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The Equifax Data Breach

A VC - September 10, 2017 - 7:32am

The news broke late last week that hackers have taken almost 150mm records from Equifax. These records include name, address, social security number, birthdate, and in some cases driver license information.

This is an identity thief’s treasure trove.

So what should we do about it?

I read Ron Lieber’s suggestions in the New York Times yesterday and did all of that for our family this morning.

That includes putting a freeze on our records at the big four credit agencies:

– Equifax

Experian

– TransUnion

Innovis

And putting a fraud alert on file for the next 90 days at the big three:

– Equifax

– Experian

TransUnion

That took the better part of an hour as you need to do each of these things for each social security number you want to “protect.”

I also went ahead and pulled credit reports for our social security numbers to see if any new credit had been taken out in our names. Hackers may have had this information for quite a while.

None of this feels particularly protective to be honest. We’ve made it harder for someone to take out loans in our names, but I don’t think we’ve made it impossible.

Lenders and others are going to have to get more diligent about detecting and protecting themselves (and us) from identity theft in the wake of this and many other data breaches.

Name, address, social security number, and birthdate should not be considered sufficient information to prove identity and access credit or confidential information any more. This has likely been true for some time, but this breach certainly is the nail in the coffin for that approach (and possibly the credit bureau business model).

It’s time for new approaches to security, identity, and the protection of our financial information. Thankfully, there are a lot of them out there, mostly in startup land.

Categories: Blog articles

Video Of The Week: William and Ted

A VC - September 9, 2017 - 9:36am

Our portfolio company Kik is doing a token offering for its Kin crypto token this coming week.

AVC regular William Mougayar interviewed Kik founder/CEO Ted Livingston a few weeks ago and their talk is the video of the week this week.

Categories: Blog articles

Fun Friday: The Johnnie Walker Ad

A VC - September 8, 2017 - 3:29am

I love the LA band called Chicano Batman.

They did an ad for Johnnie Walker back in January that is very timely right now.

Check it out.

Categories: Blog articles

A Nightmare

A VC - September 7, 2017 - 4:32am

I don’t know why we call them Dreamers. Because they get to pursue the American Dream? Don’t we all?

These kids, or adults as many are now, were brought to America by their parents and have lived here for most of it.

That we would even think that they should not be here is abhorrent to me.

We can talk about their parents, who came to the US illegally, but we should not be talking about their kids.

These people did nothing wrong, broke no laws.

As my partner Albert, an immigrant, wrote on his blog yesterday:

The blame for this situation though rests with Congress and past Presidents who have failed to make any meaningful progress on immigration reform. Right now, it is worth remembering now that the DREAM act has been around for 16 years. There have been multiple attempts to pass it with at varying times support in the House and Senate, but never the two at the same time, including a bipartisan filibuster that included 8 Democrats. The opposition by Democrats often arose because they wanted comprehensive immigration reform or nothing.

We have our elected officials to blame for not addressing this issue and fixing it a long time ago.

I for one expect them to fix it, to put the other immigration issues aside, which they never seem to be able to do, and address this one.

This is about our morality, our decency, our humanity.

Fix it.

Categories: Blog articles

Oreo

A VC - September 6, 2017 - 5:29am

I received an over the air upgrade to the Oreo version of Android (Android 8) yesterday.

It makes my phone feel even more like an iPhone. Notifications work more like iOS.

Google has polished the UI quite a bit and it is a joy to use.

I have been saying for several years that Android and iOS are copying the best things from each other and they feel more and more similar than ever.

I don’t really think it matters what mobile OS you use these days. They are both really great.

Categories: Blog articles

The decay of western civilization

Beyond Money - September 5, 2017 - 10:32am

One of my correspondents, Irish financial advisor Christopher Quigley, recently sent me a link to his article, Civilizations Die by Suicide Not by Murder. In that article, he mentions famed historian Arnold Toynbee’s monumental work, A Study of History which describes the rise and fall of 23 civilizations throughout human history. Toynbee concluded from his study that, “civilizations start to decay when they lose their moral fiber and the cultural elite turns parasitic.” That certainly rings true for our present world—the banking and corporate elite and their political minions have clearly turned parasitic, putting power and profit above all else.

