Is Bitcoin going to $50,000 or back to $786.45 of a year ago? How to value the asset.

All free market valuations are driven by the balance between buyers and sellers at a given supply.  This is no different for Bitcoin.  Clearly in 2017 there have been greatly more buyers than sellers of the bitcoins available.  Will there be more buyers than sellers in 2018?  Let’s take a brief look at what is causing this imbalance that can send an investment from under $1,000 to $18,000 in 12 months.

Relative valuation is determined by only a handful of things.  Let’s look briefly at each of these to see if it has driven the price of bitcoins up.

  • The earnings generated and potential to pay a dividend (or interest). This is the traditional investment valuation framework. Revenues, P/E multiples, earnings growth rates, etc. are the guides.  What has bitcoin done that justifies a valuation greater than Boeing, with its 140,000 employees, or New Zealand?  Since Bitcoin has no underlying economic creation, this could not be relevant to its valuation.


  • A reduction of supply for the existing market demand. A bad corn crop and corn prices go up reflecting the existing demand now facing a shortage.  OPEC introduces a cartel in the early 1970’s to control petroleum production and gas prices go up from $0.25 per gallon, never to return.  Since there has been nothing reducing the Bitcoin supply in 2017, it must be driven by an increase in demand, not a reduction in supply.
  • Increased demand due to market need. This could have been the case if the transactional demand for Bitcoin had taken off.  Imagine with the controlled supply of Bitcoins, if it became a mainstream transaction medium and people just needed more and more to handle transactions.  This has not happened.  Take a look at the difference between M-Pesa in Kenya and Bitcoin transaction volume in their first 5 years:


M-Pesa vs bitcoin

No, Bitcoin is not becoming a broad alternative to fiat currency.  It cannot with the price volatility.  A Big Mac cost $4.79 at the beginning of 2017 and was about the same at the end.  In terms of Bitcoins, it was $4.79 at the beginning of 2017 and $92.53 recently.  Explain this to your kids.  Some, like Steam, have stopped accepting Bitcoin for just this reason.

  • Valuation is a two-sided equation. The rise of Bitcoin could alternatively be the collapse of fiat currencies.  The “disruption enthusiasts” could be high fiving because the world is finally realizing that fiat currencies are bogus and manipulated and the only true trustworthy currency is Bitcoin with no ability to manipulate its supply or value.  This global currency devaluation, from the Swiss franc to the Argentine peso, may prove out over the next 50 years, but there is nothing in 2017 that has awakened the world to this.


  • The final alternative for Bitcoin’s valuation is what former Fed chairman, Alan Greenspan publicized during the dotcom bubble as “irrational exuberance” (likely drawn from Nobel laureate Robert Shiller). I remember the time well since a group of us had just carved out from PSINet to take public in early 2000 before the collapse.  The valuations were being influenced by a lottery ticket mentality.  For a small investment, there is a chance to win big.  There is no rational underlying lottery ticket valuation that drives an acceptable price to the purchaser.  The dotcom bubble collapsed in April 2000 triggered by an article in Barron’s written by Jack Willoughby in March 2000 titled “Burning Up, Warning Internet companies are running out of cash — fast.”  Here it is for those interested in history repeating itself:

Bitcoin’s valuation was between 0 and $1,000 for eight years.  In the last couple of years the enthusiasm built for the underlying technology, the blockchain.  There has developed Irrational exuberance for the blockchain with the ability to participate being mainly through ICOs.  Even when beverage company Long Island Ice Tea changed their name to Long Blockchain Corp. their stock doubled.

This irrational exhuberance for all things blockchain worked its way back to Bitcoin as the easiest way to have a ticket in the lottery.  Asset values build on irrational exhuberance can end pretty abruptly.  This is not necessarily bad.  As venture capitalist Fred Wilson quoted a friend as saying about the dotcom bubble, “Nothing important has ever been built without irrational exuberance.”  The dotcom bubble gave us Amazon, Ebay and much more.  However, there were a lot of tulips mixed in there too.

The Hidden Cryptocurrency Revolution

We all know that cryptocurrencies are not money. Regulators, the IRS and pundits have told us so. Even the average Joe would have a hard time thinking of bitcoins as money if what they had to fork over for a Big Mac (using The Economist’s Big Mac Index) ranged between $5.06 and $316.21 equivalent over the past 48 months.

No, a currency is used for transactions, not a speculative asset (by the average Joe). A currency used for transactions has high turnover, not high volatility, even a digital currency. Take a look at the difference in transaction volume growth between M-Pesa and bitcoin.

M-Pesa vs bitcoin

Yes, there is the beauty of the technology and the ability to make a payment instantaneously to another bitcoin account, but this doesn’t seem to be the hook. The inconvenience of bitcoin as a transaction medium is ignored by two segments, those that want anonymity of their payment and those holding it for a speculative increase in price. This is OK, its just not a mainstream transaction medium. It is unlikely that it will ever be that in a private form despite the dreams of anti fiat currency enthusiasts and technologists who marvel at the underlying technology.

