https://www.ethnews.com/uport-announces-zug-digital-ethereum-id-pilot

UPort announced their new identity app.  This is a great idea and a long time coming, but there’s a lot more to identity than what the app supports.  They need to partner with the likes of KnowYourCustomer (for automated KYC functioning) and AuthenticID (for an array of items ranging from the basics of age, gender, postal code, as well as key verifiable claims and health data and other things).

UPort is a necessary step in the advancement of identity – and it’s great to see.

Yesterday’s much ballyhooed code fork is going to seem trivial when the blockchain world divides between the anonymous and the not-anonymous (authenticated).  There will be a bright line, and the people who participate in the authenticated ecosystem will find that all of the business rules and requirements related to identity are executed within the smart contracts of the very blockchains they are using (the same logic will also run off chain where it makes sense.

So this is a small but important step for the blockchain community.

Go UPort.

ICOs are about to slow way dow and investments in token sales are about to get back to a much more rational pace.

Lots of people have been talking about the ccde fork (today) as being a potentially big deal to the world of blockchain/cryptocurrencies, but it’s starting to look like the SEC ruling last week is the bigger reasons ICOs are about to slow down dramatically (see Perkins Coie report on it here – https://www.virtualcurrencyreport.com/2017/07/blockchain-and-digital-token-update-sec-releases-investigative-report-and-investor-bulletin/)

UNIKRN, the gaming gambling site, had their CEO Rahul Sood issue this statement on their slack

“As many of you know the SEC came out with a strong position on certain ICO’s and token sales. Our lawyer Perkins Coie just came out with their position. Along with them we have seen positions from Cooley and Debevoise & Plimpton. We know that some tokens are in fact securities, while others are real tokens of value or currencies. Unikrn is confident that our token is not a security, it’s never been a security, and will never be a security. We are also happy that the SEC came out with their position, they are absolutely doing the right thing. The cryptocurrency space needs regulation to protect consumers and the broader community.”

This graph says a lot.  VC funding has been behaving rationally all along and with the ICO spike it’s no surprise the SEC issued their ruling.

What that means is that companies like Civic, KnowYourCustomer, Tezos, and AuthenticID who have really clear value they are adding to the blockchain, will be just fine.  It’s the ICOs that have white papers that read like they were written by a college kid (because they probably were) are the ones that are not only about to come to a screeching halt, there may be some legal ramifications.

AuthenticID could end up playing a key role in this – they are attaching the identity of the participants (on chain and off chain) – even when the participants want to stay anonymous – and that will probably allow some ICOs to survive that might otherwise not have.

August and September have some pretty interesting token offerings if you watch sites like TokenMarket- it should be pretty interesting.

 

After the recent SEC ruling about ICOs, we are scaling back our use of that term – so we are taking it out of the title of our blog as we think more companies will pivot to do a token offering instead of an Initial Coin Offering.

OK

Trust and identity are really broad terms and a lot of ICO/token offerings use these words as though they mean one very specific thing.

We think there are many types of trust and identity because there are lots of ways to use them.  Whether you need to verify that someone is 21 years old to buy alcohol, or that someone is who they say they are (peer-to-peer) when selling a boat on a site like Craigslist, or whether you are trying to move cryptocurrency into US dollars into a bank account – those are all different use cases with different needs for trust and identity.

With Identity, some like the folks at UPort seem to associate that with an ID/Password, but to not actually link it a person with a government ID or any other variable information age, gender, address, etc. It looks like Civic will do that with the help of an authentication service and Tezos probably supports that in their smart contracts, but they don’t do that.  That’s where things like self-sovereign, verifiable claims, attestations, and privacy go from being somewhat one-dimensional to taking on multiple dimensions.

Similarly with Trust – if you read William Mougayar’s “The Business Blockchain” which is great, he tells you blockchains are built on two basic concepts of trust and decentralization. While the trust is true for the block itself – there is nothing about trust of the individuals, the participants – which is part of the reasons banks and other organizations aren’t part of public blockchains – they can’t comply with anti-money laundering (AML) and know your customer (KYC) requirements.

To be clear – you can authenticate the identity of the participant of a blockchain through a trusted third party like AuthenticID, and still remain anonymous on the blockchain. You can also create a “handle” or nickname for yourself that’s tied to the authenticated ID and still be anonymous.

We aren’t saying anyone is right or wrong about Trust and Identity, as we get through various layers and levels of defining trust and identity, and who does what for on-chain and off-chain activities, we started this table and we would love to hear your feedback on who the other players are and where this is wrong, or if we should add more rows to defining trust and identity.

 

Since the last entry, we did extensive research on which ICOs have been doing well, and as part of that we read a lot of the white papers out on TokenMarket (https://tokenmarket.net).  While many of them are not well written (typos, no specifics on their technology, what problem they are solving, etc.) some like Civic, Tezos, and UNIKRN did a great job.  We also talked with a number of experts like Andy Singleton who has helped us understand some of the blockchain topics like attestations and Byzantine Fault Tolerance (see previous blog about that).

