Professional Documents
Culture Documents
Rating Take-Aways
8
9 Importance • In 2008, an individual using the pen name Satoshi Nakamoto released a paper with
details about a currency called bitcoin.
7 Innovation
7 Style • He also explained the blockchain software that underpins bitcoin. Nakamoto’s
blockchain is a decentralized financial recordkeeping system.
• The code is open source; anyone can use it to obtain bitcoins or create new
cryptoassets.
Focus • Blockchains can be public – open to everyone – or private.
Leadership & Management • Cryptoassets include cryptocurrencies, cryptocommodities and cryptotokens.
Strategy
Sales & Marketing
• Cryptoassets are alternative investments that can diversify a portfolio.
Finance • You can buy and trade cryptoassets on their own exchange.
Human Resources
IT, Production & Logistics • Investors can purchase a ground-floor investment opportunity via an initial coin
offering listed on cryptocurrency sites such as CoinFund.
Career & Self-Development
Small Business • Decentralized blockchain technology applications can substantially change or disrupt
Economics & Politics the way business works in many sectors of the economy.
Industries
• Remittances, insurance claims, supply chains, health care, real estate information and
Global Business delivery tracking are targets for more effective redesign using blockchain technology.
Concepts & Trends
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This document is restricted to the personal use of KUNTESH R. JALORA (kuntesh.jalora@in.ibm.com) 1 of 5
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Relevance
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What You Will Learn
In this summary, you will learn:r1) What cryptoassets are and where they originate, 2) How they differ from traditional
investments, and 3) How to evaluate different kinds of cryptoassets.
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Recommendation
Financial experts Chris Burniske and Jack Tatar offer a good start to those seeking in-depth information on the
investment potential of bitcoin, blockchain and cryptoassets. Their readable, amply detailed manual begins with a
basic introduction to bitcoin and continues into how digital technologies are disrupting various industries. At times,
the authors can come across as cheerleaders for cryptoassets, issuing a clarion call to those who regret missing out
on previous Internet fortunes. Nevertheless, their comprehensive knowledge of this new technology is robust. While
never giving investment advice, getAbstract recommends this substantive guide to beginners of all things crypto.
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Summary
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The Origins of Bitcoin
Bitcoin shot onto the world’s radar just as the United States’ financial system was breaking
down in 2008 amid the fallout from collateralized mortgage obligations (CMOs). In October
of that year, an individual using the pen name Satoshi Nakamoto released a paper detailing
a currency called bitcoin and explaining the blockchain software that underpins it.
getabstract Nakamoto had created an alternative to the centralized arrangements used for electronic
“Bitcoin lets anyone be
their own bank, putting financial transactions. He designed the system to have “decentralized autonomy”; that
control in the hands of is, the masses rather than the government would oversee it. Ostensibly, Nakamoto’s
a grassroots movement
and empowering the blockchain, had it been available earlier, could have tracked the mortgages in CMOs and
globally unbanked.” surfaced the linkages among them, thereby increasing the securities’ transparency and
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perhaps mitigating the widespread financial crisis that erupted.
Nakamoto’s real identity and his whereabouts remain unknown. But bitcoin and blockchain
have caught on and given rise to a flourishing number of cryptoassets.
Bitcoin also did better on a risk-adjusted return basis than the three major indices – the S&P
500, DJIA, and NASDAQ 100. However, not everybody bought into bitcoin at its inception:
Those who purchased $100 worth at a peak price of $1,242 per bitcoin in November 2013
would have seen that $100 investment whittled down to $83 by January 2017.
Early in 2011, bitcoin captured the attention of a wider audience – and of criminal
getabstract elements – with the debut of the dark web’s Silk Road online marketplace, which chose
“Bitcoin’s blockchain is
a database that records the cryptocurrency as its coin of the realm. Drug dealers quickly overtook the digital Silk
the flow of its native Road. Another spike in bitcoin’s profile, along with an almost 700% increase in its value,
currency, bitcoin.”
getabstract happened in April 2013. Some observers speculate that this leap in demand for bitcoins was
the consequence of a financial crisis in Cyprus, which led to Cypriots losing money in their
bank accounts. Bitcoin holders would not have been susceptible to such sovereign losses,
because bitcoin is outside a government’s control.