Instead, what is emerging is a powerful combination of two new technologies that will revolutionize funding for technology start-ups. It is the combination of cryptocurrency and crowdfunding. I had an inkling of this in 2015 and wrote about it in my book published last year. An excerpt:

“Now here is a prediction that is a bit more far out, but that I see as inevitable.

The form of company ownership will change. Publicly traded shares as we know them today will gradually fade in importance. What will emerge to replace them is company issued “cryptocurrency”. The company crypto will be traded via the Blockchain as is Bitcoin and many other, smaller cryptocurrencies today. The value of the company’s crypto will reflect the market’s view of their future. And like Bitcoin and other cryptocurrencies, the integrity of the settlement is built on the distributed ledger of the Blockchain.

There will be no shareholder meetings, nor annual reports, etc. The information of what is going on in the “private” company will be available real time, the same as the owners and managers see. Fraud will be hard to perpetrate with the extensive data being pored over by interested online reviewers. I’m sure whole new businesses will be developed that gather and package information on a companies’ crypto outlook from all the data that is available, sort of a Business Yelp.

This will confuse authorities like the SEC, Federal Reserve, etc., but there will be no need for central watchdog authorities that are understaffed and lead to reams and reams of boilerplate corporate legal protection and reporting that no one looks at. The power of the Internet supporting distributed authentication and instant data availability is much better than a false sense of security from a central authority. The market is already learning how to deal with Micro lending, crowd funding, and some 500 cryptocurrencies.

The employees could be paid in the company’s crypto which will give them an economic interest in the success of the company. I guess this is a bit like the old time “company store” where employees could shop at the company store without cash and have it deducted from their wages because the company was so remotely located. However, this time it is a global company store and the receivers of the company’s crypto could be anyplace in the world. Large groups may have multiple subsidiaries with their own cryptocurrency that allow the market to participate in their fortunes without a spin off or reorganization. With this flexible form of capital, companies and their “crypto” could rise and fade much more frequently than publicly listed companies do today.

You may not be aware of it, but banks used to print and issue their own money up until 1862. By the 1850s, there were over 10,000 varieties of bank notes and counterfeiting was rampant. Of course, the Blockchain was not available for untrusted settlement.

You might think the view I am expressing of company issued cryptocurrencies replacing company issued stock is farfetched. It has already happened. I mentioned Ethereum above as one of the new open source software platforms. Earlier this year, Ethereum has done just what I described. An excerpt from Wikipedia:

The currency unit of Ethereum is the Ether, used to pay for computational services on the network. To finance development, Ethereum distributed the initial allocation of Ethers via a 42-day public crowd sale, netting 31,591 Bitcoins, worth $18,439,086 at that time, in exchange for about 60,102,216 Ethers.

Ether is divided into smaller units of currency called finney, szabo, shannon, babbage, lovelace, and wei (named after Wei Dai, the creator of b-money). Each larger unit is equal to 1000 of the next lower unit.  In practice, however, the developers encourage the use of ether and wei. Wei is the base unit of implementation and cannot be further divided.”

Fast forward a year. You might have missed this event yesterday, but the announcement on EconoTimes was “Blockchain startup Bancor Protocol has raised over $150 million in its Token Generation Event which took place on June 12.” And a new form of speculative investment is born, a “Token Generation Event”. Bancor Protocol tokens denominated in Ethers (ETH).

It didn’t hurt to have a recognized venture investor like Tim Draper as a participant and advisor. His comments tell it all, “We are beginning to explore the possibility of issuing a VC Token for our diverse network of investors, entrepreneurs, local and global businesses. We’d like for this to be a Smart Token, so it can benefit from continuous liquidity from day 1.”

The BNT tokens will trade based on investor’s view of their future and the scarcity/surplus of buyers or sellers at a given price just like a stock. Now all we need is for liquidity and Charles Schwab to offer check writing against the asset. But wait, there’s more to the announcement.

“We are thrilled to announce a unique partnership between Gnosis and Bancor to create a joint GNO BNT Token Changer — a decentralized liquidity pool of GNO and BNT, encapsulated in a Smart Token. 4,000 GNO and 400,000 BNT (~$1,000,000 value each) tokens will be deposited in a Gnosis-Bancor multisig wallet following the token allocation event on June 12 at 2pm GMT.
The funds will be progressively deposited in a token changer that will provide a decentralized and automated solution for exchanging GNO to BNT, with no (human) counter-party. Since BNT holds an ETH reserve, two-way ETH-GNO conversions will be possible as well.”

There you go. The cryptocurrency has found its true purpose in our society. An asset ownership vehicle that can be anonymous, instantaneously transacted across borders, with liquidity. There will be kinks to work out, but the DAO fiasco didn’t seem to stop Rancor’s success in just 3 hours.

No its not a currency for buying a Big Mac, but then did you really believe that was where bitcoin was headed? Mark my words, this will be big.

