Author: dompenton

The recent impressive volumes of regulated products that offer exposure to Bitcoin, such as ETFs, Microstrategy, and Bitcoin Miners, indicate that plenty of investors prefer “safe” or easy access to BTC.

I was comfortable using a Trezor many years ago to move digital assets around. I even bought myself a digital banana to see how the NFT thing worked. The NFT purchase was complex, requiring many stages and significant gas fees. Then, Opensea seemed to lose my Banana, and I could not remember which wallet I had linked it to, let alone the seed phrases.

While recovering my Banana (which may be on the rise after Justin Sun paid $6.2m for a real Banana and duct tape at auction), I soon realised my competence in self-custody had reverted to incompetence.

For new investors buying a BTC ETF on your regular brokerage platform is much easier and less terrifying than sending money to a new “exchange” regulated somewhere you would like to go on holiday.

Since the Banana incident, I have relied on trading platforms for custody of my crypto holdings.

If digital assets are going mainstream, they have to be easier to deal with. The plumbing has to inspire confidence and allow users to reach unconscious competence.

There are four stages of developing competence:

Unconscious Incompetence

The individual does not understand or know how to do something and does not necessarily recognise the deficit.

Conscious Incompetence

Though the individual does not understand or know how to do something, they recognise the deficit, as well as the value of a new skill in addressing the deficit.

Conscious Competence

The individual understands or knows how to do something. It may be broken down into steps, and there is heavy conscious involvement in executing the new skill. However, demonstrating the skill or knowledge requires concentration, and if it is broken, they lapse into incompetence.

Unconscious Competence

The individual has had so much practice with a skill that it has become “second nature” and can be performed easily. As a result, the skill can be performed while executing another task.

Old Dog New Tricks: Self Custody

I love a dystopian movie and the arguments against fiat money and financial freedom can justify the self-custody of digital assets.

To get back in the zone, I bought the cool-looking iPod-esque Ledger Flex digital wallet. I was set up in twenty minutes and quickly transferred some coins from Coinbase. However, moving assets bought on tradfi trading platforms requires another leg I have yet to test. The device and interface have improved significantly, but I’m not yet convinced they are ready for mass adoption. As tradfi platforms add digital asset capabilities and the user experience improves, appetite will grow.

Zhen Yu Yong, CEO of Web3Auth, discusses the views of Ethereum founder Vitalik Buterin vs Micro Strategy’s Michael Saylor.

“Saylor argued that moving Bitcoin into the hands of regulated institutions provides a layer of security and legitimacy that self-custody may not. He believes that established financial entities, like BlackRock and Fidelity, are less likely to face government seizure or intervention owing to their integral roles in the economic system. Self-custody advocates raged and continue to argue that relying on third-party custodians centralises risk, weakens network security, and limits the development of advanced cryptographic features.”

Zhen continues

‘While self-custody (holding your keys) offers absolute control over a user’s assets, it is often associated with a significant challenge — managing private keys can be overwhelming for many users, especially those new to Web3. Saylor is right about that.

In the first half of 2024 alone, more than 70 new layer 1s were created, surpassing 50 new layer 1s in 2023. Combine that with countless more decentralised applications built on different chains, and users struggle to navigate and manage their assets. Siloed blockchains create a fragmentation issue across Web3. 

New chains will further complicate the burden and complexity for users. The problem: Fragmentation means a poor user experience.”

Read the full article here.

Multichain self-custody is the future

I highly recommend watching the superb documentary Unknown: Cosmic Time Machine to increase your appreciation of human achievement. 🛰️

It follows a team of engineers and scientists on an ambitious mission to launch the James Webb Space Telescope (JWST) and the near impossibility of the project.

How many single-point failures do you have around you?

Landing on Mars: 90 – one of the hardest things to do
James Web Telescope: 344 – the largest of any space mission (225 in the sun shield deployment)

JWST design started in 1996, construction in 2004, testing in 2017 and final launch in 2021 for an estimated cost of US$10bn. Initial estimates were for launch in 2007 for a cost of US$500m.

Post one test, NASA discovered critical fasteners did not work; the fix took six months and cost US$150m.

The impossible was possible, and JWST produced the most detailed and deepest infrared images of the universe, capturing galaxies that formed just a few hundred million years after the Big Bang. 🌌

Enjoy the images here:

🏗️ Back on Earth, we are surrounded by large, complex projects; almost all will be over budget and over time. To put some data around that assertion, read How Big Things Get Done: The Surprising Factors Behind Every Project’s Success (and Failure) by Bent Flyvbjerg, dubbed “the world’s leading megaproject expert” and Dan Gardner.

The book dives into the challenges and lessons of delivering large-scale projects, from bridges and skyscrapers to tech rollouts and film productions. It explores why so many grand initiatives end up delayed, over budget, or failing altogether while also detailing what separates successful ones.

In his dataset of 25 project types covering 16,000 projects, he details mean cost overruns and mean cost overrun if the project is in the tail of more significant overruns:

Nuclear Storage: 258% – 427%
Olympic Games: 157% – 200%
IT: 75% – 447%
Buildings: 62% – 206%
Rail: 39% – 116%
Wind Power: 13% – 97%
Solar: 1% – 50%

Good news for renewable energy, less so for Olympic host cities.

The book argues that projects designed in modules—independent, manageable segments—are more likely to succeed. Modularity allows project parts to be completed in phases, tested, and adjusted without jeopardizing the entire project. Projects that lack this flexibility face higher risks when encountering unforeseen issues.

🫵 The final words in the book: Know that your biggest risk is YOU and your behavioural biases and shallow thinking.

😡 Recently, my fence contractor installed four new panels, three identical and the other not. Logic would suggest that all would be the same. Logic and competence aside, I could have included the words “identical panels” in the scope of work and been onsite to monitor progress.

My work mantra has always been “only expect what you inspect”…so the failure could be mine. 🤦‍♂️

Increasingly, I use an AI tool every day, and the speed at which these products improve is extraordinary.

My first exposure to AI was at a presentation by IBM in 2017 showcasing Watson. It gained fame in 2011 by beating humans playing Jeopardy, demonstrating its natural language processing and vast data retrieval capabilities. I watched an oncology and medical diagnostics demo, which ultimately proved very costly to implement. IBM exited Watson Health in 2021 and now focuses on hybrid cloud and enterprise AI.

Fast forward to playing with Chat GPT beta and subscribing at launch. It feels like I have a front-row seat to another game-changing moment: Apple/Amazon/Space-X/YouTube/Google Search/Navigation/Social Media/Cloud Computing/Blockchain and Crypto.

I’m not a super AI user, but the most significant change in my habits is using Perplexity for internet queries. I no longer Google it; I ask Perplexity questions. I like how the response is organised with simple access to sources.

I use ChatGPT 4o daily for research, querying documents, marketing ideas and creating images for blog posts. I made my own GPT, the DataDrivenAdvisor, to help research and analyse investment opportunities. Creating your own GPT could not be simpler; just trial and error with designing what you would like the model to do.

I was recently blown away by the podcast feature of Google Notebook LM, “Your Personalised AI Research Assistant”. Spookily lifelike humans discuss the documents and information uploaded.

Fathom AI Notetaker is incredible for anyone taking notes of meetings and spits out accurate summaries and action points, an excellent time hack.

AI agents are popping up everywhere. Most of the time, I would prefer the bot vs a human for simple requests. The smart people at Keepme.ai have delivered a powerful sales tool to deal with complex enquiries and help keep the sales funnel flowing.

But the real positive upside to AI is to help solve the big problems. Here Dario Amodei sets out his vision. He is the co-founder and CEO of Anthropic, the company behind the large language model series Claude AI and previously the vice president of research at OpenAi

Make yourself a cuppa and have a read.

machines-of-loving-grace

He believes “that most people are underestimating just how radical the upside of AI could be, just as most people are underestimating how bad the risks could be.”

The five categories he is most excited about are:

1. Biology and physical health: elimination of most cancers and prevention and cures for genetic diseases and Alzheimer’s. Doubling of human lifespan (no thanks)
2. Neuroscience and mental health: curing most mental illnesses
3. Economic development and poverty
4. Peace and governance
5. Work and meaning

Here is a good example. Harvard Medical School has developed a ChatGPT-like AI model that can diagnose cancer, guide treatment choice, and predict survival across multiple cancer types.

A New Artificial Intelligence Tool for Cancer | Harvard Medical School

I like this optimistic vision of the future. However, the dark side of AI and wading through AI slop (the cousin of spam) will grab headlines.  

I stay on top of the good, bad, and ugly in Tech and AI via the amusing Hard Fork Podcast from the New York Times.

Written by me, a human, with some help from Grammarly.

If Bitcoin didn’t exist, would my life would be any different? Many of my intelligent, cynical friends can pose that question with confidence. So far, they have missed a significant investment return but have yet to witness a rewiring of the financial system. However, they pause when you go deeper into “What is Money?” and what would happen if you woke up and your central bank imposed capital controls? Veteran emerging market participants can recall a shopping list of countries that restricted the free flow of capital after the 1997 Asian Financial Crisis. In this regard, those of independent minds can embrace the financial freedom a transferable asset like Bitcoin can bring, let alone a potential hedge against fiat debasement. If you need to renew your faith, tune into Michael Saylor’s presentations or read The Ascent of Money by Niall Ferguson.

Tokenisation – Financial Titans Make Their Move

Over the last 24 months, I have been impressed by the significant financial brand names that appear on stage at conferences to discuss tokenisation. These institutions have scaled in my lifetime to be trusted custodians and manage trillions of dollars. But do end users care if the asset is an exchange-listed ETF, REIT, bond, stock, or a tokenised version? Perhaps if I can move the asset around freely and quickly, trade 24-7, use it as collateral, etc., everything should be tokenised.

But do I trust the code enough to chance my arm in DeFi land?

Oracles and trust provision are cornerstones in DeFi and Tradfi, with different definitions and mechanisms. Does tokenisationn by large financial institutions with legal and regulatory safeguards bring a wave of innovation (and cost savings to providers) or hobble the path to true financial nirvana?

I expect that TradFi tokenisation efforts will co-opt the language and benefits of DeFi without embracing its fundamental principles. The term “tokenisation” will be widely used, but the deeper revolutionary goals of DeFi, such as democratising finance and eliminating middlemen, will be crowded out by the financial titans.

Blackrock recently reported $11 trillion of AUM, and its BTC ETF tops the charts at US$23bn of net assets. More importantly, its tokenised money market fund (BUIDL) will likely be widely accepted as collateral and has grown quickly to a US$550m market cap.

At a more retail consumer level, Wisdom Tree ( $103bn in assets) recently launched a visa card linked to customer digital asset accounts.

“The WisdomTree Prime Debit Card is the first real step in being able to take your digital asset holdings and leverage them in day-to-day personal finance,” said Will Peck, Head of Digital Assets at WisdomTree. “We built this app because we see inherent value in connectivity – having all of your assets in one place, where your crypto isn’t locked away and can sit alongside your other investments, like bond or equity exposures. Now, those assets can fund consumers’ daily purchases, giving them more choice in where their assets go, how assets are used, and how they can potentially grow over time.”

There is plenty of room for both, and significant operational hurdles remain. However, the proliferation of competing protocols from the big banks and asset managers hardly fixes the cost, speed, and inefficiency problems the industry is trying to solve.

Over forty financial firms have joined the Bank for International Settlements to explore how tokenisation can enhance wholesale cross-border settlements. Project Agora.

My best guess is that hybrid systems aided by interoperability will emerge with the best permissioned and permissionless environments. The Titans do have a significant advantage with all the assets and customers but prefer to fly solo, which is where the innovation from the emerging players can catalyse real change.

Either way, the digital asset/crypto community has to continue to build trust to bring credible innovation to financial markets.

Down the rabbit hole:

McKinsey has an excellent tokenisation summary here: https://www.mckinsey.com/industries/financial-services/our-insights/from-ripples-to-waves-the-transformational-power-of-tokenizing-assets  

Wisdomtree highlights the advantages of tokenisaiton:

WisdomTree highlights asset manager advantages inTokenisationn: usability – Ledger Insights – blockchain for enterprise