Santa’s Workshop: Accelerating Operations with Blockchain Technology

The growth of the world’s population and impact of globalization trends has increased the demand on Santa’s primary production facility in the North Pole (“Workshop”). The advent of new toys and their underlying technologies increases the need for a more flexible supply chain, smarter elf force, and high-quality production to meet the annual deadline. Accomplishing all of this without being attacked by Jack Frost or his henchman has forced Santa to raise the bar with the Workshop’s analytical and strategic initiatives.

Below we discuss some of the partnerships the Workshop has entered into with blockchain companies to help meet the demands of the next generation. The essential components of the Workshop are broken up into 4 core segments: Snogistics, ER Management, Sleighportation, and Predictive Naughtylitics.

Solutions for Santa’s Operations

Snogistics

The complexity of supply chains due to globalization of production has made it more difficult to obtain critical raw materials and other inputs. This dilemma is only made more cumbersome with the addition of incentives to cheat for illegal or unethical practices due to the opaque nature of expanding to new markets. To solve these issues, Santa partnered with a few tech-minded companies.

On one occasion, Santa needed to source soccer balls from Sialkot, Pakistan for children in Mexico City, Mexico. The issues with Asian soccer ball production and sourcing include (i) disputes of transfers between entities, (ii) systems and records management being subject to errors / manipulation, and (iii) the use of child labor.

To combat these obstacles, Santa partnered with Halotrade to improve verification and product tracking. Upgrading their software enabled real-time tracking of goods from production to delivery. The protocol also included an automatic P/O facilitation and financing instructions that automatically trigger at each step of the production process. This reduced burden allows Santa to use that time more effectively, such as training junior elves for the next generation of toy technologies, adding elf-power to help reduce the effect of bottlenecks, and beginning FY19 planning a bit earlier.   

Recording the data also improved knowledge of when he needs certain elves to be ready to go. When the junior sized soccer balls were close, he was able to wake up the dwarf elves and optimize the workplace for packaging and distribution. When the professional soccer balls came in, Santa needed to make sure the athletic moon elves were available for additional testing before going to the dwarf elves.

Recording data at each stage also let Santa know where the hiccups were.  It informed him of what partners got the job done, if the Workshop needs to diversify production in any one area, and to help identify declines in quality over time.

Santa also partners with Provenance to get a better idea of who the supplies were coming from. Were payments being made to money laundering opium producers? Were certain individuals cheating the supply chain to smuggle illegal goods? Were the diamonds he acquired from the Venetia mine in South clean? Provenance gave the Workshop team additional confidence that they would not ironically find themselves on the naughty list next year.  

In the words of the Workshop’s Director of Snogistics Frosty the Snowman, “Our partnerships have improved the transparency of our blockchain and made our operations more predictable. In an industry troubled with elf shortages and increasing demand, our partners give us confidence that the choices we make are founded on the best data.”

Elf Resources Management

As elves began working more and more from their homes around the world, the complexity of implementing efficient payment systems reduced the ability to recruit from emerging markets. Also, as we all know, about half of all elves lie on resumes. The certification of skills was a difficult task. Understanding the range of toy-making abilities is essential in the planning and design of the Workshop’s processes. As the ER Management’s Director Buddy the Elf Jr. notes “capability without strategy and strategy without capability are meaningless. Our partnerships help us bridge gaps in our organization.”

What partnerships? The Workshop recently entered into an agreement with Bitwage to find remote elves all over the world, set up payment terminals for their location, and receive invoices in any currency. The platform gave Santa access to almost 20,000 potential workers with sophistication in all parts of the toy making business.

To make sure they didn’t make the wrong decision, the Workshop also partnered with Vottun to create unique certificates applicable to the toy making world. It made sure they were hiring highly-skilled elves at a fraction of today’s recruiting costs.

Sleighportation

As reindeer gather all over the world to help with global coordination, maintenance of communication infrastructure, and, if they are lucky enough – fly Santa’s sleigh – the challenge of flying to everyone’s house in one night seems daunting. The now-retired Comet said, “you would think Christmas Eve is the busiest night, but setting up information architecture to understand weather patterns, conflicts around the world, condition of the sleigh, etc. are just as difficult.” 

Santa recently partnered with the Blockchain in Transport Alliance to create unique solutions to the tasks at hand. Working in coordination together, they were able to create a dashboard of real-time information for Santa to navigate during his night ride. The staff brought unique solutions from some of the top companies in the world – check out the list here – as well as the unique perspective and the technological advantage of blockchain. Safety has always been a priority of the Workshop, having delivered presents without injury for the last 10,000 years.

Predictive Naughtylitics

The ability to track and forecast naughty children to quantify the optimal level of coal necessitates advanced computers constantly slicing and dicing data structures. Santa, who takes pride in his leadership at the analytics department, spoke of the importance of applying next generation technology. He said “the complexity of right versus wrong, the impact of coal, and estimating how awesome the gift should be all require a deep understanding of statistics. Using blockchain tech, we get access to better information at an efficient price to run the right models.”

The Workshop recently partnered with the Golem network to increase accessibility to advanced computing power. They also partnered with Filecoin to buy the exact amount of storage units they need and add flexibility to their IT infrastructure in case they need to scale quickly. With all the information they created, a critical component of right sizing operations was establishing the ability to interpret the data and actively monitor when people move back and forth across the naughty/nice equilibrium. To gain further comfort in delivery success, Santa partnered with Chainalysis to make sure they are delivering coal to naughty kids, mediocre gifts to children that were mostly good, and the best gifts ever for nice children.