The Golden Age of Hacking


How many passwords do you have?   How many have more than 8 characters and include a number, a capital letter, and a non-alphanumeric symbol and are changed every 30 days?

Me too.

We may be the weakest link.  Or we may just be one of the weak links.  Before digitization, it wasn’t called hacking to break a code, or pick the lock on a safe, but it was the analog equivalent.  With digitization and computers came the stone age of true hacking and with the internet and its ubiquitous connectivity and data, has come the golden age of hacking.  Through history, however, it has always been about finding the weakest link and cracking it.  Human routines and weaknesses have been a criminal’s Plan A for ages.  Away from home at work. Break-In time. Same child walking home pattern.  Kidnap time.  Same restaurant for capo meetings, ambush time.  Same payroll delivery train.  Robbery time.  Digitization and the internet have created a global playing field with over 3 billion people online.

Banks introduced computers for processing in the 1960’s.  A creative hacker in the early 1970’s exploited George C. White’s patented magnetic machine readable print on checks, you know, those computer looking numbers at the bottom of the check identifying the bank and the account.  This budding hacker knew that the way it worked was if the machine could read the numbers, it went straight through to the computer.  If the machine could not read the numbers, it went to exception processing for a human to input the account number manually.  Our hacker ordered a large volume of deposit slips that had his account magnetically coded at the bottom, tore them out, and slipped them randomly into the pile of deposit slip blanks on the counters of the bank’s branches.  Lo and behold, a number of the counter deposits submitted were sent to his account. Of course, this was not hundreds of millions of dollars, but it also was over 40 years ago.

Another early hack was interesting because nobody really lost money, but the hacker made money.  Let me explain.  When a financial institution’s computers calculate interest due, the calculation is carried out to many decimal points even though our currency is limited to cents.  This means that on each calculation of interest due, there is a tag amount that is less than a full cent.  There are two choices of what to do with these “tag ends”; truncate (cut off after the cents ignoring what was left) or round (rounding up or down based on whether the tag end is less than or greater than $0.005.  This creative hacker determined nobody would miss these “tag ends” and added programming to have them aggregated and deposited to his account.  You might say, “this is peanuts” and you would be correct.  But if this was a financial institution with, say, 10 million credit accounts and the average “tag end” was $0.0025, this would be $25,000 each monthly billing cycle.  Better than the early 1970’s deposit slip hacker, but not up to the standards today of the recent Bangladesh Central Bank hack or The DAO exploit at over $100 million.

The golden age of hacking will not abate.  It cannot.  We have transitioned to a digital online world with all its benefits of information, entertainment, communications, convenience, networking, etc. There is no going back and digital security is a different game than analog security, and, as always, the weakest link is human limitations.

My bicycle lock has a 4-digit code.  That’s 10,000 possible combinations to steal my bicycle.  At 2 seconds per try, that would take about 5 1/2 hours to get the bike.  That is enough protection in the physical world.  Now imagine that there was a bike chain and app to unlock your bicycle with your phone that also had the ability to locate your bike.  Being available online, imagine a hacker developing a program to search for a lock with a specific 4-digit code and the location of the bike.  Or a program to run through the possible combinations standing next to a bike in seconds.  The 4-digit code is not strong enough for this and has become a weak link in the chain of security whereas it was just fine before.

You might say, “My iPhone has a 4 digit code to unlock it.  Is it safe?”  It is safe because you only get a limited number of tries before it shuts down for a while.  So it’s not possible to go through the 10,000 possibilities.  This was the whole dispute the FBI had with Apple wanting them to develop the ability to do unlimited tries and do them by machine (sore fingers!).

We are now surrounded by a complex and growing web of connections of which few of us understand the security behind, but which we still use every day.  The growing capabilities of this network of connections are also what creates the challenges to securing it.  And with the pace of innovation and new capabilities, it will only increase.

1) Interconnectivity: we want our devices to communicate, update, backup, and do all things that require connectivity.  This means we increasingly live on the digital web, not the analog world with its physical privacy and security. And it means that most of our data is stored in “central” entities to which all of our devices can then link to provide instant access everywhere.

2) Line speed: We all want as much line speed as we can afford.  Hackers did not operate well with 56.6K baud dial-up modems.

3) Diversity of devices: computers, cell phones, tablets, watches, and many more coming with the Internet of Things.

4) Population on the network: over 3 billion at last count with many different cultures, ethics, desires, etc.  There are no effective boundaries.  We have 3 billion neighbors potentially connected to us in the same cloud.

5) Value of information on the network: not just email or websites to browse anymore; bank accounts, credit cards, personal information, schedules, etc.

6) Complexity: as functionality, innovation and interconnectivity increase, so does complexity of the software.  There are myriads of file types and new software being released every day.  Apple recently released a security update with iOS 9.3.3 to fix an ability to grab your Mac or iPhone passwords with one text message.

Here’s a brief summary on Fortune:

It’s a race with another form of thousand flowers blooming around the castle wall mentioned in my recent book “Digital Siege, why young entrepreneurs are winning.”

