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4 Predictions for 2016: an impeachment, tech v law, and more

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2015 started as the year of the unicorn, and ended as the year of the unicorpse.   Emerging markets, the rule of law, the off-demand economy, and the education bubble finally getting popped…here’s what we can expect in 2016:

  1. Emerging Markets will be in vogue again (except India) as US interest rates rise. Brazil’s currency will stabilize, reforms will be pushed through, President Dilma Rousseff will get impeached, and investors will start flocking back to the 5th largest country in the world for more than just the Olympics. Andela will be just the first of many Nigerian startups to get major US funding as President Buhari makes Africa’s largest country, which will overtake the USA in population by 2050, a safer haven for both tourists and investors. On the other hand, India’s bloated valuations for unicorns like Ola, Flipkart, Oyo, and others will begin to abate as investors realize Indian customers are more price-sensitive and less brand-loyal than they were hoping.
  2. Court cases will wield direct impact on startups more than in any other year in recent memory. Madden v Midland may cap the interest rates that companies like Kabbage, LendingClub, SoFi, OnDeck, and others charge in certain US states thanks to usury laws. O’Conner v Uber could classify 1099 workers as full-time employees, especially for companies in which contractors are working near full-time hours. Tyler v FanDuel & Draftkings may declare fantasy sports businesses violations of the Unlawful Internet Gambling Enforcement Act of 2006. And as the driverless car begins to hit the road under the guise of autopilot, there is bound to be a case on liability in the event of a crash or hack. The central question will be, who is at fault: the software provider, the car manufacturer, the owner, or some combination? Many questions remain unanswered.
  3. The On Demand Economy, particularly in food, will face headwinds, consolidations, and shutdowns. The hot-in-15-minutes, cook-at-home, heat-at-home, order-from-restaurants, pick-up-from-restaurants, and 30+ other on-demand food delivery startups will start to run out of money as investors realize their unit economics may never work. Most will get acqui-hired or shut down. But one company will likely emerge that could take on GrubHub…and it won’t be Uber’s UberEATS. All other categories will become Uber[FILLINHERE].
  4. Education startups will begin to displace struggling traditional institutions. More students will choose to take classes on Coursera or Khan Academy for free instead of amass colossal debt at for-profit educators like the University of Phoenix. Entry-level job seekers will flock to companies like LearnUp instead of attending expensive vocational schools. Primary school applications to schools like Altschool and Think Global School will skyrocket. Students, especially those in emerging markets like Kenya, will begin to receive fully accredited college degrees on their mobile phones thanks to One University Network. New funding, from both private and public sectors, will pour into education startups as people start realizing that our educational system is broken and far too expensive.

Let the games begin.

 

200 miles from Selma

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“We honor those who walked so we could run. We must run so our children soar.” – President Obama honoring the 50th anniversary of the marches in Selma that led to the passage of the Voting Rights Act.  A riveting, must-watch speech.

In December, students held the largest demonstration on Harvard’s campus since apartheid.  The Black Lives Matter protest blanketed Harvard Yard with students, of which I was one, wearing hoodies and staging die-ins.  It shut down the roads in Cambridge.

My criminal law professor first semester, Ron Sullivan, is a man I deeply admire and a key advocate of the Black Lives Matter movement, as well as minority rights broadly.  The former head of the DC public defenders, he famously testified in front of the Senate on the Trayvon Martin case: the jury got it right, but the Stand Your Ground law was wrong.  There should be a fundamental duty to retreat when safely possible, otherwise we as a society are signing up for vigilante justice.

In class, we began discussing the stop and frisk laws in NYC, which historically have disproportionately targeted minorities.  Professor Sullivan asked a simple question to the 80 of us:

“How many of you have been stopped and frisked anywhere in the US? I don’t just mean patted down, but actually frisked.”

4 people raised their hands.  Two were African American males, one was a Sikh male, and one was me.

“Talk about stereotypes.  4 men of color,” Professor Sullivan said.

As a country, we have come a long way.  Just ask Congressman John Lewis, who marched 50 years ago in Selma, if he ever thought he would be holding the hand of a black President 50 years later on that same bridge.  Just ask Congressman Mike Honda, whose family was sent to a Japanese-American internment camp after Pearl Harbor, if he could ever dream of representing the community from which he was banished 70 years before.

But as a country, we have a long way to go.  When my black classmate gets unfairly harassed or frisked, that hurts my civil rights.  When my Muslim friends get ‘randomly selected’ for extra security screenings 100% of the time by the TSA, that endangers my religious freedom.  And when an Indian grandfather visits Madison, a place 200 miles from Selma, and ends up partially paralyzed for being ‘suspicious’, that threatens my safety.

The march began 50 years ago, but must go on.