Then by some strange coincidence I happened to notice a few days ago a book on display at my public library.  The book is, The Lost City of the Monkey God, by Douglas J. Preston, which tells the story of the search for a legendary city that was supposed to have existed several hundred years ago in the eastern part of Honduras in Central America. It is a true adventure story that reads like fiction. Preston was part of a team that went looking for, and by using some highly advanced technology, ultimately found, not only a city, but extensive remnants of a lost civilization, one that appears to be distinct from the Mayan and others of the region that are well known.

In one chapter, Preston speaks more generally about the civilizations that existed in that region and tells of the decline around AD 650 of the Mayan city of Copan. He says,

“This happened even as the ruling classes apparently swelled in size over succeeding generations…in what archaeologists call the ‘increasingly parasitic role of the elite.’  (We see the same process today in the gross expansion of the Saudi royal family into no fewer than fifteen thousand princes and princesses.) This proliferation may have triggered the vicious internecine warfare and killing among the elite.”

He goes on to say, “The commoners were willing to support the privileged class as long as they kept up their end of the bargain with effective rituals.”

What does that suggest for western civilization today? Who are those that comprise our privileged class, and what is the nature of the bargain between them and the “commoners?” I leave it to the reader to ponder those questions, but I would suggest that the bargain must at least include assurances of social justice, basic human rights, and access to a fair share of our natural and cultural heritage. But however one might define that bargain, political developments around the world in recent years seem to indicate that increasing numbers of people are feeling let down by their leaders.

Are we then doomed? Will western civilization continue to  decay and collapse to be followed by another dark age?

I think it is not “we” who are doomed, it is the global interest-based debt-money regime that sits at the pinnacle of the power pyramid, and the American imperial hegemony that are doomed. How long the collapse will take, how much pain and suffering will it cause, how can the present dysfunctional systems be displaced? These are all open questions. The optimist in me sees the peaceful emergence of a multi-polar political order and a sustainable and equitable global economy based on the devolution of power and new exchange and financing mechanisms that are interest-free, cooperative, and grounded in a spirit of compassion and mutual aid. –t.h.g.

Edit: This article from the BBC provides an excellent elaboration on the topic of this post: How Western Civilization Could Collapse.


Categories: Blog articles

The China ICO Ban

A VC - September 5, 2017 - 5:31am

Regulators in China imposed a blanket ban on ICOs over the long weekend.

A number of people have reached out to me via email and Twitter asking me what I think about this.

I think regulation of ICOs is inevitable and a good thing if done right (ie lightly).

The SEC’s comments on ICOs back in July were well done in my view.

There are all sorts of bad things going on in the ICO market right now, from outright scams to projects raising tens of millions of dollars on a white paper written in a day to celebrities getting in on the action.

We needed a cooling off period and if China’s actions are that cooling off period, then I welcome them.

However, a blanket ban on ICOs seems like bad policy to me.

The SEC is heading in the right direction by making a distinction between tokens with real utility vs tokens as a substitute for securities. The former is where the innovation lies. The latter is just a fast and loose way around the rules.

If you look back at the Ethereum token offering several years ago, it is hard to see how that was a bad thing. It provided needed funding to the Ethereum project and the result has been a wave of innovation on top of Ethereum, including the whole concept of ICOs.

If I am reading the Chinese regulators correctly, they are saying that an offering like the one that Ethereum did is not going to be allowed. That’s bad.

Many have speculated that this Chinese ban is temporary to give the Chinese authorities time to come up with sensible regulations. I suspect that is right.

However, I would not like to see the SEC and other regulators follow suit. I think a better move would be to work to rid the market of the scams and other bad actors and actions while allowing for real innovation to continue. That seems to be where the SEC is headed and I encourage them to keep going in that direction and not follow the Chinese.