In general WE are the weakest link.  We all want passwords we can remember.  We want to use the same password…. because we can remember it.  This is human weakness.  The saving grace is that most of us are not worthy of the effort for an individual attack.  Not that you shouldn’t change your passwords regularly and have “strong” ones, but the likelihood of you or me being worth a targeted attack are pretty slim.

Small changes have been introduced that significantly improve the security while not requiring blockchain type password “keys”.  A couple of examples are: 1) verifying that your “device” was previously used for that site; 2) texting a security code to a linked cell phone for authentication; 3) checking the IP address or asking for billing zip code input.  These require the digital thief to have more information than might be readily available to them for a transaction at the moment, but these safeguards are no real obstacle for experienced hackers.

At the other end of the extreme, who would have believed the weakest link in the recent The DAO exploit was the recursive send pattern to effectively drain the “money”.  I’m not a technologist, but it seems very similar to a check kiting scheme in days of yore; withdrawing funds before accounts are updated.  If you want to have an explanation of how the code was exploited line by line see Phil Daian’s article in

Online complexity, managed by humans, with a connected world trying to find the weakest link and exploit it.  Some would respond that the protection should have been that the program was open source and just hadn’t been out long enough before going to production.  But then, why did “Heartbleed” happen?

The golden age of hacking is just getting started.  Just compare how many potential new hackers are joining the network each week compared with new mainframe developers.  Not to mention there are already 3+ billion people online.

So where are we headed in this, the golden age of hacking?

The only limit will be the creativity of the hackers anywhere in the world to exploit the weakest link.  Of course, there will continue to be a focus on software that we use every day for our network of cloud services and communications, but this will expand exponentially as we add new apps, more complexity, functionality, devices, etc.  There are already emerging new exploitation techniques such as high-jacking a critical website for ransom.  Imagine that “micro high-jacking” emerges.  Let say your digital wallet or even Facebook account is high-jacked and you are required to make a payment of 1 Bitcoin to “unlock” it.  How much trouble would you go through to involve the authorities and reporting to chase the perpetrators?  Or would you just pay?

The growth of the use of cryptocurrency for other than speculation by techies may well be driven by its anonymous use as a micro-crime payment mechanism.  No money laundering or tax evasion required.

Protection money (a la the mafia) may emerge with a stronger arm than Symantec’s cancellation policies.

What about adding micro amounts to regular monthly bills (cellphone bills, credit card, cable, etc.) that do not raise attention and get paid without notice?

What would some brilliant criminal mind with extensive technical skills think up to use the information available now online for exploitation and financial gain?  There is virtually (!) no limit.

We are in the golden age of hacking and WE are the weakest link.


Digital Siege, Why Young Entrepreneurs Are Winning

I am happy to say that my book is finally out.  Now I understand the saying “great novels and paintings are never finished, just abandoned!”    The feedback I have gotten on these successful stories of entrepreneurs is super.  It appears more appealing to young entrepreneurs than established executives even though my original idea was to help executives adapt to the new world.

This reminds me of Albert Einstein’s comment,

 “Everybody is a genius. But if you judge a fish by its ability to climb a tree, it will spend its whole life believing that it is stupid.”

The older corporate executives who have grown up with hierarchical organization models and before the Internet should not be judged by their inability to see the power of the Internet and its information and distributed business models.  They will be replaced over time like those executives whose business approach was cast during the Great Depression.  Learning to climb a tree may not be the right expectation for seasoned executives, given their tremendous knowledge and experience built over years.  This doesn’t mean they won’t be replaced.  It just means they deserve an honorable exit.

Many thanks to John Reed for writing the Foreword and Bill Schrader for writing the Introduction.  Two special people in my life, mentoring my executive and entrepreneurial periods respectively.  The book could not have been written without their influence and effect on me.  Both are two of the smartest, most creative minds I have met in many years and many countries.

I am increasingly impressed with the young entrepreneurs I interact with and how they deal with becoming a CEO, not by choice, but by the fact of being a founder, a technical wizard, a young person with a great dream.  This will be the subject of my next book as it is an equally important and unique circumstance of our times.  “CEO from Birth. The Entrepreneur’s Challenge.” (Working title)



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Dealing with Stress as CEO

The CEO position is where “the buck stops”. Total responsibility, and accountability. It is one of the most invigorating and challenging positions in business and not for everyone. It is impossible to understand the demands of the position until one is finally in the “hot seat”. This is a letter I wrote to coach my CEO in Brazil who was extraordinarily talented and determined to grow in the position while dealing with constant stress.

Here are some thoughts from my experience of learning to grow in the job and develop techniques of dealing with stress that comes with demanding jobs. I hope it helps!

