King - Blockchain Startups: Bitcoin and Ethereum as the Frontier of Finance

This book shows you how to compete with banks. Bitcoin and Ethereum have features that empower entrepreneurs to disrupt finance. The functions of banks are now in the cross-hairs of open-source groups and software entrepreneurs. We look at what you can build for the future beyond traditional banking.

Banks used to be protected from disruption by the nature of fiat money. The lack of competitors has made them slow to innovate. With Bitcoin and Ethereum, software entrepreneurs can spot opportunities to offer state-of-the-art financial services and soar above the status quo.

BLOCKCHAIN STARTUPS

Bitcoin and Ethereum as the Frontier of Finance

STEFAN KING

First edition

Published by Token Flow Ltd.

Copyright 2020 Token Flow Ltd.

Kindle Edition

Written by Stefan King

Edited by Elnore Delmas and Patricia Sirkia

Cover design by FIAZ.AHMED

All rights reserved. No part of this publication may be reproduced, distributed or transmitted in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.

Token Flow Limited

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Hong Kong

To the crypto-wizards of Chiang Mai.

Table of Contents

Acknowledgments

This books inspiration came from countless conversations with entrepreneurs, developers, traders, and other crypto-enthusiasts, which happened at various events in Chiang Mai and several conferences in Asia. Many of these events were organized or sponsored by Yellow Incubator, my former employer. Im thankful for their support of my writing efforts.

For sparring over this books ideas, Im grateful to Alexis, Boban, Chris, Barry, Damian, Corvin, Jonathan, Phil, Clayton, Max, Mohamed, and Drew. For editing and proofreading, I thank Hans-Peter, Elonore, Patty, and Steve.

Introduction

Once a software developer asked me about the possibilities of Bitcoin. I explained it like this:

Me: Have you done work for clients as a freelancer?

Developer: Yes.

Me: Then you are familiar with the challenges that come with independent contract work; you have to make deals such as getting 50% payment upfront and 50% after completion of the project. Or you have to use an escrow service. You need contracts, and you and the client take on risk. Sometimes it gets messy, and you could have conflicts about payment.

He nods quickly; he knows how things go. I continue: People are currently working on technology that works on top of Bitcoin and other cryptocurrencies that solves this, and many other things. For example, you could define a smart contract that pays according to your projects timeline. Say that you and the client expect it to take two months to complete and that the price is fixed. The smart contract starts the money stream from the client to the contractor, minute by minute, until the end date. If someone is not happy at any point, either you or them clicks the button, and the stream of money stops. This guarantee is unstoppable and does not require an escrow agent.

The developer understands it, because he says: Im going to work on this as soon as I get home.

Such moments of entrepreneurial inspiration are typical for people who study the details of cryptocurrency.

This book aims to help entrepreneurs make sense of the opportunities offered by cryptocurrencies and digital tokens. The launch of Bitcoin opened the field of finance for disruptive innovation: new products and services are possible, built by up-and-coming players such as startups and open source projects. In the age of crony-capitalism, which abuses its political power to earn money without risk, a handful of companies control finance. Other problems include fraud, quantitative easing, and too much debt. That is why innovation in the financial sector is an exciting trend. The invention of Bitcoin and decentralized finance means that you, yes you , can dive into the field of financial technology and stake a claim on the profits of banks. You can start solving problems that legacy players are ignoring.

The big-sounding phrase global financial sector suggests that a scrappy entrepreneur like yourself should stay away from it. Any financial product, such as an insurance policy, mortgage, or investment, involves the creation and transfer of money, which are critical functions in the economy. That is why the global financial sector runs on top of banks. We can even be more specific: It is an oligopoly of institutions that controls money and investing (Andreas M. Antonopoulos, The internet of Money , 2016). Economics 101 says that an oligopoly is a group of large companies within an industry who agree to keep prices high and competition at bay. Big banks work together to achieve a de facto monopoly on financial services. The cronies fear startup companies that compete with them on a level playing field. Your challenge as a crypto entrepreneur is to bypass and undercut these banks by giving their current customers a better financial product or service. You can win by inventing value propositions that outclass those offered by banks.

This book is for doers and builders. I will focus on your opportunities as an entrepreneur. That is why we will skip cryptographic math, computer science, economic models, or game theory. Of course, these topics do matter: they are part of your arsenal as an entrepreneur, and it is to your advantage to learn as much about them as you can. But these topics have already been covered in other books, which I will mention in this book. Whenever I reference a book about cryptocurrency and related issues, it means that I recommend it with enthusiasm.

The history of technology has shown how disruptions play out. Innovators build a scrappy application or platform that grows from obscurity, powered by a new perspective on an existing product. They get rapid feedback from their initial user base, taking advantage of their greater adaptability as a small organization until they boost the user experience beyond those of the legacy players. This process causes drama. Every technology that makes our life more efficient replaces companies that served that market less efficiently. For example, the invention of clay roof tiles put artisans of thatched roofs out of work, and the mainstream adoption of cars turned horse-drawn carts and carriages into quaint antiques. Likewise, Xerox machines and personal computers replaced armies of secretaries. We often see that technological progress gives a boost to the quality of life of the many at the cost of a forced career change for the few. Recent examples relevant for software entrepreneurs include brick-and-mortar retailers who lost their business to e-commerce platforms. It is easy to see how we all benefit from progress. If you have lived through any of the above examples, you know that feeling you get as a customer: Wow! This is so much better! From now on, I want this new thing. Cryptocurrencies and other crypto-assets can be like that. Entrepreneurs can use blockchains such as Bitcoin and Ethereum to disrupt banks, who are the legacy players of finance. Cryptocurrencies put the control over money back into the hands of the public.

Economic progress depends on entrepreneurs applying technology to peoples problems, and most of us have plenty of financial challenges. Society, as a whole, has large-scale money problems that remain unsolved. A startup can tackle any one of these problems, which we will discuss one by one. By dividing and conquering, we can transcend the widespread economic and political challenges related to money and finance. Entrepreneurs have a heroic role to play; taking honorable risks to get rewarded for mastering these challenges. Cryptocurrencies are the tools to get it done.