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J. R. Willett launched the first ICO… but still has a day job – Cointelegraph Magazine

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Cointelegraph By Elias Ahonen

ICOs? He held the first one. Stablecoins? He dreamed of them by accident. Vitalik Buterin tried to get him on board to help launch Ethereum, but he was too busy. He is J. R. Willett, one of the most fascinating men in the industry.

Back in 2012, Willett, now 41, felt he could improve Bitcoin by making it possible for anyone to create interoperable tokens backed by the protocol. He released a white paper that described the new model and invented a way to fund the project with a token sale. He procrastinated for the next 18 months, hoping someone else would take the bait. Eventually, he gave in and announced the Mastercoin initial coin offering, which went on to inspire Ethereum and every subsequent ICO.

“It felt like I was just putting into words what was obviously going to happen — people were already talking about it, and I thought, ‘Why hasn’t someone formalized this at least a little bit?’ I just got tired of waiting for someone else.”

In the early days, he was worried that cryptocurrency would bring about a dystopia where either the late adopters became penniless or a one-world government would form to regulate everyone’s transactions. He’s still worried, but things are going better than he’d feared.

 

 

In the sea of exceptional and charismatic people who rise to the top of the cryptocurrency world, Willett stands out. Not in his absolutist conviction to a set of principles, not in his journey from rags to riches, not in his “maniac drive“ to stick with a project, not in his outsized charitable pursuits, and not even in his artistic endeavors or grand visions for the future. No. Willett stands out because despite the incredible things he has set in motion, he remains a humble family man who never forgot what was most important.

The first ICO

When the world rang in the year 2012, Bitcoin was pretty much the only game in town. Bitcoin, blockchain and cryptocurrency were one and the same, save for the newly birthed Litecoin fork that was not yet three months old (LTC was created via mining, just like Bitcoin). It’s here that Willett arrived to stir the pot, publishing what he calledThe Second Bitcoin Whitepaper.”

 

 

“We claim that the existing Bitcoin network can be used as a protocol layer, on top of which new currency layers with new rules can be built without changing the foundation,” he wrote. The idea was to make it possible to create new, functional tokens on top of Bitcoin in such a way that smart contracts could regulate their interactions. “Mastercoin supports creating property tokens to be used for titles, deeds, user- backed currencies and even shares in a company,” the white paper explained.

This sounds much like Ethereum today, complete with interoperable ERC-20 tokens and smart contracts. That is no coincidence, considering that Ethereum was partly inspired by Willett’s ideas.

“Vitalik came to us initially with his ideas, and we told him, ‘We’ve got some other things we want to do first.’ He didn’t want to wait, and it’s good for him that he didn’t. Ethereum was the result of that.”

Willett even brought up the idea of stablecoins, writing that “If you think Bitcoin has a reputation problem for money laundering now, just wait until you can store ‘USDCoins’ in the block chain!” This was a new idea — he invented the concept.

Mastercoin’s launch — and token sale — was announced in July 2013. It was the first-ever ICO, and coins could be purchased at an exchange rate of 100 MSC per 1 BTC. These first coins were received from the “Exodus Address,” which served as Mastercoin’s equivalent to the genesis block — while Bitcoin was the beginning, Mastercoin was imagined as the next era.

When Willett announced Mastercoin on the Bitcointalk forum, he thought of it as a one-time shortcut to get around the “proper way” of raising money. “It didn’t feel like an innovation at the time,” he says.

“I thought I had found a bit of a shortcut — I just didn’t have time to go flying to California, putting together a pitch deck and talking to venture capitalists, most of whom hadn’t heard of Bitcoin.”

Eventually, Mastercoin evolved into the Mastercoin Foundation, itself evolving into the Omni Foundation, which Willett founded and where he still serves as chief architect. Willett says that transparency was very important to him while creating the nonprofit, and explains how he used a public spreadsheet to record all expenses.

“The problem with that was that as we started running out of money, everybody knew we were running out of money, and that took some of the wind from our sails,” he recalls with a laugh. Today, Omni Layer is an “open source, fully decentralized asset platform” that allows for “creating and trading custom digital assets and currencies.”

 

 

When asked if he harbors any regrets in not becoming a billionaire CEO, he lets out a hearty guffaw. “I’m sure there would have been things that were fun about it,” he says giddily, but goes on to explain that he is a minimalist who barely owns anything that his kids do not need. “What do you get from being super-wealthy, if you kind of have a minimalist state of mind? You just get a bunch of problems,” he contemplates. Is there perhaps a tinge of regret there?

“Maybe the regret there is that I could have done a lot of good — but hopefully, those people that do become billionaires will do a lot of good.”

 

https://www.youtube.com/watch?v=videoseries

 

The inventor

Willett led what he calls an idyllic childhood with a father who “always had a knack for money and investments” and began teaching him coding on the family’s Apple II-GS computer when Willett was only 10 years old.

While still in high school in Oregon, Willett spent summers working as a shop assistant doing unglamorous work like sweeping and cleaning toilets. One time, he wrote a mock virus and made his employers believe that they had been hacked. “They had an old IBM computer — I think I wrote it at home and then brought it in on a floppy disk,” he recounts with laughter.

When Willett later learned that he could make a living doing “this thing I’d been doing for fun,” a degree in computer science at Seattle Pacific University was a “no-brainer.” He graduated in 2002.

After two years as a software developer at “dot-com startup” Alerio in Oregon, he joined Dynon Avionics, where he was promoted to a senior role. Over his 11-year career there, he created flight planning software and calibrated instruments that went on to be used in applications as exotic as the SpaceShipOne spaceplane, which completed the first crewed private spaceflight in 2004.