What we found is that there are some known big issues and limitations to blockchains which inhibit growth, such as speed and scale  (that’s where Tezos comes in, UNIKRN solves a specific regulatory issue in the esports industry).  Until those limitations are addressed, industries such as healthcare, which holds great promise for blockchain, will be slow to move.  While those are solvable problems, and there is opportunity there in the short term, there are some bigger issues around the corner for blockchains and cryptocurrencies that hold even more promise – and that’s where we have been focused with the ICO we are looking at for AuthenticID and their ATHID tokens.

 

Right now the blockchain private key is great for what it is, and allows people to remain anonymous if they want to – but that’s a very two-dimensional solution for something that has promise in so many industries.  Blockchain and cryptocurrencies make so much sense the coming wave of adoption is likely to be on the same scale as the internet itself.  And as part of that – one of the things that will emerge is the value, use, and importance of being able to authenticate the identity of the people involved with all of the events, transactions, and interactions in a blockchain – that is going to be major – and it will be key in both private and public blockchains.

 

Some of the obvious things that will happen is that financial services organizations will be able to meet the requirements of Know Your Customer (KYC) and Anti-Money Laundering (AML) specifications – those are very big markets that will take off very fast.  Then there are things like self-sovereign data, privacy, verifiable claims, and attestations which take authentication from a two dimensional matter to three-dimensional overnight.  People can still stay anonymous as like as they want – and they can even come up with some clever or funny name / handle they go by, and as long as their identity has been authenticated, all sorts of things become possible that are not possible today.  Verifiable claims is something from the business side, where someone needs your driver’s license, or a bank statement or something, even a credit card number, if you have authenticated the identity of the person in question, then the information they are transmitting is that much more trusted.    Privacy and self-sovereign are more at the individual and what they want to reveal about themselves. A good example is when someone is buying alcohol and they need to prove they are at least a certain age, like that they are 21.  In a self-sovereign model, the person may not want to share their name and address, they may only want to prove that they are over 21.  There are countless use cases like that in healthcare and logistics and financial services that are going to happen and in a few years we will look back and be amazed that all we had was private key.

Technology is important here, but customer experience matters a lot in all of this.

So there are probably 100 different businesses that could be started today to enable the use of identity in public and private blockchains and enable all sorts of useful and legal transactions using cryptocurrencies.  That’s where we think the real promise is in ICOs and that’s why we think it makes sense that so much money is pouring into them right now.  We know that some of the funds are coming from Chinese markets for well understood reasons, but we also know money is coming from other places as well, and we think it’s all going to be a pretty exciting ride.  There will probably be a bubble like there was with the internet, and that’s fine as long as the companies you choose to start, or back (or both) are focused on real value – you’ll be fine.

 

So that’s where we have landed with ICOs and cryptocurrencies and blockchains.  There are some pretty wacky ones, and some are just being done because so much money is flowing, but there are some with really clear value and that’s why we think the one we are working on will also be well received.

As I mentioned in my previous post on this subject, I have been working on an Initial Coin Offering (ICO) for a company that already has a strong business in the Identity space for fraud protection as well as boosting customer conversion rates.  The premise is that doing an ICO will simply add a new line of business for an already successful business.

 

In doing research about the space, I have tried to get clearer about what a new token needs to do – that is to say, if it’s not a new coin or type of currency, what problem is it solving.  Partly because AuthenticID is in the identity business – the focus has been on what additional levels and layers of identification would be valuable (simplistic example – if someone is buying beer in the US they need to be 21 – if they are using cryptocurrency from their wallet that is tied to their identity – the person could share their age but not their identity and that could save the step of the store checking their driver license).

 

Part of the trick is that for an ICO to be successful for investors, it has to increase in value, like a stock. In that sense it’s not like the newfangled cooler that was on Kickstarter where they simply had to demonstrate value – it has to do that – AND increase in value.  To increase in value, there needs to be some form of “network effect” where demand outstrips supply – pretty basic business stuff.

 

So in the cryptocurrency world, which is by definition in the blockchain world, it’s a “non-repudiation” space – which is to say that because of the formal structure of the blockchain, there is a “handshake” to transfer the funds (ether is more formal and has a smart contract than bitcoin) so no one can ever go back and say the transfer was fraudulent.  Banks and credit cards bake in a 3% “repudiation risk” fee because people can claim fraud and because the banks and credit cards promise to protect the buyer – they get the fee as sort of an insurance policy.

 

With cryptocurrency payments – people don’t care if they know someone who is paying them – there is no need for trust or identity by definition because it’s blockchain.  It’s when they are paying someone else they need this – to trust they will get what they are paying for when they agree to use funds.

 

So with that background, there are three levels of security today for cryptocurrencies:

• Wallet. In the so-called “enclave” of a smart phone, you have your private key and you use something like a biometric (finger) or password to unlock/protect it.  That’s fine until someone steals your phone and knows your password.
• Dual Signature. This is getting a secondary signature requirement (the same thing as when a parent has to co-sign a lease for someone with no income/job).  This is extra work/friction in the transaction.
• Escrow. This is where someone protects their private key in a vault in a Swiss bank account so even if your phone is stolen – you have your private key so you might not get robbed.  Lots of hassle, cost, and friction here.

