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A free, comprehensive 30-page guide on cryptocurrencies that will help investors, money managers and wealth
A free, comprehensive 30-page guide on cryptocurrencies that will help investors, money managers and wealth
A free, comprehensive 30-page guide on cryptocurrencies that will help investors, money managers and wealth

A free, comprehensive 30-page guide on cryptocurrencies that will help investors, money managers and wealth advisors understand the new cryptocurrency and blockchain sector. By the end of this guide, you should feel comfortable discussing and evaluating cryptocurrencies with your clients. Think of it as a cheatsheet for you on the blockchain and cryptocurrency sector.

CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO
CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS
AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

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3 TABLE OF CONTENTS Two Sides: Blockchain is New, its History is Not Why You Should

TABLE OF CONTENTS

Two Sides: Blockchain is New, its History is Not

Why You Should Care

What You’ll Get With This Whitepaper

Overview of Blockchain and Cryptocurrencies

Is your Client Right for Cryptocurrencies?

How Not to Lose Clients With Crypto Advice

Navigating the Regulatory Landscape

The Answers You’ll Need

Key Stats About the Blockchain and Cryptocurrency Sector

Blockchain in Action

How to Buy Crypto

Appendix

About Flipside Crypto

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

TWO SIDES: BLOCKCHAIN IS NEW, ITS HISTORY IS NOT

A brilliant new technology comes to the fore. Established players seek to control this new innovation with lawsuits. New players, looking to escape the legal heat, move to exotic locations.

Locked into a battle between innovation and legislation, naysayers brand the newcomers as rogues and pirates. Yet, these new players end up thriving. They start building reputable companies. They start innovating and building brand new products that flout the rules in productive ways. “Unstoppable” incumbents start to recognize that the tide is turning against them.

The newcomers gradually win. A whole new industry, once underground, is legitimized by a record of proven customer success. A special guest of the old guard decides to meet with the newcomers.

The guest’s name is Thomas Edison.

And the exotic new location of the meeting, so far away from Edison’s New England headquarters, is Universal City, California: home to scrappy, innovative film newcomers such as 20th Century Fox, and the precursors to Universal Studios and Paramount Pictures. In short time, these studios will become the cultural capitals of the world.

Universal Studios and Paramount Pictures. In short time, these studios will become the cultural capitals of
Universal Studios and Paramount Pictures. In short time, these studios will become the cultural capitals of

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Universal Studios and Paramount Pictures. In short time, these studios will become the cultural capitals of
Universal Studios and Paramount Pictures. In short time, these studios will become the cultural capitals of
Universal Studios and Paramount Pictures. In short time, these studios will become the cultural capitals of

WHY YOU SHOULD CARE

In times of great change, there are always two broad camps that emerge. Whichever side you end up being on will determine your own trajectory -- both personal and financial. It will determine the trajectory of you and your clients.

The world is littered with the quotes of naysayers: look at Darryl Zanuck (a Fox executive)’s prediction that:

look at Darryl Zanuck (a Fox executive)’s prediction that: ”Television won’t be able to hold on

”Television won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.”

While cryptocurrencies and blockchain might be new, the cycle accompanying them are not.

This is old news for tech investors. When Amazon, Netflix, Google and Facebook got started, there was a ton of doubt about their viability. Google was derided for not having cash flow until they launched Adwords. Now, everybody’s portfolio needs to include a slice of these tech giants in order to succeed.

Blockchain itself is at the same critical inflection point in film, television, and the Internet once were.

Doubters like Ray Dalio think of the entire cryptocurrency ecosystem as a bubble. Investors like George Soros are giving the green light for their family office to begin investing in the industry.

Major players like Morgan Stanley are writing white papers about the industry. Goldman Sachs is looking to get in, and JP Morgan sits on the Ethereum Enterprise Alliance. Talented entrepreneurs are pouring into the industry. Many talented engineers from top-flight schools such as Harvard or MIT have launched themselves into blockchain. Amazon and Bank of America are filing blockchain and cryptocurrency patents.

As institutional investors, talented entrepreneurs and millennial adoption turn crypto fads into habits -- you’ll be in the perfect spot for investment.

