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Payment Processors, Patents and a Dollop of Healthy Paranoia
Reggie Middleton discussion UltraCoin at the 2014 FinTech conference at Dechert LLP.Coindesk asks "Do Patent Filings from eBay and Western Union Pose a Threat to Bitcoin?" I feel the question is in and of itself missing the point. To explain this fully, I have to share a little bit about myself, particularly my weaknesses. I'm the type of person who is very knowledgeable about his strengths and his weaknesses, but sometimes I don't see my strength for what it is, and that is tantamount to a weakness in a highly competitive environment.
Case in point, in discussing whether or not competing patents have been filed for smart contract transacion processes by those who seek to be in my space with my contract engineer (a very skilled software architect and IP attorney), I displayed what I considered a healthy level of paranoid concern. I found it hard to believe that no one bothered to patent the most innovative, disruptive and groundbreaking aspect of this new crop of digital currencies - the ability to program them. As those who follow me know, I've spent a lot of resources developing, designing, refining and patenting advanced smart contracts (see How Reggie Middleton's Start-up Patented The Future of Global Finance!). I actually found it highly unlikely that no one had come up with this idea before me. Matt (my contracts engineer) said, "You know, it actually takes an uncanny amount of vision to have seen the scope of this stuff and act upon it, not to mention to have done so 6 months ago. Not many people are like you." Right then and there, it hit me. People really do not see things the way I do!
Most know me from my prescient calls in banking, finance, real estate and tech (see Who is Reggie Middleton?). I've demonstrated a knack for seeing future trends and determining when things (such as valuations and opportunities) are out of whack. With that being said, the big media interest in Bitcoin combined with the increasing VC interest in Bitcoin companies (reference BitPay Gets $30 Million in Venture Capital Funding) is a very good thing for the industry, but also illustrates shortsigtedness in both the investment community and many practitioners.
The problem with the processors...
When bitcoin is as easy as PayPal to use then it will be on the path to mass adoption, but to assume that’s the most lucrative path to take in bitcoin company private equity investment begs the wrong question. Here’s the strategic landscape as I see it.
Bitcoin is very inexpensive to use as a transfer agent. A transaction may be safely sent without fees if these conditions are met (this is excerpted directly from the Bitcoin Wiki, verbatum):
- It is smaller than 1,000 bytes.
- All outputs are 0.01 BTC or larger.
- Its priority is large enough
Otherwise, the reference implementation will round up the transaction size to the next thousand bytes and add a fee of 0.1 mBTC (0.0001 BTC) per thousand bytes. Note that a typical transaction is 500 bytes, so the typical transaction fee for low-priority transactions is 0.1 mBTC (0.0001 BTC), regardless of the number of bitcoins sent.
Bitcoin as of 5/18/2014 is $444.74m, thus the fee for this transaction is roughly 4 cents, if not outright free. If a processor is transferring $10,000 on behalf of a customer, whether at one time or 100 times throughout the course of a month, the processor’s fee cost would range from $0 to $4, while the processor would likely charge (as of the date of this writing, $0 to $100). The traditional processors such a Visa or Paypal would charge hundreds (as in up to 50x more!) for the same deal!
That 25x markup on the high end is significant (even for the Bitcoin companies), and ripe for disintermediation itself (that's right, the disintermediaing agents are poised for disintermediaion). Particularly once the UX of Bitcoin evolves, as email and web browsing did, and users realize how easy and cheap it is to jump onto the blockchain and do this stuff themselves.
Even assuming users don’t follow the historical model of those that left proprietary walled gardens (think AOL) and jumped directly into the open World Wide Web themselves, there are no material barriers to entry to enter into the processing business other than potentially a money transmitter license. The only material barrier, hence the business opportunity, is that Bitcoin is cumbersome to use. As the UI/UX polish increases and the amount of competitors in the space increase, the lower the prices charged - hence the margins - will be.
With such low barriers to entry and potentially humongous markups to exploit, what do you think happens next? The wild, untamed hordes of competitors swoop down upon the masses, and we have a concerted race to zero, and likely negative margin as competitors attempt to make processing a loss leader to draw users into the folds of richer, higher margin services!!!
The race to marginal zero, then negative, does not make a strong business plan. So, what do these companies such as BitPay, Coinbase, etc. do once that point is reached (rather quickly)? They look to value added (high margin) services on top of their low margin, utility-like payment infrastructures.
Enter smart contracts and the true use of programmability in the crypto-currencies. The easiest and the likely first implementation of such will be multi-sig operations which allow multiple parties to share funds without having to worry about trusting and single party in a transaction. Our ZeroTrust Letters of Credit (patent pending) is just such a product. It allows for multiple parties to tranfer payment for simple and complex transactions contingent upon the mutual agreed upon successful execution of said transactions. This is done without the parties having to:
- Know each other
- Trust each other
- Have any form of proximity to each other;
and can be done using micropayments all the way up to multi-million dollar macro payments. The barriers to this business are much higher. For one, it takes more than just programming code. You have to be able to congeal the legal logic of the conventional law in equity contract into code. You have to be able to congeal the business logic into code, and you have to be able to implement it into the blockchain or whatever other underlying transmission mechanism you choose to utilize.
Once the race to negative zero is in full swing, a few of the wiser companies will wake-up and say "Hey, there has to be a better way, and we think we found it!". It is at that point Reggie Middleton's UltraCoin products and assets will shine. It is not hard to foresee that the entrenched companies (Visa, Mastercard, PayPal, Western Union) may enter a bidding war with the new comers armed with material VC warchests (much more than we're seeing with $30 million investments of today - all over the guys who had the foresight to see the next evolutionary step in plain vanilla payments - smart transactions and self-executing digital contracts and transactions.