The US has always been a home to innovation and innovators. We have been able to do that while applying sensible regulations (for the most part) on innovative new technologies. If we continue to take that approach we can compete and even beat China to market in areas like blockchain where they are arguably ahead of us. Naval said it well in this tweet yesterday:

ICOs need regulation, sure, but banning ICOs altogether is a huge gift to Silicon Valley and its resident financiers.

— Naval Ravikant (@naval) September 4, 2017

Categories: Blog articles

Union 2.0

A VC - September 4, 2017 - 4:00am

I wrote this post below on labor day two years ago. From where I sit, very little progress has been made on this since then. That is a problem and also a big opportunity.

Some Thoughts On Labor On Labor Day

When one looks back over the history of the development of the modern economy from the agricultural age, to the industrial age, to the information age, the development of a strong labor movement has to be one of the signature events. Capitalism, taken to its excesses, does not allocate economic value fairly to all participants in the economic system. The workers, slaving away to build the railroad, the skyscraper, etc, provide real and substantial value to the overall system and yet, because they are commodified and interchangeable parts, they don’t always get their fair share of the economic value they help to create. So the labor movement provides the market power that each worker individually cannot provide.

The emergence of the middle class in the developed world in the 19th and 20th centuries has as much to do with the emergence of a labor movement as it has to do with anything. And a growing middle class in turn drove economic development as the obtained earning power was spent on needs like homes, cars, education, etc.

I am a fan of the idea that labor needs a mechanism to obtain market power as a counterbalance to the excesses of markets and capitalism. I think we can look back and see all the good that has come from a strong labor movement in the US over the past 150 years.

However, like all bureaucratic institutions, the “Union” mechanism appears anachronistic sitting here in the second decade of the 21st century. We are witnessing the sustained unwinding of 19th and 20th century institutions that were built at a time when transaction and communications costs were high and the overhead of bureaucracy and institutional inertia were costs that were unavoidable.

One has to think “if I were constructing a labor movement from scratch in 2015, how would I do it?”  My colleague Nick Grossman coined the term “Union 2.0” inside our firm to talk about all the organizing tools coming to market to assist workers in the “gig economy.” But I think Union 2.0 is way bigger than the gig economy. The NY Times has a piece today on workers in a carwash in Santa Fe organizing outside of the traditional union system. One can imagine leveraging technology, communications, and marketplaces to allow such a thing on a much larger scale.

I don’t know how much the traditional union system taxes workers to provide the market power they need. But if its like any other hierarchical system that we are seeing replaced by networks and markets, the take rates are in the 20-40% range and could be lowered to sub 5% with technology.

That’s a big deal. And I suspect we will see just that happen in my lifetime. I sure hope so.

Categories: Blog articles

Multi-Sig Wallets

A VC - September 3, 2017 - 6:02am

A lot of financial processes require multiple signatories, like a wire transfer for example. That adds a level of security and comfort to a process that moves a lot of funds quite quickly.

So it makes sense that blockchain technology would find a way to mimic that in software.

It is called a “mult-sig wallet” and if you use one, you need multiple “signatories” to move funds out of the wallet. I put signatories in quotations because what you actually need is multiple private keys to move funds out of the wallet.

CoinCenter wrote a nice explanation of multi-sig technology back in early 2015 that I frequently share with people who ask me about multi-sig. Give that a read if you want to learn a bit more about how this technology works and why it is so useful.

Our portfolio company Coinbase uses multi-sig technology in its vault product which is currently available for Bitcoin wallets and will eventually come to its other wallet offerings.

If you use a hardware wallet like Ledger, you can use the BitGo software to get multi-sig on it. Here’s a blog post about that.

With the big increase in crypto prices this year, many people are now holding significant amounts of crypto assets. It is worth taking security more seriously and putting your assets, or at least most of them, into a multi-sig wallet is a good step toward that.

Categories: Blog articles

Video Of The Week: The Coming Disruption Of Transportation And Energy

A VC - September 2, 2017 - 6:02am

My friend Steve suggested that I watch this video about the coming changes in energy and transportation and how profound (and rapid) they will be.

It’s long (an hour) but worth it.

