10th Anniversary of Hal Finney’s “Running bitcoin”

10 years ago today, Hal Finney tweeted “Running bitcoin” and stated publicly he was instrumental in Bitcoin. He was known to have worked for PGP Corporation as the second developer hired after Phil Zimmermann and more famously is validated as the first bitcoin recipient. Satoshi Nakamoto (the anonymous founder/s of Bitcoin) sent the initial transaction to Hal Finney, and the longtime cryptographer and cypherpunk decided to share it with the world! He enthusiastically worked and contributed to the project that was the Bitcoin network despite his own health troubles. ALS completely paralized Hal and he passed away August 24, 2014. Hal is a legend and we would like to remember and honor him for his work and dedication to Bitcoin and crypto in general.

(Click here to donate to ALS Association National Office and help in the fight to cure Lou Gehrig’s Disease)

In Crypto We Trust

George Washington back in 1776 used encryption, and it was revolutionary. Now, it is a standard issue tool to combat cyber attacks and for compliance. It has been claimed by many voices within the crypto and digital asset community that, “It is still early days!” While these could not be truer words, the window of opportunity for that phrase’s use is closing. The rate at which it closes is uncertain. For now though, there are plenty of reasons that Bitcoin despite being a decade old resembles the Internet much in its nascence. The World Wide Web was birthed out the protocol wars over the Internet that played out in the mid-1980’s followed by the browser wars in the 1990’s. The feverish progress of that time also shifted the PC Era into Web 1.0 where the focus was primarily on gaining users “on the net” and connecting them to information and documents via hypertext links. Bitcoin is experiencing a similar progression as many altcoins have surfaced over the years to challenge it as the leading crypto asset. As long as bitcoin remains “The King” atop of the crypto market capitalization ranks, it will likely be triumphant and be chosen as the standard or money protocol of the emerging Internet of Value. It needs to be leader in order for crypto’s success because people need to trust that it will be there tomorrow as well as into the foreseeable future. Essentially, the past few years in the crypto asset market has been the face off between various blockchain standards and protocols. If things continue in this direction, let’s just say that Bitcoin will have its own Web 1.0 moment in Web 3.0 with a consolidation of standard networks and protocols that power the applications of Web 4.0. All it takes for widespread mainstream use is further development of the ecosystem for users to simply interact with the decentralized payment network. Allowing them to connect value over the Internet via wallets and private keys, enabling users to transact securely and trace value over a public ledger powered by the blockchain technology as easily as it is to use email today. It took 18 years to shake out the ideas and protocols that are underlying and solidify the Internet we all use now. I believe what we are currently witnessing with Bitcoin closely mirrors the rise of the Internet, specifically the World Wide Web.internettimeline

In the 1990’s, nobody knew what Web 1.0 was and the term was not applied only until it bit the dust. Web 1.0 is practically synonymous with the World Wide Web as it meant connecting to the network via modems that forbid landline usage elsewhere in a household because it used dial-up to link users to static websites and loads of information. The problem at this stage was the lack of interactive content due to the infrastructure not quite being ready for it. As connectivity and speeds over the Internet rose with emergence and rising popularity of wireless fidelity (WiFi), it created the foundation that was the basis of the massive rise of Web 2.0. As users gained access to the network, it paved the way for interactive content and applications to be built on top of the network. Global sharing of information surged with the explosion of social media through Google, Myspace, Flikr, Facebook, YouTube, LinkedIn and more like-minded communities where anyone could realistically Read-Write-Publish. It thrived as users were generating content and utilizing new platforms to voice their views, opinions, research, and more. The latest iteration of the Internet, Web 3.0, is the antithesis of Web 2.0 and seeks to balance out the power structures of the Internet. The main reason it differs from 2.0 is because it’s decentralized. It comes as a solution to the network becoming monopolized and privatized by companies like Amazon, Facebook, Google, Netflix, Uber, and AirBnB. Instead, its focus is primarily on democratizing the network to share value across multiple profit centers over open source and cryptographically secured networks accessible to anyone. Besides concentrating power and data in the hands of huge Internet behemoths with questionable motives, privacy will be returned to the rightful owners through a more fair and transparent architecture. Decentralization was the idea behind much of Web 2.0, but the tools and technologies were not available for it to materialize yet. Web 3.0 offers dramatically improved uninterrupted service, permission-less networks, interoperability, reduction in hacks and data breaches, and greater ownership of data due to the lack of a central point of control.

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This next generation of the Internet encompasses the otherwise missing piece of the above jigsaw puzzle (originally authored by Pantera Capital), which shows Bitcoin filling the void as it has spawned an Internet of Value around itself of other protocols that can potentially become parts of the standard on their own. Some suggestions have already been made for smart contracts, storage and access, asset exchange, settlements, and document notarization. It should be kept in mind that this has not gone unnoticed by major technology companies like Microsoft and Oracle who originally wanted a private internet and their own version with protocol standards, respectively. Sergey Brin, co-founder of Google, even noted this summer that zk-SNARKs (zero-knowledge proofs for private transactions) are so new that it is almost incomprehensible that Zcash had successfully deployed them in a real-life application so fast. The project’s founder even expressed how most people do not understand that they compressed the normal timeline by several years. It was driven by strong crypto economics. The market literally helped fund the creation of another revolutionary technology. For purchasing, using, and holding their assets, users as early owners of their portion of the network gained value as they saw the addition of new users make it more valuable. Bitcoin and its original blockchain are secured by the largest computer network in the world today, with more processing power than all supercomputers combined. By now it is clear with hindsight, standards and protocols are inevitable. Day-by-day we are inching closer for Bitcoin (or possibly another blockchain network) becoming embraced by governments, or be implemented commercially on a global scale using some form of blockchain to replace the SWIFT network, or serve as the back-end infrastructure for banking network settlements. A big headline a couple of days ago was the announcement of a Singapore government owned venture firm called Vertex Ventures investing in Binance, the crypto asset exchange platform, to launch a crypto-to-fiat exchange by the end of 2018. The goal of their investment is to build-out gateways, tools that make it easier for people to participate in the crypto economy and ecosystem. It bodes well for the emerging asset class and hopefully sets a positive precedent that is assumed by many others to follow. Traditional finance is catching up with trends albeit at a pace that is cautious as to not seem to act irresponsibly, especially given light to the past behaviors that have gotten them in hot water in the public’s perception.