First, it is important to understand that there is no embarrassment in being stressed. There is no person in a position of responsibility that does not have to deal with stress. Having stress is not a sign of an inability to handle the job. In some ways, we have to live with and manage stress the same way as a sailor must manage big waves if he wants to sail on the ocean. If the waves are too much and the sailor cannot develop an ability to handle the waves, there is always the choice to leave the sailor life and become a farmer. If the life choice is made at least for the time being) to be a CEO or be on the ocean, then it is important to develop the techniques of handling waves on the ocean or stress in the “hot seat” of the CEO.

The absolutely core principal of dealing with stress is to manage to give yourself space/time. This is what stress robs us of. We become like the hamster on a spinning wheel……running, running, running……with no end. This absence of time and personal space becomes exhausting, a health risk, and prevents one from growing in the job. Stress exists with an uncomplicated job such as a cashier at the grocery store who has a never-ending line the entire day. It also hits the CEO with thousands of people working for him. I remember when I was working at Citibank and it always seemed that as soon as I grew to handle my position without too much stress, I was promoted into a bigger, more complex job and the stress returned. When I look back on the years, I realize that I was continuously growing and developing ways to handle more responsibility and the stress that goes with it. The need to improve in stress management never ended.

For a bit of background, there are two primary “philosophies” or techniques to deal with the problem of stress. The first is the “Transactional Model” and the second is the “Health Realization Model”.   We don’t need to go into complex studies of stress so I will just summarize the two as:

Transactional Model: Stress is regarded as an imbalance of demands and resources. Therefore the solution is to balance this out through either more resources, less demands, or higher productivity (like to-do lists, prioritization, better management, etc.) or a combination of these.

Health Realization Model: Stress is regarded as all in the mind (unless you’re being chased by an elephant). Therefore, if you can control and relax the mind, you reduce stress. Meditation, positive thinking, “can do” attitude, deep breathing, etc. are approaches associated with handling stress in this way.

If you are like me, you really don’t give a %#@$, you just want less stress! However, the important thing to note here is that there are many different ways of dealing with stress and some of them work for some people and not for others or a combination of techniques is needed.

Let’s have some fun and look at a few familiar quotes about stress and understand the lessons they tell us.

“When you are up to your ass in alligators, it’s hard to remember you are there to drain the swamp!”  This is a common outcome of stress…..that we react to the stress mentally and become less productive. It is common to lose sight of the most important objectives and have difficulty focusing.

“Shoot elephants rather than stomp on ants.” Remembering this expression is a good way to remind oneself of the importance of delegation and prioritization as a manager and leader. If you cannot delegate and accept the output of your subordinate, you are limiting your business impact to what you can do individually and will be forever stressed by additional demands of your position. Think of it this way… do a good job as an individual performer and so you are promoted to manager. You cannot accept your subordinates work because it is only 80% as good as you could do if you did it yourself. So you spend time doing what should be done by the subordinates and the result is they are unhappy (don’t feel trusted and valued) and you are limited to your hours in the day. This is very stressful.

The experienced manager/leader accepts the 80% output as the cost of helping 7 or ten subordinates and not having only time for 1 or 2. The manager then focuses on how to raise the subordinates output to 90% through better goal setting, better coaching, etc. To take on more responsibility or a new initiative is to add another 80% subordinate with that responsibility and coach them, not do it yourself. With this approach, there is no limit to how much you can handle in an 8 hour day as the business grows and the demands increase. If you cannot accept the 80% output and focus on setting goals and coaching, then you are doomed to being maxed out with tremendous stress.

To summarize this very important point: Properly delegate with goals and target dates so you can monitor output and still be in overall control. It is more important for the leader to rely on 7 people that can do their job 80% as well as the leader and focus on raising their performance to 90% than to do the work of one person at 100%. If the people are not adequate for the task then the proper people should be put in place or the business goals cut back to fit the resources available.

“Do what is important, not what is urgent.” This comes back to the alligator and swamp saying above. The phones ring, emails come in, employees want advice, and on and on. These are the urgent things, but not necessarily the best way to spend your time for total impact on the business. It is important to have a nice way of saying “no”. If you do not have this ability, the demands on your time will always be more than your time available. Also, being responsible and caring about staff, customers, ideas, bosses, etc., etc., leads to a greater difficulty of saying “no”. I remember another occasion at Citibank when I was in a senior position in NY and I felt I could not leave to take vacation. I happened to mention this to the Chairman, John Reed, as we were riding up the elevator together and his response was, “You are important, David, but not THAT important. Take vacation, and I will watch The Bank while you are gone. I promise it will not have fallen across the East River when you return.”

This ability to step back and say “no” to create space for your self is one of the most important techniques of stress management in my opinion. Sometimes, when I was working in NY and the minute by minute stress became too much, I would tell my secretary that I needed some fresh air and I would go outside and slowly walk around the block. Feeling the sun, hearing the cars honking, seeing people standing on the corner eating hotdogs, brought me back to reality and I could reenter the storm with a clearer mind. I used to do something similar when I really needed to concentrate on something important. I would either work from home for the morning or go to a conference room and ask not to be disturbed for 2 hours. Just knowing that I had that space and time to think and concentrate was like an open window of fresh air. After a while, you start to realize how flexible the world really is and how it somehow keeps rolling along, even when you stake out an hour or two of personal space to manage the constant demands that lead to stress.

