Tag: crypto

• Crypto is really hard to explain, but things are happening

  I was at a dinner recently where the topic of crypto came up. Only two of us at the table were full-on believers, and the rest were generally sceptics. So naturally, the two of us started talking about why we think crypto is important. But in moments like this, it always becomes immediately clear that crypto is really hard to explain in a succinct and compelling way. Like, I don’t know how to do it. Thankfully, venture firm a16z just released their latest State of Crypto report, and so here are a handful of interesting takeaways.

  

  The number of crypto addresses continues to grow. Currently it’s at an all-time high of approximately 220 million, which roughly mirrors the adoption curve of the internet back in the 90s (log scale). It is, however, important to note that one crypto address does not necessarily correspond to one human being. For example, I have many different crypto addresses. So if you dig a little deeper, you’ll see that their net estimate is somewhere between 30-60 million real human beings transacting using crypto every month. This is the estimated active user base and it continues to grow.

  

  The number of mobile crypto wallet users is also growing rapidly outside of the US, namely in countries like Nigeria, India, and Argentina. This is the result of a number of factors: population growth, mobile phone adoption, government support, inflation, and many others. I mean, since 2010, the Argentine Peso has lost basically 99% of its value against the USD. So of course you’d rather put your money somewhere else, such as in stablecoins.

  

  Stablecoins are cryptocurrencies that have their value pegged to something else, such as a fiat currency. Today, they are one of the most popular crypto products and virtually all of them (more than 99%) are pegged to the USD dollar. This is viewed by some as an opportunity to strengthen the dominance of the US dollar at a time when it’s waning (see above). But more importantly, stablecoins already serve two important functions in the market: one, it’s as stable as the US dollar; and two, the cost of sending a stablecoin anywhere in the world is now basically free. Say goodbye to bank wire transfers.

  It’s worth reiterating that a16z is a venture capital firm that is heavily invested in the crypto space. And so reports like this are naturally a form of marketing and a form of lobbying. Still, there’s a lot of great information in here that you can use to form your own opinions about the sector. It may not be succinct, but if you take the time, I think you’ll find it compelling.

  2024.10.16

• An Ethereum story

  We’ve spoken about Vitalik Buterin before.

  He is the inventor of the Ethereum blockchain, and its most prominent figure. He also happens to have grown up in Toronto. He went to the University of Waterloo. So when I wrote this post back in 2021, I asked: Why the hell is nobody talking about this? Why are we not celebrating the fact that our great city helped birth one of the most important technologies of our time? You couldn’t ask for a better economic development story. Well, I guess the answer is twofold. Crypto isn’t mainstream. Even back in 2021 when things were frothy it wasn’t. And, we’re awful at promoting and driving a global brand for our city. Both of these things need to change. So if you’re interested in learning more about Vitalik and Ethereum, you should check out this new movie (trailer) called Vitalik: An Ethereum Story. To watch it, go to ethereumfilm.xyz and mint the NFT for $20. You’ll then be able to stream it. I haven’t done this yet, but I’ll be doing it very soon. All of the proceeds from the NFT sales will go toward getting a more mainstream distribution deal.

  So by watching, you’re helping.

  Update: I watched it. It’s great.

  2024.09.20

• Fundamental and enduring

  I admire Warren Buffet’s humility:

  In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten. Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie [Munger] should forever be credited with being the architect.

  This is an excerpt from his recent letter to Berkshire Hathaway shareholders, which, this year, he opens up with an obituary to his late partner, Charlie Munger.

  I don’t agree with everything Warren says and writes. He, for instance, doesn’t seem to like crypto and streetcars. Though, surely, he’d really dig my CryptoParisian.

  That said, I never miss his letters and his thinking has been broadly instrumental in how I tend to think about real estate.