In 2012, he joined his present employer, Cozi, as software developer lead, where he designs mobile calendar apps that help families stay organized. It seems a good fit. He says, “I’ve always considered myself a family man — even before I had kids.”

That’s right — Willett, the inventor of both the ICO and algorithmic stablecoin, still works a day job. “You can’t have all of your money tied up in cryptocurrencies,” he said, referring to the responsibilities of parenthood.

 

 

Concerning crypto

It was around 2010 while working at Dynon Avionics that Willett “kind of fell in that [cryptocurrency] hole and never got out.” He watched the Bitcoin price rise up to $0.25, and remembers setting up a beige computer tower, which successfully mined a block of 50 BTC on its own over a few weeks with only a central processing unit, or CPU.

CPU mining soon became impossible, as GPUs (graphic processing units) and later ASIC miners (specialized software chips for mining) connected to mining pools came to dominate the landscape. “Even then, it was unusual to get a block from a CPU, but it wasn’t unheard of,” Willett recalls.

Unlike some others from his time, Willett did not come to view cryptocurrencies as a universal savior or liberator of humanity. Instead, he foresaw a dystopian future, which worried him deeply. He never wanted to metaphorically burn the banks or upend the system, because that sort of thing is bound to hurt many, many people who rely on the existing structures.

“It looked to me like something that could, if it got big enough, damage the entire worlds financial systems. I thought, this is the sort of thing you better own just defensively, as an insurance policy.”

Willett admits that the idea of Bitcoin damaging the global financial infrastructure “sounded pretty crazy back in 2010–2011, when very few people had heard of Bitcoin, but I have always taken the opinion that the government-issued monies are much more fragile than they appear.” He adds that a bank run could happen if people lose confidence in fiat, and now, there is a valid alternative for it.

For Willett, money is a “shared hallucination” that works well if everyone plays along, but can fall apart quickly if people choose to “opt out.”

 

 

This is not necessarily what Willett desires, as such a situation would leave those without cryptocurrency in a desperate situation. Not everyone knows about cryptocurrency, and not everyone has the money to invest or the confidence to risk their capital. It would be a tragedy for them to be left behind. But, “Thinking about that potential possible outcome, it would be foolish not to own at least some cryptocurrency,” he reasons.

“If there comes a tipping point where everyone tries to get out of government money and into cryptocurrencies… itd be on the scale of global war in the amount of human suffering.”

Willett admits that back in 2012, he “vastly overestimated” the speed at which cryptocurrency adoption would happen. Some of his writings from the time came with a particularly dystopian bent, such as predicting governments “attempting to destroy all decentralized computer networks (including the internet)” in order to bring about a “strong, centralized, [blockchain powered] one-world government which gets its revenues by tightly reigning in freedom of commerce in order to collect taxes.”

“When I wrote that, I expected it could be a year or two away,” he thinks back. He does not come across as much of a doomsayer anymore. “The longer it takes to get there, the less disruptive itll be,” he says referring to the view that a larger base of cryptocurrency owners will result in a less turbulent transition toward cryptocurrency.

Willett is confident that there will only be more crypto billionaires, as he expects the bull market to continue for some time. “Usually, there’s a roughly hundredfold run-up, followed by a roughly tenfold drop. It happens over the course of months or even years, and then it happens again.” He considers Ether the best bet today, and recently predicted an ETH top of around $9,500 for this cycle.

“I’m optimistic that our crypto billionaires, whoever they are, will eventually become crypto philanthropists, especially if this world that were building ends up causing a lot of pain and suffering for people that are late adopters.”

 





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A new milestone for Bitcoin, COVID hits conference, Buterin’s DOGE payday

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Cointelegraph By Editorial Staff

Coming every Saturday, Hodler’s Digest will help you track every single important news story that happened this week. The best (and worst) quotes, adoption and regulation highlights, leading coins, predictions and much more — a week on Cointelegraph in one link.

Top Stories This Week

 

Bill to make Bitcoin legal tender passes in El Salvador

El Salvador has officially become the first country in the world to adopt Bitcoin as legal tender.

A law outlining the proposals, introduced by President Nayib Bukele, passed with a “supermajority,” attracting 62 out of 84 votes.

Under the so-called Bitcoin Law, merchants must accept Bitcoin as well as U.S. dollars — and they’ll be expected to present prices for goods and services in both currencies. The government is going to be releasing an official crypto wallet for consumers to use, but they can rely on private providers if they prefer.

Permanent residency is going to be available for those who invest 3 BTC in the country, and now, a 90-day implementation period has begun.

As the 90-day implementation period begins, the president has asked a state-owned geothermal electric company to examine plans “to offer facilities for Bitcoin mining with very cheap, 100% clean, 100% renewable, zero-emissions energy” — from its own volcanoes.

Unsurprisingly, reaction from regulators hasn’t been overwhelmingly positive. One executive at the Bank for International Settlements has called El Salvador’s move an “interesting experiment” — but warned that BTC hasn’t passed the test of being a means of payment. The International Monetary Fund has also warned the decision could have significant legal and financial ramifications.

 

New report: El Salvador Bitcoin pump failed to attract smart money, for now

El Salvador’s plans were first announced during a keynote speech at Bitcoin 2021 in Miami, but the markets appeared to pay little notice.

Things changed on Wednesday — the day Congress passed the legislation. Bitcoin logged its best daily performance since Feb. 8, the day Tesla announced that it had added $1.5 billion worth of BTC to its balance sheet.