 

So there’s lots of room for services around security and if someone wanted to get into the insurance business and undercut the banks and credit card companies in their 3%, they could do that – and even aggregate a trust score on people to vary the 3% repudiation cost – or sell that to a business to manage their own customer trust scores.

 

So there are plenty of places to add value – from the buying beer as a new security layer feature in authentication, to any number of flaws in the above three tiered security models, but adding a separate token to go along with the cryptocurrency is adding value AND friction/hassle when we want to remove it.

 

So having done all of this research now – and building an understanding of what a token is and how it needs to add value, and appreciate in value, while reducing customer friction, having read a lot of prospectus and white paper documents – it doesn’t seem like a lot of the ICO efforts underway understand this – at all.  We know that some of the ICOs are going well just because there’s a ton of investment in cryptocurrency in China and they are very limited in how they can unload their investments so they are just buying up entire ICOs to drive up the demand so they can then unload the tokens – if they are ever created.  In our case we already have a rock solid working product – so the incremental technical effort is trivial – we just need to distill where we are adding value.

 

We are just shocked at how little about this is explained in most ICOs, so we are gaining confidence that since so many of them are a sham – that when we do our ICO next month that we will do just fine.  So stay tuned.

July 10, 2017: 27 Active ICOs.

 

If you are trying to make sense of the Initial Coin Offering (ICO) universe – you are in good company.

 

There are multiple cryptocurrencies and exchanges and no shortage of articles talking about what an ICO is and why the market is so volatile and why ICOs are still raising hundreds of millions of dollars.  Full disclosure – I am involved with the launch of one for http://authenticid.co , which is a pre-existing company that uses facial recognition for everything from fraud prevention to increased customer conversion rates (by making it faster and easier).  More to come on what problem the AuthenticID ICO solves.

There are a handful of very helpful websites, especially Smith + Crown (https://www.smithandcrown.com) and TokenMarket (https://tokenmarket.net)

What I am finding in the ICO space is some pretty basic patterns – so I am starting this series of posts to help people sort out where, or if, they belong in this space.  In this post I am going to cover some of the high level patterns I have observed, and in the next post I will get more into the “when is it time to ICO?” question.

 

Pattern 1 – There is a very broad array of experience / maturity levels in ICOs – so beware

If you go from the calendar on TokenMarket, there are 27 active ICOs and another dozen that are on the horizon, so I am using that group of 39 as my basis for this post.  Every ICO has a white paper associated with it and most whitepapers appear to have been written hastily without a lot of experience with business and how to describe a need or an opportunity.  Blocktix is an anti-counterfeiting model that does a good job, and Hive and Populous both do a good job of explaining that there’s an opportunity for a invoicing model that’s dedicated to cryptocurrencies.  I was less clear about what ATB Coin and Gig Watt are about.

There’s already a lot of money in cryptocurrency – the really big holders are called “whales” – as they are in Las Vegas, and while some whales have gobbled up entire ICOs to create demand to ensure that they can unload their holdings – it seems clear that as ICOs become more popular – they need to have a very clear value proposition and offer a clear explanation of what their technology is – to instill confidence that they know what they are doing.  Encrypgen is one that’s aimed at genomic data and it offers no implementation details. If they did get into the details, it would reveal that it makes little sense to use a distributed, many copy data base, for big data like genomes. It’s unlikely to hold the required volume of data. And, genomic data cannot be de-identified for resale.

 

Pattern 2 – There Are Themes in Problems/Opportunities

While there are some one-offs (Orocrypt is aimed at the precious metals world and seems to be trying to tie the world of cryptocurrencies to something like a gold standard), there are some pretty big patterns that make sense in terms of what people are selling in ICOs.

 

• 10% of them are focused on gambling in one form or another (DAO Casino, Gilgam, Monster Byte, and True Flip Lottery),
• 5% are aimed at created a new “coin” (DIM Coin and Giga Watt – I think).
• 33% (see graphic) are aimed at something transactional, whether it’s to help people sell their cryptocurrencies or make them accessible to the masses (Nimiq and District0x), or offer some sort of banking service (regulations on cryptocurrencies are nascent at best) that’s the biggest group
• 28% are aimed at creating some new marketplace for cryptocurrencies (Primalbase is offering office space paid for in cryptocurrency and Fundrequest seems a bit like a mechanical turk function paid for with cryptocurrency)

 

Pattern 3 – Every Week Is Different in Terms of Money

It’s still the wild, wild west out there when it comes to ICOs and while some are raising mountains of cash, others are not.  It appears as there is some art to this, but it seems like there are some things that matter when it comes to a successful ICO:

• Problem statement. Solving a clear problem or addressing a specific opportunity – and being able to articulate it.
• Team. There needs to be a team that knows what they are doing.
• Technology. Technical description that highlights that they know “how” to win at what they are doing
• PR. This is a bit of a wild card, but it sounds like if you have the three bullets above and you shout it from the rooftops on Twitter, Reddit, LinkedIn and others, that makes a big difference.

 

Those are some initial findings and learnings.  Send me your feedback and look for another post soon.