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Since the Web 1.0 era of the Internet, the open outcry on trading floors around the world slowly became quieter and quieter until they fundamentally became extinct with some rare exceptions due to the business becoming digital with electronic trading. It has taken its time for our traditional markets to shift from analog to digital too. Even today, bonds are still traded over the phone or for the more sophisticated trader by Bloomberg chat or a similar medium. As a millennial that loves a good mobile application with solid services and exceptional user experience, it seems like only a matter of time before all of these markets are easily maneuvered through a neat app or platform that connects and synthesizes them in one place where users can navigate them all easily by the push of the button. Now it appears that many individuals are getting out of public markets either out of fear or as a protest to the outdated and fragmented legacy financial system. Many people between the ages of 18 and 35 years old use applications for simple payments and hold not an insignificant amount of crypto and digital assets. Money itself has largely become digital around the world (92% of the supply is not in paper notes) and will only continue to do so if the course we are on persists. The idea of digital bonds, equities, funds, trusts, and shares in other private companies and startups is already being spurred by technology companies like Carta and AngelList. The movers and shakers in the Web 3.0 movement will be the ones more interested in leading the charge to “digitize the world” rather than the silliness of creating a token and blockchain for everything simply to “tokenize the world.” This is playing itself out now in the crypto market as the cream will eventually rise to the top in the next 3 to 5 years at least. If the world is digitized, there will be an immensely rich amount of data to drive risk management, decision-making, machine learning, and artificial intelligence. Currently, the crypto market is saturated with many projects and use cases for tokens and blockchains that are not viable or suitable for institutional investment. Sparking the interest of regulators like the SEC and CFTC, who are looking to crackdown on the bad actors, shady practices, and ponzi-scheme projects in the market to uphold proper protections for retail and institutional investors alike. This is good for the growth and maturation of the emerging asset class according to many insiders within the space.

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“Smart money,” as it is called among in some circles of investors, is known usually to get in on investments before the institutional and mainstream herds enter the trade. As a result, they benefit greatly usually from having the intelligence to see the opportunity and to notice the inefficiencies of the other two groups aside from taking the initial risk. In recent news the University of North Carolina, Dartmouth College, Harvard, MIT, Stanford, and Yale endowments have all announced they have placed significant amounts of money on the asset class by making investments directly or into at least one cryptocurrency fund. This exceptional report indicates the growing acceptance among serious institutional investors with a reputation for outsized returns, especially in alternative investments. It is a sign that the asset class is not going anywhere and that it might be a good idea to go long. From an investing standpoint, the levels at which many of these assets are trading at are almost too complex to rationalize from a retail perspective making price calls basically all personal opinions in the current market structure. The best explanation of the price of bitcoin is that it’s a proxy for one portion of the network’s value and/or how desirable it might be relative to some future value or date. An investment in bitcoin if you are long-only, keeps it simple enough that it boils down into a binary bet of whether or not it will succeed in growing to become massively adopted and put into mainstream use. As an alternative to fiat currency, bitcoin has a known supply without borders or a central group controlling it. Whereas the US Dollar is also clearly a digital currency with an unlimited and unknown supply, border restrictions, and controlled by a central banking cabal. Bitcoin’s inflation schedule is set for the next 100 years and known to all parties. The US Dollar’s inflation schedule is antiquated, political, and uncertain even 1 year out making it opaque. Let alone, the reality that the FOMC (Federal Open Market Committee) is allowed to manipulate the schedule monthly. Donning both the best technology and best security, it seems only logical that it is the best investment due to the fact governments cannot regulate or kill it. The US Dollar is the first digital currency the world interacted with, and Bitcoin is just an improved version built for a digital world. The value of Bitcoin like land fluctuates in the short term, and over long periods of time due to scarcity rises in value. Just like the old investing chestnut says, “Buy land — they’re not making any more!” The same principles apply to Bitcoin virtually as they’re not minting more than 21 million bitcoins.

Internet Penetration Comparison (chart)

If Bitcoin is growing in the same fashion as the penetration of the Internet as compared from 1994 to 2016, it still has a long way to go. Referring to the chart above, given that Coinbase had 13.3 million accounts in November 2017 and as an exchange roughly made up only 5% of the bitcoin trade as a percentage, implying that there are a total of 266 million crypto exchange accounts and after assuming that there are 6 accounts per household; it can be estimated that the total penetration of bitcoin and/or other crypto assets as a percentage of internet households is 1.29% and 0.60% as a percentage of the total world population using the latest figures from 2016. Now in 2018, Bitcoin and/or other crypto asset adoption in the United States could possibly stand as high as 8-9%! By examining the growth trends in the Internet Penetration Comparison chart above, the trend of the network sizes with respect to time takes after the netoid function as defined by Robert Metcalfe (co-inventor of Ethernet, founder of 3Com, and formulator of Metcalfe’s Law) in 2013. Principally, its slope (the adoption rate) is proportional to the product of the fraction of the population already adopted multiplied by the fraction awaiting adoption. It peaks when adoption is 50 percent (global population). Both lines of the chart resemble the same S-curve shape as the sigmoid. Metcalfe used Facebook’s data from 2003 to 2013 to show a good fit for the netoid function, and then Xing-Zhou Zhang, Jing-Jie Lui, and Zhi-Wei Xu used the actual data of Tencent (China’s largest social network company) and Facebook to fit the netoid function. Their work displayed the growth trends of Monthly Active Users (MAUs) of Facebook and Tencent over the past decade can be modeled by the netoid functions seen below.

Metcalfe’s law states that the value of a telecommunications network is proportional to the square of the connected users of the system. It postulates that the utility of a network is derived from the number of connections between nodes. Therefore, a large network with many connections and users is more useful than a small network. This law carried over to applications with the of globalization of the Internet, and its original intent was to describe the Ethernet purchases and connections. This law provides a basis for the theory of network effects. Take for example, telephones, they are highly useful and valuable to people as long as there is more than one. A single telephone would be worthless technology if there were only one in existence since it has no utility. Thus, if there is more than one telephone it can connect to then the value of that network of telephones rises as it becomes more useful by allowing more people to connect to one another. Bitcoin is like the telephone providing a utility and as technology lends itself to a winner-take-all competition against other crypto assets seeking network dominance. The blockchain and crypto asset wars have begun and are engaging in intense competition for market share. The winner will be whoever gains a compelling lead and sees their supremacy snowball as network effects allow it to consolidate their hold over the market. Bitcoin is in the obvious lead as the front-runner for a crypto asset monopoly with an impressive ten year history as well as being the largest, most valuable and secure crypto asset network.