Although there are reasons to celebrate, Stack Funds’ head of research Lennard Neo has warned there was little in the way of bullish reactions from so-called “smart” investors.

Bringing the bulls back down to Earth, he warned: “We should not expect a significant impact on Bitcoin for a country with a GDP per capita less than 7% that of the U.S., with its economy suffering the worst crash in decades last year.”

Bitcoin’s seven-day high stands at $38,334.33. The strong move helped save the bulls during Friday’s options expiry, because any level below $34,000 would have wiped 98% of call options.

 

MicroStrategy gets $1.6 billion in orders in junk bond offering

MicroStrategy has attracted $1.6 billion worth of orders in a recent junk bond offering — four times more than what the business intelligence firm initially sought.

Junk bonds are debt offerings by companies without investment-grade credit ratings and typically offer investors higher returns while carrying higher risk.

It comes days after the publicly listed company, which owns 92,079 BTC with a current market value of $3.2 billion, announced plans to spin off its crypto holdings into a new subsidiary called MacroStrategy LLC.

Although this has been interpreted as bullish news, alarm bells started sounding after the junk bond offering was announced — the latest in a series of debt raises to buy more Bitcoin. MSTR stock fell after the news.

MicroStrategy closed the week at $516.44, some way off the year-to-date high of $1,315 that was seen in February.

In a recent article, analyst Juan de la Hoz said MicroStrategy would be at risk of bankruptcy if Bitcoin prices fell, adding: “MicroStrategy is a rare high-risk low-reward investment opportunity, and a strong sell.”

 

Bitcoin 2021 attendees’ positive COVID-19 tests are going viral

Some of those who attended Bitcoin 2021 in Miami have tested positive for COVID-19, leading to a wave of negative media coverage and speculation that it may have been a “superspreader event.”

Thousands of people went to the two-day event, which did not require proof of vaccination or enforce the wearing of face masks. There was little in the way of social distancing either as people packed into crowded auditoriums.

One influencer on Crypto Twitter, Mr. Whale, estimated that there were more than 50,000 visitors at the event. He noted that this was the first major in-person conference since the pandemic began, and said dozens of participants have tested positive.

 

Vitalik Buterin has made $4.3 million from his $25,000 investment in Dogecoin… so far

Ethereum co-founder Vitalik Buterin has revealed that he invested $25,000 into DOGE in 2016… and has made a pretty penny as a result.

His first concern was how he would tell his mother — not least because “the only interesting thing about this coin is a logo of a dog somewhere.”

Buterin told Lex Fridman’s podcast that he was caught off-guard by the speculative frenzy that resulted from Elon Musk’s fascination with the joke cryptocurrency.

He recalled being in lockdown in Singapore when the price of DOGE shot up 775% from $0.008 to $0.07 over the course of a single day, thinking: “Oh my god, my DOGE is worth, like, a lot!”

Buterin added: “I sold half of the DOGE, and I got $4.3 million, donated the profits to GiveDirectly, and a few hours after I did this, the price dropped back from around $0.07 to $0.04.”

Assuming he held on to the remaining 50% of his DOGE stash, he would now be sitting on tens of millions of dollars in paper profits.

 

Winners and Losers

 

At the end of the week, Bitcoin is at $35,211.65, Ether at $2,318.90 and XRP at $0.81. The total market cap is at $1,493,755,186,500.

Among the biggest 100 cryptocurrencies, the only two altcoin gainers of the week are Amp and Chiliz. The top three altcoin losers of the week are Internet Computer, THORChain and Synthetix.

For more info on crypto prices, make sure to read Cointelegraph’s market analysis.

 

 

Most Memorable Quotations

 

“Regulatory clarity enables companies like BlockFi to continue innovating. It enables consumers and investors to participate in this sector with the utmost confidence.”

Zac Prince, BlockFi CEO

 

“The ~$38,000 area for BTC is the one to watch right now.”

Rekt Capital

 

“Cryptocurrencies demonstrate all the hallmarks of ‘bad money’: unclear origin, uncertain valuation, shady trading practices.”

Pieter Hasekamp, Netherlands Bureau for Economic Analysis

 

“Investors should consider the volatility of Bitcoin and the Bitcoin futures market, as well as the lack of regulation and potential for fraud or manipulation in the underlying Bitcoin market.”

U.S. Securities and Exchange Commission

 

“@davidguetta knows what’s up. His Miami pad is for sale. Can buy with #Bitcoin or #Ethereum. In general, not a good idea to part w/ disinflationary #crypto that consistently outperforms real estate… but smart folks like Guetta love to take it from you.”

@ShaokyCinemaBTC

 

“Adoption of Bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis. We are following developments closely, and we’ll continue our consultations with the authorities.”

Gerry Rice, IMF spokesman

 

“Moments ago in our #London saleroom, an extremely rare “Alien” CryptoPunk #7523 from the collection of @sillytuna sold for $11.8M as part of our #NativelyDigital NFT auction – setting a new world auction record for a single CryptoPunk.”

Sotheby’s 

 

“Stablecoins are not launching us off into some brave new world […] The key here is to ensure that just because something is packaged in shiny technology we don’t somehow treat the risks it poses differently.”

Christina Segal-Knowles, Bank of England

 

“Digital currency from central banks has great promise. Legitimate digital public money could help drive out bogus digital private money.”