“If I can’t finish it in an 8 hour day, it doesn’t need to be done.” J.P.Morgan (reportedly). This is another way of saying delegate, prioritize and be able to say “no” and there will be no limit to how much you can handle in a normal work day. Being able to then leave the work and have quality personal time at home is important. I find for me, having two good lists is a tremendous comfort. One is my “to do” list and I take satisfaction from glancing through it to know that I have every concern crossing my mind on the list. This way I do not have to “hold on” to the responsibilities in my mind and worry. I know it’s on the list and will be there in the morning. The second list is longer term objectives, projects, thoughts, etc. that I am not focusing on right now, but do not want to forget. It’s a bit of a “dream” list.

It is also good to find routines that help switch off from the office. I had a friend at Citibank who always took a bath when he got home and put on blue jeans. It successfully switched his mind to “cowboy casual” and he was into another world immediately. For me, Sudoku and crosswords help me switch gears and relax. Whatever, works for you, it is important to build it as a routine that your mind will associate with time off and relaxation. From about 3 months old, my children fell asleep easily by having “falling asleep routines”. Each had their own. David’s was to have the book “Goodnight, Moon” read to him and then say good night to each stuffed animal in the bedroom. By the last few, he could not keep his eyes open. We all need to build similar routines to switch off and relax. It is important that you develop ones that work for you and use them regularly.

“When all else fails, lower your standards.”   When I was the CEO in Singapore for Citibank, my operations head was a Chinese lady name Lum Yin Fong. She was highly professional, worked 14 hour days, had no family or outside interests and was always stressed. It was leading to health issues for her. We worked on this as a part of her personal development and finally realized that she was a perfectionist and was always stressed because perfection was never achieved. She found this saying and it is translated from Chinese. Yin Fong put in a frame on her office wall, and looked at whenever she felt overwhelmed. It worked.

These are some thoughts that should get your started thinking about what can work for you and growing your techniques of dealing with stress. Please remember that it is never finished and is an integral part of holding a position of responsibility and leadership. I am looking forward to when we can sit and talk in person, hopefully over a caipirinha and picanha! I will leave you with two more sayings to reflect on:


“Time stays long enough for anyone who will use it.” Leonardo da Vinci
“To get all there is out of living, we must employ our time wisely, never being in too much of a hurry to stop and sip life, but never losing our sense of the enormous value of a minute.” Robert Updegraff

Taxes. I guess it’s just you and me.

Oxen working

Taxes. Just the word has stirred uprisings, criminal evasion, and fear for centuries. Even if the modern “Tea Party” is considered a somewhat extreme fringe movement, the original Tea Party in Boston on December 16, 1773 was all about taxes. Taxed by the far away elite body called the Parliament in England where it was felt we, the people, had no voice. Sound familiar? Sometimes it takes 250 years to wake up.

I read that 46.4% of U.S. households pay no income tax. I pay taxes. Are you and I the only ones? Are we supporting this whole “House of Cards” in Washington, with its senators, representatives, aides, committees, deputy chiefs, assistant deputy chiefs, alternative assistant deputy chiefs? I don’t see a meeting on C-SPAN without a hundred people taking notes. At least we get services for supporting them all, like driving tests, the Interstate 5 in Los Angeles, and the IRS with 73,954 of tax code (2013) to read and understand.

I started to think of $58,437 of national debt per person. That’s $233,748 for a family of four. Maybe the problem was not enough people paying taxes. Numbers started flying through my head.

The U.S. population, per the latest census, is 318,857,056. The average household is 2.5 people and as I said, 46.4% of households pay no income tax. That means 147,949,674 people pay no taxes, leaving 170,907,382 people working, paying taxes, and thereby supporting everybody. This includes me and, I think, you.

However, of that number, 44,958,845 are over the age of 65 and presumed to be retired and 74,293,694 are below the age of 18 and not yet working. That leaves 51,654,843 working and paying taxes to support all that debate and talk in Washington. Now it’s getting serious. Isn’t there anybody who realizes this? Not the Brookings Institute? Not the President’s Economic Council? Not Alan Greenspan?

My mind continued to spin and it got worse. Last year, there were an estimated 21,000,000 college students and 21,831,255 Federal and State employees, supported by the taxpayers. By my calculation, this leaves just 8,823,588 people like you and me, working our butts off, paying taxes, to take care of everything.

But then, the active military (bless them) totaled 1,361,755 leaving 7,461,833. And on any given day, an average of 5,330,091 workers are on paid vacation or unemployed.

Oh yes, I forgot. Each day, an average of 2,131,742 employees have called in sick. Well, that leaves just two people, you and me…… and I’m tired.

An Executive Blockchain Briefing

During 2015, the Bitcoin discussion broadened to the underlying technology of the blockchain and its broader uses. When it was just Bitcoin, it could be regarded as a niche for those disenchanted with the banking system and government control of money. The blockchain is different and has awakened tremendous attention to its potential for changing how business is done. The technology is difficult for a non-technical executive to understand. The average age of an S & P 500 CEO is 55. I believe to make true progress with adoption of the blockchain’s potential, we need the executive level to understand what it is and embrace the opportunity strategically for their company.

When the Internet Protocol Version 4 (IPv4) was finalized by ARPANET in 1983. It was a small technical group without much publicity. There wasn’t even much public awareness that we ran out of Internet addresses on Feb. 3, 2011 (being solved by IPv6). By contrast, today there is a global technical community connected online that is awash with shared information about Bitcoin and the blockchain.  This flood of coverage reaches many non-technical executives as well as the public and raises awareness that there is something big developing, but what is it?

There are many specialized words like hash, miners, stack, public key, etc. that are important to the technology, but not important to the executive. The executive needs to understand two significant developments being made possible by the high speed Internet and blockchain technology and begin to incorporate them into their strategic thoughts:

  • Central shared ledger (or account)
  • Distributed transaction authentication (in the absence of any authority)


Central Shared Ledger (or Account)

Up until 1960 or so, business and bank accounts were manually maintained. Maybe not handwritten anymore, but manually entered and kept. Business/banking transactions were communicated by telex with agreed standards through correspondents (middlemen with shared trusted relationships). Well-known examples are Letters of Credit for international trade and S.W.I.F.T. for international bank payments (from 1973).

Once a transaction was confirmed through the correspondents, each party would make the appropriate ledger/account entries on their respective internal books. The originator would reconcile with their bank, the bank would reconcile with their correspondent, who would reconcile with their client. There would often also be a need for both clients at the transaction ends to reconcile with each other (if they had “accounts” with each other) and match the bank advice with their customer’s communication. Different reference numbers added to the challenge. With the advent of the computer, recordkeeping moved to in-house computers, but the accounts and systems continued to be specific to each organization. Reconcilement, while improved, was still a tedious process. This was even true within a single complex corporate organization with different business units keeping records and accounts with each other such as parts manufacturing, assembly, sales, etc.

With the increased telecommunication speeds and ultimately the Internet, telexes and faxes have been replaced with digital communication of transactions. However, the ledgers and accounts have remained specific to each organization and under their control and security. The reliance on correspondent intermediaries continues as does the multiple reconcilements. The blockchain promises to change this and create single shared ledgers or accounts for transactions to eliminate the need for correspondents, trusted intermediaries, and multiple reconcilements.

If you have two accounts with B of A in the same location, you can move money from one to the other instantaneously. This is because it is a transaction solely on B of A’s local account records and needs no intermediaries to complete. However, if you want to transfer money from your B of A account in Charlotte to pay USD to a supplier who banks locally with Banca Nazionale del Lavoro in Firenz, Italy, its going to take some handoffs and time as it goes via the bank correspondents. If B of A in Charlotte and Banca Nazionale del Lavoro in Firenz were both part of a connected shared central ledger for USD settlements, you can see how it could eliminate the middlemen and simplify reconciliation.

The simplest way to think about this is that for USD, everybody has an account at the same bank and it only takes an accounting entry on the bank’s ledgers to move money from or to anybody. That is a shared central ledger and is why Bitcoin can be transacted anyplace immediately (or at least 10 minutes for the distributed authentication to take place). Bitcoin’s blockchain is the substitute accounting and security that would otherwise be a Bitcoin bank.

The ability to combine high speed network communications with tremendous computing power at low cost will allow the creation of thousands if not millions of shared ledger “settlement accounts” without the need to go through correspondents. This is one of the main opportunities of “Fintech” and the Shared Central Ledger applied to payments, exchanges, contracts, trade, etc.

Distributed transaction authentication (in the absence of any authority)

This is more technical and also less imminently pervasive than the Shared Central Ledger. This is what allows Bitcoin to maintain transaction integrity without a Federal Reserve or other oversight. Very simply, the Shared Central Ledger for Bitcoin, since it is not overseen by B of A or anybody, has a “pre-reconcilement” period of about 10 minutes for everybody participating in the Shared Central Ledger to check transactions being added to the ledger before they are posted.

Once this group of transactions (or block) receives the required confirmations from the participants, the block of transactions is posted to the Bitcoin Shared Central Ledger and the participants informed. The updated ledger is then “distributed” to all participants so they have the latest version to check the next group of transactions (or block) against in 10 minutes or so. The posted and distributed ledger cannot be altered without 51% consensus and serves as a historical record of all transactions and the parties involved (their Bitcoin addresses anyway).

Of course it is more complicated than this with “miners” racing to solve complicated algorithms that assure the integrity of the block and earning new Bitcoins, etc. The blockchain database construct of decentralized consensus authority underlying Bitcoin is visionary artwork. However, this is not important for the executive to delve into anymore than he/she needs to understand the difference between IPv4 and IPv6 that allows a web address now to end with .me.