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Facebook in its early days experienced network effects as they gained new colleges and universities. As a result, its valuation grew almost exponentially. Similarly to Bitcoin and new crypto assets being listed on new exchanges, they also typically see rises in their values from the addition of new potential users. It begs the question, will Bitcoin and other crypto assets over the long-term have network effects that follow suit? If it does, the highs that were posted back in December 2017 are likely not even half as much as of the value we could potentially see it hit in the years to come. The peak of the crypto market cap was $800 billion last year, a far cry from the dot-com bubble peak of $3 trillion. Putting us not too far out from the hockey stick shaped part of curve. The true madness of crowds has yet to take place, in my opinion, and it will not happen until Bitcoin and crypto assets are even more globally ubiquitous. For now, I think we need to believe it will only succeed because the performance as an investment over the past ten years has been so strong. If Bitcoin and crypto assets are not considered by investment professionals, it should be a violation of their fiduciary duty. They need to understand the concept that as investors in these crypto networks they are able to invest directly into the protocol or infrastructure layer underlying new and future applications of Web 3.0. These crypto assets are the base for these decentralized applications (“dApps“), which are being built on top of their blockchains. The crypto market’s constant run-time and other investment-worthy qualities, not to mention, the growing user bases have proven they are not only possible but inevitable as the future of digital money on the Internet. The rise of Bitcoin and the digital revolution it is inspiring makes it a noteworthy candidate for alternative asset investing after exhibiting cues and characteristics of the early Internet, social media networks, and its maturation as an asset class with increasing liquidity, accessibility, and qualified custodian options. The best use cases for payments are the ones best for sending both $5 or $5 million simply and securely without breakage. Remarkably, last week someone processed $194 million on the Bitcoin network moving funds for less than a $0.10 fee! By design Bitcoin is deflationary, contrary to the non-commodity money experiment that has been running for about 50 years now and having no real value behind the greenback except belief has not gone great. Take back control and trade your belief for code, it’s more transparent. If notable investors and wealthy individuals keep pouring in and back the right horse, they will own a piece of the next Internet or Facebook, except it will be even more valuable!

Mark Twain famously said, “History doesn’t repeat itself, but it does rhyme.”

IMAGE: CNBC (George Washington)

The Crypto (R)evolution

Depending on your perspective an evolution or revolution in personal finance is just around the corner… (Hint: It’s crypto.)

Unlike the informational revolution the Internet created, the costs are relatively low considering most of the infrastructure of the World Wide Web has been established and maintained successfully. Most of the groundwork has already been made for this new type of progress. Its infrastructure exists and works relatively well today as people use smartphones, other mobile devices, and personal computers daily to connect to the Internet and communicate with one another practically anywhere in the world. Changing consumer behavior, tastes, and preferences have shifted away from traditional financial services to the more vogue fintech service providers as internet access has risen dramatically. The impact of mobile and digital payments has become more evident as organizations and governments are working towards developing growth in emerging economies by driving financial inclusion and creating more tailored products and services in developed markets .

By observing recent trends and technological developments, it seems that the future of money and banking will consist of mega-funded disruptors and startups that will revolutionize the landscape. They need to develop a functional framework of standards and protocols before making any waves in the financial services industry. Much of fintech investments, estimated about 73%, have gone into efforts to disrupt the personal finance industry seeking to capture market share specifically from the half of the population (3.5 billion people) with limited access to the financial system. Not to mention that at the current stage, 95% of small and medium sized businesses have insufficient access to the financial system (roughly estimated at 245 million businesses). Technologies such as blockchain and mobile devices can be used to solve the problem of providing access to services to those who were previously unserved and undeserved in emerging markets, and have the potential to drive economic growth. The organizations and people that can address the main challenges of scaling the infrastructure, security, and pricing will be the next behemoths in money and banking for this next generation of finance.

The first step will be the establishing the rules of the road by making laws, contracts, and regulations prior to the infrastructure being adopted and made mainstream. Though, it will be tricky as it needs to be within a fine equilibrium. Regulations need to keep pace with the technology to protect consumers, but not be too tight to stifle growth and innovation and not too loose to assist or increase high risk behavior. Generally, regulation tends to be reactionary and slow to respond to new advancements and does more to hinder modernization than support it. Next, coded mechanisms for decision support will be key for consumers before any of the users begin paying for goods or services, moving money for saving or investing, accessing credit, and managing risk. This applies to cryptoassets, distributed ledger technology, peer-to-peer transfer technology, and mobile banking. These trends are very difficult to predict and imagine, though from a high level perspective, their potential and logical progression can be analyzed.

Having been mostly disregarded by many large institutions and financial authorities, they are no longer being ignored as the themes around money and banking are changing from its value to how people are thinking about it now. New services enabling users to easily transfer, convert, and send their money at higher speeds and at lower rates compared to traditional financial services are emerging in the mobile payment space. Taking these services and combining them with cryptoassets, a new paradigm for financial services emerges that allows consumers far more flexibility and security across a broad spectrum of applications such as open application program interfaces (APIs), digital wallets, cold storage, in-app payments, two-factor authentication (2FA) and biometrics. These applications and use case solutions exist or are being developed with some of the most lucrative tech players and VC’s in Silicon Valley backing them. There’s a few impediments in the way of the evolution of cryptoassets and their influence over the future of personal finance and payments: volatility, the digital identity problem, and their crossover from the “Wild West” to Wall Street.

Investors see the robustness and inclusiveness for users and consumers who previously could not access financial services, as well as the opportunities to capitalize on the emerging markets of Africa, Asia, and South America that may very well increase their viability for increased adoption and take demand to the next level for blockchain technologies and cryptoassets. Over the past decade as more users have begun to participate and transact over the various blockchain networks and hold cryptoassets, it has been clear that pricing is something that has a high degree of fluctuation and unpredictability. As a hedge against fiat hyperinflation, cryptoassets offer an alternative to government currency but lack safety as a haven from a risk management standpoint. The VC firms and other investors know that volatility is not everybody’s friend, so naturally it occurred to them to create a product that can act as a store of value and offers stability. That’s where stablecoins come into the picture, peace of mind. In their most ideal form, they are simply cryptoassets with a stable value for a medium of exchange and unit of account. There’s a number of competing projects whose various use cases aim to address this specific problem like Basis (algorithmically-collateralized), MakerDao (crypto-collateralized), and Tether (fiat-collateralized) each wanting to be the quintessential “dry powder” for the cryptoasset universe being the global, fiat-free, digital cash reserve.