  If you take his description (same letter) of what Berkshire does, and replace businesses with properties, this is what you get:

  Our goal at Berkshire is simple: We want to own either all or a portion of [properties] that enjoy good economics that are fundamental and enduring. Within capitalism, some [properties] will flourish for a very long time while others will prove to be sinkholes. It’s harder than you would think to predict which will be the winners and losers.

  This is a good way to think about real estate.

  2024.02.25

• How I’m displaying my NFT art

  

  

  I recently got a Samsung Frame TV to use as an NFT display at home. I had been looking for one for a while and I finally pulled the trigger last week. The way the Frame works is that it’s a TV when it’s on, and it’s an art display when it’s off. But I really don’t care about the TV part. I just wanted a good looking art display.

  There are a lots of purpose-built NFT displays on the market right now, including Tokenframe, Blackdove, Muse, and others. And I was very close to getting a Muse Frame.

  But ultimately I decided on the Samsung Frame because it was (1) cheaper for its size (50″), (2) it looks cool, and (3) I was fine with just a simple high-quality display. I think there will be lots more software and dongles created in the future for people who want to showcase their NFTs on whatever they happen to have at home.

  However, if you’re a crypto and NFT purist, this maybe isn’t the display for you — at least right now. Out of the box, it doesn’t connect with any crypto wallets. And so you’re not going to automatically see the provenance of each art piece (more on this below). Instead, the default method is to just upload JPEGs to the TV from Samsung’s SmartThings app (insert right-click-save-as jokes here).

  Overall, I’m really happy with the display. Here are my initial thoughts:

  • I have it set to randomly rotate through my art every 3 minutes. There’s also a motion detection feature that works reasonably well. If it doesn’t detect any motion, the display will go completely to sleep. But for some reason, it occasionally gets possessed and the TV will randomly turn on. Last week it kept turning on old Baywatch episodes. Possibly user error.
  • Samsung’s SmartThings app is bad. It’s buggy and a pain to use. For example, even though I’ve given it complete access to my phone’s photos, they never seem to show up. I have to limit access and then go and select the ones I want to use in my gallery.
  • I have found that I prefer when the art is full bleed versus within the Frame’s skeuomorphic picture mat. This is a new form of art and so I like the idea of breaking past traditions. But unless your images are 16×9 and a high enough resolution (I have generally found > 3000px wide to work), then you’re going to get prompted to insert and select a mat design.
  • I have solved this problem by manually cropping and editing the individual pieces. Some NFT collections, such as CyberBrokers, also give you vector files which allows you to play around as you see fit. Again, if you’re an NFT and/or art purist, you’re probably not going to like this. But I think of it as curating the pieces.
  • Most of my art is on Ethereum, Solana, and Tezos. Being able to upload whatever I want is helpful, because not all NFT displays support all of the chains. The Muse Frame, for instance, only supports Ethereum and Polygon right now.
  • PNG files and video files aren’t supported natively. This is a significant drawback and so eventually I know I’m going to have to change up the software that powers this display. And there are options. Bright Moments offers display software for holders of its NFTs. Fred Wilson’s venture firm USV created this setup. And I’m sure there are countless others. These can solve the provenance issue mentioned above by pulling directly from the various blockchains.

  In the end, I knew what I was getting into with the Frame. I knew it wasn’t a purpose-built NFT display and I was fine with that. It’s still early days in this space. But it sure is nice to finally see my NFT art in large format.

  2024.01.13

• What might happen in 2024

  Yesterday we looked in the rear-view mirror. Today we’re looking forward:

  • The market consensus right now is that this cycle of interest rate increases has come to an end, and that we should see rates start to come down next year. Having confidence that rates won’t go any higher in the near future is what markets need in order to start making more decisions. So this is, of course, positive. At the same time, I don’t think anyone should expect a return to ultra-low rates. Rates today are still low when viewed historically.
  • Lower rates are good for levered assets such as real estate, but I don’t think that our industry has fully felt and processed the impacts of higher rates. Unfortunately, I think that things will get worse (in 2024) before they get better (maybe toward the end of 2024 or perhaps in 2025). This is when a “risk-on” approach will return in commercial real estate. A year ago today, I thought 2023 would be the year for this, but as I said yesterday, I was overly optimistic in terms of my timing.
  • On the residential resale side, I think we will see greater optimism sooner, certainly for the most in-demand cities and areas. There is pent up demand waiting on the sidelines and, once we can get past the current bid-ask spreads and deadlock, I believe we’ll return to a more balanced market in 2024. To be clear, I’m not expecting bidding wars and the like. And because of our housing affordability crisis, I also think the Bank of Canada will be more resistant to lowering rates compared to other central banks. This will help the Canadian dollar.
  • If you’re a buyer of real estate, I generally believe that 2024 will turn out to be a pivotal year for you. Roughly speaking, you win acquisitions in one of two ways: either (1) you pay the most or (2) you believe in something that most other people in the market don’t. This second approach is harder to achieve in bull markets. But in slower markets, the door is open and history has taught us that it can be the foundation in which great fortunes are made.
  • As I mentioned yesterday, I agree with the prognostications that hard costs will soften further next year (perhaps even more than 5% on average). Obviously every market is different. But here in Toronto, I just don’t see us returning to the level of construction starts that we have seen over the last number of years.
  • Since 2021, I have used my hyper scientific Jimmy the Greek Reopening Index to keep tabs on office utilization and the overall return to office. And based on this, 2023 was a positive year. Initially, souvlaki consumption appeared dramatically lower on days like Monday. But I noticed discernible increases as the year went on. However, if you look at actual data, such as what we have from swipe cards, the great return to office seems to have stalled out at around 50%. I don’t think this will hold, though. I continue to believe that of the people who work in offices, most will spend > 50% of each week there. And we will see that in 2024.
  • 2023 was the year of AI. But Fred Wilson makes an excellent point, here. AI is 40+ years in the making. Last year only became the year of AI because a consumer-facing app — ChatGPT — was revealed that captured everyone’s attention. Crypto will eventually have this moment, but it will likely need to marinate a bit longer. Instead, I think 2024 will be the year of augmented reality (AR) and a further blurring of our offline and online worlds. Think digital art, fashion, and other collectibles (such as NFTs).
  • Right now, autonomous vehicles feel like they’re in the trough of disillusionment (within the hype cycle). There were moments last year where it felt like we were finally moving beyond this phase. But then some very suboptimal things happened. I think AVs are our reality in the next 5+ years, which means that for next year we likely want to be focused on the inputs: vision/LIDAR, battery tech, etc.
  • Zooming out, we should be thinking about the above two trends in the context of a broader shift toward greater automation. I think it will feel more insidious than immediate (certainly in 2024), but the longer-term impacts are going to be profound for our society. The so-called gig economy is likely to be impacted first. Eventually the overall economy will create new jobs, but we are still going to need to manage this transition toward more automation.
  • TikTok Shop is where to look for the future of shopping. I think the platform will continue to see strong adoption and ultimately prove to be a dominant e-commerce platform throughout 2024. Amazon, Meta, and others will see this, and try their best to catch up and copy it.
  • At the time of writing this post, the total crypto market capitalization is about $1.74 trillion. This is down from nearly $3 trillion at the peak of the market in 2021. The recent gains suggest that the so-called “crypto winter” might be over, and so combined with lower interest rates and more real-world use cases, I think that 2024 will be another strong year for crypto. Total crypto market cap at the end of the year will exceed its 2021 peak.

  And there you have it. My current thoughts for this upcoming year. I should note that I’m not an economist, analyst, or an expert on souvlaki demand for that matter. But I enjoy writing this post as an annual discipline. It forces me to think critically about the topics that interest me. And in the paraphrased words of Howard Lindzon, it gives me an archive that I can go back to and either cringe at or think to myself, “hey, I could have been a somebody!”

  And with that, a big thanks to everyone who has read this daily blog over the last year. This year marked its 10th anniversary. I wish you much success and happiness in 2024. Happy new year!

  2023.12.31

• Blockchain applications in real estate

  I opened up X this afternoon and I saw a photographer tweet that he hadn’t sold a single NFT in the last four months. His conclusion: The NFT market is dying, if not already dead. There are no collectors left. Damn.

  I’m sure it probably feels this way to most. But the reality is that there are a lot of asset classes that feel this exact same way today. (I know that many of you will contest whether NFTs are actually an asset class.) There aren’t a lot of buyers out there right now.

  But that doesn’t necessarily mean that the NFT market, in particular, is done with. In fact, if you look around, there are countless signs that point to the opposite.

  I, for example, find it interesting that if you’re an architect or a city planner in the US, and looking to check off some continuing education units, you can now register for a course at Harvard called From Crypto to the Metaverse: Blockchain Applications in Real Estate.

  And if you look at the learning objectives, it includes things like demystifying how Blockchain technologies work, how they might impact real estate businesses in the future, and what opportunities they may create. This suggests we’re still early.

  Right now just feels like that time in the cycle that tests both your conviction and your discipline. It’s easy to believe in something when everyone else does. But what about when most people don’t?

  2023.12.17

• Cul-de-sacs and Dutch auctions

  

  I am, of course, more grid than cul-de-sac, but here is an interesting NFT art project that is launching on December 12, 2023 at 1PM EST. It’s called Cul-de-Sacs:

  “Cul-de-Sacs” explores the banality of suburban sprawl through the anachronistic stylization of American folk art. The algorithm generates flattened representations of suburbia at range of scales, interspersed with the remnants of rural life.

  The starting price is 0.2 ETH and the resting price is 0.05 ETH. What this ultimately means is that these NFTs are being offered by way of a Dutch action.

  Dutch auctions are a price discovery mechanism. They start with a high asking price and then gradually lower it until a price is reached where the quantity demanded equals all of the available supply.

  In other words, it’s a way to determine what the market thinks a particular thing is worth. In this case, though, the resting price is 0.05 ETH. Meaning there’s a floor.

  If lots of people are willing to pay 0.2 ETH for this art, it could sell out right away and that will prove to be the market price.

  But if few people want to buy it, then the price will gradually fall to 0.05 ETH, and that is where it will hang out until all of the available supply is absorbed. If/when that happens.

  Another important feature of this auction process is that if you buy early, and the price subsequently drops, you get a refund equal to the difference between what you paid and the final achieved price (thought to be the market price).

  So there is zero incentive to wait for a possible price decline; everyone ends up paying the same price no matter what. You’re encouraged to bid aggressively.

  And because all of this is now happening on a blockchain and enshrined in code, you can be confident that this is exactly how the process will work and that you’ll get any refunds that you deserve.

  2023.12.11

• How to make the internet more like our cities

  I am halfway through reading Read Write Own and I can confidently say that you want to read this book. If you’re already a believer in this “next era of the internet” (like I am) it will make you a true believer. And if you’re not a believer, maybe it will make you one. Or not. Either way, I am thoroughly enjoying it.

  One chapter that will be particularly interesting to all of you is the one where Dixon makes a comparison between the internet and cities. Cities, he argues, work because of a delicate interplay between public and private interests. And the private side works because, among other things, we have the rule of law and the construct of ownership.

  If I own an asset, like a piece of real estate, I’m only going to be confident to invest in it if I know that someone won’t take it away from me (or dramatically change the rules on me), which is why if this prerequisite doesn’t exist, you typically see a lack of investment.

  The same is true on the internet. But currently, the dominant form of networks are centralized corporate networks. In city terms, you can think of these like an amusement park. Once you enter through the gates, you’re in their world. You could maybe rent some space, but at the end of the day, the owner makes the rules. And if they don’t like what you’re doing, they can remove you.

  It’s a pretty stark contrast when you think of it in these terms, which is why it’s hard not to feel compelled when you consider that similar dynamics are playing out on the internet right now. Cities thrive because we have rules, ownership, and the freedom to innovate on top of the foundations laid by government.

  So I’m all for making the internet more like our most successful cities.

  2023.11.15

• Blockchain gas fees are dropping — that’s good

  I watched the BlackBerry movie the other week and right away I thought, “whoa, is Jim Balsillie really like that?” Supposedly, kind of. Either way, it was a good movie that naturally ended with the fall of BlackBerry, with Balsillie not getting an NHL team, and with Mike Lazaridis dismissing the first iPhone as a toy. “Who wants to use a phone without a keyboard?”

  We all know these stories. In fact, they feel trite in retrospect. There’s Blockbuster, Kodak, and countless others. But these moments are clearly a lot harder to identify in the moment. And today, at least for me, it feels like this moment for crypto and blockchains.

  It’s easy to dismiss this space. Among other things, a blockchain is an objectively worse database. They’re slower than today’s alternatives. They require more computing power. There’s no customer service when something goes wrong. And, it generally costs a lot more to save new information to a blockchain (this cost is called a gas fee).

  At the peak of the market in 2021, the average quarterly gas fee (cost per transaction) on the Ethereum network reached about US$37. Given this, nobody wanted to use this database to buy a $2 coffee. (However, many people were, at least at the time, willing to use it to buy expensive NFTs.)

  But as Tomasz Tunguz outlines in this great post called “Gas Gas Revolution”, the cost of saving data to a blockchain has dropped dramatically over the last few years. And all signs indicate that this trend is only going to continue. So what happens when it becomes cheap/basically free to save to these worse databases?

  Well, if you believe that “decentralized” and open databases are going to unlock powerful new innovations, the correct answer is probably: a lot. And then all of a sudden, they’ll be better databases.

  2023.10.27

• Cold, warm, hot

  Sadly, this can very easily happen in the world of crypto. If you connect your wallet to a bad actor and sign a malicious transaction, it is possible for someone to drain all of your assets (coins, NFTs, and so on). It’s pretty terrifying. And I’m sure that a lot of people will see this and say to themselves, “that’s why I don’t like crypto! It’s too risky. Too many scammers. Bunch of rat poison.”

  There is no question that crypto is risky. It’s also not very user friendly. Clearly even sophisticated users can get tricked into signing the wrong kind of blockchain transaction. It happens all the time. But this is also a nascent space. And maybe this will become less common in the future as things mature.

  Either way, there are things you can absolutely do today to protect yourself if you’re planning to own and do crypto things. One of the most important rules to follow is this one here: you should have at least 3 crypto wallets. Let’s call them cold, warm, and hot wallets (which is often how they are described in web3 land).

  A hot wallet is the one you use to connect to sites, mint things, and do whatever else. Because of this, you want to keep almost nothing in it. If you want to mint an NFT, transfer in only whatever crypto is required to complete that transaction. That way if something bad happens, it’s not devastating. Once your mint is complete, transfer out the NFT to a colder wallet.

  A cold wallet is essentially your vault. This is where you store your Mona Lisas. These are the NFTs (or whatever else) that you plan to own for the long-term. The only transactions with this wallet should be to move things in and out of it. You should never connect it to any sites/services, even if they’re reputable ones. Once you do that, it’s no longer a cold wallet. It’s now a warmer wallet.

  A warm wallet lives somewhere in between. You connect it to sites/services that you trust, and you use it to hold NFTs that you might be looking to sell in the short-term (to give just one use-case example). In my case, brandondonnelly.eth is my warm wallet. It’s where I mint the NFT photography that nobody ever buys.

  I realize that all of this probably sounds convoluted, especially to those who are unfamiliar with this space. But in today’s world, if you want to be crypto literate, you need to take things like this into consideration. My NFTs might be finally totally worthless, but I love my growing art collection and I like it being on ice in a vault.

  2023.09.26