Categories: Blog articles

Funding Friday: Hurricane Harvey

A VC - September 1, 2017 - 4:37am

The monthly match gang has been discussing doing a match campaign to help victims of Hurricane Harvey.

We are particularly interested in helping recent immigrants who are in need of relief.

We have not yet identified the right organization to support given where we want to focus but we hope to have one shortly.

In the interim, I donated to the GoFundMe Official Hurricane Harvey Relief Campaign.

If you would like to do the same, go here and make a donation.

Categories: Blog articles

Store Of Value vs Payment System

A VC - August 31, 2017 - 4:22am

One of the debates that has raged inside and outside of the Bitcoin community since I got involved back in 2012 is whether Bitcoin was a store of value vs a means of payment.

When I first started buying and owning Bitcoin, I would use it as a means of payment all the time.

I would whip out my phone and send Bitcoin to people instead of paying cash.

This was a Bitcoin t-shirt I bought in the summer of 2013:

At today’s prices, that t-shirt cost me $830. I love that t-shirt.

 

This was a payment I made that same summer for a golf caddie:

 

And this was a gift I made to the Bitcoin foundation in the spring of 2013:

That gift is almost $700k at today’s prices.

 

I share these three transactions with all of you to make a point.

And that point is that you can’t keep spending something that goes up as much as Bitcoin has.

So I don’t spend Bitcoin anymore.

I hold it.

It’s a store of value now.

That much is clear.

Categories: Blog articles

Monetizing A Free App

A VC - August 30, 2017 - 5:50am

A number of our portfolio companies that have free web/mobile apps that are monetized by advertising have offered a low-priced subscription offering that removes the ads and, often, offers offline sync on the mobile apps.

Here are some examples:

I am sure there are other examples in our portfolio but those are the ones I am most familiar with.

I like this model a lot. As Duolingo said in their Duolingo Plus launch communications, it allows a free service to remain free for those who can’t pay for it.

It also allows those who don’t want the ads to remove them. And other value added features, like offline sync, make the subscription offering compelling for power users.

Pandora’s Plus offering is a good example of this approach and, because it is a public company, we can take a look at the numbers.

In Q4 2016, Pandora had roughly 4.4mm paying subscribers out of roughly 80mm total users, only about 5% of its user base.

But if all of those 4.4mm subscribers are to the low priced ($5) plan, then they would generate $265mm on an annualized basis. I assume that the subs revenue number is a bit larger because there is also a $10/month plan. So let’s say subs revenue is $300mm.

Pandora’s total revenue is about $1.4bn a year so subs represents over 20% of the revenue even though only 5% of the users take the subs offering.

So if you have a free ad supported service with a lot of regular power users, you should really consider adding a low priced subscription offering.

It will diversify your revenue mix and gives your users the ability to opt out of the ads if they want to.

Categories: Blog articles

Flood Damage

A VC - August 29, 2017 - 6:16am

I got an email from a friend last night. He said that his friend was flooded in Texas and had lost many family mementos and valuable items.

Obviously this is a terrible thing to have to go through.

We went through it during Hurricane Sandy when the Hudson came over its banks and flooded our building’s basement and first floor.

All of our building systems were destroyed and all of the families had to vacate our building for what turned out to be almost four months.

We also lost everything in our storage unit in our basement, including many family mementos and valuable items.

We fought with the insurance companies for almost a year and recouped maybe 50 cents on the dollar.

The mementos were and are irreplaceable. Gone forever.

But as I am typing this, I must say that although it was a terrible experience for us, nobody in our family was hurt and we have fullly recovered from it

Thankfully we have the means to absorb the financial losses and I realize that many people don’t.

We should have better federal flood insurance for this reason. The federal flood insurance system doesn’t cover many things that it should and sadly many people in Texas will suffer significant financial losses that they will not be able to fully recover from their insurers.

At this time, it seems that the death toll for Harvey will be in the range of Sandy, which took 117 lives, mostly in NY and NJ.

To lose so few when so many are impacted is a testament to the outpouring of assistance that we saw in both Sandy and Harvey. There are many heroes in both of these disaster stories.