Summary

While many of these projects are still in their pilot / testing phases, 2019 should be an interesting year as blockchain becomes more normalized as a business tool. The recent blockchain hangover in the media related to the precipitous price declines of cryptocurrencies only masks the value generation we are beginning to see at a micro level.

(Yes, this article is satirical)

Merry Christmas and a Happy New Year!

Top 5 Historical Cryptocurrency Performers Over the Last Year

The top 5 monthly performers have changed quite bit over the last 3 years, we analyzed 30-day returns for the current top 200 cryptocurrencies (by market capitalization) and analyzed some of the top performers 

A notieable change since the 2017/2018 bubble is the decrease in the average traded volume. Looking over the past three years, we observed that both the top 200 cryptocurrencies (blue) and the top 5 (orange) have experienced roughly a 50% drop in average daily volume since last year. The chart also demonstrates that the popping of the bubble began the process of cleaning out crappy / fraudulent protocol (note, I said started, still a long way to go). The top 5 crypto’s percent of total trading volume crept back up since last year, indicating money was moving out of riskier assets due to increased investor attention to detail, regulatory pressure, and other industry factors.

While it is too soon to call a bottom to the issue of volume, the average figures seem to indicate some trading stability is returning . It is also the first time that the average trading volume increased relative to the last quarter. While this could also be associated with trading behavior exhibited towards the end of the year, exchanges are fighting tooth and nail to avoid looming interest rate hike implications and competing to be the best offering.

The table below shows the top 5 performers on a monthly basis for the same period:

Based on the chart above, the top 10 performers were as presented below. The top performer was defined as any monthly ranking in the top 5 chart above.

TickerTop 5Cryptocurrency NameMission
GRS9GroestlcoinInstant & private transactions
RDD8ReddcoinEasier to use for general public
PIVX7PIVXInstant & private transactions
XVG6VergeInstant & private transactions
NXS5NexusInfrastructure
UBQ5UbiqPayment + decentralized platform
BCN4BytecoinPrivate payments
DASH4DashInstant & private transactions
MONA4MonacoinPayments
REP4AugurDecentralized prediction market

Notably, some of the top performers include coins focused on instant & private transactions. The top 10 performers include only 1 crypto was not focused on payments or broad platforms – Jack Peterson and Joey Krug‘s Augur. As utility token companies begin to deploy the insane amount of capital raised for their projects, we may see the successful projects begin to creep up on these charts. Given the recent boom-and-bust raised the eyebrows of institutional players, we can expect decent market trials and venture-esque projects to provide further insight on future winners and losers. 

The often volatile nature of the industry may be quelled by current attention on fomenting stability. The market’s competition on establishing a stablecoin provides additional evidence that capital is getting smarter and key players are finding ways to take advantage of other emerging technologies (e.g., AI/ML, edge computing, virtual/augmented reality, etc.). The above charts illustrate investors may be consistently reward certain industry segments and protocol. However, as always, it is important to keep tabs on all of your names and keep a diversified portfolio – even historically successful names like Bytecoin may potentially be worth $0 at any time.  

With December 2018 Rate Hike Locked In, Headwinds Accelerate for Cryptocurrency Exchanges

CME’s Group FedWatch is currently assessing the probability of a 0.25% rate hike in the federal funds rate to be 82.7%. In the most recent FOMC minutes, the group indicated “Almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon.” Compounded with the accelerating hacker problem faced by the exchanges, the long popping of the crypto bubble, and an SEC tightening their grips on registration requirements, exchanges are looking at material headwinds to attract capital.

Major Cryptocurrency Exchange / Platform Hacks

Why do Interest Rates Matter?

The response of cryptocurrency asset performance after last 5 or 6 rate hikes (represented by the dotted black lines below) has had a negative impact on crypto price performance.  The chart below demonstrates that the collapse of the crypto bubble during Q1 2018 coincides almost perfectly with the December 2017 rate hike decision. All subsequent rate hikes had a negative impact on crypto asset performance.

Cryptos Versus Rate Hikes

The interest hikes hurt the exchanges in two ways. First, the exchanges are primarily comprised of non-interest bearing deposit accounts. As interest rates rise, traditional deposit accounts will become more attractive. Second, the lack of a futures / forward market for cryptos means the exchanges are forced to be long commodity / crypto volatility with limited choices for risk management. Another item that compounds the issue is that these exchanges lack cash flow diversification such as fee-based services offered by traditional banks.

One area still unexplored is the impact of an inverted yield curve on the price performance of cryptos. Will they become more popular for individuals given the signal of a future recession? Will retail investors try to avoid Federal Reserve exposure by shifting to more digital asset classes? Per the chart above, the 10-2 spread is now sitting at 0.11%. In the past two decades, the 10-2 spread has never reached this level without the yield curve becoming inverted in the near future. The answers to these questions are certainly not going to be answered in the near future; however, observance of these trends may signal future retail investor behavior – especially as regulatory, security, and customer service standards begin to mature.

Change May be Coming

The innovative spirit of the blockchain community has not turned a blind eye to the problem. Coinbase recently invested in Compound, a platform that enables cryptocurrency holders to earn ‘interest’ on their holdings. The goal of Compound is to created tokenized versions of fiat currencies (like the US dollar). Other players such as the Winklevoss brothers’ Gemini Coin, MakerDao, Tether, and other ‘Stablecoin’ projects recognize the importance of creating a digital asset replicating fiat currency. Key features of a winning technology will likely include a secure platform, low volatility, and corporate governance transparency.