thrown at these companies trying to get into the explosive growth related to blockchain and cryptocurrencies.  There’s a much longer story there that has been covered in these pages before, but the short of it is that people who get blockchain understand that it’s likely to be bigger than the internet in terms of its impact.

 

But there are some peculiarities in the current ICO market that complicate things a bit.

• Scams. A lot of web sites have been set up that have turned out to be scams.   It’s currently strangely hard to put money into some of these cryptocurrency markets and also can be hard to get it out, and because there is such a frenzy around ICOs right now – scammers see the opportunity and people have lost a lot of money to scams.  That’s why China doesn’t even allow them there anymore.
• Kids. Some of the companies that are in ICOs are being run by people with no business experience.  Ask any venture capitalist and they invest in teams more than ideas and if the team is a bunch of people who have never done anything, that’s a bad idea for an investment.
• Regulations. Financial services usually have a lot of rules and regulations designed to protect investors and increase trading activities.   The SEC recently issued a statement that they will apply ICOs to the Howey Test, which is a time tested measure of whether a financial instrument is, or is not, a security.  That has not only had a chilling effect on some ICOs in the US – it has sent a clear signal to licensed people in financial services that they need to pay close attention to rules here.  Investment bankers have to have a broker/dealer license and that means they can’t touch a lot of the ICOs.

 

So that’s part of why investment bankers are so in a froth about the ICOs – they can’t participate in these massive amounts of money that are flowing.  And they aren’t used to that.  It’s rumored that Goldman Sachs couldn’t help themselves and that they have a desk out of a company in the Boston area that allows them to participate in the feeding frenzy.

 

So why are they calling us?

 

That part is pretty simple when you look at the pieces of the puzzle and add one more piece.  The customers of the investment bankers are begging to get a piece of these ICOs.  These are high net worth investors who, like investment bankers, aren’t used to being told “no” when it comes to making an investment.

 

So the investment bankers have to do something and here’s what that is:

• Filter the noise. Investors know that with all of the nonsense out there – there have to be some good bets.  They want the investment bankers to find them.
• Find a real company. Most of the ICOs are for companies that are being created for the ICO only.  Investors also went the Investment bankers to find existing businesses that are doing an ICO as a way to add blockchain as a new line of business.
• Explain the risk. High net worth individuals can handle losing everything in an investment – and they will be willing to take that risk if they think the first two tests above have been passed and they believe in their Investment Banker.  They want to be at the country club and tell their friends they are in the hot ICO market and have a chance at making a (or another) ridiculous amount of money.  This is a sport for them.

 

So that’s why they are calling us.  We pass all of those tests, and other ICOs like Snip are already starting to use us as part of their registration process to add credibility to their offering and people are taking notice.

 

It will be really interesting to see what happens in the next 90 days of this market.

 

 

WHICH ICO DO YOU THINK IS THE SAFEST BET RIGHT NOW? 

1. SNIP
2. AUTHENTICID
3. NUGGET
4. _____________ fill in the blank

 

 

We Are Trust.

 

Hear about our blockchain plans http://tokens.authenticid.co

 

We are accepting pre-sale orders for our tokens – for information, please email tokensale@authenticid.co.

 

Amazon is opening a headquarters in a place that’s not Seattle.

There has been a lot of talk, and lots of articles (like this one on Geekwire (https://www.geekwire.com/2017/amazon-wants-fill-jobs-second-hq-data-shows-city-hires-engineering-talent-fastest/) about this.

Thus far, most of the debate is about which city is a good fit in terms of talent and distribution.

At first I thought it was really a revenue hedge – that they already get a disproportionate amount of revenue from the state of Washington because they are based there – therefore if you have an HQ in another city, you not only get the same disproportionate revenue lift from that state – you also hedge against a downtown in that city economy.

But I don’t think that’s what’s going on.