So first and foremost, we should all be thankful that so many were saved from harm. And we should seek out ways to help those who don’t have the means to sustain the financial losses they have taken. That is where I want to focus our support right now.

Floods are terrible. But once the waters recede and recovery begins, many will recover quickly, as we did, and move on. Some will struggle. They will need our help and hopefully we can all come together to provide that.

Categories: Blog articles

How To Value Crypto Assets

A VC - August 28, 2017 - 6:03am

Given the explosive increase in the prices of crypto assets this year, there is a growing discussion on how to value them.

This is a very good thing.

Andy Kessler weighs in on the topic in this WSJ piece which was published over the weekend.

You should go read the piece as it does a good job of dissecting the economics of the transaction processing system that underlies Bitcoin (aka the Bitcoin Mining Network).

Andy finishes his post with the following statement:

at some point the market will wake up and apply rational valuation techniques. That price—$4,361—implies a lot of belief in Bitcoin as a long-term store of value well beyond the economic value of the transaction platform. 

Like Andy, I hope and expect that the market will apply rational valuation techniques to crypto assets. There are a number of people trying to do that. I think the work of Chris Burniske is very solid.

My issue with Andy’s analysis is that he’s conflating the market value of the Bitcoin Mining Network with the value of Bitcoin, the crypto token.

My partner Albert says it well in this tweet:

Yes. He’s definitely confused. Like equating total value of gold with the value of companies that mine and trade gold.

— Albert Wenger (@albertwenger) August 28, 2017

Blockchain technology upends many of our traditional notions of what networked applications look like.

Our former colleague Joel captured this “upending” well in his seminal post on Fat Protocols, in which he says:

What’s significant about this dynamic is the effect it has on how value is distributed along the stack: the market cap of the protocol always grows faster than the combined value of the applications built on top, since the success of the application layer drives further speculation at the protocol layer. And again, increasing value at the protocol layer attracts and incentivises competition at the application layer. Together with a shared data layer, which dramatically lowers the barriers to entry, the end result is a vibrant and competitive ecosystem of applications and the bulk value distributed to a widespread pool of shareholders. This is how tokenized protocols become “fat” and its applications “thin

Networked applications that run on top of the shared data layer of blockchains will be forced into commodity pricing and rent seeking will be nearly impossible. Those who build the Visas and Mastercard networks on top of Bitcoin will never achieve the economics of Visa and Mastercard. But that is the point. The Bitcoin protocol will capture those economics and the only way you can participate in that is by earning or buying and owning the crypto token (ie Bitcoin).

And so that is what we must model, analyze, and understand. We cannot use EBITDA multiples to do this work. We need to turn to other tools and that is what Chris and others are doing.

I applaud Andy for putting this critical issue on the table and hope that he and other serious market analysts and observers will take the time to understand what is really going on here and help us all figure out how to properly value it.

Speculation is rampant right now and without the proper valuation tools, we lack the ability to arbitrage and profit from that speculation. We need that.

Categories: Blog articles

Pay Per View Poll

A VC - August 27, 2017 - 10:57am

I stayed up until 1am ET last night to watch the Mayweather McGregor fight.

We used the Showtime Pay Per View app on AppleTV to watch the fight.

We paid $99 to watch the four fights, including the main event.

I heard that many were able to watch the fight for free using Twitter’s Periscope feature.

So I ran this Twitter poll this morning. If you haven’t voted, you can here.

If you watched the fight last night, how did you do it?

— Fred Wilson (@fredwilson) August 27, 2017

It seems like paying $99 to watch at home, as we did, was not the dominant way that folks watched the fight.

“Some Other Way” includes going to a bar to watch it, which may have been the most popular way of all.

Categories: Blog articles

Video Of The Week: The NYS DFS Virtual Currency Hearings

A VC - August 26, 2017 - 6:11am

Apparently there is a Netflix documentary on Bitcoin that recently came out.

I’ve been hearing from a lot of friends that my NYS DFS testimony from almost four years ago is featured in that documentary.

This took place in January 2014 and it’s worth going back and seeing what the questions were at that time and which of them have been resolved and which have not.

