Narrowing to One Miracle ✨

Plus a status update and my info diet

As of writing, I have 271 subscribers! Thanks so much for being a supporter. It’s a bit daunting to think that I’m holding myself accountable to such a big group. At the same time, the support and expanded perspective has been energizing!

T+2 weeks Update

Metrics

• 13 of 50 user interviews have been conducted so far (including my mom 👋). I’m also looking to increase non-tech representation in my perspective by volunteering with 2 initiatives: Bank On Oakland (helping unbanked Oakland residents get their first bank account) and $OAK (a local project working on starting a community based currency for Oakland). Hit me up if you’re also interested in volunteering.  

Where I could use your help 🙏

• Content review - A close friend and 2x founder asked me to write a blog post about my current area of focus as a way to a) test if I cared enough about the problem and b) refine my thinking. I learned a lot and it’s in draft. I’d welcome a review before I publish. Ping me if you’re interested in being a reviewer. The titles in the 3-part series are You don’t own your money, How much money should you own, and How to own your own money. 

• User interviews - If you’re willing to share your thoughts with me, especially if you don’t know anything about crypto, please sign up here. 

• Additional questions - Let me know what other questions I should be asking myself about entering into a product space.

Info Diet

In the spirit of Future’s Info Diet series, I’ll highlight the most interesting things I’ve read since my last update.  

For the last couple weeks, I’ve been trying to strengthen my thesis that most people should own crypto assets (specifically Bitcoin, with a skeptical open eye towards Ethereum¹). These articles have been helpful. If the economy and society has felt shaky to you, it could be because our money is shaky:

• If you have 1 minute:

Lyn Alden @LynAldenContact

Commercial bank deposits are backed by central bank reserves and government bonds. Government bonds are backed by the central bank's ability to create reserves and buy those government bonds if needed. Cascading sovereign bond problems are at the core of the system.

• If you want to go down the rabbit hole:

  • Skim WTF Happened in 1971

  • Read at least the first half of The Fraying of the Petrodollar System

  • Read WTF Happened in 1971 again

• If you like graphs:

I’ve been seeing a lot of versions of this graph posted on social media recently (my favorite version). In 1971, the US went off the gold standard.  

Narrowing to One Miracle ✨

Erik Torenberg @eriktorenberg

Things to consider: Don't pursue double miracle startups (or "bank shots"). A startup miracle is the key difficult thing you need to pull off for your startup to work. Startups should only require one miracle, not two. As told here:

blog.eladgil.comStartups & MiraclesYou know a startup is likely to fail when its product strategy or business plan includes multiple miracles. What Is A Startup Miracle? A ...

A useful litmus test of a startup idea is asking the question: “How many miracles do you need to succeed?” If more than one, go back to the drawing board. 

It’s a hard test, because we all like to dream big. To dream is to hope… and we need to hope. Dreamers keep pulling the world forward. But the bodies of many startups are buried under the hope of solving too many miracles. 

When I first started to think about doing something in the crypto space, I was dreaming big too: Could we create a self-funded school? Could we truly compensate creators? Could anonymous work be a thing, and eliminate workplace discrimination? These were all fun to think about, but when I started counting up the miracles, there was one miracle that preceded every business idea: #1 Get mass-market participation in crypto technologies.

Reflecting on my own journey, I realized that even I didn’t feel comfortable participating in crypto technologies. Every time I contemplated owning crypto beyond a dollar-cost-average buy in Coinbase, my stomach would clench. When I would send a transaction, I’d hover my mouse over the button and then brace myself with closed eyes as I clicked, almost wincing. I’ve known about crypto since 2014 and my partner has been writing about it full-time for the last 2 years; if I felt uneasy about it, how could we expect mass market participation with current tools?

What is custody? 

Custody is the act of taking care of something. Crypto custody is the act of taking care of crypto assets. 