Right now Amazon is in one of the bluest states in the country, politically speaking, at a time when we have one of the reddest presidents ever (still talking about politics).  So if the red president wants to punish a blue state, or if any politicization wants to take aim at big blue state corporate America – Amazon is clearly in that camp.  But if they add a HQ to a red state – they become much more politically neutral – politically safe from any sort of attack (still getting all of the hedge benefits mentioned above).

Seems like a smart bet to me, and Bezos and Wilke are smart enough that I suspect that’s no small part of their thinking.

What do you think?

There has been no shortage of articles about token sales and ICOs that are scams and have been hacked.

Given how much money is flowing it’s not so surprising people are finding ways to trick people into signing up for fake things.

And if a site like Kraken can take days to register (and require that you sign a document and take a picture of it) – which it does.

Then why aren’t more companies simply signing up for a service that offers KYC / AML compliance (or any variation or level of security that meets their needs?

It seems like a really obvious and simple choice and there are sites that do this (of course they are not all the same so it takes a little homework).

All you need is a photo, front and back of a government issued ID like a driver’s license and then a selfie and from there, the service can confirm you are you who say you are and that can take 5-10 seconds (which is basically instantaneous compared to Kraken).  Most of these sites will give you a “score” and based on that you decide if you trust the person – that means they don’t take on the liability of the decision – but that seems totally fair.

So why isn’t every ICO signing up for this sort of service that costs less than $1 per registration (unless you care about their driving history or employment history or something like that – in which case it’s more)?

Why?

Why?

Kik got a lot of press this week for all the wrong reasons.  We saw two articles about the Kik ICO in The Wall Street Journal Monday and here’s just one of the articles we saw on coindesk (https://www.coindesk.com/70-million-far-kik-ico-kicks-off-small-scams-big-demand/).

It is becoming all too common to hear about real ICOs that end up with fraudulent links that fool people and end up stealing their money.  Some of this is understandable there is a highly popular offering like Kik and people feel a sense of urgency – there’s not as much time to do the usual due diligence on a site.

 

But in this day and age, while it’s understandable, it’s also inexcusable.

 

It’s inexcusable because it’s preventable.

 

The Coindesk piece gets into the shortcomings of the Kik smart contract, the other piece that’s shocking is that companies aren’t doing more customer registrations on the front end.  Snip is a great example of an ICO that has taken measures to reduce their risk of fraud.  Snip is a very smart business – they are a news site that offers tokens to people who notify them of breaking news – a perfect fit for a news ecosystem.  As part of their ICO, they are using a customer authentication back end powered by AuthenticID that supports full KYC/AML compliance as part of their registration process.  Historically, and especially on blockchain, these registrations require a lot of effort and they can take days.  The process Snip is using takes less than ten seconds after the user has submitted a selfie and the front and back photo of a driver’s license or passport.

 

If Kik had talked with Snip – a lot of this fraud/scam mess could have been avoided.

 

Fortunately, Snip is a popular ICO so hopefully people will take notice and some of the other ICOs will follow suit and add the same simple registration service to their ICO process and The Wall Street Journal won’t have to do any more of these articles.

 

On Steemit – it’s authenticid

Visit the Reddit Site – https://www.reddit.com/r/AuthenticID/

Token Sale Site – http://tokens.authenticid.co

 

Ten ATHAU tokens to the first 100 people who sign up for the AuthenticID Subreddit (and complete the ATHAU registration) and send an e-mail to ric@authenticid.co showing that they also got two other people to join that subreddit.

Blockchain is too complicated for the outside world.

This piece explains why it’s inevitable for blockchain to become a $100 trillion industry http://authenticid.co/identity-insights/when-will-the-blockchain-economy-reach-100-trillion/, noting what the current constraints are on that path.  And the constraints are many.

It came to mind  earlier this week when I was talking with an investment banker about the ICO of AuthenticID (http://tokens.authenticid.co – which I am told is under consideration for the “Best White Paper of the Year” award from Smithandcrown) he talked about how investment banks tend to deal with a certain amount of risk when they talk with their investors – but that the current ICO market is so volatile, risky, and uncertain (not to mention unregulated) they are not quite sure what to do with it.  They want to promote it – but it’s such a different kind of risk and is measured in such different ways – they don’t know what to do with it – even as investors clamor.