My statement (unprepared) starts at 21mins in.


USV TEAM POSTS:

Nick Grossman — September 4, 2017
Labor Day: Project Repat

Categories: Blog articles

Funding Friday: Good Fences Make Good Neighboors

A VC - August 25, 2017 - 5:22am

“generally it reflects a misunderstanding of humanity”

To back this project, go here.

Categories: Blog articles

What in the world is going on? — Part 4

Beyond Money - August 24, 2017 - 1:55pm

In this interview below Paul Craig Roberts describes the neo-conservative ideology that has driven geopolitics since the end of World War II, and discusses the elite agenda, the prospects for the Trump presidency, and the US economy.

He comes closer than in his earlier statements to highlighting the key control mechanism of domination—the global money system, but still falls a bit short, as indicated by his statement that if there is a severe economic crisis in the US, the Federal Reserve “will have to abandon the banks and save the dollar.”

On that I disagree. Roberts seem not to realize that the FED, as well as virtually all of the other central banks of the various countries around the world, is controlled by the big transnational banks, and that they work together to, as Prof. Carroll Quigley said, create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences.

The banking elite thereby control not only the dollar, but all of the other major world currencies. If the inflation rates or unemployment rates become too high in one country, the central banks can spread the misery around by monetizing various securities and manipulating interest rates and currency exchange rates.

For the past several decades the US dollar has been their primary monetary tool, but the dollar is not the be all and end all in their schemes. You can be sure that the banking elite always have a plan. At some time in the not too distant future when the dollar has outlived its usefulness, it will be replaced by a single global currency that will give the elite even tighter control over financial, economic, and political affairs around the globe.

The flies in the ointment of their plan are (1) a few governments that are bent on steering an independent monetary and financial course, and (2) the emergence of independent, non-governmental and decentralized exchange mechanisms and currencies. In the first case, Iraq under Saddam Hussein and Libya under Gaddafi were easily disposed of (but at tremendous costs). Russia and China pose a much bigger problem for the elite, hence the stalemate in Syria and the drum beat of propaganda against Putin and the fear mongering against the Chinese. With regard to alternative exchange mechanisms, the proliferation of virtual commodities like Bitcoin and others suggests that elite control may be vulnerable to innovative and disruptive technologies. But these virtual commodities mark only the beginning of the new paradigm in money and finance. Ultimately, ways will be found to create an “internet of credit” based on decentralized, personalized, local control and backed by real goods and services.


Categories: Blog articles

The Hashtag

A VC - August 24, 2017 - 3:50am

Ten years ago yesterday, August 23, 2007, Chris Messina suggested that using the # sign in a tweet could be used to group tweets about a thing (his example was barcamp).

Here is the tweet in which he made that suggestion.

how do you feel about using # (pound) for groups. As in #barcamp [msg]?

— ⌗ChrisMessina (@chrismessina) August 23, 2007

There is so much I like about this story.

  1. A user suggestion became a feature simply by other users adopting it.
  2. Twitter took it a step further by recognizing the hashtag as a “thing” and making it hyperlinked in the service.
  3. The hashtag feature took off as Twitter users thought it was cool and started using it actively.
  4. Users showed that hashtags could be used for many more things than groups.
  5. The hashtag moved beyond Twitter into most popular social media applications (ie Instagram) and now has become the standard way for users to “tag” something.
  6. The hashtag has moved beyond software into our language and media.

I was an investor and board member in Twitter at the time and the Company was tiny, not more than twenty employees and probably a fair bit less. The engineering team was maybe half of that, led by Blaine Cook. They were struggling to keep up with all of the growth of the service and yet they had the foresight that the # and @ symbols that users had adopted organically were important. They prioritized recognizing them in their software. That was a big deal.

Biz Stone, now back at Twitter, blogged about how this happened yesterday and it is a short and good read.

The Twitter story is a complicated one, with lots of ups and downs, but I believe it has been and remains one of the most important services ever built on the Internet and hashtags is one of the many reasons that is so.

Categories: Blog articles
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