You can determine what side you and your clients are on with this next great change.

you and your clients are on with this next great change. 5 CRYPTOCURRENCIES AND BLOCKCHAIN: A

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

WHAT YOU’LL GET WITH THIS WHITEPAPER

1 An overview of the blockchain and different cryptocurrencies, with a focus on defining the sector with as little bullshit as possible. By the end of this section, you should feel comfortable relaying what exactly blockchain and cryptocurrencies are to your clients.

2 A section that focuses on whether your clients are a fit for cryptocurrencies.

3 How not to get laughed out of the room while bringing up cryptocurrency.

4 An overview of the regulatory landscape, with an exclusive interview with a legal expert in the field.

5 Answers you’ll need to client questions about blockchain and cryptocurrencies.

6 Key numbers that define the sector and can help you easily summarize it to clients.

7 Real case studies of businesses and governments using cryptocurrency and blockchain.

8 How you can buy cryptocurrencies.

9 An appendix with all the rest.

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buy cryptocurrencies. 9 An appendix with all the rest. 6 Guli Arshad , Chairman at Nuland

Guli Arshad, Chairman at Nuland & Arshad (The Optimist)

Mr. Arshad has over twenty years of experience in the investment field. Prior to founding Nuland & Arshad, Inc., he worked as a management consultant, real estate advisor, technology entrepreneur and venture capitalist. He is also active in the non-profit area as a former trustee of the Buckingham Browne & Nichols School and current trustee of American International School of Florence, Community Therapeutics School and The Ladders Program.

Mr. Arshad graduated from Oberlin College and holds two masters degrees from Harvard University including a Masters in Business Administration.

What are your impressions of the crypto market? It’s an unusual market, but increasing regulation and more institutional players (for example, the creation of bitcoin futures) will certainly add more credibility. It’s a hard industry for conservative value investors to grasp, mostly because cryptocurrencies don’t seem to be backed by cash flows or anything tangible and because there’s so much volatility, more conservative investors might assume there’s fraud or a bubble economy being built.

I’m certainly not somebody who has been very conservative before -- I’m quite comfortable with risk, and I’ve done private technology investing for the last 35 years, so maybe I’m not your typical wealth advisor or investor. I really like the idea of cryptocurrencies because they are a distributed ledger and because there’s a finite supply of them -- I think fiat currencies are too centralized and central authorities have too many incentives to go around and essentially print money.

The cryptocurrency sector is really interesting to me. I think of it as Internet 3.0 -- cryptocurrency is really the first wave of this. The international adoption of tokens and the seamless international transfer of value is also really appealing -- I’m bullish on this market and I’m thinking of going out there and purchasing a bunch of tokens beyond Bitcoin and Ethereum.

Where did you go to get your research done on the industry?

I generally go to different events in the Greater Boston Area, usually

hosted by VCs and funders that want to shed more light on the industry. I’m also a part owner of Flipside Crypto and I use their Slack community to learn more about the industry.

How do you approach talking to clients about the industry?

I oftentimes get inquiries from people who trust me and who are

looking into the industry. I’ll usually tell them to go talk to a well-

managed fund and learn from different investors. I personally find Flipside Crypto and the Slack community there to be very valuable for this, but I can see a lot of other different communities out there that might help.

For me, the important thing to get across is the long-term value of the industry, not the craziness of the short-term gains. It’s understanding what holds value and which tokens will realize the long-term value that really matters. I always recommend talking to investors or funds in the industry that can describe those tokens.

OVERVIEW OF BLOCKCHAIN AND CRYPTOCURRENCIES

Here’s how you can use this section: We’ll give you the information you need to create an informed strategic view of the blockchain and cryptocurrency sector -- and we’ll define terms for you so you’ll never be lost if the topic comes up.

What is bitcoin? Bitcoin was the first cryptocurrency, created by Satoshi Nakamoto in January 2009, with a seminal whitepaper.

It proposed to be a decentralized payment system

that relied on a network of peers rather than any centralized authority to regulate and verify transactions and account balances. Created by a reward system known as mining, and capped at 21 million total tokens, it has quickly grown to become one of the most exciting innovations in financial technology. It is the cornerstone of both blockchains and cryptocurrencies.

So what the f@$k are blockchains, really? One way to describe the blockchain is to compare it with how trust and data are distributed in

a regular bank.

Think of each bank having a ledger that tracks deposits, withdrawals, and balances for each client. The client places all of their trust in the bank. They neither control nor access the ledger in question.