What’s the real problem?

There was a thread earlier in the week about some comments from JPMorgan Chase CEO Jamie Dimon – he said “bitcoin is a fraud” and that drew a lot of attention.  On Reddit, where I posted a blog about it, some people pointed out that he did not mention blockchain or Ethereum – only bitcoin, like that was some vindication.  It reminded me of a Saturday Night Live skit when the first cigarette company (Chesterfield) to admit in front of congress that smoking causes cancer – the SNL team joked that the rest of the cigarette manufacturers said “YES – Chesterfield cigarettes cause cancer.”

There are a couple of basic problems (mentioned in the article above), but there are a couple of other really big ones.

One of the problems is this 585% number.  Google search results show Bitcoin is 585% more common, as a word, than blockchain or Ethereum, even though by most views, bitcoin is an outdated currency model (which is why most ICOs are on Ether tokens).

The bigger problem ties back to my investment banker friend – who talked about risk and volatility.  While those sound like boring banker terms that entrepreneurs like you and I shrug off every day, at a simplistic level – in this case –  it can be easy to overlook why this is a big deal.

 

CIVIC COMPARISON

We tend to talk about the Civic CVC tokens and the AuthenticID tokens because even though they are ultimately complementary services, they are both in the identity space.   Back in the internet bubble days of 1999, it would have been no contest.  Civic hasn’t written a line of code for a narrow piece of the identity verification (IDV) space, whereas AuthenticID is already a global company with Fortune 500 clients and a far more comprehensive identity solution.  In the world of venture capital – AuthenticID can and would go in with a very high valuation and have a pretty easy time raising money – and Civic would be happy to get $1 million for an A round.  So why does the Civicplatform subreddit have over 3,000 followers and AuthenticID has less than 100?  Why did Civic already have a hugely successful ICO?

It’s because of the internal blockchain enthusiasm for Civic.  It’s the bubble no one is talking about.

 

WHY RISK MATTERS

Anyone who knows anything about risk and business and venture capital gets the “normal” idea of risk for that world.  The same is true for investment banking – there’s a basic scorecard of team experience, addressable market, constraints, and risks that most VCs use as a formula.  Right now the only formula in ICOs is popularity which usually comes from a different scorecard – do these people get blockchain, do they understand the incentives/tokenomics models?  Those are two very different sets of questions – and that’s one reason VCs aren’t spending so much time with the ICO companies.

 

SO WHAT’S THE BIG PROBLEM?

The big problem is the 585% number mentioned above.   When people were building businesses on the internet – that was a sure thing – there weren’t different internets to build different businesses on and those internets weren’t their own highly volatile currencies.  That’s what we have with the 585%.

There are these massively unstable currencies, bitcoin is by far the most talked about, and people are creating these ICO tokens (which are as volatile as any internet startup) and attaching them to these massively volatile currencies.  At the end of the day the US dollar, since it went off the gold standard, is no more “safe” than bitcoin – in the sense that it’s not backed by anything, but that’s the subject of another blog.

 

HUGE risk business on top of HUGE risk currency is not a sound investment strategy.  That’s what a model like Civic is.  Even though AuthenticID is a comparably low risk business – it’s still on a HUGE risk currency at this point – and that, my friends, is the real problem in all of this.

 

SOLUTION?

The solution really lies in the link at the top of this piece.  The currencies need to stabilize and the only way to really do that is more regulation and a core part of that is adherence to KYC (Know Your Customer) models to add trust to the blockchain.

 

Do you agree?  Shouldn’t we all be rushing to the AuthenticID ICO since it’s a great business AND it adds stability to the market by bringing KYC regulation to the model?

 

 

On Steemit – it’s authenticid

Visit the Reddit Site – https://www.reddit.com/r/AuthenticID/

Token Sale Site – http://tokens.authenticid.co