The next obstacle is the self-sovereign identity issue, which will be a major the key for large advancements and institutional interest in blockchain technology and cryptoassets. With the physical world around us becoming more and more digital each day, it raises questions around the concept of identity and the rules and rulers of it. Translating people’s autonomy and control over personal identification in the physical world over to the digital world is tricky and a muddling business. In our modern society, nations and corporations have amalgamated identity with driver’s licenses, social security cards and other state-issued credentials. It is complex because this current situation indicates that a person can lose their identity by a state revoking his or her credentials or if they simply cross state borders. Digital identity is multiple times more complicated because it too is very balkanized across one Internet domain to another and its control to a large extent is also centralized. User-centric customization and consent systems within interoperable federated identities are likely going to be the future by requiring the users to be central to the administration of their personal identity. People and organizations storing their identities and its related data on their own devices and managing the validation of their own identifying data is most probable. It presents a unique crossroads to the question of what identity means and if it should be redefined to see that individuals are allowed to have more autonomy over their own identities (and data) in the digital world. This topic specifically is relevant to new platforms and exchanges and their ability to identify, facilitate, and process accredited investors as well as be compliant with Anti-Money Laundering (AML) and Know Your Customer (KYC) policies.

Lastly, the hurdle that blockchain and cryptoassets need to fully take it over the edge is the movement from the “Wild West” to Wall Street and eventually to Main Street. In order to do this successfully, it will need support from lobbyists and representatives in Washington along with the legislators there to help spur institutional interest and investment. The Federal Reserve chairman, Jerome Powell, in his testimony this week before the Financial Service Committee of the United States House of Representatives (“The House”) outlined his thinking on cryptoassets stating,

“… I think the question I was asked that you are referring to was ‘Do cryptocurrencies currently present a serious financial stability threat?’, and my answer was ‘They are not big enough to do that yet.’ That’s what I was saying, not that they are not a longer term thing… They are very challenging because, you know, cryptocurrencies are great if you’re trying to hide money or if you’re tying to launder money… So we have to be very conscious of that. There are also significant investor risks. Investors, relatively unsophisticated investors, see the asset going up in price, and they think ‘This is great! I will buy this.’… In fact, there is no promise behind that. It’s not really a currency… It doesn’t have any intrinsic value. So, I think there are investor and consumer protection issues as well. Another thing I’ll say is that we are not looking at this at the Fed as something that we should be doing, that the Fed would do a digital currency. That’s not something we are looking at. So, mainly, I have concerns. I mean, if you think about what currencies do, they’re supposed to be a means of payment and a store of value, basically, and cryptocurrencies are not really used very much in payment. Typically, people sell their cryptocurrencies, and then pay in dollars… In terms of a store of value, look at the volatility, and it’s just not there.”

His comments were made prior to a hearing called “The Future of Money: Digital Currency” held before a Subcommittee on Monetary Policy and Trade of the House Financial Services Committee. The purpose of the hearing was for the Subcommittee to “evaluate the merits of any uses by central banks of cryptocurrencies, and discuss the future of both cryptocurrencies and physical cash.” Powell has maintained his stance since his confirmation hearing as the central bank’s top executive where to the Senate Banking Committee he expressed,

“They don’t really matter today; they’re just not big enough. There isn’t close enough volume to matter… in the long, long run, cryptocurrencies and things of that nature could matter.”

It is interesting that despite the undeniably bearish perspective for crypto markets during this year that there has been a “counterintuitive” pace of investment that has accelerated to unprecedented levels. According to Grayscale Investments (a firm overseeing investments into cryptoassets for over five years) and its first ever digital asset report released this week, it revealed that the majority of capital inflow (56% of all new investments) during the first half of 2018 was institutional capital. Grayscale’s report also suggests that major investors potentially see this year’s drawdown as a prime “buy the dip” opportunity to enter the crypto markets just as the infrastructure to facilitate institutional entry is materializing. Other significant news this week came from the $6.3 trillion asset management giant BlackRock – the world’s largest provider of exchange traded funds (ETFs) – saying that they were beginning to explore Bitcoin.

At a time when fear, uncertainty, and doubt is high in the markets, the financial watchdogs in the United States are increasing their scrutiny over cryptoassets and blockchain projects, especially initial coin offerings (ICOs). This comes after the SEC has said it is currently investigating dozens of token projects, and its chairman Jay Clayton recently said in a public hearing that he believes every ICO he has seen is a security. The SEC chairman after expressing his distaste that people were conducting them when they should know they ought to follow the private placement rules in the same hearing remarked from a regulatory perspective,

“I want to go back to separating ICOs and cryptocurrencies. ICOs that are securities offerings, we should regulate them like we regulate securities offerings. End of story.”

Pending that cryptoasset platforms and exchanges get the SEC’s approval, they may be able as federally regulated venues for listing and trading digital tokens and coins deemed to be securities. Coinbase, who has predominantly regulated by a patchwork of state authorities, made news this week regarding a trio of acquisitions saying it got the nod from the SEC. In reality, it did not as that authority was not involved in the approval process. Although FINRA also seemingly granted its approval, one of their spokesmen declined to comment to Bloomberg. Work still needs to be done before they can allow clients to trade security tokens (or participate in Securitized Token Offerings) and the company provided an update indicating that they will be in ongoing talks with regulators. Circle Internet Financial Ltd., one of its competitors, plans on seeking a federal banking license to provide more services to customers as well as pursuing registration as a brokerage and trading venue with the SEC. It is very clear at this time that there are many more steps before the journey is complete and investors can buy and sell tokens deemed to be securities.