Written by sheeltyle

March 8, 2015 at 11:41 am

The Blockchain: What it is & Why It Matters

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Originally posted by the Brookings Institution.  Link is here.

The Blockchain: What it is & Why It Matters

By Mohit Kaushal & Sheel Tyle

Chances are that you’ve heard of bitcoin, the digital currency that many predict will revolutionize payments – or prove to be a massive fraud – depending on what you read. Bitcoin is an application that runs on the Blockchain, which is ultimately a more interesting and profound innovation.

The Blockchain is a secure transaction ledger database that is shared by all parties participating in an established, distributed network of computers. It records and stores every transaction that occurs in the network, essentially eliminating the need for “trusted” third parties such as payment processors. Blockchain proponents often describe the innovation as a “transfer of trust in a trustless world,” referring to the fact that the entities participating in a transaction are not necessarily known to each other yet they exchange value with surety and no third-party validation. For this reason, the Blockchain is a potential game changer.

In 2008, Satoshi Nakamoto, the pseudonymous person or group of people credited with developing bitcoin, released a whitepaper describing the software protocol. Since then, the network has grown and bitcoin
has become a recognized unit of value around the globe. Bitcoin is extremely important because it provides a mechanism for accessing the Blockchain – but it’s not the only application that can leverage the platform.

Bitcoin has also been on the receiving end of some bad press, such as around the collapse of the Mt. Gox bitcoin exchange earlier last year. The Mt. Gox story is not necessarily an indictment of bitcoin. For the purposes of this post, simply remember this: bitcoin is just a mechanism for transacting on the Blockchain and the Blockchain is the key innovation.

The Blockchain: Trustworthy Transactions in a Trustless World

The Blockchain enables the anonymous exchange of digital assets, such as bitcoin, but it is not technically dependent on bitcoin. The elegance of the Blockchain is that it obviates the need for a central authority to verify trust and the transfer of value. It transfers power and control from large entities to the many, enabling safe, fast, cheaper transactions despite the fact that we may not know the entities we are dealing with.

The mechanics of the Blockchain are novel and highly disruptive. As people transact in a Blockchain ecosystem, a public record of all transactions is automatically created. Computers verify each transaction with sophisticated algorithms to confirm the transfer of value and create a historical ledger of all activity. The computers that form the network that are processing the transactions are located throughout the world and importantly are not owned or controlled by any single entity. The process is real-time, and much more secure than relying on a central authority to verify a transaction.

There are many analogous concepts both ancient and modern. Technology has and will continue to transfer power and control from central authorities and distribute them to the masses. For example, time used to be determined and communicated by large clock towers that were expensive to build and maintain. Engineering innovations ultimately decentralized the quantification of time to the individual. Likewise, WhatsApp, a popular cross platform messaging app, cut the transaction cost of sending messages globally – and cut profits for the carriers. The central authority (phone carriers) lost to the application (WhatsApp) built on a decentralized network (i.e. the Internet).

Similarly, third parties that currently verify transactions (the central authority) stand to lose against the Blockchain (the decentralized network). As such, the Blockchain essentially disintermediates these third-party transaction verifiers: auditors, legal services, payment processors, brokerages and other similar organizations.

While you may not be convinced that exchanging bitcoin is an invaluable service, there are many other examples of value transfer that are critical – and currently very slow and expensive. Consider the exchange of property: numerous intermediaries are currently involved in this process, such as a third-party escrow service that works for both parties to ensure a smooth transfer. The escrow service, like other services built solely on trust and verification, collect fees that would be mitigated by performing the transaction on the Blockchain – as would wire transfer fees, third party financial auditing, contract execution, etc.

The use case of the Blockchain enabling a decentralized currency exchange – such as bitcoin – is well defined and will likely be the dominant use case near term, however there are a multitude of innovative and disruptive use cases. Companies are already building their own Blockchains for various applications such as Gridcoin that leverages the Blockchain to crowdsource scientific computing projects. Gridcoin uses its own protocols that require much less computing power and electricity to manage than traditional bitcoin networks.

The Blockchain: and Why it Matters (Let’s Not Mess it Up)

The Blockchain is a foundational technology, like TCP/IP, which enables the Internet. And much like the Internet in the late 1990s, we don’t know exactly how the Blockchain will evolve, but evolve it will.

Similar to the Internet, the Blockchain must also be allowed to grow unencumbered. This will require careful handling that recognizes the difference between the platform and the applications that run on it. TCP/IP empowers numerous financial applications that are regulated, but TCP/IP is not regulated as a financial instrument. The Blockchain should receive similar consideration. While the predominant use case for the Blockchain today is bitcoin currency exchange that may require regulation, this will change over time.

