Tokens: Shares with Benefits

This short post explores some of the additional value that tokenised assets on blockchains can add, over and above pure financial return.

The assets in question could be shares, or bonds, or other financial securities recorded as tokens on blockchains.  Some assets may not even be not regarded as financial securities, due to what they represent and what is promised to the asset holders – these have been described as “utility tokens”.

Today, people typically buy financial securities purely for their financial return.  A bond, loan, or other fixed income product, will give investors some amount of yield, usually commensurate to the amount of risk the investor is taking by providing their money.

Equity may give you slightly more than just a return: perhaps a vote at an annual shareholder meeting.  However, most people don’t care about these votes.  They just care about the share price going up, and dividends, if any.  The crypto community describes this succinctly as #NumberGoUp.

Yet increasingly, tokens are being used creatively to incentivise and delight token holders.

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Tokens – Lowering the Barriers to Innovation

I was getting my daily hit of Matt Levine’s excellent Money Stuff this morning (subscribe here!). In my favourite blockchain blockchain blockchain section he noted:

But a popular pattern in the crypto/token/blockchain world is that someone will come along and be like “finally, through tokenization, we have invented a way to slice _________ into bits and let people trade the bits.” I always find this a bit confusing. Whatever _________ is, it is safe to say that before the invention of tokenization there was already a way to slice it into bits and let people trade the bits. Slicing things into tradeable bits has been a very hot area of finance for a very long time, and people got pretty good at it. Real estate is a popular target for tokenization, for instance, and I am confused because real estate securitization—not so much mortgage-backed securities but real estate investment trusts—is a thing that has existed for a long time.

https://www.bloomberg.com/opinion/articles/2019-01-30/if-you-want-to-invest-in-pot-buy-pot

I agree with this! We’ve had securitisation before blockchains and tokens. You can chop up the title to a painting and sell it to investors in 1% slices already without blockchains or tokens.

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Bitcoin’s payments are not peer-to-peer!

This post is adapted from an article first published on R3’s Medium.

In this post I articulate what a peer-to-peer transaction is, why Bitcoin transactions are not peer-to-peer, and why it is important to understand the differences clearly. I describe the benefits of peer-to-peer transactions and discuss that Corda is the closest architecture to take advantage of those benefits.

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What is Blockchain?

Yesterday I did an recording where the interviewer asked me a simple question – what is blockchain? This got me thinking – I had no go-to answer for this. People use this word to cover a wide range of networks and platforms, and some platforms such as R3’s Corda (Note: I work at R3) are categorised as “blockchain” platforms, when they don’t even bundle transactions into blocks!

The best description I could come up with was:

Blockchain is a word used to describe a bundle of technologies that allow digital assets to be created and passed from party to party with guarantees that the assets are authentic and haven’t been copied or counterfeited all without needing to trust a third party to open and maintain accounts for customers.

To break this down a bit:

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Banking When the Bank is Shut – Token Maximalism

In this post I describe why freeing financial assets from the books of custodians and returning control of them to their owners as tokens could create significant benefits to an economy. This brings together concepts from traditional finance, cryptocurrencies, and enterprise blockchains.

Opening+hours+of+banks
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The Basics of Bitcoins and Blockchains

Last December I was approached by a publisher, Mango, who asked me if I would write a book about blockchain technology.  A little nervously, I agreed, and I’m excited to announce the result of six months of effort:

The basics of bitcoins and blockchains - book cover

The Basics of Bitcoins and Blockchains is an essential guide for anyone who needs to learn about cryptocurrencies, ICOs, and business blockchains.  Written in plain English, it provides a balanced and hype-free grounding in the essential concepts behind the revolutionary technology.

I wrote The Basics for an audience of business people, students, practitioners, and those who are simply interested in this technology.  I tried to make it entertaining even for those who are already working in the cryptocurrency or blockchain industry.  For example, did you know:

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Useful New ICO Metrics for 2018

I’ve been at a few events recently where people talk about the “market cap(italisation)” of utility tokens issued in ICOs, and comparing them to the market cap of cryptocurrencies or (even worse) listed companies.  This is truly dreadful and misleading, perhaps sometimes intentionally so.  In this post I introduce two useful metrics for comparing across ICOs: the Reserve ratio, and the Commitment ratio.

For a non-hypey introduction to ICOs please see A gentle introduction to ICOs.

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Bitcoin Price, Gold, and Nonsense – How Not to Value Bitcoins

Important note: If you own more than $1,000 worth of cryptocurrency then you should definitely be using a hardware wallet instead of keeping coins on exchanges.  I recommend a Ledger Nano (S or Z) which you should buy directly from their website and never second hand.


Every few days I hear the argument “If x% of the money in gold (or other asset class) moved into bitcoin, a single bitcoin should be worth $y”.  This article explains why this argument is utter nonsense.

The (flawed) reasoning is as follows: the total value of gold in circulation is estimated at US$8 trillion.  If some small fraction of the people holding gold (say, 5%) sold their gold for US Dollars (releasing $400 bn), and the USD proceeds were used to buy bitcoins, the total value of bitcoins (commonly referred to as “market capitalisation”) would increase by that amount of dollars ($400bn), and because we know the total number of bitcoins in circulation, we can derive a price per bitcoin.

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