Decades of financial regulation and experience

with matters such as wildcat banks have created

a framework where we should trust financial

institutions. However, this is nowhere near foolproof as we’ve seen with Wells Fargo, Equifax, and Lehman Brothers.

Instead of trusting each authority to maintain and oversee each individual bank ledger like in the conventional financial system, the blockchain distributes account balances, verification, identity, and transactional flow along the international network of nodes.

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So instead of banking with a centralized set of servers located under the control of Wells Fargo, Goldman Sachs or JP Morgan, you’re dealing with a set of nodes distributed around the world, with no central authority controlling or delegating actions on the chain. Any individual can start a Bitcoin node on their laptop.

Nodes must agree on a common set of rules known as a consensus protocol in order to create and stream valid data. As an example, in order to accept a new block of transactions, miners have to show proof of valid work in order to get their “reward”: in Bitcoin’s case, a block of Bitcoin and transaction fees for mining that block.

That is both the peril and the promise of blockchain.

It is a mechanism that enables a world without

intermediaries, yet one that poses problems of scalability and interoperability. Blockchain’s biggest selling point is also one of its biggest weaknesses.

Because data and has to be distributed around a

network of servers with no central control mechanism, every individual server has to store a copy of the data, and the entire network has to agree to new transactions before validating them. This makes the network more computationally expensive to run than

a standard, centralized data server.

The Advantages of Blockchain

1 · Transactions are decentralized, so there are no intermediaries

2 · Transactions are immutable (unchangeable) once recorded on the ledger

3 · Transactions on blockchains are transparent and public by default 4· Transactions are non-reversible

5 · Anybody can examine the code or run a node

CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

So wait, what the f*%k are cryptocurrencies? In traditional financial circles, you may have heard of blockchain as a promising new technology, while cryptocurrencies are disdained.

Cryptocurrencies are built on top of blockchains -- they are an expression of value associated with the blockchain in question.

As an example, you can think of Bitcoins as the cryptocurrency you can trade and capture value from the Bitcoin blockchain.

Crypto assets built on the blockchain may not necessarily be separate currencies (some might be tied to real-world assets such as a % of a company or the price of commodities) but for the sake of keeping the discussion consistent and clear, we will be calling all crypto assets cryptocurrencies.

Blockchains are the underlying technology and protocol that make distributing data and trust in a decentralized fashion possible.

If TCP/IP were a blockchain, you’d need InternetCoin to access Facebook or Amazon or Netflix. InternetCoin would be the crypto asset while TCP/IP would be the protocol layer equivalent to the blockchain.

Instead of all of the value of Facebook accruing to Facebook shareholders, you’d actually have the protocol layer, the technology Facebook is built on, gain and capture value through the use of cryptocurrencies.

Cryptocurrencies are the tokens of value that allow blockchains to capture the value of any applications built on top of them -- as a result, they have become investment vehicles that allow individual and institutional investors to invest in blockchains.

and institutional investors to invest in blockchains. Key features of cryptocurrencies: ··· Built on top of

Key features of cryptocurrencies:

··· Built on top of blockchains ··· Allow you to extract and invest in the value of the underlying blockchain ··· Can be traded on exchanges and between different users ··· Validated by a consensus algorithm by a network of servers spread around the world

DIFFERENCES BETWEEN BLOCKCHAIN AND TRADITIONAL FINANCE

AUTHORITY TRUST DATA REGULATORY FRAMEWORK 8 BLOCKCHAIN/CRYPTOCURRENCY Decentralized, no owner controls a blockchain You

AUTHORITY

TRUST

DATA

REGULATORY FRAMEWORK

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BLOCKCHAIN/CRYPTOCURRENCY

Decentralized, no owner controls a blockchain

You have to trust the code

Distributed in chains of mined blocks, placed in servers around the world

Gray area: a mix of old financial rules and developing ones

TRADITIONAL FINANCE

Executives responsible to directors and shareholders

You have to trust the financial intermediary who handles your money

Segmented in organized chunks placed in central servers under the control of one legal entity

Well-established, with the history of many legal precedents

CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

Five Example Cryptocurrencies

Cryptocurrency name: Bitcoin

Description: The original cryptocurrency, it still dominates the market as the largest crypto, and serves as a gateway to investing in other cryptocurrencies.