Had we over-regulated the Internet early on, we would have missed out on many innovations that we can’t imagine living without today. The same is true for the Blockchain. Disruptive technologies rarely fit neatly into existing regulatory considerations, but rigid regulatory frameworks have repeatedly stifled innovation. It’s likely that innovations in the Blockchain will outpace policy, let’s not slow it down.

Written by sheeltyle

January 13, 2015 at 8:03 am

Bitcoins at $1,000/each? That’s a steal.

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Bitcoins are to money what email is to communication.

Today, there are about 12,000,000 bitcoins—the unit of currency for the open source peer-to-peer electronic money and payment network created in 2008—in circulation.  At $1,000/bitcoin on Coinbase or BitMe, that represents about $12 billion in value. Though tremendous at first glance, as a point of comparison, the total value of all gold reserves in the world is about $7 trillion. Bitcoins therefore really amount to but 0.2 percent of the value of gold, historically the world’s primary store of value.

In other words, all bitcoins in circulation today are worth less than 1/6 of Bill Gates’s total net worth of $76 billion.  Through either comparison, they could be priced way too cheap.

The best way to think about bitcoin, as my friend Charlie Songhurst describes, is to ignore the urge to conceptualize bitcoin as a “currency replacement” or “money.”  It really is the next generation of currency used within a digital ledger.  Within this ledger, or virtual sandbox, the store of value is bitcoin; outside of this sandbox, the store of value can be converted back to whatever you want: USD, Euros, RMB, maybe even gold.  But, within the theoretically seamless, borderless sandbox, there will be a huge reduction of transaction friction, especially across country lines: lower transaction fees– and subsequent enablement of micropayments, lower currency exchange fees, faster transaction times, and even greater trust in the bitcoin unit (particularly for developing markets, where there may be hyperinflation in Zimbabwe or an artificial currency peg in China).  On top of this, bitcoins are a deflationary currency: as the demand rises, the price should rise, as there will only ever be a fixed amount in circulation (21,000,000 after all the bitcoin mining).

Why Bitcoins aren’t Tulips

The graphs of the meteoric rise in bitcoin price look eerily similar to the 1600’s Dutch tulip bubble…just without the crash (at least, so far).  However, I posit that bitcoins differ from tulips for two very simple reasons:

In a bull case, bitcoin could be the way we transact in the near future.  In the base case, it is a hedge against inflation, quantitative easing, and rogue monetary policy.  If you only believe the latter, and the total value of bitcoin could represent only 1 percent of gold, then that itself is worth north of $5,000/bitcoin (>$7,000 according to the table below from the Bitcoin Investment Trust, which was based on a higher gold to dollar exchange rate).  If you believe it has a chance at the former, the sky is the limit.

So, is bitcoin a steal at $1,000/piece?  Very possible.

UPDATE (12/1/13):  Ever since I published the article, people have asked me whether they should buy BTC.  My advice: don’t invest any more than you can afford to lose.  There is a significant probability (i.e. the bear case) that bitcoin will unravel as a ponzi scheme and be worth zero.  Here is a great article on that.  I personally think it will be worth either zero or thousands of dollars more than it is today.  On that risk/reward basis, it may make sense to put 1% or less of your net worth in it, but no more.

Disclaimer: I own some, but not nearly enough, bitcoin. 

Written by sheeltyle

November 28, 2013 at 10:10 pm

5 Emerging Market & US Predictions for 2012

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This week is my favorite time of the year.  An abundance of food, plenty of football, and precious memories with loved ones.  For the Tyle family, this is the first time since June that my brother, our parents, and I have been together for more than 24 hours, and the first time in 2+ years that we will have been together for more than a week.

Yet, this holiday season, as I spend moments of peace and contentment with family, I reflect, rather in awe, on a revolutionary—literally, revolution-filled—2011.  This last year brought us the Arab Spring, the Occupy movement, the European debt crisis, the explosion of internet company valuations, the end of the US war in Iraq, the death of Bin Laden, and the even more pronounced rise of emerging economies.  It has been a singularly turbulent and exhilarating year, leaving the door wide open for new ideas, now possibilities, new “innovations and inspirations” in 2012. So, as everyone preps to play Jay Sean’s “2012″ this New Year’s Eve, I thought I would make several predictions about what we can expect for the emerging markets and the U.S.

Emerging Markets

1. Investing in urban infrastructure—roads, airports, and railroads in particular— will increase at the national level with unprecedented zeal, as some of the world’s most thronged cities become congested to the point of paralysis. In November, I was in Jakarta, Indonesia, the city known for the worst traffic in the world, and remember traveling—in a car, though I probably should have walked— two kilometers in one hour at a time that was supposedly off-peak.  That pace is unsustainable. This past August, I was in a similar jam in Mumbai, India, where the traffic frequently can become similarly unbearable. Yet in India, the government has announced a plan that will help address this issue, committing to spend $90 billion to build 24 cities between Delhi and Mumbai by 2030. This move will help to distribute the population, foster more sanitary urban environments, and generate millions of jobs in manufacturing and energy.  I’m hoping Indonesia catches on and am betting that more countries to attempt massive programs like India’s.

2. Internet penetration will finally begin to catch up to mobile penetration, growing 30%+ each year in most countries in Asia, Africa, and South America. Brazil (currently at 75mm internet users and 175mm+ mobile phone subscribers) will grow to over 100mm internet users.  India (currently at 50-100mm internet users and 800mm+ mobile phone subscribers) will reach 150mm internet users.  Indonesia (the 4th most populous country in the world with 240mm people, ~90% mobile penetration, and 30-40mm internet users) will hit 50mm+ internet users to bridge the country of islands.

3. The Middle East, specifically Egypt, Iraq, Syria, Sudan, Libya, and 3-4 other countries that we wouldn’t guess, will experience increased violence as clashes continue to erupt and spread over governance.  The citizens that expected positive change after toppling various regimes will be maddened by the lack of it.

4. Most African countries, with the exceptions of some of the ones in the Middle East and those in civil war, will experience 6-8% GDP growth.  It will become the new place venture capital firms begin looking by the end of 2012.

5. Brazil—an already sexy destination for investors—will become an even sexier place to invest as money pours into the country  in anticipation of the 2014 World Cup and 2016 Olympics.  A longer term prediction: a bubble in most industries (especially real estate) will form in Brazil and come crashing down after the Olympics.

US

1. The unemployment rate (currently at around 8.6%) will dip to 7% or less as Democrats focus a majority of their attention on stimulating job creation before the 2012 election.

2. Mitt Romney will win the Republican nomination as Newt Gingrich goes out of fad, and then will win a very close general election.

3. Cleantech investing will come back into fashion as the (few) companies that got funded in 2011, when cleantech investing was less popular, begin becoming successful.  The memory of Solyndra will fade as the industry braces to compete against China.

4. LSU will win the BCS National Championship rematch.  And, finally, the BCS gets overhauled after 2010′s conference shake-ups make it so that the automatic qualifying system makes no sense.

5. The US, and the world, ain’t gonna end.

Happy Holidays and best wishes for a prosperous new year!

Poor Economics

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I’ve read a decent number of development books, like The Bottom Billion, The Elusive Quest for Growth, and probably 3-4 others.  I just finished Poor Economics by Abhijit Banerjee and Esther Duflo.  It was by far the most interesting, well-written, and, most notably, information packed development book I have read.

Banerjee and Duflo take us through stories of their travels and compile the results of endless research studies (some of their own but the vast majority conducted by others) to synthesize, explore, present, and ultimately argue for various viewpoints on education policy, corruption policy, health policy, economic policy, and a few others.  The depth of analysis reminded me of a peer reviewed research paper but the style of writing and ease of understanding reminded me of  Freakonomics.

Pick up this book to learn whether free, susidized, or fully priced bednets are higher utilized—and, how their order of introduction affects the utilization rate.  Pick up this book to learn why some of the poorest use moneylenders that may charge a 4-5% interest rate per day rather than a microfinance organization that may charge 20% a month.  Also pick up this book to learn why nurses don’t show up to work in certain parts of India, how corrupt policies have been good, bad, and everything in between, how witchcraft may be similar to yoga, and probably 100 other interesting stories, relevant topics, and insightful thoughts and tidbits.

It’s a must read if you are at all interested in the challenges of developing and underdeveloped countries.

 

Written by sheeltyle

September 12, 2011 at 1:45 am

Posted in Trends

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The Himalayan Water Irony

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Clean water is tough to come by throughout the developing world.  Sometimes bottled water isn’t even safe; the seals may have been tampered with and the water may not be any different than what comes out of the tap.  Boiling water is the only fool proof way to ensure water clear of parasites, bacteria, and chemicals—and boiling water isn’t very convenient.  The sheer number of diseases and microbial agents that make up waterborne diseases is staggering.  In many European countries, beer is cheaper than water.  The decrease in the amount of readily available clean water – and, thereby, the increase in amount of contaminated water – is a trend that makes me worry for the future stability of nations with exploding populations.

I found the following label on the Himalayan mineral water bottle—a TATA product—to be both facetious and foreboding.

I look back on life – it’s funny how things turn out.

You, the creator of beeping sirens and honking cars, yearn for the solitude of the mountains. You, a connoisseur of fast food, now gaze at water that took years to gather natural minerals as it trickled down from the Himalayas to within your reach. And I, some of the purest water in the world, stand here, trapped in a bottle. Come, enjoy the irony.

It’s an irony that will only become more pronounced as the beeping sirens increase and the trickling decreases.

Written by sheeltyle

July 3, 2011 at 10:21 am

Posted in Trends

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