Over the next year, these topics and trends will likely be the primary focus as the blockchain and cryptoasset space experiences expansion and maturation. Decoupling governments and money may provide a remedy to hyperinflation, politically driven economic controls, and other damaging policies that result from mismanagement of national economies. New doors and possibilities open up for decentralized applications, especially insurance, prediction markets, savings accounts, trading pairs, credit and debt markets, remittances, and much more. If it continues down the road that its heading on, very soon individuals and institutions will be able to utilize platforms and exchanges to issue and invest in tokenized assets whether they are bonds, equities, funds, companies, real estate investment trusts, fine art pieces, antiques, or collectibles. These trading platforms and exchanges hold the potential to handle billions to trillions of dollars eventually in tokens sold by companies in securitized token offerings. So long as progress is made towards making these hurdles, the demand for the blockchain technology and cryptoassets so too will increase for the foreseeable future. These are important precedents in the crypto universe and community making it a stronger ecosystem for more users, better applications, and an enhanced suite of financial services and investment grade products available to accredited investors and institutions.

Do you think the crypto (r)evolution will be tokenized?

IMAGE BY Johanna Pung – OWN WORKCC BY-SA 3.0LINK

Crypto Assets: Whose Value Is It Anyway?

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A new set of topics is up for debate around investing and finance, including whether crypto assets should be treated as money, property, a security or something else as there is no clear regulatory designation set at this point. Perhaps it could be something completely new, sui generis if you will. When thinking about this new technology and the changing landscape of finance, it may help to explore the significance of the island of Yap and its historical background regarding some similar issues. It was about a thousand years ago that an island and its society decided it needed a currency system. Since neither silver nor gold was available to the islanders, they naturally used shells and what they had available to them. Until, they began creating wheels called “rai stones” that would be carved out of limestone and that sometimes were so large they could dwarf a modern car (see above). The coin wheels served as a store of value, a form of money, a form of property that someone could use in special situations such as a daughter’s dowry, insurance for loss of income such as crop destruction, or traded for food, goods, or services.

These rai stones were not meant to serve as a form of currency that changed hands regularly but the islanders viewed them as an easily divisible, portable, and secure means of exchanging value. This made how people felt about money especially exceptional, this idea paved the way for money becoming abstract. Ownership for these limestone wheels had to be broadcasted to the villagers since they could not easily change hands or even sometimes never moved at all. They could also give out rights to proportions of the rai stones if they sought fit too. It’s been said that a newly commissioned giant wheel while moving between islands had sunken off the coast after its vessel capsized. Yet, it continued to hold its value and trade owners according to their oral tradition since the crew and rest of the island knew about it. This system continued as trust was maintained and relied upon, even when the physical assets were not present or seen. Milton Friedman has famously used this island in an essay to compare their rai stone monetary system to that of the gold standard policy. Its historical significance and economic theory illuminates the mystery and phenomena around money and seems very relevant to the times in which we are living.

Contemplating this history brings to light the subject of monetary commodities. Money has traditionally been regarded as something that has scarcity, fungibility, divisibility, transferability, and durability. These satisfied the islanders with their stone money, but to the wider world society it needed a more advanced and sophisticated means to address those qualities. Around the globe monetary policy used to be managed by issuing currency backed by commodities. Often it was gold, the archetypal form of commodity money. Since that time, the world has continued to evolve and now relies on government entities and central banks to manage fiat currencies, interest rates, and so on. Using history as our guide, it does not seem as though our system will likely last forever. It’s human nature to make meaning out of something that is nothing, which is not always rational. With money though, it’s something that is deeply personal and so interwoven into our society that people’s lives revolve around it because they naturally ascribe meaning to it. It’s key to keep in mind that technology changes, economic laws do not.

Today, investors and portfolio managers are facing an ever more burdensome task of finding investments that offer both high returns and low correlations relative to their other assets. Recently having entered the mainstream discussion, crypto assets are developing a unique opportunity for investment professionals to enter an emerging asset class that checks both of those boxes. By complementing their other strategies and positions with crypto assets, this new asset class is demonstrating better performance and risk management qualities for investors with exposure to them relative to other major asset classes like equities, bonds, real estate, commodities, emerging markets and currencies. By spreading out risk further and idiosyncratically with an allocation in this new crypto asset class, managers will have the benefit from both black or white swan events. The white swan if the internet continues to expand and synergize with crypto assets, and the black swan if an economic collapse in capital markets results in restrictions and boundaries set for capital flows across borders since these assets are free from government control. They also may offer a valuable protection against hyperinflation should an event like that arise from economic instability and/or political unrest.

Investing in crypto assets rather than companies or commodities alone may add additional layers of risk, but being a unique asset class it distributes it out into a rational approach that justifies it. As an investment, tokens, networks, and protocols in the blockchain space are under similar constraints compared to traditional technology companies, but they also remove two major layers of risk that the conventional technology companies cannot. Those exceptions are that the company must execute well for their ultimate success, and secondarily that the investor base must hold until a liquidity event occurs. Striping these elements out reduces the normal layers of risk from these assets and only leaves the remaining layer of risk that the underlying assets themselves must appreciate to be successful. A major setback for their adoption exists though, as they are highly technical assets and widely misunderstood likely due to their complexity delving into topics of cryptography, computer science, economics, and game theory.

It is not only their intricacies that make these new assets difficult to follow, but the buying mania over the past year led to price swings over short periods and volatility that normally would churn the stomachs of investors. Also, the fact that there are also over 1300 currencies listed on the website CoinMarketCap makes performing due diligence tough. To confidently assess the market can be quite tricky, aside from tracking the valuations and pricing for these crypto assets. As investments they are not for those who are unversed, inexperienced, or unprepared for the worst. As hedges against inflation or as means of utility enabling people to make more efficient cross-border payments, supply-chains, trade settlements, and transactions. These are all fair arguments for the value of blockchains and crypto assets, though, many brilliant minds are rightfully contesting that those aspects do not fully capture the scope of their capabilities and fundamental value.

Monetary value follows from belief, and its always hard to believe in something new; especially something as complicated and convoluted as crypto assets. With a few lines of code, companies now can issue and sell tokens to a secondary market instead of registering as a Delaware C Corp and restricting fundraising to domestic accredited investors. Ethereum, the programmable internet crypto asset has allowed this to occur and leads the space as a programmable crypto asset. Over the last year, initial coin offerings caused a stir among investors as some projects capitalized millions of dollars in a matter of minutes or hours! Each day these crypto assets continue to transact, add users, and grow their networks, it counts as another day that people familiarize themselves with them. Future generations will look back and see that crypto assets were a logical choice for a monetary commodity since they are akin to the rai stones of Yap and has resemblances to the gold standard that predated the fiat currency system.