Elizabeth Warren, Democratic Senator

 

“I don’t think @michael_saylor is familiar with Murphy’s Law. What if #Bitcoin crashes below $20K? Will #MicroStrategy sell stock at depressed prices to shore up its balance sheet? Will it sell Bitcoin to raise cash? If MicroStrategy goes bankrupt will creditors HODL its Bitcoin?”

Peter Schiff, economist and crypto skeptic

 

“I should have bought a lot more — that was my mistake.”

Marc Lasry, Avenue Capital Group CEO

 

 

FUD of the Week 

U.S. officials recover $2.3 million in crypto from Colonial Pipeline ransom

Officials with a U.S. government taskforce have seized more than $2 million in crypto paid in ransom following an attack on the Colonial Pipeline system, which caused fuel shortages for many people in the U.S.

The Bitcoin in question was connected to Russia-based DarkSide hackers, and about 63.7 BTC has been clawed back.

Although there’s little doubt that this is a good thing, Bitcoin’s price actually ended up falling because of concerns over how the FBI actually managed to seize the cryptocurrency. Coinbase has refuted suggestions that it was involved.

Mati Greenspan, the founder of Quantum Economics, has said that the recovered ransom is actually bullish for Bitcoin, as many had expected U.S. politicians to use crypto as a scapegoat for the attack and enforce some heavy-handed regulations.

 

Proposed New York Bitcoin mining ban watered down to allow green projects

A proposed crypto mining ban calling for a forced three-year hiatus on all mining operations in New York has been watered down — and will now allow green projects.

The bill passed in the senate on June 8, and has now been referred to the state assembly. If the bill is passed there, it will be delivered to Governor Andrew Cuomo to either approve or veto the proposed legislation.

The initial New York Senate Bill 6486A sought to halt all crypto mining for three years in order to conduct environmental impact reviews on mining operations in the tri-state area.

However, the bill was amended in the senate to get it over the line, and the revised 6486B bill is now focused solely on any firm that uses carbon-based fuel sources to power proof-of-work crypto mining.

 

Alleged $3.6 billion crypto Ponzi’s victims still believe the exchange is legit

Victims of an alleged $3.6 billion crypto Ponzi scheme in South Korea are reportedly hampering the progress of a police investigation and a joint lawsuit — as they still believe in the project and hold out hopes of getting a return on their investments.

V Global is accused of defrauding about 69,000 people out of four trillion won ($3.6 billion), all while promising investors they would triple their investments.

A notice on the company’s website says that it strongly denies the “false” claims and has filed a complaint with police “for defamation and obstruction of business.”

If V Global is found guilty, it would potentially be one of the biggest crypto-related Ponzi schemes on record, in a similar fashion to the infamous multi-billion Ponzi scheme from OneCoin in 2015.

 

Best Cointelegraph Features

Pronouncements from the G-7 allow green fintech to flourish

Sustainability and the need to lessen climate change amid the COVID-19 pandemic have become the global economic agenda.

Miami stakes the claim to become the world’s Bitcoin and crypto capital

Miami has a dynamic mayor, lots of VC money and is coming off the largest-ever crypto extravaganza, but is that enough without legal clarity?

More IRS crypto reporting, more danger

The U.S. authorities are becoming seriously interested in crypto, making unreported crypto more dangerous.



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We’ve passed peak corporation already — Michael Anderson, Framework Ventures – Cointelegraph Magazine

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Cointelegraph By Andrew Fenton

The pandemic has changed society forever — and in many cases, not for the better. But when historians look back in a few decades, will they see this period as a turning point in the transition from an economy dominated by corporations to a new crowdsourced model where participants are incentivized with tokens to grow a project and share in the profits?

It may sound far-fetched given that mega-corporations dominate the present reality, but imagine a world in which Uber drivers and their passengers own and operate a decentralized rideshare network. Or one where Airbnb property owners, guests and even the cleaning staff share in the success of the cooperative business.

“What has happened over the last 10 to 12 months would have probably taken 10 to 12 years had it not been for the pandemic,” explains Michael Anderson, co-founder of Framework Ventures. A VC fund, Framework Ventures has raised $115 million for two investment funds and is a major DeFi player, getting in early on Chainlink, Synthetix and Yearn.finance.

Anderson says the concept of a decentralized collective effort has become normalized by working from home.

“That kind of concept of working for a company where you show up every day, and there’s an office […] that’s kind of been broken down,” he says. “It forces people to have questions as to do we need that going forward?”

The “Uber as a Decentralized Autonomous Organizations (DAO)” concept has been around since at least 2016 when blockchain project Arcade City started talking it up in the wake of a successful fundraise for the ill-fated The DAO. However, it’s now finally beginning to capture the zeitgeist. This month alone, Bankless co-founder David Hoffman wrote a long discussion on the topic called “The Future of Work,” and Bloomberg’s Joe Weisenthal touched on it in his “There’s a New Vision for Crypto” piece. Meanwhile, tech billionaire Mark Cuban tweeted at the end of May that DAOs taking on corporations was the “ultimate combination of capitalism and progressivism.”

 

 

The DeFi sector has been at the bleeding edge of the rise of DAOs and Digital Organizations (DOs), which are similar but are less governed by code and aren’t autonomous. They enabled a cooperative model and collective ownership of protocols, becoming popular in DeFi as a form of governance and as a way to crowdsource development. 

Yield farming may have begun life with a poor reputation as guerilla marketing-meets-Ponzinomics, but it quickly became clear it was a great way to reward the most active participants in a community with tokens and often a share of the revenue. In turn, this incentivizes the best participants to help grow the protocol, bringing ever greater numbers into the project.

“That ownership element is what has the power,” explains Anderson. “And the best communities are the ones where you’ve got the earliest adopters, brought in from the get-go, and they become your biggest supporters, they become customer support, they become business development.”

Thinking bigger

If it works in DeFi, there’s no reason it can’t work in other industries and economies. Any marketplace could potentially benefit, and that doesn’t mean simply tokenized versions of eBay or Uber. Anderson uses the example of a clothing production line in which the sourcing of materials, the creation of clothing, distribution and sales could all be incentivized and organized through this new model.

“I think what we’ve seen over the last few years is a peak of corporations. And what I think we now have with the formation of DAOs is almost as a replacement for a limited liability corporation or a corporation in general,” he says. “It’s a replacement of incentivization layers, like equity and stock options, with tokens.”

“It’s mostly DeFi, but expanding beyond that, I think you can start to take this model into any marketplace. I think it ultimately becomes a really unique way of incentivizing participation.”

 

 

The model has plenty of advantages: being decentralized means that anyone, anywhere in the world who has an idea for building on top of the protocol — or who figures out a better way to do something — can jump in and reap the rewards. The process of iteration and evolution speeds up, too. No longer must you wait for the grinding gears of a corporation to grudgingly accept a new way of doing things. It simply happens via an efficient competition that produces the best outcome for a collective.

“Ultimately, that makes things more efficient and scalable, but also more fair and open,” Anderson explains, adding that it enables anyone, anywhere, to compete with tech entrepreneurs in San Francisco or Silicon Valley, who previously had the advantage of being in close proximity to capital. 

“Breaking down those walls is really exciting, for the future of the world, but also the future of work.”

“Community ownership, I think, is a fundamental difference and a fundamental innovation,” he says. “And that’s why I love tokens. It is a completely new design space; we’re just scratching the surface as to how we can use these in different and novel ways.”

More equitable than equity

In a way, DAOs and DOs are a modern spin on older concepts around partnerships, co-ops and collaborations, made a thousand times more efficient by technology. And while our mental models for this sort of ownership currently look a lot like handing out equity, Anderson expects that to change as the use of tokens grows and evolves.

According to Andersen, having a clear vision of the future — or a strong thesis about how things may evolve in the future — is one of the things that separates Framework Ventures from many other investors in the space. Unlike the short-term, price-oriented thinking that predominates in crypto, Anderson and co-founder Vance Spencer believe in looking at where digital finance is headed over a timeframe of five to ten years and place their bets accordingly. They are popular guests on DeFi-themed podcasts as a result of their inspiring and well-reasoned thoughts about the future.

Framework’s first big success came before they’d even formalized the fund, with Anderson and Spencer developing a thesis around the need for smart contracts to access secure, reliable real-world information, which informed their investment in decentralized oracle network Chainlink:

“Mass adoption of interesting smart contracts will require data feeds that are secure, external to the blockchain (i.e., interest rate data from a bank), and maintain privacy when incorporated into a smart contract. Data feeds that meet these conditions are not currently available.”

Their investment thesis — which my short summary can’t really do justice — paid off well. Anderson brings up the example of Don Valentine, the late venture capitalist who founded Sequoia Capital, who invested in Apple after having a similar epiphany that personal computers would one day be in every home and on every office desk. This is the secret to successful VC investing, Anderson says.

“Finding the pieces that fit into that vision and into that new world, I think, is actually the easy part,” he says. “The hard part is being able to discern, you know, what that future state looks like.”

A long time ago in the startup world

Anderson grew up in Palo Alto, California, the “epicenter of the startup world,” and attended Yale University in Connecticut. He was planning to study electrical engineering or computer science and play college football. But in September of his freshman year, the fourth-largest investment bank in the United States — Lehman Brothers — collapsed and filed for bankruptcy. That event led to his fascination with finance and his degree in economics and computer science.

In the aftermath, he’d hear firsthand accounts of the turmoil on Wall Street from the family members of his friends, and he’d pore over reports in the New York Times and WSJ. He learned about the intricate and arcane nature of mortgage-backed securities and collateralized debt obligations.

“Once you start to really dive into how in-depth and complicated it gets, I don’t think there’s anyone that actually understands the entire system,” he says. “You could spend a lifetime trying to figure it out.” He gravitated towards fintech as a potential solution.

“Software is the eighth wonder of the world in my mind. How can we build software that expedites or emphasizes the power of finance?”

He was initially torn between pursuing a career in technology or finance and dabbled in both. While interning at Apple in 2011, he was dismayed to discover a company that creates such elegant products was organized like a “stodgy kind of corporate opaque institution,” in which even many of the department heads didn’t know what product was launching next. He realized he was unlikely to make an impact there.

Anderson also spent three months as a summer analyst at Barclays Bank, where he researched companies considering going public like GoPro and Dropbox.

“I was tired of covering them, and I realized that I just wanted to go work for them,” he explains. “And so that’s ultimately what led me to Dropbox.”

He spent three years at Dropbox and another two at Snapchat, mostly in the role of product manager. There he learned how to take an idea from conception to production, keeping users’ needs in mind as the product scaled up to millions. This knowledge would later prove to be a key experience in how he approaches the growth of crypto networks, none of which yet operate at consumer tech levels.

Despite mining Bitcoin during college, Anderson didn’t truly fall down the crypto rabbit hole until he read the Ethereum white paper in 2015 and a light went off in his mind. Shortly afterward, when he was moving to Los Angeles to work for Snapchat, a friend sent him on a “blind roommate date” with Vance Spencer, then working for Netflix. The pair bonded over Ethereum pretty much from question one.