What should an executive do at this point? 

The executive does not need to wait for “standards” and “agreed protocols” to begin strategic implementation roadmaps for their company.   There is no need to wait for something new out of Menlo Park. The opportunity for the executive, now, is to take a strategic level understanding of these new capabilities and find a way to gain internal corporate efficiencies, the results of which can be controlled and realized now.

Every large company is seeking cost efficiencies from technology. Every large company has tremendous flows between accounts within the group.   It could be component production and assembly. It could be geography and currencies. It could be legal entities. It could be acquisitions that have been made. There is a very large opportunity to introduce the Central Shared Ledger with only controlled participants for a variety of internal document and settlement handoffs.   This could even be one of the steps to move certain processing from mainframes that some believe will be hard to find talent to develop and maintain in 10 years.

There is no need to create a system to handle global untrusted token exchanges on a distributed consensus basis. Take the appropriate parts of the currently available technology and lead the path to implementation. Go for where the money is now by realizing cost efficiencies available with the new technology. Doing this requires a confident, entrepreneurial executive. This is a top down strategic initiative. It is about understanding enough of the current technology available to ask the right questions, get the right people, and set a strategic course for the company that will pay off.

In Defense of Banking in a Fin Tech World

I know the joke. What is 5,000 bankers at the bottom of the ocean?

…A good start.

Let’s face it bankers, lawyers, and accountants are not top of the list to gather around at cocktail parties. Thankfully, now I can say I’m an Internet entrepreneur, an artist, a former racecar driver, or some other intriguing icon and not have the group slip away to refill their glasses.

Fin Tech is great.  I am a big enthusiast. It will revolutionize settlements, contracts, and small loans, as we know them. But let’s not throw out banking just yet.

Banking has historically been at the core and has always lost the fringe to disintermediation. In 2014 Quicken Loans originated more mortgages than either Citibank or Bank of America, but who provided the money? Commercial paper and high yield bonds were bank loans before. Who doesn’t now have a Schwab One or other money market account at a non-bank? Disintermediation (disruption now) brought on by market developments will continue and it should.

However, there are a couple of banking things that are not changed by frictionless flows and crowd- or micro-.

  1. People want 30-year mortgages and 5-year car loans, but want their deposits available today.
  2. A lenders portfolio is only a reflection of the state of their customers and this changes over time and cycles. When you first make a loan, pretty much all customers are OK. It’s the future that’s a problem.
  3. The exciting Fin Tech developments, as revolutionary and important as they are for the future, are not quite ready for the Mississippi River.

Who can argue with the attractiveness of immediate settlements? Instant online loans? If we add to this reducing fees, greater financial inclusion, mobility, etc. it is understandably a very attractive target for major disruption particularly given the incumbents’ earnings and inefficiencies.

Then I look at Bitcoin and envision how it could handle the Continuous Linked Settlement (CLS) foreign exchange system flows of $5 trillion per day when its total market cap (after the 2015 run up) is $6.9 billion and its daily volume is less than $100 million. I then imagine how Dwolla with its master/sub accounts at Veridian Credit Union and Compass Bank could improve on Target2 and its Euro 2.5 trillion daily settlements, 99.98% of which happen within 5 minutes.

No, these examples are not Fin Tech. They are the result of hard working people trying to deal with the core, not the fringe. It is not cocktail party or coffee shop conversation material. It does not warrant a cover story on “Wired” or “Inc”.  The fringe will become the core eventually. Eyeballs, email subscribers and click throughs were the hot ticket in the late 1990s. Then on March 20, 2000, Jack Willoughby’s article appeared on the “Barron’s” cover titled “Burning Up. Warning: Internet companies are running out of cash – fast.” Anyone over 30 knows what followed.

At the time, Alan Greenspan coined the phrase “irrational exuberance”. Yes it was, but we also know how the Internet has pervaded our lives now 16 years later. It wasn’t a straight line and it will not be for Fin Tech.

Let the thousand flowers bloom. Just don’t bet on one flower or one spring.

“Big Data” and the Entrepreneur

First, a few estimates (not mine):

  • 45% of the world’s population is now online
  • One third of the world’s information is stored in alphanumeric text and still image data,
  • The estimated telecoms capacity to exchange data in 2014 was 667 Exabyte (1 Exabyte = 1 billion gigabytes)

Are we surprised that “big data” is a hot and growing topic? It takes me back to my time at M.I.T. Sloan and Jay Forrester. Jay was one of the first professors at Sloan (1956) and we studied his System Dynamics.

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Organizational costs: old vs. new

Corporate organizations that predate the Internet were built based upon a military or “span of control” model. While it evolved over thousands of years from Roman times, there have been limited changes, even with the introduction of telecommunications and computers. The foundation was that a manager/leader could directly manage a specific number of direct reports. This was due to the need to gather information, understand the bigger picture, and provide leadership to the team. From the Army website, here is the traditional Army organization.


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