Then, in November 2013, bitcoin burst onto the global stage due to rising demand in China.
The People’s Bank of China noticed this activity and promptly clamped down on the use
of bitcoin. At the same time, authorities in the United States caught up with the founder
of Silk Road and closed down the website. A long, steep and rocky decline in bitcoin’s
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“Each time miners add
a block, they get paid
in bitcoin for doing Subsequently, blockchain became more prominent than bitcoin as a “general purpose
so, which is why they
choose to compete in
technology” that, like the steam engine, has the potential to change the world. As 2017
the first place.” began, the inventory of cryptoassets grew to more than 800 offerings, including Litecoin,
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Ripple, Zcash and Ethereum. However, bitcoins – worth $17 billion at the time – made up
the lion’s share, roughly 70%, of the total value of cryptocurrencies.
An investment in these assets can help bring down the overall risk of a portfolio, since their
correlation with mainstream capital assets is near zero. This unusual circumstance is likely
The market for cryptoassets is making progress in these areas, but it has a way to go to reach
maturity. Importantly, the assets have attracted masses of speculators and experienced wild
getabstract market swings. Some new asset offerings have turned out to be fraud schemes presented
“Any cryptoasset to investors with false information. As with most new assets, investing in cryptomarkets
worth its mustard has
an origination white calls for a great deal of caution.
paper.”
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Evaluating Cryptoassets
Cryptoassets appeal to innovators, and they offer investors many opportunities for early
participation in start-up companies. Blockchain technology applications can substantially
change or disrupt the way business works in many sectors of the economy. In the financial
services industry, speedy and low-cost bitcoin payments could replace companies like
Western Union for sending remittances across borders. “Business-to-business payments”
likewise could flow more readily with cryptocurrencies. Distributed ledger technology can
smooth the insurance industry claims process. Supply chains, health care and real estate
information access, and delivery tracking are all targets for more effective redesign using
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“If the miners for a
cryptoasset are all in
a single country, then As with traditional offerings, fundamental analysis is a good place to start an investment
that cryptoasset could evaluation of a cryptoasset. The creators of a cryptoasset provide a “white paper” with the
be at the mercy of that
nation’s government.” specifics of the asset, the problems it solves, its competition, its technical information and
getabstract the plan the developers have for its issuance. The asset should have a “decentralization
edge,” which is a legitimate reason for this standalone product. A white paper should
contain detailed descriptions of the asset’s utility and its competitive advantage.
Value also derives from the supply of the asset relative to the demand for it. Speculative
activity affects the asset’s potential value. An asset’s turnover, or its velocity, is another
indicator of value. Additionally, it’s preferable to have the computers mining the cryptoasset
spread far apart geographically rather than clustered together, so that they are not subject
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to any single jurisdiction.
“Even though the rules
regarding taxation Technical analysis, based on price and volume, can supplement fundamental metrics.
of these assets may
change, one thing is Cryptoassets require storage after their acquisition. Options include deposit accounts at a
clear: as with any trading exchange; a “hot wallet,” giving an investor access to the asset through the Internet;
other asset, the IRS is
watching.” and “cold storage” of the asset in an investor’s offline device.
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“Goldilocks Years of Cryptoassets”
Though Wall Street still remains largely on the cryptoassets sidelines, some large
corporations and financial institutions are beginning to test the feasibility of using
blockchains. Millennials, however, could make this the moment for investing in
cryptoassets, given their greater comfort with the concept, its practices and its promise.
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About the Authors
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Chris Burniske is a co-founder of Placeholder Ventures, a firm that focuses on cryptoassets. Jack Tatar is an investor
in and adviser to cryptoasset start-ups.