1 yr return (as of 05/31/2018): 332.31%

Cryptocurrency name: Ethereum

(as of 05/31/2018): 332.31% Cryptocurrency name: Ethereum Description: A platform for smart contracts, where

Description: A platform for smart contracts, where programmers can create their own “Distributed Apps” on the Ethereum blockchain. The ERC-20 token standard also ensures that a lot of cryptocurrency tokens are built from a template based on the Ethereum blockchain (ex: Zilliqa, OmiseGo, and Status and more are ERC-20 tokens). Traditionally the second largest in market cap behind Bitcoin.

1 yr return (as of 05/31/2018): 248.43%

Cryptocurrency name: ZCash

(as of 05/31/2018): 248.43% Cryptocurrency name: ZCash Description: ZCash uses what’s known as zero-knowledge

Description: ZCash uses what’s known as zero-knowledge cryptography to encrypt transaction amounts, senders and receivers, and account balances. It’s part of a category of coin known as “privacy coins” -- those that obscure parts of the blockchain from prying eyes.

1 yr return (as of 05/31/2018): 105.85%

Cryptocurrency name: Golem

(as of 05/31/2018): 105.85% Cryptocurrency name: Golem Description: Golem allows for the decentralized exchange of

Description: Golem allows for the decentralized exchange of computing power.

It aggregates a supercomputer by paying individual users for the use of their computers.

1 yr return (as of 05/31/2018): 141.36%

of their computers. 1 yr return (as of 05/31/2018): 141.36% Cryptocurrency name: Funfair Description: Funfair uses

Cryptocurrency name: Funfair

Description: Funfair uses cryptography and peer-to-peer networking to provide

a blockchain-powered casino platform that can be run by a whole new set of decentralized operators.

1 yr return (as of 05/31/2018): 188.99%

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

The Difference Between Bitcoin And Ethereum

You might have heard of the two most common and largest blockchains: the Bitcoin and Ethereum blockchain. What are the differences between these two giants? Why does the Ethereum blockchain exist?

Ethereum addresses a feature lacking in Bitcoin: the ability for programmers to be able to easily develop their own applications and their own logic on top of the blockchain.

The implementation of smart contracts, the ability for programmers outside of the core team to be able to create functions that use the underlying blockchain to execute actions such as say, registering real estate transactions, does not exist on the Bitcoin blockchain.

transactions, does not exist on the Bitcoin blockchain. 10 CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

IS YOUR CLIENT RIGHT FOR CRYPTOCURRENCIES?

Here’s how you can use this section: Here are a few questions you should ask your clients before you bring up cryptocurrency investments to them.

As a financial advisor, you might have clients coming in who are interested in cryptocurrencies. How do you know which ones are a fit for cryptocurrency investing?

We’ve prepared a set of questions you should ask before getting any serious conversations started.

Are they accredited? Most cryptocurrency projects require you to be accredited in your country of origin in order to invest. Make sure your clients have enough income in order to support a riskier investment.

Do they have a high tolerance for volatility? Cryptocurrencies are very volatile: while there is a lot of room for growth, 30% intraday swings are not unheard of.

Make sure your clients know what they’re getting into and assume that your clients will have to have a risk score of 9 or 10 on a scale of 10 before they even really seriously consider cryptocurrencies.

Are they technically savvy and do they understand the utility of the technology? It helps for your clients to be technically savvy and to understand the uses of blockchain technology.

Without technical familiarity or the ability to be savvy with new technologies, advice that pushes your clients to cryptocurrencies will fall flat on its face.

Are they willing to risk their invested capital? Cryptocurrencies are risky. Clients should go into every investment decision with the clear-eyed view that if all goes south, no government entity or insurance scheme backs cryptocurrencies.

Are they willing to go through periods of illiquidity? Many crypto funds will, as a hedge against extreme volatility, demand that you keep your money with them for a year at a time. This means that crypto investments can be illiquid and your client should be ready to weather that if needed.

They should be prepared to not have access to the capital they invest for at least a few months.

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to the capital they invest for at least a few months. 11 CRYPTOCURRENCIES AND BLOCKCHAIN: A
to the capital they invest for at least a few months. 11 CRYPTOCURRENCIES AND BLOCKCHAIN: A

CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

HOW NOT TO LOSE CLIENTS WITH CRYPTO ADVICE

Here’s how you can use this section: Here’s a systematic approach you can use so that if you were to bring up blockchain and cryptocurrency investments to your clients, you could approach it in a measured manner that helps engage them to the possibility of the field.

