Single-family offices are investing in bitcoin as a way to diversify portfolios, according to Angelo Robles, founder and CEO of the Family Office Association, reported Russ Alan Prince, a contributor to Forbes who writes on wealth management. Single family offices are following hedge fund investors and institutional players in looking to bitcoin for asset diversification.
Prince, president of R.A. Prince & Associates, is one of several wealth management experts who has noted more people are considering bitcoin as a way to diversify investment portfolios.
Bitcoin’s Benefits
Bitcoin is not dependent on other assets in a traditional family portfolio, Robles noted. Hence, it offers asset diversification.
Bitcoin is also decentralized, meaning there are not any institutions controlling the currency. In addition, it is transparent because of blockchain technology, it is a fast way to transfer funds, and the transaction fees are diminutive.
Bitcoin does require understanding the risks involved, according to David Berger, chairman of the Digital Currency Council. He said bitcoin will either be a “grand slam” or it will crash, with plenty of volatility. Berger said he doesn’t see bitcoin as suitable for a family looking to preserve wealth. He sees it similar to high risk/high reward venture investments.
More single-family offices are investing in bitcoin and other decentralized, digital currencies, Berger agreed. He said some are choosing to invest in ventures that are developing the technology and infrastructure. He noted that the ecosystem for this new asset class is expanding rapidly.
Also read: Portfolio manager high on cash suggests bitcoin for diversification
Experts Weigh In
Chris DeMuth Jr., a portfolio manager at Rangeley Capital, has suggested investors optimize their cash holdings and put 10% of it in bitcoin. He noted in June that the implied future annual return for the stock market is negative, and the price-to-sales ratio globally is as high as ever.
Not all investment bloggers are encouraging people to invest in bitcoin.
Matt Thalman, a blogger for ino.com, a market trader website, recently blogged that he considers bitcoin to be unproven as an investment. He is concerned about the secrecy surrounding various aspects of bitcoin. He also thinks the cryptocurrency will continue to be volatile.
Monday, February 27, 2017
Saturday, February 25, 2017
'Buy Bitcoin,' PwC Fintech Director Tells Fordham Students
Representatives from each of the 'Big Four' global auditing firms were in attendance yesterday at New York's Fordham University to discuss blockchain in the capital markets.
There, members of Accenture, Deloitte, EY, KPMG and PWC joined blockchain startup ConsenSys to discuss the future of the industry and to provide career advice to students on the cusp of beginning their professional careers.
While no companies provided new insight into their public strategies, their off-the-cuff remarks shed light on how traditional financial institutions are becoming more comfortable with the increasingly nuanced technology.
When given an opportunity to address the crowd, Subhankar Sinha, a PwC fintech director, told students that the best way to get involved in the industry is to buy and hold bitcoin and ethereum.
Sinha told the crowd:
"Buy it with your own money. That will give you a tremendous dividend. You have to put yourself in uncomfortable situations. Have an open mindset.”
Positive predictions
Elsewhere, there was discussion about how the industry might evolve.
An introduction from Fordham professor Dr Frank Hsu outlined the history of blockchain, drawing analogies to the TCP/IP protocol – an internet technology developed in 1983, but that did not gain mainstream adoption until 1995.
"Using that framework, blockchain, started in 2008, should gain mainstream status by 2020," he said.
Panelist Chris Broderson, Capital Markets researcher at Accenture, focused on healthcare, stating that cryptographic technology will allow medical records to be easily stored and transferred via blockchain applications while also reducing fraud.
Finally, panelist Vanessa Grellet, an ethereum executive and chair of Nexus Impact Investing Group, predicted that blockchain will disrupt the legal, financial services and remittance industries.
She ended with an appeal to students: "Follow your passion, doing something you love, stick with something for two to three years to build expertise and knowledge in your field."
And stressing the passion that those in the industry have for the technology, panelist and EY financial services manager Mike Maloney said:
"Nobody gets in Twitter fights over Swift and ACH."
Image by Michael del Castillo for CoinDesk
There, members of Accenture, Deloitte, EY, KPMG and PWC joined blockchain startup ConsenSys to discuss the future of the industry and to provide career advice to students on the cusp of beginning their professional careers.
While no companies provided new insight into their public strategies, their off-the-cuff remarks shed light on how traditional financial institutions are becoming more comfortable with the increasingly nuanced technology.
When given an opportunity to address the crowd, Subhankar Sinha, a PwC fintech director, told students that the best way to get involved in the industry is to buy and hold bitcoin and ethereum.
Sinha told the crowd:
"Buy it with your own money. That will give you a tremendous dividend. You have to put yourself in uncomfortable situations. Have an open mindset.”
Positive predictions
Elsewhere, there was discussion about how the industry might evolve.
An introduction from Fordham professor Dr Frank Hsu outlined the history of blockchain, drawing analogies to the TCP/IP protocol – an internet technology developed in 1983, but that did not gain mainstream adoption until 1995.
"Using that framework, blockchain, started in 2008, should gain mainstream status by 2020," he said.
Panelist Chris Broderson, Capital Markets researcher at Accenture, focused on healthcare, stating that cryptographic technology will allow medical records to be easily stored and transferred via blockchain applications while also reducing fraud.
Finally, panelist Vanessa Grellet, an ethereum executive and chair of Nexus Impact Investing Group, predicted that blockchain will disrupt the legal, financial services and remittance industries.
She ended with an appeal to students: "Follow your passion, doing something you love, stick with something for two to three years to build expertise and knowledge in your field."
And stressing the passion that those in the industry have for the technology, panelist and EY financial services manager Mike Maloney said:
"Nobody gets in Twitter fights over Swift and ACH."
Image by Michael del Castillo for CoinDesk
Bitcoin Price Next Milestone: Beating Gold Permanently
The Bitcoin price could soon surpass gold’s on a permanent basis supposing they both continue with their current market performance.
Gold hit a three-month high of $1260 at the end of business day on Thursday, Feb. 23, as a steady flow of safe-haven demand from traders and investors continued worldwide while Bitcoin topped $1170 around the same time. Civic CEO Vinny Lingham, gives Bitcoin about a month or less to consolidateits price in the $1300 range.
It’s Trump, not China
A report says ongoing uncertainty and some anxiety regarding the new US president and his administration’s new and potentially aggressive policies continue to support the gold market. Similarly, the latest rally in the Bitcoin market has been described by an analyst at Lux Research Inc., Mark Bünger, as likely unconnected to China but rather to some of the policies of US President Donald Trump.
It is worth noting that the Trump factor is pinned on the documents - minutes of the Jan. 31-Feb. 1 session of the Federal Open Market Committee - released on Wednesday that shows that the Federal Reserve could be giving a strong indication that another interest hike could come sooner due to some of the changes brought by the new administration.
That Bitcoin has been going more mainstream as additional companies have now been accepting it as a form of payment, according to equity strategist at Miller Tabak, Matt Maley, on CNBC's "Trading Nation," will support its push to overtake gold.
The media hype trailing the all-time high record in the Bitcoin price has gone far and wide in the last few days. The noise is likely to reach even further than could be captured because a rise in the price of Bitcoin has been known to magnetize new users. Gold isn’t as new to court similar attention.
ETF factor, France uncertainty
There is a likelihood that the first Bitcoin exchange traded fund or ETF could be approved. When it does get the approval on March 11, Bitcoin has been tipped to gain value.
Also, Chinese Bitcoin exchanges which contribute significantly to the global trading of the currency have had some aspects of their operations restricted pending their upgrade of the KYC/AML system. A slight change in Bitcoin price is expected as soon as they resume full operation.
Global political uncertainty particularly in the case of France’s far-right candidate, Marine Le Pen, of the National Front Party, ahead of the coming presidential election is also key to determine if and when Bitcoin price will beat gold’s.
Gold hit a three-month high of $1260 at the end of business day on Thursday, Feb. 23, as a steady flow of safe-haven demand from traders and investors continued worldwide while Bitcoin topped $1170 around the same time. Civic CEO Vinny Lingham, gives Bitcoin about a month or less to consolidateits price in the $1300 range.
It’s Trump, not China
A report says ongoing uncertainty and some anxiety regarding the new US president and his administration’s new and potentially aggressive policies continue to support the gold market. Similarly, the latest rally in the Bitcoin market has been described by an analyst at Lux Research Inc., Mark Bünger, as likely unconnected to China but rather to some of the policies of US President Donald Trump.
It is worth noting that the Trump factor is pinned on the documents - minutes of the Jan. 31-Feb. 1 session of the Federal Open Market Committee - released on Wednesday that shows that the Federal Reserve could be giving a strong indication that another interest hike could come sooner due to some of the changes brought by the new administration.
That Bitcoin has been going more mainstream as additional companies have now been accepting it as a form of payment, according to equity strategist at Miller Tabak, Matt Maley, on CNBC's "Trading Nation," will support its push to overtake gold.
The media hype trailing the all-time high record in the Bitcoin price has gone far and wide in the last few days. The noise is likely to reach even further than could be captured because a rise in the price of Bitcoin has been known to magnetize new users. Gold isn’t as new to court similar attention.
ETF factor, France uncertainty
There is a likelihood that the first Bitcoin exchange traded fund or ETF could be approved. When it does get the approval on March 11, Bitcoin has been tipped to gain value.
Also, Chinese Bitcoin exchanges which contribute significantly to the global trading of the currency have had some aspects of their operations restricted pending their upgrade of the KYC/AML system. A slight change in Bitcoin price is expected as soon as they resume full operation.
Global political uncertainty particularly in the case of France’s far-right candidate, Marine Le Pen, of the National Front Party, ahead of the coming presidential election is also key to determine if and when Bitcoin price will beat gold’s.
Even Chinese central bank can’t kill bitcoin
Bitcoin gained prominence because its peer-to-peer payment system allows people to conduct financial transactions that can’t be censored by third parties. Users are free to transact with anyone, as long as they control their own private keys. Photo: Bloomberg
Every time a government sets out to abolish something people like, the well-liked thing moves to where it can’t be stopped. This has happened with prohibition, gambling, the war on drugs and digital piracy. Now it’s happening in China, where the government has been trying to crack down on bitcoin.
As part of an effort to control capital outflows, the Chinese central bank required bitcoin exchanges to suspend withdrawals until they could update their compliance systems. Trading on the exchanges took a big hit, but the bitcoin activity resurfaced on less formal over-the-counter venues. Here’s a chart showing trading volume at LocalBitcoins, a site where users post “advertisements”—like on Craigslist—to buy or sell bitcoin for local currency:
[Bloomberg]
Click here for enlarge
Blocking LocalBitcoins would be no solution, in part because people can use virtual private networks to access it anyway. Also, plenty of trading happens on lesser-known sites and on micro-messaging services such as WeChat and QQ. The latter already have their own payment systems, allowing users to build chatbots to automate trading activity. For those who prefer a more familiar trading interface, decentralized exchange software such as Bitsquare can construct an order book based on outstanding offers accumulated from other participants.
China is not alone. Peer-to-peer trading took off in Turkey after the country’s only bitcoin exchange ceased to operate, and in Venezuela after the leading exchange had its bank account closed. Russia has some of the most active unofficial bitcoin markets in the world, thanks to the country’s longstanding regulatory uncertainty.
Although centralized exchanges provide benefits, such as bringing together large quantities of buyers and sellers and guaranteeing payment, they’re not necessary for the currency’s existence. Bitcoin users don’t own physical coins, or even digital ones. They own permanent transaction histories recorded on a global ledger, replicated by participants all around the world. Even if a government shuts down every bitcoin node in its country, a bitcoin user can still transact as long as a single node is accessible overseas.
This puts regulators in a tough spot. It’s hard to control something that exists nowhere and everywhere at the same time. With peer-to-peer transactions, there are no servers to shut down, no kingpins to arrest, no warehouses to bust. Regulators can only go after local bitcoin exchanges and service providers, effectively impairing their own ability to see what’s going on.
Attempts to stamp out Bitcoin serve only to remind users why a decentralized currency needs to exist in the first place. Bitcoin gained prominence because its peer-to-peer payment system allows people to conduct financial transactions that can’t be censored by third parties. Users are free to transact with anyone, as long as they control their own private keys. The fact that many people still give third-party service providers custody of their bitcoin accounts is mostly a relic of our existing acclimation to banks. When regulators try to restrict bitcoin exchanges, they reduce trust both in the government — which can’t seem to keep its hands in its own pockets — and in any kind of third-party financial service provider that might be beholden to the government.
The best way to curb the use of bitcoin is to convince people that they don’t need the cryptocurrency. If Visa and Mastercard started processing payments for darknet markets and remittance customers, the demand for bitcoin would fall off a cliff. But that’s about as likely as China offering to ease capital controls. The US, for its part, could reform money laundering rules that effectively bar a subset of the population from the banking system. When regulations create barriers that prevent legitimate businesses from serving certain customers, less-legitimate businesses rise to meet the demand outside the regulatory system.
Markets can’t be regulated out of existence. The next best thing might be to let them operate in the open. Bloomberg
Elaine Ou
Every time a government sets out to abolish something people like, the well-liked thing moves to where it can’t be stopped. This has happened with prohibition, gambling, the war on drugs and digital piracy. Now it’s happening in China, where the government has been trying to crack down on bitcoin.
As part of an effort to control capital outflows, the Chinese central bank required bitcoin exchanges to suspend withdrawals until they could update their compliance systems. Trading on the exchanges took a big hit, but the bitcoin activity resurfaced on less formal over-the-counter venues. Here’s a chart showing trading volume at LocalBitcoins, a site where users post “advertisements”—like on Craigslist—to buy or sell bitcoin for local currency:
[Bloomberg]
Click here for enlarge
Blocking LocalBitcoins would be no solution, in part because people can use virtual private networks to access it anyway. Also, plenty of trading happens on lesser-known sites and on micro-messaging services such as WeChat and QQ. The latter already have their own payment systems, allowing users to build chatbots to automate trading activity. For those who prefer a more familiar trading interface, decentralized exchange software such as Bitsquare can construct an order book based on outstanding offers accumulated from other participants.
China is not alone. Peer-to-peer trading took off in Turkey after the country’s only bitcoin exchange ceased to operate, and in Venezuela after the leading exchange had its bank account closed. Russia has some of the most active unofficial bitcoin markets in the world, thanks to the country’s longstanding regulatory uncertainty.
Although centralized exchanges provide benefits, such as bringing together large quantities of buyers and sellers and guaranteeing payment, they’re not necessary for the currency’s existence. Bitcoin users don’t own physical coins, or even digital ones. They own permanent transaction histories recorded on a global ledger, replicated by participants all around the world. Even if a government shuts down every bitcoin node in its country, a bitcoin user can still transact as long as a single node is accessible overseas.
This puts regulators in a tough spot. It’s hard to control something that exists nowhere and everywhere at the same time. With peer-to-peer transactions, there are no servers to shut down, no kingpins to arrest, no warehouses to bust. Regulators can only go after local bitcoin exchanges and service providers, effectively impairing their own ability to see what’s going on.
Attempts to stamp out Bitcoin serve only to remind users why a decentralized currency needs to exist in the first place. Bitcoin gained prominence because its peer-to-peer payment system allows people to conduct financial transactions that can’t be censored by third parties. Users are free to transact with anyone, as long as they control their own private keys. The fact that many people still give third-party service providers custody of their bitcoin accounts is mostly a relic of our existing acclimation to banks. When regulators try to restrict bitcoin exchanges, they reduce trust both in the government — which can’t seem to keep its hands in its own pockets — and in any kind of third-party financial service provider that might be beholden to the government.
The best way to curb the use of bitcoin is to convince people that they don’t need the cryptocurrency. If Visa and Mastercard started processing payments for darknet markets and remittance customers, the demand for bitcoin would fall off a cliff. But that’s about as likely as China offering to ease capital controls. The US, for its part, could reform money laundering rules that effectively bar a subset of the population from the banking system. When regulations create barriers that prevent legitimate businesses from serving certain customers, less-legitimate businesses rise to meet the demand outside the regulatory system.
Markets can’t be regulated out of existence. The next best thing might be to let them operate in the open. Bloomberg
Elaine Ou
Bitcoin Prices Have Surged to an All-Time High
In Brief
Bitcoin is a digital currency that allows users to conduct monetary transfer securely and anonymously.
The value of the currency has been steadily surging lately and is currently enjoying its highest value ever.
Tales From the Cryptocurrency
Bitcoin is a term we often hear tossed around in the headlines. We know that it deals with money, online transactions, and just maybe the deep web. Back in 2014, the Washington Post established that only 24% of the American public was aware of what bitcoin actually was. Meaning that almost three-quarters of the country had no idea. But maybe they just might want to start paying attention, especially now since it is at its all-time high value.
Bitcoin was introduced in 2008 by an anonymous group of programmers under the name of Satoshi Nakamoto and was eventually released to the public in 2009 as an open-source software. Unlike other online payment services like PayPal and Venmo, Bitcoin is a peer-to-peer network that takes place privately between two users—meaning there is no intermediary involved. The cryptographic virtual currency is completely decentralized from any external influence while all transactions with the currency are accounted for through a blockchain ledger.
While bitcoin is thoroughly anonymous, the blockchain ledger has all transactions available publicly. Therefore, theoretically, if you know the time and date of a particular transaction, you may be able to match someone’s online address to their identity. On the other hand, all transactions made through bitcoin are encrypted with military grade cryptography, ensuring that all deals are secure. Sending and receiving bitcoins is as easy as sending an email, but does that mean it’s worth it?
Time to Invest?
With all that said and done, Bitcoin has made it far since it’s substantial price drop in 2013. Since then Bitcoin has stabilized around a margin of $250, with most experts believing it was doomed. However, it seems to have returned to a relatively stable rise since last year. This time last year bitcoin was valued at $367, with its steady rise, it is now valued at 1,177.18. Many speculate as to what is causing the recent trend from Congress to WallStreet to even sheer luck.
References: TechCrunch, Blockchain
Neil C. Bhavsar
@Neilcogen
Bitcoin is a digital currency that allows users to conduct monetary transfer securely and anonymously.
The value of the currency has been steadily surging lately and is currently enjoying its highest value ever.
Tales From the Cryptocurrency
Bitcoin is a term we often hear tossed around in the headlines. We know that it deals with money, online transactions, and just maybe the deep web. Back in 2014, the Washington Post established that only 24% of the American public was aware of what bitcoin actually was. Meaning that almost three-quarters of the country had no idea. But maybe they just might want to start paying attention, especially now since it is at its all-time high value.
Bitcoin was introduced in 2008 by an anonymous group of programmers under the name of Satoshi Nakamoto and was eventually released to the public in 2009 as an open-source software. Unlike other online payment services like PayPal and Venmo, Bitcoin is a peer-to-peer network that takes place privately between two users—meaning there is no intermediary involved. The cryptographic virtual currency is completely decentralized from any external influence while all transactions with the currency are accounted for through a blockchain ledger.
While bitcoin is thoroughly anonymous, the blockchain ledger has all transactions available publicly. Therefore, theoretically, if you know the time and date of a particular transaction, you may be able to match someone’s online address to their identity. On the other hand, all transactions made through bitcoin are encrypted with military grade cryptography, ensuring that all deals are secure. Sending and receiving bitcoins is as easy as sending an email, but does that mean it’s worth it?
Time to Invest?
With all that said and done, Bitcoin has made it far since it’s substantial price drop in 2013. Since then Bitcoin has stabilized around a margin of $250, with most experts believing it was doomed. However, it seems to have returned to a relatively stable rise since last year. This time last year bitcoin was valued at $367, with its steady rise, it is now valued at 1,177.18. Many speculate as to what is causing the recent trend from Congress to WallStreet to even sheer luck.
References: TechCrunch, Blockchain
Neil C. Bhavsar
@Neilcogen
Thursday, February 23, 2017
Bitcoin Price Sets New All-Time High
The price of bitcoin has reached a new all-time high.
Bitcoin prices hit a high of $1,172.09, according to the CoinDesk Bitcoin Price Index (BPI) – surpassing a level first set more than three years ago in November 2013, when the BPI reported an average price high of $1,165.89.
The move followed a morning of price gains, coming amid the longest period ever in which bitcoin's value has stayed above $1,000.
Prices first began to inch upward today at 9:00 UTC on Wednesday, with bitcoin prices reaching a high of $1,100, staying above that level since. Today's price high represents an increase of more than 4% since the start of the day's trading.
At press time, the average price of bitcoin is $1,170.72, BPI data shows.
A number of factors of buoyed prices – and positive trader sentiment – in recent weeks.
Perhaps most notably, traders have taken a largely bullish tack on the prospects that the US Securities and Exchange Commission (SEC) will approve the first-ever bitcoin ETF. The SEC has a deadline of 11th March to make their final decision, which has already been subject to delays.
The surge past the all-time high also follows a period of uncertainty and change within the global bitcoin market.
January's defining markets storyline was the growing involvement of the People's Bank of China, China's central bank, in the domestic bitcoin exchange space. A warning issued to exchanges led to the imposition of trading feesand, later, withdrawal delays at China's leading bourses.
That month opened with a push above the $1,000 line, though the days to follow would see a dramatic fall back below that figure.
An AI-run hedge fund has created a #cryptocurrency for its human data scientists
An AI-run hedge fund has created a #cryptocurrency for its human data scientists http://bit.ly/2l03lgZ #Blockchain #AI #Crowdsourcing
#PrisonersDillemma #DataScience #Network #GameTheory
‘Why is tech positive-sum and finance zero-sum?’
12,000 data scientists were issued 1 million crypto-tokens to incentivize the construction of an #ArtificialYntelligenceHedgeFund. Here’s why.
Money was invented to solve the coincidence of wants problem and facilitate transactions. But as fiat currencies continue to lose relevance into the 21st century, cryptocurrency presents solutions far beyond money transfer. Cryptocurrency can now be used to incentivize cooperation in populations.
With cryptocurrency, money can now be software. There can be programmed rules for how money behaves. The ability to program money seems subtle, but small changes to the rules of money can have large effects on the behavior of the holders of that money. For a historical example of primitive money software influencing a population, see The Wörgl Experiment of 1932. For a modern example, consider how bitcoin incentivized thousands of people around the world to mine it.
The stock market presents a situation similar to the prisoner’s dilemma. The market would be better off if market participants collaborated, but rationally they don’t. Regular money simply does not incentivize them correctly. Regular money is too low-tech.
Imagine the #PrisonersDilemma in a world that exists entirely on a #blockchain.
Now suppose the prisoners are issued a cryptocurrency similar to a normal money except for one small change: it is programmed to self-destruct whenever anyone goes to prison. By defining the money in this way, the prisoners’ fates are now financially bound. Prisoners in this scenario realize that if they don’t keep the other prisoner out of jail, they will lose all of their money with certainty.
This new cryptocurrency results in a world where citizens have a financial incentive to collaborate to keep each other out of jail. The prisoners are still motivated by self-interest but they now live in a universe where the money nudges them to collaborate in pursuit of that self-interest.
"The higher the scientists sit on the leaderboard, the more Numeraire they receive. But it’s not really a currency they can use to pay for stuff. It’s a way of betting that their machine learning models will do well on the live market. If their trades succeed, they get their Numeraire back as well as a payment in bitcoin—a kind of dividend. If their trades go bust, the company destroys their Numeraire, and they don’t get paid.
The new system encourages the data scientists to build models that work on live trades, not just test data. The value of Numeraire also grows in proportion to the overall success of the hedge fund, because Numerai will pay out more bitcoin to data scientists betting Numeraire as the fund grows. “If Numerai were to pay out $1 million per month to people who staked Numeraire, then the value of Numeraire will be very high, because staking Numeraire will be the only way to earn that $1 million,” Craib says.
It’s a tricky but ingenious logic: Everyone betting Numeraire has an incentive to get everyone else to build the best models possible, because the more the fund grows, the bigger the dividends for all. Everyone involved has the incentive to recruit yet more talent—a structure that rewards collaboration."
#PrisonersDillemma #DataScience #Network #GameTheory
‘Why is tech positive-sum and finance zero-sum?’
12,000 data scientists were issued 1 million crypto-tokens to incentivize the construction of an #ArtificialYntelligenceHedgeFund. Here’s why.
Money was invented to solve the coincidence of wants problem and facilitate transactions. But as fiat currencies continue to lose relevance into the 21st century, cryptocurrency presents solutions far beyond money transfer. Cryptocurrency can now be used to incentivize cooperation in populations.
With cryptocurrency, money can now be software. There can be programmed rules for how money behaves. The ability to program money seems subtle, but small changes to the rules of money can have large effects on the behavior of the holders of that money. For a historical example of primitive money software influencing a population, see The Wörgl Experiment of 1932. For a modern example, consider how bitcoin incentivized thousands of people around the world to mine it.
The stock market presents a situation similar to the prisoner’s dilemma. The market would be better off if market participants collaborated, but rationally they don’t. Regular money simply does not incentivize them correctly. Regular money is too low-tech.
Imagine the #PrisonersDilemma in a world that exists entirely on a #blockchain.
Now suppose the prisoners are issued a cryptocurrency similar to a normal money except for one small change: it is programmed to self-destruct whenever anyone goes to prison. By defining the money in this way, the prisoners’ fates are now financially bound. Prisoners in this scenario realize that if they don’t keep the other prisoner out of jail, they will lose all of their money with certainty.
This new cryptocurrency results in a world where citizens have a financial incentive to collaborate to keep each other out of jail. The prisoners are still motivated by self-interest but they now live in a universe where the money nudges them to collaborate in pursuit of that self-interest.
"The higher the scientists sit on the leaderboard, the more Numeraire they receive. But it’s not really a currency they can use to pay for stuff. It’s a way of betting that their machine learning models will do well on the live market. If their trades succeed, they get their Numeraire back as well as a payment in bitcoin—a kind of dividend. If their trades go bust, the company destroys their Numeraire, and they don’t get paid.
The new system encourages the data scientists to build models that work on live trades, not just test data. The value of Numeraire also grows in proportion to the overall success of the hedge fund, because Numerai will pay out more bitcoin to data scientists betting Numeraire as the fund grows. “If Numerai were to pay out $1 million per month to people who staked Numeraire, then the value of Numeraire will be very high, because staking Numeraire will be the only way to earn that $1 million,” Craib says.
It’s a tricky but ingenious logic: Everyone betting Numeraire has an incentive to get everyone else to build the best models possible, because the more the fund grows, the bigger the dividends for all. Everyone involved has the incentive to recruit yet more talent—a structure that rewards collaboration."
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