There are two major flavors of custody: self-custody and 3rd party custody. Self-custody means you own the “keys” to your crypto wallet, and you are responsible for using those keys when spending crypto and for keeping those keys safe. 3rd party custody means you trust a company to hold your crypto assets for you. There are folks who have extreme philosophical opinions about each flavor. Most people who own crypto don’t care about the distinction between the two. If you lost a crypto asset (either due to an exchange getting hacked, being socially engineered in a phishing attack, or just unlucky) or you’re aware of some of the stories, you probably consider your custody strategy more carefully.

But, at the end of the day, if you want to participate in the crypto ecosystem, you need to trust someone to custody your crypto assets. To get mass participation, joining the ecosystem needs to be dead simple and needs to enable long-term usage. I believe this is an unsolved problem, and it’s the miracle I want to solve. 

Is there a business in custody?

There are a lot of businesses in the crypto custody space. Any time there’s a lot of competition in a market, you should probably ask yourself these types of questions:

• Is there a market leader with brand recognition that you’d need to supplant?

• Is there a first movers advantage or network effects?

• Are existing solutions commoditized or still specialized?

• Is the space capital intensive; i.e. do big companies have the advantage?

• Are the products in this space loss-leaders or revenue-generating? 

• Any others you can think of? Let me know. :)

When answering these questions about the crypto custody space, here’s my take so far:

• No market leader - For folks who are in crypto, there are some obvious leaders… but my interviews indicate no one outside the crypto bubble has any brand recognition. Given this, I think all custody solutions right now aren’t competing with each other as much as they’re all working to make the pie bigger for everyone. 

• There are network effects - There are definitely network effects for wallets that facilitate transactions. There are also economies of scale for some business models; i.e. pooling liquidity. New solutions will need to leverage network effects to come out on top. 

• Solutions are still specialized for different users - When the iPhone and Android first came out, they were completely different flavors. iPhone was about simplicity and fashion; Android was about flexibility and affordability. Now, ~15 years since the iPhone launched, my mom recently asked me if she should get an iPhone or an Android phone. My response: 🤷‍♀️. Both phones are basically the same with only minor differences to the average consumer. I.e. They have become mostly interchangeable. With crypto custody, we’re in the early stages: each provider has their own philosophy stamped on their product (specialized flavors include: for gamblers, preppers, collectors, etc.). It’s unclear what mass market users will actually care about, or which features will catalyze broad scale adoption. 

• Unclear how capital intensive - There’s clearly businesses who are spending a lot of capital to build custody solutions. A new custody business could leverage existing open source code, and the table-stakes features have been implemented many times. Any solution should spend a pretty penny on security and privacy talent. 

• There’s always money in the banana stand - Some of the bigger players in the custody space are using custody to enable their long term strategy: e.g. the Coinbase Wallet helps with self-custody, but then also makes it super easy to trade. Some businesses are in custody just to enable custody, e.g. hardware wallets. If you’re managing money, there’s usually always some money to be made directly and then there’s more money to be made with additional services. I’ll need to do a deep dive into the business models of custody solutions to understand how I want to structure my business. In the one-miracle vein, I probably don’t want to invent a new business model, but instead rely on existing models.  

Lastly, a not-very-sexy consideration for the custody space is regulation. I’m initially drawn towards the self-custody space because I wouldn’t actually be on the hook to own anything. As soon as a solution starts to custody on a customer’s behalf, things get a lot more complicated and much more likely to encounter legal hurdles. 

I’ve decided that the one miracle I want to start with is enabling mass market adoption of crypto via building a custody solution. I’d welcome any and all feedback to keep pressure testing my entry into this product space. 

Next steps

My current plan for the next couple of weeks:

• Actually launch my NFT. I’m sure I’ll learn a lot. 

• Continue user interviews. 

• Try to answer “How much BTC does it make sense to self-custody long term?”

• Publish my in-progress essays about owning money. 

Thanks again for the support! Reader questions are always welcome. :)

1. I have a lot of conviction about Bitcoin as a good long term store of wealth. ETH has a number of issues (e.g. government control, unclear long term money supply, etc… here’s a deep analysis), but still remains #2 in market cap and the developer ecosystem is very strong.