#19 🧱 Blockchain & Money

I’m Ivan Landabaso, VC at JME.vc. Startup Riders is a weekly newsletter where I go down startup rabbit holes / trends & share actionable insights. I also love surfing 🤙.


Summary

  • 🏷 Startup Pricing: Webinar March 17th 10am CET!

  • 🧱 Blockchain & Money: MIT Course Episode 1

  • Weekly Hack: 15 minute meetings.

  • 💵 Recent Deals in Spain: Jobandtalent, twenix and more!

  • 💭 Thinking or Reading: Oracles of nothing.


🏷 JME Webinar - Startup Pricing Journey

Don’t miss out on the online seminar we’re running with Simon-Kucher & Partners on “The Start-up Pricing Journey” (it’ll be in Spanish 🇪🇸).

Hans & Max will be sharing how to setup, optimise and refine a pricing strategy for startups. We know this is something entrepreneurs usually struggle with, and it also happens to be a massive lever.

See you on March 17th at 10:00 am CET! 👉👉👉 Signup for free HERE


🧱 ⛓️ MIT’s Blockchain & Money - Episode 1

There’s a lot of noise around blockchain and cryptocurrencies - yet, not much is out there to help us understand the basic, fundamental principles fuelling this trend.

Follow along in this mini series where we share the key highlights of MITs course on Blockchain & Money. The intention is to lay out the fundamentals, avoiding bias towards maximalists or minimalists, and keeping it approachable and (hopefully) fun!

TL;DR

  • Money = social & economic consensus

  • Fiat Money is the current leader in a long evolution of money, it has limitations.

  • Ledgers are a method for recording economic activity & financial relationships

  • Central Banking and the Financial Sector are built upon a series of Ledgers

  • We now live in an Electronic Currency Age

  • Many efforts have been made at Cryptographic Digital Currencies

  • Blockchain Technology is just a another step in the history of money & ledgers

Brief History Of Money

Let’s start at the beginning with some history.

Throughout our history as humans, we’ve had different kinds of “money”. As far as we know, non-metal money was a thing, took many forms, and was ultimately debased. A couple examples include:

  • Cowrie Shells in Nigeria - debased by Europeans.

  • Rye stones in the isle of Yap - mined 200 km away, valuable because they were hard to get, debased by British sailors that brought them over easily.

Then came metal money, followed by minted money and paper money. The first paper money was used as commodity receipts in China - you had some stuff somewhere, and a piece of paper said you owned it.

Ledgers have also been around for a while. A ledger is essentially a means of recording economic activity and financial relationships (i.e. Debt). Keep this in mind for later, as it is a fundamental concept underlying blockchain technology. Here’s proof that even George Washington used one in 1747 👇:

Generally speaking, “paper money” was backed by commodity up until 1971. In the case of the US dollar for instance, US bank notes were backed by an amount of gold set by the Federal Reserve.

Fiat Money

Fiat money is essentially government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. Its value is therefore NOT derived from the value of a given physical commodity - but rather the relationship between supply & demand + the stability of the issuing government.

Fiat money has a lot of critics these days, and we will explore why that is next week.

For now, remember that Fiat Money =

Social contract between you and a given Central Bank. Said Central Bank (i.e. Federal Reserve Bank) is basically saying: “If you bring your paper money in, we will record it on the ledger of a commercial bank, and you can pay your taxes to our sister here (the government).”

Cryptographic Money

Since the late 1980’s, we humans have been playing around with the next evolution of money - aka cryptographic digital currencies.

These have been around for a while and (arguably up until recently?) all of them have failed. Some examples go as far back as 1989 with Digicash or the UK’s National Westminster Bank’s Mondex in 1993. The 4 main reasons that led to them failing:

  • Double spending problem

  • Centralization

  • Merchant adoption

  • Consensus

⚠️ Keep in mind the keyword = TRUST when thinking about digital money.⚠️

Digital & Mobile Payments

While cryptocurrency attempts were failing - digital and mobile payments technology companies were starting to profoundly transform how we transact:

YET The Riddle Remained…

“I've been working on a new electronic cash system that's fully peer-to-peer, with no trusted third party.” - Satoshi Nakamoto

The most important problem faced by previous attempts to create digital money in the past was the issue of TRUST (blockchain had been around since the 90’s without solving for trust). The main breakthrough around TRUST - credited to Satoshi Nakamoto in his Bitcoin White Paper - was solving what is known as the Byzantine Generals Problem (which we will cover in next week’s edition!).

But lets take a step back and dive into fundamentals:

First, keep the idea of a blockchain and a cryptocurrency (like Bitcoin) SEPARATE.

The simplest way to think about blockchain technology = type of database

The difference lies in the way it stores information - in blocks that are chained together using cryptography. The moment new data comes in, it is entered into a fresh block, which itself is chained onto the previous block - chaining data in chronological order.

When it comes to the money use-case (cryptocurrency ala Bitcoin) - a blockchain is essentially a digital ledger of transactions (remember George Washington’s ledger?) that is duplicated and distributed across an entire network of computer systems on the blockchain.

This particular system of recording information - that leverages computer networks and powerful math (some of which we will review next week) - makes it difficult or impossible to change, hack, or cheat the system.

For now, just keep in mind that - when it comes to the money use case - this technology could represent a new layer in programmable transactions, and could arguably help resolve critical problems in the world of Finance including (among many others):

  1. Recurring crises and instability

  2. Concentrated risk and economic rents

  3. Financial inclusion

Next Week!

Next week, we’ll dive into what are the design features of the first use case for blockchain technology - the idea is that you should be able to visualize what this tech is and does, so that you can explain it to your grandma 👵.

If you want to follow along (even if its just skimming!) and be ready for next week’s edition, here’s some suggested additional reading:


⚡Weekly Hack: 15 Minute Meetings

I picked this one up at Bloomreach and it really bumped my productivity. You kill 3 birds with one stone:

  1. You are being respectful of other people’s time, which earns you a little trust.

  2. It increases the chances of someone accepting your invite (in case its “cold”)

  3. It forces you (or them) to be concise in your messaging

Next time you are about to hit that “send” button on your invite, think about it.


💵 Recent Deals in Spain

You love startups and want to enjoy a Spanish lifestyle? Come join the Spanish startup ecosystem. Here’s a list of recently funded startups:


💭 Thinking or Reading

Experts - Nailing it!

Good reminder that nobody really knows anything.

And, relatedly 👇

Quote I’m Pondering

"People generally have more control over their actions than their feelings. But we can influence our feelings by taking action. Take one small step. Move the body first and the mind will follow." - J. Clear


If you find this interesting, please consider sharing with your friends. I’d also love to get your thoughts and feedback on Twitter. Until the next one! 😃

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