Technology and economics will inexorably be linked together if these trends persist and the crypto asset ecosystem continues to grow. It is foreseeable that in the future that one without the other will not offer as much value without the other considering the current advancements in the financial system’s infrastructure. Blockchain technology will be to economics as a bottle is to wine; technology will be the packaging that will allow the value to flow, be stored, or transferred. In short, we are seeing the beginning of a new technological infrastructure being built for the internet of value in order to make currency, capital, credit and prosperity more accessible and hence more valuable. A fact that needs to be realized is that the Internet was meant to be an information superhighway, as opposed to an informational resource. The recent US elections, fake news, and social media advertising fiascos can be great examples of this point.

More than 3.5 billion people in the world have limited access to the financial system, which is more than half the population. This technology has the power to do more than the Internet ever could before being the conduit for the people outside the financial system so long as they can reach getting a smartphone and/or assess to the Internet. New innovative technologies such as blockchain have led to the rise of digital currencies and other distributed technologies for instantaneous and secure peer-to-peer transfers that realize massive cost savings relative to their conventional counterparts, attributable to the disintermediation. Venmo and other similar mobile banking or payment applications have become popular, but are only small patches to an otherwise archaic practically analog financial system. Crypto assets are unique in that they provide inexpensive yet precious services to the individuals and users while incentivizing the founders and developers, and still offering benefits to the businesses, partners, and early adopting investors who also may be able to capitalize on their implicit value from the disruptive impact they pose and rapid user expansion on top of their networks.

In the beginning of 1998, HTML had as much text on the world wide web as about 1.5 million books, but there were university libraries around the world that had over 10 times the number of book volumes with much higher quality and more meaningful content. Once people realized technology would facilitate more “useful” information being repackaged and hosted online, its infrastructure grew with its userbase and provided end users easier, quicker, and cheaper access to information. By adding more simplicity and quality, it incentivized users as well as augmented its value. Now, the world is seeing a similar infrastructure being built. Rather than being for information, this time it is for money, capital, wealth and value in general. The emergence of blockchain technology may displace some technologies and disrupt some industries, but switching to this new infrastructure can dramatically increase security and cost savings, pose tremendous investment upside, and create new options and strategies for people and firms in its innovative economy.

Improved technological infrastructure can vastly increase our ability to store, spend, receive, sort, filter, and distribute value thereby enhancing the value of the blockchain technology itself. In an environment that has political uncertainty, rising interest rates, and economic policy debate, crypto assets as unique forms of digital monetary commodities will likely only gain more attention and users as its infrastructure improves and scales for mainstream adoption. It may not be likely that a new sort of monetary policy will be enacted anytime soon, but it may not be crazy to imagine that crypto assets are used for a new type of gold standard system. Compared to the total market of gold at this moment, they only account for about 0.3% of the yellow metal’s value. Thus far, crypto assets have presented themselves as a more capable type of monetary commodity with extremely more upside and potential. They have a long way to go to create a widespread positive belief for this opinion. In the end, it all comes down to network effects.

Image By BeadesOwn work, CC BY-SA 3.0, Link

The Crypto Wave

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It’s 2018 and the Internet has evolved and changed considerably over the past twenty years, especially as of late its economic model. The infrastructure of the world wide web in recent news headlines also has shown it to be unsafe and a surveillance haven where most common communications, information sharing, and accessing information has turned people into targets and commodities. The framework of the traditional media outlets as well as online social media sites has perfected informational asymmetries and gaps on algorithmic levels to produce sensational headlines to influence people into bringing out their worst impulses and act probabilistically within a vacuum of fear, uncertainty, and doubt. Psychologically, biologically, economically, ideologically, politically, and socially the Internet reflects our society as a whole, and at this current state presents itself to be the battleground over our hearts and minds. You shouldn’t be exploited for browsing based on any of those possible factors that make a potential “user profile”. For this reason, the world wide web is ready for a new set of standards and protocols to enhance privacy and security while still providing incentives to the interested parties.

Living within this new Age of Fear, these concerns have become more pertinent for companies and organizations in the Internet industry to address them, conduct proper research, and remain state-of-the-art. After late 2017, it is hard to find someone who isn’t familiar with or aware of the existence of Bitcoin, Ethereum, or other related networks. For many people, that was just the gateway for them to enter the landscape of thousands of cryptoassets based on blockchain or distributed ledger technology. The feverish investment last year mostly was due to nontechnical reasons and mostly led by speculation from investors trying to catch the next “hot thing.” Bitcoin as an asset has existed for nearly a decade, though, in the last year or so people around the world began trying get rich quick and cash in on the asset class. They are now finding out that they were trying the catch a wave that’s about to crash on them. Investors following lemming-like behavior in the asset class have caused a stir and raised issues and debate over whether certain aspects are in fact “features” or “bugs.” Leading lawyers in the space have been outspoken to say that class action suits relating to cryptos are coming in at a rate of about one per week. Being so complex and complicated these assets require much research and due diligence to position yourself within the breaks of the tide for the next wave, or, so you may ride this wave out safely when it eventually does crash.

Just like the Great Dotcom Crash in the early aughts, a massive drawdown in the cryptoasset market could act as a cleansing event that effectively washes away the bad projects, shady developers, and scam artists while giving rise to the next class of Amazon, Facebook, Google, and Netflix’s on the new web. The status of the crypto-market as a whole at the time of this writing has dipped below $300B as bitcoin nears a long-term support known to many traders as “the death cross.” Should the price fall below that critical level, strategists have suggested that the price of bitcoin could see levels as low as $2800. Bitcoin futures also just began entering a contango market suggesting that the pain will continue for some time. The volatility is also causing a shake up with investors moving them away from passive strategies of “hodling” and towards more active strategies and brokers as available to them. According to Bloomberg and their industry tracker, more than 150 bitcoin or cryptoasset funds emerged out of the frenzy last year and so far this year 9 funds have shuttered. Many of them have losses and some are down as much as 23 percent year-to-date. David Young, Gemini Hedge Fund Services, at a recent conference about the Internet of Value attests, “There is a huge amount of activity in the crypto-fund space… from advisory to valuation.” Though the distributed future is hard to predict, fiat money itself has come under much scrutiny following the past financial crises and arguably shares similar monetary network effects relative to its crypto peers. The Internet cannot be judged on the follies of the late 1990’s alone.

It seems inevitable that there will be future world currencies backed by the full faith of the blockchain technology as central banks around the world have been studying, testing, and experimenting for years now tinkering with the idea of CBCC’s (central bank crypto-currencies). Moreover, companies like Amazon who has one quarter of their merchant sales now being cross-border will prefer these types of assets for their speed, security, and stability. The hype and frothiness of late 2017 gave way to a massive influx of capital that created a deluge of new projects, tokens, and funds opening and operating within a greater market which was far more mature than themselves. With respects paid to the surrounding landscape and regulatory confusion, it also seems many of them are just setup to fail as investor demands and disputes may arise from a contraction around the corner. Undoubtedly, this is where the best investments will be made through the noise and panic, but not without the risk of other negative externalities. It will be the proving grounds of tomorrow’s great entrepreneurs, portfolio managers, and investors whose stories will be told for generations. Find yourself a good local or two with experience and knowledge to follow… The Crypto Wave will almost certainly crash and wash away the debris. The key will be looking past the carnage on beach and still paddling out regardless in order to position yourselves to catch the NEXT big ones! As some mystic once said, “Don’t fight the wave,  learn to surf.”

Style notes: “Cryptoassets” includes all coins, tokens, and digital assets traded on cryptoasset exchanges. “Bitcoin” refers to the Bitcoin ledger, network, or protocol, while “bitcoin” refers to the asset or unit of account on the Bitcoin ledger. This is reflected for all cryptoassets in this post. (Also, “hodling” is common jargon among traders and enthusiasts meaning to ‘hold’ the asset/s through times of high volatility and periods of capitulation.)

Image By TequaskOwn work, CC BY-SA 4.0, Link

The Automation Apocalypse & Gig Economy

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Today, it may be easy to forget just how intertwined humans have become with technology. While at the same time, though, it may be too difficult to ignore just how much more efficient our lives are when we are able to communicate, share, and connect with one another so quickly and seamlessly.  Across all ages and through the many different generations, there is a realization shifting in the public perception that a brave new world exists. Seismic shifts societally, culturally, and economically have slowly begun taking place as students in the current American education system hardly know a world in which PCs, tablets, and smartphones did not exist. As this new paradigm shifts, technology will be the means by which humans break away from traditional 20th century concepts, ideologies and philosophies. Leading the charge is the rise of automation and advanced artificial intelligence, and it is a new beginning for humankind. Also, the economy has been restructuring itself for more customization and personally tailored work for corporations and individuals at a volume and frequency that maximizes productivity that humans cannot on their own compete with. By examining the technological and economic breakthroughs of AI from a cost basis holding a long-term view, it comparatively is going to be cheaper than employing humans as it does not need food, water, or sleep. As the rise of multi-stream contract work emerges, demand for traditional jobs and corporate positions will plunge from technological advancements and a new sort of economy will burgeon.

The labor force currently is seeing independent contractors and freelance workers, or “gig jobs,” on the rise as it stacks up to more than 53 million individuals and gains about one-third of the labor force. According to the Wall Street Journal, roughly 50 percent of Millennials are working or participating in the new “gig economy.” In 2017, Lyft and Uber’s ride sharing services provided 50% more daily rides than Yellow Cab with quintuple the number of cars they had in service. It is staggering, especially given that only a few years back the City of New York had more yellow cabs than ride-sharing vehicles than Lyft and Uber combined. This is Exhibit A for the massive, rapid, and intense growth that this “new” economy has over its prior counterparts. It is an early indication that a large majority of the labor in the United States will be freelance in less than a decade. Aside from the economic landscape shifting, there is another arms race occurring in automation and advanced artificial intelligence.

It appears this realization is beginning to influence Wall Street’s mentality according to Goldman Sachs as this March it claimed, “Machines have replaced humans.” Whether or not this true, they will certainly affect the economy and likely have an impact on, or, be the direct consequence of the next financial crisis. Millions of the traditional jobs, many of which are now occupied by skilled individuals and college students or alumni, will be lost. It will devastate people to learn that they have been replaced by a new set of coworkers, bots and robots. It has been a belief for a while in Silicon Valley and on Wall Street that the future will be separated into two main sects: those who tell the machines what to do and the people who be taking instructions from the machines. The mastery of statistical modes of thinking began with the rise of the Internet giants like Facebook and Google, and will continue as the dominant path to the future for these new technologies and forms of intelligence rather than the deterministic calculus of prior centuries.

The future workplace and/or the lack of one will have great consequences on society for better or worse. Topics like Universal Basic Income are just coming back into the realm of public debate as people begin to fear these bots and robots. Others have suggested that digital commodities and cryptoassets could offer a means of a new form of income as they typically are set to a fixed supply and/or on a deflationary schedule by nature of their programming. Industries in the new “gig” economy like ride-sharing, car sharing, residence sharing, food deliveries, smartphone banking and freelance taskers have blossomed and grown immensely in 2017. For example, Airbnb grew from merely 3000 listings in 2009 to 2.3 Million in just last year with bookings growing at a 40 – 50% clip. If you gathered the world’s largest hotels and combined them, Airbnb would have more listings than all of them now as it saw user growth jump from 80 Million in 2016 to over 100 Million users in 2017. This adoption trend is so strong that it is also starting to sweep around the globe beginning in new countries and regions where it can rapidly secure more users and growth.

To get an idea of just how large that may be, Uber has over 2 million drivers around the world of which the United States accounts to be about 65 percent of that figure. TaskRabbit, another booming startup for freelance contract workers, has over 50,000 drivers for food deliveries through services like Ubereats, Doordash, and Postmates. The trend is clear that the “9-to-5” or W-2 salaried job is on the decline as much of the new job growth is stemming from the alternative job space as a result of freelancing. What is also fascinating about these “1099” independent contractors or “not employees” working in the booming gig economy is that over a third of freelancers according to some estimates elect not to be covered by the Affordable Care Act (ACA). This has sparked new ventures and ideas for preventative care and a better self-insurance marketplace as Warren Buffet, Jeff Bezos, and Jamie Dimon announced plans to roll out a new initiative to provide cheaper coverage.

In a one-two punch, the combination of the massive retirement wave of Baby Boomers along with the rise of gig workers will create one of the widest gaps of unfilled job openings throughout history. The economy has been accelerating for years, but the start of this 2018 indicated sluggish growth prospects and an uncertain future of sustained growth. Aside from those facts, automation and advanced artificial intelligence will soon make millions of more jobs and employees obsolete whether they are executives, managers, accountants, lawyers, or drivers as it poses a massive threat to the current state of employment in the United States. It is possible that it could lead to Great Depression-level unemployment and a total societal meltdown, which would imaginably includes the handing out of trillions of dollars in cash. Self-driving cars alone could destabilize our society with truck drivers and these gig drivers out of work with educations that on average are about high school level or freshman year in college. All it takes is one innovation before any of it is a reality.

Retail workers, routing specialists, call center workers, fast-food workers, insurance underwriters, analysts, accountants, and bankers are all included in this gloomy narrative. A 2017 report by the consulting firm, McKinsey & Company, concluded that by 2030 as many as one-third of American jobs may disappear because of automation. Some have argued and are studying to see if cheerier forecasts exist, predicting that new jobs will be created to replace the ones that are lost somehow. The aforementioned report also forecasts out to a horizon that is three presidential terms away, and perhaps includes skeptical candidates to the new economy who would try to capitalize on the opportunity. Scrutiny over tech companies like Facebook and Google has increased in the past year as worries of monopolistic behavior, malicious exploitation of social media and the addictive and parasitic effects of smartphones have made a once bulletproof industry vulnerable. Even with industry backlash along with insiders joining in, fending off the bots and robots will arguably require public payments, regardless of income or employment status, on a regular basis to help bring Americans all to the poverty line whether or not they were hit by automation or advanced artificial intelligence.

Although there has been a considerable amount of popularity around Universal Basic Income, it is a leaderless movement that has not yet broken into mainstream politics. As a policy, it is not entirely a new idea and has been in previous accords including the likes of think-tank circles, Rev. Dr. Martin Luther King Jr., the economist Milton Freeman or more recently Elon Musk, Mark Zuckerburg, Marc Andreessen and other technologists in Silicon Valley. Y-Combinator, the legendary startup incubator, is testing out a basic income experiment with 3,000 participants in two states. Knowing that it is an old idea that has become relevant again because of our societal expectations, Universal Basic Income is seemingly more and more necessary. There is a major need to find a reasonable price tag for this sort of project before it’s too late, unrealistic, or the opportunity is gone and before anything can be done about it.

There is an ample amount of optimism for small business and entrepreneurs in this growing gig economy with 42% of small businesses using contract labor. It’s cheaper and more flexible to add workers. As traditional W-2 employees stagnate and 1099 workers grow, there are Millions that have fallen through the cracks of measurement, working multiple part-time jobs that earn less than the required $20,700 reporting threshold. (59% of cryptoasset investors do not report to the IRS). Would a Lyft driver who earns $15k driving and owning an Airbnb making $15k or contracting freelance programming work even report her income without an accountable employer? The new tax regulation offers discounted rates for pass-through business making it highly likely that the trend of contingent labor will continue, if not accelerate.

A record amount of VC money in 2017 was deployed into startups, cryptoasset funds, and blockchain and AI-themed ventures – including machine learning, advanced robotics, and self-driving vehicles – and they are projected to cultivate a $15 – 20 trillion market opportunity by 2025. These shared economies and distributed workers will eventually have unmet needs in job finding, health insurance and tax advisories that will continue to grow and innovate. The dynamic digital landscape has also been budding symbiotically with freelancers and now accounts for a significant portion of the USD GDP and employment within the United States. Self-driving vehicles, automation, and advanced AI will be disruptive and potentially dangerous trends to manage in the years ahead, but at the same time an exciting, innovative moment full of opportunities to prosper as a worker, entrepreneur, and investor. Now, at least, you know that the gig is up!

Image By GDJ – Own Work, CC0, Link

Reddit [Excerpt]

In response to the post titled, “I still don’t get Ethereum’s value, there are no good wallets even.” I gave the following comments:

There was a wise person that once said, nothing good comes easy.

It’s early days still in Ethereum as opposed to Bitcoin.

The same things could have been said five years about Bitcoin and see how value has grown around the technology attributed by the new potential it had to spread value, risk, information, ect. unlike the world had [ever] seen.

Like you, I was a freshman while they were worth $17-$30 and thought the idea was a joke to buy something that was primarily used for children/teen playing cards and the digital world reserve currency in the dark web economy. They were also hard to get, mystical in nature as to the intrinsic value, and held seemingly unfounded possibilities [as to] the use and application. Yet here we are today, the landscape has changed and there has been tremendous breakthroughs and progress made from the community for the better to improve the nature of people’s lives through that very technology.

Change is a constant. Ethereum’s emergence is the beginning of a new paradigm that garners practical solutions to imperfect systems while bringing new possibilities to individuals, organizations, and likely someday nation states.

I believe Ethereum has a more wholesome community than any other crypto, and the progress of the project thus far has shown they can bring more aggregate benefits to society by offering greater forms freedom, business, commerce, justice, transparency, and endless other possibilities that Bitcoin simply could never address.

That’s the true value of Ethereum right now, its people and its reach.

Style notes: [edits]

print(“Hello, World!”)

Welcome! This blog serves as an symposium of raw thoughts, feelings, observations, and ideas that’s aim is towards improving the world we all live in and experience. I am always examining how things work and trying to learn and absorb as much knowledge and information as possible. It is also my hope that what led you here falls under that same premise. I understand persuading other people to become interested in what interests you is a fool’s game. With that said, naturally, there will be different perspectives and paces when learning, so please respect that as well as everyone who contributes and seeks to broaden their horizon. I am charting the ultimate destiny for Systemic Bliss and do not have any definitive plans for its track. So I figure it all starts here and hopefully it grows into something, or not. Either way, it will at least facilitate in clarifying my thoughts, which may produce some suggestions for further reading. It is my promise to make my best effort in submitting relevant, interesting, and quality posts. Who knows, I may even surprise myself! My writing isn’t perfect, but with practice it will become clearer. All I ask is to please keep an open mind, take a step back to admire the bigger picture, and comment to make yourself apart of the discussion and mission.

Enjoy