We're actively looking for financial and intellectual capital. If you, as an accredited investor, are looking for an opportunity in the higher end of the digital currency space, I think we should talk. In addition, if you are a higher level Java/C++ developer willing to take risk, we need to talk. I'm available at reggie at ultra-coin.com.
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Just wow. Are all the old crypto pioneers retired or something? Here's some prior art you should look at if you think any of this stuff is new. It's not, though it does seem to be 'in vogue'. Reggie, you're ten to twenty years too late to patent any of this stuff.
http://www.erights.org/smart-contracts/index.html
http://www.waterken.com/dev/IOU/Design/
"I'm the type of person who is very knowledgeable about his strengths and his weaknesses, but sometimes I don't see my strength for what it is, and that is tantamount
to a weakness in a highly competitive environment."
Pure Reggie Middleton, love ya dude!
Instant Classic.
Words to live by.
Reggie doesn't see things the way others do. But I see Reggie very clearly. Subscribe to my newsletter. That's all he ever says.
Not sure WHAT he says that in his newsletter. Ooops.
I wouldn't know...
Didn't get the coupon.
Stop patting yourself on the back. Your contracts engineer was talking his book.
I think we're in the Timex Sinclair stage in all of this. It makes as much sense to me as a tape drive and programming Basic from a pulp magazine. I mean how do we ACTUALLY go from here to there? How can we talk about something that nobody understands, and if you do, we can't understand you? Its like first contact with an alien race. The hyper-vigilent part of me says "There is no fraud without a fairytale." The optimist and jaded in me says, "If it gores the banks' ox, I'm all for it."
My brother's sister's cousin has a 7 figure net worth -in yen- and wants to get aboard.
I assume you are counting the decimal and two zeros.
i know you say you're not trying to get money from bitcoin folks exclusively and your trying to get traditional VC money for payments innovations.
but still...
you aren't even mentioned on this coindesk roundup of p2p exchange technologies relating to blockchain p2p networks.
reggie..............why aren't you mentioned on this article?
http://www.coindesk.com/holy-bitcoin-trinity-revive-colored-coins/
Reggie, could you please expand on the thought processes concerning the "ability to program them (digital currencies)?"
As a software developer, I find the idea that I need the permission of a patent holder in order to write a program to be an absurdity (assuming that's your meaning).
What exactly are you claiming to have invented?
"I displayed what I considered a healthy level of paranoid concern. I found it hard to believe that no one bothered to patent the most innovative, disruptive and groundbreaking aspect of this new crop of digital currencies - the ability to program them. As those who follow me know, I've spent a lot of resources developing, designing, refining and patenting advanced smart contracts (see How Reggie Middleton's Start-up Patented The Future of Global Finance!). I actually found it highly unlikely that no one had come up with this idea before me. Matt (my contracts engineer) said, "You know, it actually takes an uncanny amount of vision to have seen the scope of this stuff and act upon it, not to mention to have done so 6 months ago. Not many people are like you." Right then and there, it hit me. People really do not see things the way I do! "
prior art
ethereum
"To anticipate the subject-matter of a patent claim, prior art is generally expected to provide a description sufficient to inform an average worker in the field (or the person skilled in the art) of some subject matter falling within the scope of the claim."
Can you use Ethereum to create a letter of credit or an equities swap now? Is it clear that you can do that now using Ethereum? The Ethereum guys appear to be geniuses (literally rocket scientists, I think one of them use to actually build rocket ships), but the product is not demonstrably ready yet, and may not be for some time - At least not that I know of.
What's more complex, a rocket ship or an equity swap?
That's a trick question, because you would need to understand BOTH to be able to carry a conversation with RM.
Dude, what about Ripple?
So...you'll patent it then sell it to Visa/Mastercard/Western Union and we'll be back to square one?
LOL!!! Hey Reggie, how did your ultra-con crowd funding effort turn out? Oh.....I guess since your web page dedicated to that effort has evaporated, not so great. Gosh, I thought foneystar was going to invest his fortune with you in that effort. But, apparently not. Or maybe the $15.00 you raised WAS his fortune. You have gone from respected to retarded in one fell swoop. Congratulations!!
Crowdfunding? I missed that, please tell me more! Web link? I take back all I said to DC&H above....
You still need to be able to have party A and party B be able to interact directly without access to the full blockchain and not have a price arbitrage problem. Also you need end to end encryption with no decrypting in the middle during retransmission.
The second issue to get around SWIFT is the network needs to be able to Ad-Hoc and in turn be able to function outside the internet if needed.
That one I know exactly how to implement and not a fucking thing any ISP, bank or government can do about it but that one I'm holding close to my vest for now.
You know too much, you OFFER too much knowledge (for free) Mr. Reggie is not offering to SHARE anything in this post, it is a free advertisement on Zerohedge if nothing more. Use your knowledge as Leverage, grasshopper.
Reggie, be as creative in how you allow for small investors to become part of UltraCoin as you are in the technological rollout. Create a virtual market for the UltraCoin equity and then potentially as a virtual marketplace for populist VC
You are a narsacist. Cant believe i read this tripe
Reggie you remind me of the stories about Bill Gates when he was a kid trying to sell his home-made computer and everybody thought he was just a silly kid joking about. At this point nobody knows what the hell you are talking about , stay focussed , this will play out. I want to invest but you have this wrapped up already.
There's about 3 minutes of my life I'll never get back. Even with bitcon.
.
Whack-o-o-o