“Our kind of friendship grew very, very quickly. We started to have an informal investment partnership together, where we were looking at different angel opportunities, and it just kind of grew from there.”

Top Shot in all but name

It’s one thing to develop a clear vision of the future, and it’s another to profit from it. As with most things, timing is everything. Unfortunately, Anderson and Spencer were about three years ahead of the market in 2017 with their first venture, Hashletes, essentially an NFL version of the outrageously popular NBA Top Shot.

Collectible NFT player cards enabled users to enter fantasy football games and win prizes. One of Anderson and Spencer’s contentions about NFTs, which we’re only starting to see come to fruition in 2021, is that NFTs need to have utility as well as provide digital ownership.

Hashletes was the first app in the iOS store connected to Ethereum, but the project only lasted a season and a half, killed off by high licensing fees and a lack of interest or understanding about NFTs at that time. Anderson and Spencer sold the business to a sports holding group in New York.

“It’s definitely hard to push something, especially when you know that this idea should be working but the infrastructure, the technology just isn’t there,” he says. “[American entrepreneur] Marc Andreessen has said that there are no bad ideas, it’s just the wrong time. So, there’s a little bit of that. You know being too early is also the same as being wrong.”

“I’d say we definitely built our empathy toward entrepreneurs in the space. And that’s what gave us a lot of the insight into how we wanted to build Framework and why we wanted to build Framework.”

Given the newfound interest in NFTs this year, Framework Ventures is once again pursuing the space.

The pair’s template for success was created with their initial investment into Chainlink when it cost 11 cents during the ICO in 2017. Anderson’s investment thesis is still online, explaining why they had a price target of $10–$20 for the 11 cent token. It’s already blown past that: At around $25, the token represents a more than 22,000% return in about three years.

“We made probably 20 to 25 different investments as angels prior to starting Framework, but Chainlink was definitely the best performing out of those. But I think it’s the one that we have the most close relationship with, just because of the breadth with which they can expand into all the different industries.”

 

 

They formalized the partnership afterward, with the Link investment leading to many more, including Aave, dHedge, Synthetix, Yearn.finance, Dodo, Edgeware, Fractal, Futureswap, Kava, Pods, Primitive, Teller, The Graph and Zapper. “It’s how we’ve got to know all these other teams. Chainlink oracles are usually the commonplace choice,” he says.  

The importance of community

Another premise is that in a decentralized, open-source world — in which any protocol can be cloned and see its liquidity siphoned off — it’s the quality of the community around a project that’s more important than almost anything else. 

“The community is something that has the real kind of defensible moat,” he says. “And so community development for us is paramount. We like to say, you can evaluate the team, you can evaluate the product, you can evaluate the market, but the most defensible elements of any investment are going to be the core team and then how that transitions into the community and community ownership.”

Rather than mere investors, they’re active participants in the community, too, if highly influential and cashed-up community members. A sister entity called Frameworks Labs has 17 software engineers building tools and systems to increase growth and engagement for projects they’ve invested in.

“We’re one of the larger Chainlink nodes in the network. We’re one of the larger Graph nodes. We’re active traders if we’re investing in an exchange, liquidity providing,” he says. “It just means that we’re rolling up our sleeves being one of the larger users, one of the largest suppliers for most of the investments that we make; it’s kind of how we define our edge.”

 

 

Anderson and Spencer see this as a perfect alignment of interests, and it’s why this new decentralized organization model can take some of the power back from the tech monopolies and corporations that dominate everyday lives.

Back when the internet began to spread, utopian visions of its potential to democratize the world and give the power back to individuals dominated. What actually happened, of course, was the development of addictive algorithms, filter bubbles and cancel culture, thanks to tech monopolies like Google and Facebook.

It might be another utopian vision, but perhaps the DeFi/Web 3.0 model can succeed where the internet failed. Anderson points out he used to live just down the street from Google. He says, “Google had this famous line of: ‘Don’t be evil.’ Well, blockchains enable something even better, which is: ‘Can’t be evil.’”  

“When you build cryptographic guarantees around transparency and decentralization, you know, there isn’t the ability for a corporation to extract value in the same way.”

Radical transparency means the best projects with the most well-thought-out incentives will attract the sharpest minds, and those that hold 50% of the tokens back to dump on retail in the future will get shunned.

“I think you don’t really get that far with those types of models because everything is transparent and the incentives are aligned with the users of the product, the users with the networks, more so than anything I’ve seen in the previous tech generations.”

 

 





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Rogue states dodge economic sanctions, but is crypto in the wrong? – Cointelegraph Magazine

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Cointelegraph By Andrew Singer

When the United States first began going after crypto companies for violating its economic sanctions rules, it didn’t exactly start with a bang.

In December, the Treasury Department’s Office of Foreign Assets Control (OFAC) announced a settlement with crypto wallet provider BitGo after the Palo Alto firm failed to prevent persons apparently located in the Crimea region, Iran, Sudan, Cuba and Syria “from using its non-custodial secure digital wallet management service.” The penalty for the “183 apparent violations” of U.S. sanctions? An underwhelming $98,830. 

This was “the first published OFAC enforcement action against a business in the blockchain industry,” according to law firm Steptoe, though six weeks later, the OFAC reached a similar settlement with BitPay, a payment processing firm, for 2,102 “apparent violations of multiple sanctions programs,” in which BitPay reportedly allowed persons in the same countries as in the BitGo case — but with the addition of North Korea — “to transact with merchants in the United States and elsewhere using digital currency on BitPay’s platform even though BitPay had location information, including Internet Protocol addresses and other location data, about those persons prior to effecting the transactions.” BitPay agreed to pay $507,375 to resolve its potential civil liability. 

But future violators may not be treated so leniently. 

It’s worth mentioning that economic sanctions are typically applied “against countries and groups of individuals, such as terrorists and narcotics traffickers,” according to the United States Treasury, typically “using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals.”

More enforcement actions are coming

“The crypto industry should absolutely expect more enforcement actions from OFAC, and it can expect that there will be much larger penalties as well,” David Carlisle, director of policy and regulatory affairs at Elliptic, tells Magazine. “OFAC’s first two enforcement actions in this space were fairly simple cases, where the underlying violations were not egregious, and the fines were small. But the next cases could be different,” he says, adding:

“There will undoubtedly be other cases out there that involve much more serious and egregious violations — and we can expect that OFAC will issue fines against crypto businesses that are much larger than those we’ve seen thus far.” 

Expect more enforcement actions like those targeting BitPay and BitGo, Doug McCalmont, founder of BlocAlt Consulting LLC, tells Magazine, as well as “the expansion of targeted individuals, such as coders linked to the technology.”

Sanctions regimes have been applied extensively in recent years by the United States, as well as the European Union and United Nations, often targeting “rogue” nation-states, such as North Korea and Iran. One of the best-known early crypto cases involved Virgil Griffith, a former hacker, who was arrested in April 2019 after he spoke at a blockchain and cryptocurrency conference in North Korea, in violation of sanctions against that outcast nation, the U.S. charged.

“Sanctions violations are a real problem,” says David Jevans, CEO of CipherTrace, whose crypto forensics firm recently found that more than 72,000 unique Iranian IP addresses are linked to more than 4.5 million unique Bitcoin addresses, “suggesting that sanction violations are likely rampant and mostly undetected by virtual asset service providers,” he tells Magazine.

 

 

It’s not only U.S. authorities who are concerned about “bad actors” using the nascent blockchain technology to dodge economic sanctions. Agata Ferreira, assistant professor at the Warsaw University of Technology, tells Magazine that authorities in Europe “are becoming more active and more focused. The crypto space is under increasing scrutiny, and I do think this trend will remain and accelerate.”

Nor is OFAC’s recent crypto focus surprising, according to Robert A. Schwinger, partner in the commercial litigation group at Norton Rose Fulbright. The United States government has no choice but to rein in this new, cryptocurrency asset class because “not to do so would expose it to the risk that its sanctions regime could be rendered toothless by new financial technology. Players in the cryptocurrency space who ignore the restrictions imposed by U.S. international sanctions are being put on notice that they do so at their peril,” he wrote on Law.com. 

Is DeFi problematic?

As crypto adoption grows, it seems only inevitable that its decentralized finance (DeFi) networks will push up against more nation-state prerogatives, including economic sanctions. But isn’t there something inherently problematic about cracking down on a decentralized exchange (DEX)? Does the exchange even have a headquarters address? Is anyone even home at home? And should it even answer to someone if it’s truly decentralized?

Enforcing regulations in a decentralized world presents certain challenges, Timothy Massad, former chairman of the U.S. Commodity Futures Trading Commission and now a senior fellow at Harvard University Kennedy School, tells Magazine, but U.S. regulators are “trying to figure it out.” Might the government eventually put more pressure on developers at DeFi firms, including decentralized exchanges? “Yes, they can build into the code some proper procedures… but it’s a lot easier to go after centralized intermediaries,” says Massad.

“I think we’ll see DeFi developers come under real pressure to ensure their platforms can’t be abused for sanctions evasion — for example, by enforcing address blacklisting,” says Carlisle, adding, “There’s a lot of talk lately about [traditional] financial institutions taking interest in DeFi, but it’s hard to imagine major institutions participating in DeFi unless they’re confident it can be compatible with sanctions requirements.” 

DeFi projects are “decentralized, disintermediated and borderless — everything our legal and regulatory frameworks are not,” Ferreira informs Magazine. The latter are built around centralized, intermediated and jurisdiction-based architecture. “Therefore, this is a challenge and a learning curve for regulators, and not all proposed solutions will be optimal,” Ferreira adds.

 

 

The European Union is aware of the DeFi compliance challenge. Its recent Markets in Crypto-Assets (MiCA) regulatory proposal “will force DEXs to have legal entities in order to transact with EU citizens, effectively banning fully decentralized exchanges,” Jevans tells Magazine. He adds, “Many so-called DEXs have very centralized governance, venture capital investors and physical headquarters, causing the FATF to categorize them as VASPs.” 

Meeting compliance demands for digital service firms like BitPay and BitGo will require some effort. “Trying to identify where a counterparty is located in a crypto transaction is inherently difficult due to the nature of the technology,” observes Carlisle, but crypto firms need to realize that anytime they undertake a transaction “and don’t make an effort to identify the source or destination of funds, they’re taking on a major risk of sanctions violations.”

Crypto mining, too, carries sanctions-compliance risks. “If you process transactions on behalf of participants in a mining pool that’s connected to a country like Iran, or pay a fee to an Iranian miner,” you could run afoul of OFAC, says Carlisle. There are sanctions risks, too, in handling ransomware payments “because some ransomware campaigns have involved cybercriminals in places like North Korea and Iran.” 

Then, too, the growing use of privacy coins, like Monero and Dash, which hide users’ addresses and transaction amounts — unlike Bitcoin — makes the task more difficult, arguably. 

Forensic blockchain firms, however, are looking into how to “improve sanctions compliance on the part of virtual asset service providers,” McCalmont comments. CipherTrace, for example, has developed the ability to track the anonymity enhanced currency (AEC) Monero, once thought to be “the gold standard of AECs.” He adds:

“These [forensic] firms will rise to the occasion and roll out capabilities that will ‘circumvent’ any compliance ‘speed bumps’ utilized by decentralized exchanges. It really is somewhat of a regulatory arms race.”

And the stakes appear to be rising. 

“There’s overwhelming evidence at this stage that sanctioned countries are using crypto,” says Carlisle, concluding, “North Korea’s crypto-related cybercrime has raised at least hundreds of millions of dollars. Iran and Venezuela have looked to crypto mining as a method for sanctions evasion and to generate revenue.”

 

Related: North Korean crypto hacking: Separating fact from fiction, Cointelegraph Magazine

 

To stay ahead in the “regulatory arms race,” some crypto companies are now using tools such as blockchain analytics, recounts Carlisle, to identify whether a crypto wallet belongs to a sanctioned party, but even then, staying compliant can be tricky. “Not only do you need to screen addresses against the OFAC list, you should have systems that are calibrated to detect more subtle signs of sanctions risk, and your staff must be trained to handle situations that involve possible sanctions issues.”

OFAC, too, is operating on the principle of strict liability. “You can be held to account even if you were acting in good faith” with no wrong-doing intended, adds Carlisle. “The crypto industry will need to operate to very high standards of sanctions compliance to avoid run-ins with OFAC.”

Part of a larger, global regulatory trend

Recent sanctions activity is just part of a global crackdown that can be expected in the crypto sector, some say. In May, the U.S. Treasury Department announced stricter new rules for Bitcoin and other cryptocurrencies. Crypto transfers worth $10,000 or more will have to be reported to the Internal Revenue Service. 

This Treasury Department action is likely to be “the first major step towards a global regulation” for cryptocurrencies, according to Nigel Green, CEO and founder of deVere Group, in a public statement. “This is inevitable as the market grows and matures.”

Nor should the crypto community fight it — they should embrace it, suggests Green. “Proportionate regulation should be championed,” he says, further explaining: 

“It would help protect investors, shore-up the market, fight criminality, and reduce the potential possibility of disrupting global financial stability, not to mention offering a potential long-term economic boost to those countries that introduce it.” 

In the absence of new crypto legislation and regulatory guidance, the players themselves — i.e., the crypto and blockchain industry — need to get their house in order, James Cooper, associate dean of experiential learning at California Western School of Law in San Diego, tells Magazine, adding, “We have an obligation to create self regulatory organizations. […] The industry has got to push out all the bad actors.”

If 95% percent of media stories and the public’s conversation about crypto focuses on ransomware or Iranian miners or criminal entities, “then something is wrong,” continues Cooper, because all the good things, like blockchain for food security or blockchain for vaccine tracing, get pushed out. 

A Bretton Woods for crypto?

“We need our Bretton Woods moment,” opines Cooper, referring to the multi-governmental agreement that set the outlines of international finance after World War II. Something similar is needed for the crypto century.

Not all agree. “The Bretton Woods Agreement centralized monetary policy,” says Jevans, and it “is an approach that is unlikely to be accepted in the decentralized blockchain economy since different projects have wildly varying objectives and governance models.”

 

 

More promising in his view are the Financial Action Task Force’s recent updated compliance guidelines, which make clear “that decentralized exchanges as well as other DeFi platforms do bear responsibility for ensuring compliance with global sanctions as well as Anti-Money Laundering and Counter-Terrorism Financing laws. The solution is for these entities, now classified as VASPs by the FATF, to adopt solutions that enable them to achieve compliance without sacrificing decentralization and user privacy.” 

Many have called for international collaboration for addressing these new technological developments, like crypto and blockchain, notes Ferreira, but “I am not sure how feasible it is. Authorities sometimes act when there is a trigger. Libra was such a trigger — and a wake up call — for authorities.” She adds, “Maybe we will see other events in the future that could mobilize authorities to more internationally coordinated action.”

Decentralization at odds with the law?

But isn’t there an inherent conflict, though, between economic sanctions — imposed by sovereign nations, or quasi governments like the U.N. — and decentralized finance? 

One of the strengths of decentralized finance, according to proponents, after all, is that it’s a hedge against centralized government corruption, including authoritarianism. Might a blanket ban on Iranian users, for example, also shut out Iranian dissidents looking to transfer money outside the reach of the government? “Absolutely,” answers McCalmont:

“I, a ‘regular Joe guy,’ can create an account on a decentralized exchange within minutes and immediately transfer funds to North Korea, Syria, Iran — completely under the radar and with little effort — speaks volumes. If those dissidents have a will, there is without a doubt a way.”

All in all, what may be required here is a mean between two undesirable outcomes. A young, evolving sector like the crypto and blockchain industry will inevitably have “vacuums” that nefarious, non-state actors will seek to exploit “until the state comes in and kicks them out,” Cooper tells Magazine. 

That’s to be expected. But the U.S. has gone through four years of anti-regulation rhetoric, at least at the national level, and now, under a new administration, a danger exists that it may seek to monopolize all digital assets — and snuff out innovation.

Doing nothing is bad, continues Cooper, but the U.S. government — or any other state — monopolizing digital assets, whether through a central bank digital currency or other means, is also undesirable. The challenge is “finding the sweet spot.”

 

 



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