We get it: a lot of the research we’ve done shows that wealth advisors understand blockchain and cryptocurrencies, but that they’re afraid to bring it up to their clients because they’re scared of being laughed out of the room.

It’s perfectly valid to wait until clients approach you with inquiries and questions about cryptocurrencies before diving in.

If you wanted to be proactive and bring it up to them, however, here’s an approach we recommend.

Focus on how technologies have been mainstreamed Any investor is likely to now hold some amount of Facebook, Amazon, Google, or Netflix stock -- the earlier they were in on those tech giants, the more outsize returns they’d have gained.

Put your clients back into the past, and ask them what they thought of those companies a few years ago. Now ask them what they think of them now. Drive your clients to the insight that those large tech giants are where they are now because people had the foresight to invest in them earlier.

Now ask them to think about cryptocurrencies.

Relate cryptocurrencies and blockchain to investment patterns of past innovations and put your clients

in the driver’s seat of pulling a comprehensible

framework over this brand new industry.

Focus on real use cases of cryptocurrencies and

blockchain and start driving your clients to recognize the potential endgame

A lot of wealth advisors and clients we’ve talked to

can understand the basics of cryptocurrencies and blockchain, but they don’t know enough specific examples to understand what the endgame of the sector is.

Value investors will have a hard time thinking of

bitcoin and cryptocurrencies as anything more than

a non-cash flow generating inflation hedge.

There’s always a place for an inflation hedge in your portfolio. That part shouldn’t be too hard to convince

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your clients -- especially since many cryptocurrencies are capped in terms of circulation and so perform similarly to a gold-standard or pegged currency, which will be attractive to a class of investors.

However, using case studies can help demonstrate that blockchain technologies offer distinct advantages for businesses and governments, in tracking supply chain issues, tracking collectibles, vote auditing, land registries, creating local or product-specific currencies and much more. We have some of those case studies in a later section.

You can then tell clients that cryptocurrencies are the way forward in terms of capturing value from these new blockchains.

Another way to drive this point home is to compare them to more liquid versions of the shares that are held privately for early-stage startups. Cryptocurrencies allow access to an asset class that previously was almost entirely network-based and insider-based.

Imagine investing in Facebook very early on as opposed to during the IPO -- that would have been the difference between making a billion-dollar return (as in Peter Thiel’s case) and merely making a few thousand.

This will help appeal to clients that are value investors, and will help them understand that there’s an endgame that goes way beyond virtual gold for this new asset class.

CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

Evaluate blockchain and cryptocurrency projects with a framework in mind Talk to clients about a systematic way to evaluate new blockchain and cryptocurrency projects without the hype of short-term price fluctuations.

A framework might go something like this:

1 · Look at the team. Are there strong business,

design, and technology players in the space? Do they have proven track records of building impactful companies?

2 · Look at if they’ve raised a traditional round

of venture capital or if they’re associated with a high-prestige accelerator in the crypto realm (ex:

Consensys). Those are strong positive signals.

3 · Can the landing page and whitepaper of the project

simply explain a viable business model and a realistic paying customer?

Be fair and balanced about the risks and downsides There’s no escaping the fact that the blockchain and cryptocurrency sector still have a lot of risks and downsides.

However, there is a way to paint the earlier picture of the upside while reasonably managing expectations on the downside.

Focus on projects that have legitimacy and which are going to create long-term value and avoid those with thin teams or scanty thinking about their business model, legal strategy, and policy engagement.

Get people to recognize that the risks present now are the same risks technology investors have always seen in the past.

risks technology investors have always seen in the past. 13 CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

NAVIGATING THE REGULATORY LANDSCAPE

Here’s how you can use this section: Understand how regulators and policy-makers are evaluating cryptocurrencies and the blockchain - and be able to share a first-hand POV from a compliance expert in the field.

What regulatory frameworks apply to blockchain? How are governments and regulatory agencies reacting to this brand new technology?

··· The chairman of the CFTC (The Commodity Futures Trading Commission) has taken the position that cryptocurrency regulations should “cause no harm”.

··· The Federal Reserve, traditionally the regulator of banks and money, has declared cryptocurrency to be out of their regulatory scope.

··· The Securities and Exchange Commission is looking into initial coin offerings and seeing what securities regulations should apply to them.

··· Around the world, there are hubs of crypto activity. