Blockchain Crowdfunding: Moving beyond “DAO” to “CODE” with the SNGLS “ICO”

[Disclaimer: If you’re new to blockchain, there are many new terms in the blockchain lexicon.  If you’re an financial executive, fintech investor, capital markets / securities regulator or exchange, I believe this an important trend worth watching. Note this is not legal, financial or investment advice.]

October 2, 2016. Location: <Everywhere that you can access the internet/>

The Ethereum platform is once again the blockchain platform of choice for a new token sale crowdfunding or ICO (Initial Coin Offering).

The SNGLS token crowdfund raised and closed a funding of approximately $US 7.5 million worth of Ether (the Ethereum blockchain’s currency) in about 25 minutes today. We don’t know the identity of the contributors, although we do know their Ether accounts.

To give perspective on how quickly the blockchain space is evolving, consider that it’s October 2016, a mere 4 months since the attack on the DAO (Decentralized Autonomous Organization), a global crowdfunded token sale which brought in the equivalent of $US 150 million of Ether during the month of May 2016.

While the SNGLS ICO (Initial Coin Offering) is more modest in size than the DAO, and the DAO itself followed on token crowdsales such as Ethereum and LiskSNGLS is part of a new kind of blockchain business model, dubbed CODE (Centrally Organized Distributed Entity).  Below we’ll see how the founders will use the funds to build a new venture called SingularDTV.

Yes, $US 7.5 million is immaterial compared to the $1B market cap of Ethereum itself.

My view is digital currency ICO’s are becoming a viable and globally accessible method of project funding.

Think of SNGLS as another weak signal of the upcoming avalanche of ICO’s in the wings.

As an side also check out Synereo, another ICO which funds a distributed social network and reputation system.

 

So let’s take a look at SNGLS…

What is the SNGLS token and How does it Work? 

In a nutshell, SNGLS are an Ethereum token, which is a small piece of software code (aka “smart contract”) that has programmable functions, that can be accessed like an API.  The token code was embedded into the Ethereum platform.  When used as a funding mechanism, “investors” (loose use of the term) or funders, send digital currency to the token code, and the token code itself tracks – in an internal ledger –  how much value each contributor sends to it.  It’s like a container that can then be instructed to move ownership between its owners or to another account. The creators of the token have the ability to move funds from this token’s account to another.

In this case, the SNGLS crowdfunding token has a unique identity (Contract address: 0xbdf5c4f1c1a9d7335a6a68d9aa011d5f40cf5520) on the Ethereum public blockchain.

For the curious, every contribution to the token contract is visible in the public Ethereum blockchain via a blockchain explorer available on the web.  Note that the addresses aren’t connected to real life identities, so we call these transactions “pseudonymous”, not anonymous.

For example, the first funding transaction to the token can be viewed here by its transaction hash: 0xbd435a7c9a4e217b4663508b459f4f3ff9f220d0e9d701e919c65d8562b363c2

The following 2 screenshots help us see that the first transaction was for 5 Ether, contributed by someone with an Ether account funded by their Poloniex exchange account

 

screen-shot-2016-10-02-at-8-09-47-pm

And a previous transaction shows us the flow of funds from the Poloniex wallet to the user’s Ether account..

screen-shot-2016-10-02-at-8-09-30-pm

 

How does SNGLS Fund a New Venture?

According to the team, which is largely made up of Ethereum veterans from Consensys, an investment in SNGLS supports a new business venture:

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The DAO – Innovating Global Decentralized Governance

These are exciting times in the Blockchain space : a convergence of technology, finance, marketing, internet of things, identity management and governance.

As of this writing and 11 days remaining, The DAO , a form of “Decentralized Autonomous Organization” has raised (see full list) the equivalent of $108M in Ether, the digital cryptocurrency/computing token that fuels the Ethereum public blockchain.  In my previous posts The DAO – A Global Ethereum Venture Fund Launches and here, I wrote about this global social crowdfunding experiment. This has the potential to put Ether (see http://coincap.io/ETH) sitting on the sidelines to work on a global scale.

When The DAO token creation phase is complete, DAO Token Holders will vote on proposals to The DAO by people or organizations that want to tap into the DAO’s pool of funds.

Although it was almost missed by the mainstream business media until now, recently articles have raised awareness of this global social experiment, most recently Coindesk: The DAO: Or How A Leaderless Ethereum-Based Organization Raised $50 Million, and here: WSJ: Chiefless Company Rakes In More Than $100 Million

Based on my conversations, the venture community isn’t sure what to make of this new model, but the $100M raise is nothing short of a surprise to the blockchain community and its original organizers.  According to the WSJ piece:

The group that built the DAO, mainly people from the Ethereum developers group, expected to raise around $20 million, according to Stephan Tual of slock.it, the startup that wrote the DAO’s code.  “It’s really surprising,” to see the total raised so far, he said.

A point of clarification for that article: as I understand it, the team behind Slock.it have actually been the main developers of The DAO’s code.

Is there Enough Governance? Where to Now?

Voting is embedded in the unstoppable code of the DAO’s smart contract. Voting is definitive governance but is it ‘enough’ governance?

What’s missing, and this is actually by design in what we can call DAO 1.0, is ‘traditional’ governance.  There’s no central ‘Investment Committee’ to review proposals on behalf of investors. Just to drive the point home, there is no Chief Investment Officer, no Chief Financial Officer. And there is no central government involved in The DAO.

What we have is a global group of cryptocurrency early adopters contributing to a global fund, willing to run with this experiment.  All DAO Token Holders (DTH) are effectively acting CIOs, and CFO’s.  It’s brilliant that anyone can participate, but does every DTH want and need to be literate in financial and business models? Is every DTH now a VC? VC’s exist because their expertise makes the whole process efficient.

On the DAO “channels”, I’ve voiced a concern of a “first-in, first funded” proposal process.  Currently, and still in draft, we have one primary Proposal officially in front of The DAO:

Blockchain + IoT for a new Sharing Economy
Slock.it’s ambitious IoT + Blockchain proposal for the development of Universal Sharing Network has [been] made public on the DAO’s forums. At the core of this proposal lies the Ethereum Computer, a multi-functional device designed to decentralize the Sharing Economy.

Although I’m on record as supporting the incredible innovativeness of the Slock.it plan and its tremendous potential, the bigger question to ask:” “How do we evaluate proposals to make sure the best proposals get funded?”.

As a past tech incubator advisor and tech startup leader, I appreciate the value of disciplined due diligence in evaluating projects. How will the DAO Token Holders be able to make a good assessment of whether the proposal is asking for the “right” amount of funding to succeed?

We know that 9/10 startups fail – will future proposals have the right business model to succeed?

Recommendation: A Proposal-Gathering and Review Period

So, I suggest a “proposal-gathering and review period”, perhaps 3 months, allowing time to gather a good variety of top-notch proposals, and some additional structure to evaluating the proposals.

Currently, there is no clear mechanism for proposal review other than online forum discussions. Before it gets too far down the road, perhaps the The DAO’s first proposal should be one to deliver this additional discipline. As a starting point, rather than the current free form proposal format, perhaps every Proposal needs to structure their request in the form of answers to 10 standard venture capital questions, and DTH’s can vote and comment on the answers.  Even more interesting, could the DTH also be given an opportunity to vote on what those key questions are?

These are very exciting, innovative times and uncharted territory.

In subsequent posts, I’ll follow the evolution of DAO governance and suggest some of the best approaches on the path forward.

Alan

 

If you’d like to discuss the potential impacts of blockchain technology further, please contact me at alan@leadingknowledge.com (Twitter: @alanwunsche) or contact me through www.leadingknowledge.com (Twitter: @LeadingK)

Alan Wunsche (LinkedIn) is CEO of Leading Knowledge Ltd, a blockchain solutions development startup and consultancy. He is a Chartered Professional Accountant with a passion for cutting edge information-based innovation and technology.  He has over 25 years of cross-industry finance, risk, governance, and marketing technology management consulting and executive experience. Alan has held leadership roles at PwC, Deloitte, Scotiabank and a variety of tech startups.

The DAO Raises over $US 43M for Ethereum Fund

This is an update to the article introducing The DAO: “The DAO – A Global Ethereum Venture Fund Launches

TheDAO (https://daohub.org) has now crowdfunded over $US43M from 8,293 Ethereum accounts. (May 11, 2016. 16:28 EST)

 

Etherscan-2016-05-11-4.28.33 PM

Videos Q&A with the Creators of TheDAO Framework:

The Slock.it team have shared further details of TheDAO, its objectives, and its code below.

 

London Ethereum Meetup – Slock.it and the DAO Framework

Deep dive in the DAO smart contracts with Slock.it CTO Christoph Jentzsch

The DAO – A Global Ethereum Venture Fund Launches

Anyone interested in the future of business, organizational governance, venture investing, and the broader internet should know about “The DAO”.

Ethereum, the groundbreaking blockchain platform, continues to blaze a technological trail of world changing, innovative experiments. It was a short time ago in the summer of 2014 that Ethereum was one of the largest crowdfunding campaigns in the world.

I predicted that 2016 will the year that the Blockchain Awakens.

Today, “The DAO“, named for a new type of organization called the “Decentralized Autonomous Organization“, is in Creation Phase, allowing anyone with Ether to become a DAO Token owner.  [As such Ether and DAO Token are described as digital assets or cryptocurrencies.]

At May 8, 2016 The DAO had crossed $US 29M in funding, making it the 2nd largest crowdfunding project.

The full details of The DAO are available in the DAO Whitepaper.

Why is the DAO Revolutionary? Why Should You Care?

In a word, decentralization. More specifically, decentralized investment and governance. The DAO fundamentally provides a new kind of investment and governance model that doesn’t rely on a stock exchange, a centralized crowdfunding platform like kickstarter, or a financial institution.

Let that last sentence sink in.

The DAO doesn’t disrupt today’s centralized financial institutions…. but it could.

The DAO’s Members get to vote on investment proposals presented to The DAO by its Members.  Profits of projects funded by The DAO may be subsequently distributed to Members in accordance with the Proposals.

Because The DAO is “smart contract” software code that mimics the investment functions of an organizatio, and lives on the public Ethereum Blockchain, it is immediately a global organization, accessible to anyone with an internet connection.

One way to think about smart contracts is to consider them a program that can’t be stopped.  Although no one is forced to use The DAO, the code itself is immutable and therefore cannot be removed by a single individual or organization. The DAO smart contract lives (and will continue to exist as long as the Ethereum public blockchain exists) at Ethereum address: 0xbb9bc244d798123fde783fcc1c72d3bb8c189413

Transparency

The DAO demonstrates one of the key benefits of being deployed on the public Ethereum blockchain: transparency.

Today and anytime in the future, we can look at the activity in The DAO.  As an example, the following snapshot at http://etherscan.io/token/TheDAO#balances provides an overview of which Ethereum accounts own DAO Tokens:

EtherScan-08052016-2111EST

Note that one can’t easily know the identities of the account owners, although it’s possible that account owners can be found based on their public activity.

The DAO’s Goals

From the DAO’s manifesto:

To blaze a new path in business organization for the betterment of its members, existing simultaneously nowhere and everywhere and operating solely with the steadfast iron will of immutable code. The goal of The DAO is to diligently use the ETH it controls to support projects that will:

  • Provide a return on investment or benefit to the DAO and its members.
  • Benefit the decentralized ecosystem as a whole.

The first goal resembles a typical organization today.  The second goal supports the networks effects of the Ethereum platform.

The Process: Bringing the DAO to Life

The DAO explains its creation phase.

Let us turn to the terms by which users will bring The DAO to life and engage in its future. Users become DAO Token Holders by fuelling The DAO with ETH during its Creation Phase. When The DAO receives ETH, new DAO tokens are created in that moment. Each DAO Token Holder is granted voting rights and complete control over The DAO’s digital assets (ETH to begin with) proportional to the amount of DAO tokens they hold.

DAO Conduct

The creators of the DAO have stipulated a core code of conduct:

We as a DAO, both as a whole and as individual members, will adhere to the following code of conduct:

  • We will not seek profits through means contradictory to our stated values or the categorical imperative.
  • We shall respect free speech and encourage all opinions to be both voiced and heard freely, without persecution.
  • We will strive toward decentralization and autonomy whenever and wherever it is reasonably possible and beneficial.

Where to Next?

There’s nothing that determines this will be the only DAO of its kind.  In fact, we should anticipate the opposite : since The DAO code is public and included in The DAO White Paper, anyone that wants to create a new one can simply deploy the exact same code onto the blockchain.  Imagine thousands or millions of these new organizational structures being created just as easily as uploading code to a cloud.

It is time to realize the potential global impact of this new technology.  It is critical that governments, regulators, financial institutions, executives and entrepreneurs alike begin to understand the possible future scenarios.

Imagine this : we could have national, state, provincial or municipal DAO’s, invested in by its citizens. Could these be the pension funds of the future?  We could have family DAO’s. Could these be the trust funds of the future?

And remember, they don’t require a financial intermediary to execute, just the global Ethereum virtual computing environment.

If you’d like to discuss the potential impacts of blockchain technology further, please contact me at alan@leadingknowledge.com (Twitter: @alanwunsche) or contact me through www.leadingknowledge.com (Twitter: @LeadingK)

Alan

Alan Wunsche (LinkedIn) is CEO of Leading Knowledge Ltd, a blockchain consultancy and blockchain solutions development startup.  He is a Chartered Professional Accountant with a passion for cutting edge information-based innovation and brings over 25 years of cross-industry financial, risk, and marketing technology management consulting and executive experience. Alan has held leadership roles at PwC, Deloitte, Scotiabank and a variety of tech startups.

 

P.S. This is Not Investment Advice

This is new, ground-breaking territory and so the White Paper provides some good advice:

A word of caution, at the outset: the legal status of DAOs remains the subject of active and vigorous debate and discussion. Not everyone shares the same definition. Some have said that they are autonomous code and can operate independently of legal systems; others have said that they must be owned or operate by humans or human created entities. There will be many uses cases, and the DAO code will develop over time. Ultimately, how a DAO functions and its legal status will depend on many factors, including how DAO code is used, where it is used, and who uses it. This paper does not speculate about the legal status of DAOs worldwide. This paper is not intended to offer legal advice or conclusions. Anyone who uses DAO code will do so at their own risk.

 

2016 : The Blockchain Awakens

We will remember 1995-2015 as the 20 year era of the centralized client-server Internet.  As we enter 2016 and the “blockchain awakens”, let’s take a quick look at how we got here:

1995: The Dawn of the Internet
20 years ago in 1995, the Internet took its big first steps:
  • HTTP documented and HTML 2.0 released
  • Netscape IPO; Netscape Navigator browser makes web accessible
  • mySQL, an open source version of SQL, makes web databases easy
  • Amazon.com sold first book online
  • eBay founded

Web companies of every kind built Web 1.0 on centralized databases. By 2000, Salesforce.com , eBay and Amazon.com delivered the first API’s to move data between organizations.

Web 2.0 in the mid-2000’s saw consumers using “free” services give Google and Facebook the data to fuel analytics and explosive growth in digital advertising.

In 2010-2015, enterprise Big Data grew with open source NoSQL, R, and Data Lakes. Amazon, Google, and Microsoft brought the enterprise “cloud”, “cognitive computing”, and “machine learning-as-a-service”.

Until 2015, virtually every organization from Amazon to Uber relied on centralized databases. That model started to change in 2015.

2015 : The Dawn of the Enterprise Blockchain 
2015 will be known for the introduction of blockchain into the enterprise.

Bitcoin’s blockchain was designed as a peer-to-peer system to securely transfer ownership of Bitcoin, in a decentralized and transparent network without having to trust the other party. Bitcoin’s objective was to transfer value without financial institutions as intermediaries.  While the size of Bitcoin today is still small at about $6.5B market cap, it has proven the concept of secure digital currency and has attracted the attention of governments and regulators and entrepreneurs.

Blockchain highlights from 2015:
  • Venture capitalists poured approx. $1B into bitcoin and blockchain ventures in 2015.
  • Ethereum Foundation launched its next generation Turing-complete blockchain protocol, dubbed Ethereum Frontier.  Also referred to as a “world computer”, it has the genius of being able to store data states and executable “smart contracts” (i.e. programs) securely on the blockchain. (Ethereum was invented by Toronto-based Bitcoin developer Vitalik Buterin).  This will facilitate encoding complex business processes.
  • World Economic Forum identified blockchain as one of six mega-trends
  • R3CEV assembled a consortium of the world’s largest financial institutions to explore a global ledger fabric / protocol.
  • Goldman Sachs filed a patent for a virtual settlement currency (“SETLcoin”)
  • Cryptobonds and securities were issued as trials.  SEC approved plans to issues stocks via Bitcoin’s blockchain.
  • Microsoft announced Blockchain-as-a-Service, serving up Ethereum blockchains for enterprise.
  • Linux Foundation and IBM announced its OpenLedger project alongside London Stock Exchange, banks and SWIFT

Think of Blockchain in 2015 as the Internet in 1995. We could certainly see its disruptive potential but it would take some time to fully realize and understand everything we could make better.

Predictions for 2016 : The Blockchain Awakens

As 2015 was the dawn of decentralized computing, 2016 will be the year that the blockchain and smart contracts become integral to every company’s 5 year technology strategy. While it took the Internet 20 years to mature, today’s accelerated innovation will most likely see Blockchain technology mature in the next 10 years. Whether it be private and permissioned blockchains or public blockchains, next generation blockchain solutions like Ethereum will deliver Web 3.0 by encoding business processes as decentralized applications (DApps) running on this new computing platform.

While some may have focus conversations differentiating between centralised vs. decentralised business models, we can expect the ultimate discussion to centre around trust.  Up until Bitcoin and blockchain came, did we just learn to trust that Amazon, Uber, Facebook, Google, Target, Anthem, Experian and others would keep our private information secure? A new generation of entrepreneurs and developers will be offering ways of interacting with these cryptographic services with pseudonymity and deliver new promises to keep our data more secure.

Just as the global banks formed an industry consortium facilitated by R3 in 2015 to find billions of dollars of efficiencies promised by blockchain analysts, strategists in all organizations will be wise to look at shared ledger applications within their natural industry consortia.  Where intellectual property and competitive advantage is not eroded, competitors will be asked to join forces to take advantage of the shared ledger technology to reduce costs.  As the new ledger initiatives take hold, large enterprise software vendors will take notice.  Finally, government and industry regulators will need to ensure they’re involved.

In 2016, we can expect:
  1. Permissioned-consortium blockchains will be prototyped by global banks.  This will not include Bitcoin. Existing consortia may align interests with the Linux OpenLedger consortium to support the greater economic good.  Financial regulators will be playing catch up.
  2. Securities Exchanges will increasingly be issuing cryptoshares and cryptobonds on blockchain.
  3. Decentralized eBay disruptors such as OpenBazaar, will gain traction.
  4. Like Barbados in 2015, Bitcoin will be considered a foreign currency reserve by more small country central banks.
  5. Land registries in developing countries, like Honduras in 2015, will increasingly be put on the blockchain.
  6. Smart contracts will increasingly be interacting with physical objects enabling digital micropayment for use cases such as property rentals.
  7. Accounting and financial management software vendors will announce projects to include blockchain technology in their product roadmaps.
  8. Blockchain-based Uber and AirBnB disrupters will be launched as DApps using smart contracts.
  9. A global blockchain-based, proof of existence patent service could become inventors’ first stop, followed by government submissions.  Governments will likely not be the initiators of this reimagination of blockchain protection.
  10. Universities will expand experiments putting transcripts on permanent blockchain ledgers.  This could potentially lead to a global University consortium.
Alan Wunsche (@alanwunsche) is CEO of Leading Knowledge (www.leadingknowledge.com), a blockchain-generation consultancy and software development startup. Alan has a passion for cutting edge information-based innovation and brings over 23 years of cross-industry financial, risk, and technology management consulting and executive experience. Alan has held leadership roles at PwC, Deloitte, Scotiabank and several tech startups.

@Lessig Keynote: Deja vu all over again (#BlockchainSYD)

Highly recommended: A brilliant blockchain keynote by a brilliant mind, Lawrence Lessig, at Blockchain Workshops, Sydney – December 11, 2015.

This is deja vu for me as well.  I worked for a high flying public internet technology incubator and I saw Lessig speak so passionately about the innovation in ‘Fight For Your Right to Innovate’ at the 2001 O’Reilly Peer-to-Peer Conference in San Francisco.

Please follow me @alanwunsche and my current blockchain ventures at www.leadingknowledge.com

Bitcoin & Blockchain Inventor Satoshi Nakamoto Believed Found

News of the potential inventor of Bitcoin and “blockchain” technology, Satoshi Nakamoto, broke on December 8, 2015 on Wired Bitcoin’s Creator Satoshi Nakamoto Is Probably This Unknown Australian Genius and Gizmodo This Australian Says He and His Dead Friend Invented Bitcoin. The reporting provides compelling evidence of the investigation.

Dr. Craig Steven Wright, shown here introducing himself in this video joined a Bitcoin panel in October and explained aspects of Bitcoin that he didn’t think people yet understood.

The post will be updated as further news and evidence arrives.

Follow Alan: @alanwunsche

ÐΞVCON1 : Ethereum Developer Conference (Nov. 9-13, 2015)

As the followup to ÐΞVCON0, the Ethereum Foundation and ΞTHÐΞV presented 5 days of discussions, technical talks and related events.  Key topics: Research & Core Protocols, ÐApp Development, Industry & Social Implications.

The full agenda and videos are posted here: https://devcon.ethereum.org

An annotated Agenda with links and commentary follows below:

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Gartner: CIOs Need To Welcome Age Of The Algorithm

At the recent Gartner Symposium/ITxpo in Orlando, Senior Vice President of Gartner Research Peter Sondegaard delivered his firm’s view on data and algorithms to CIO’s:

“If the most important thing you offer is data,” Sondergaard said, “you are in trouble.  Big data is not where the value is. Data is certainly necessary, but it is transient. By itself it is not transformative. The organization can view you as the data keeper, but anyone can store data. Anyone can hire someone to store data and even analyze it. Data is inherently dumb. It doesn’t do anything unless you know how to use it and act with it. Algorithm is where the real value lies. Algorithms define action.”

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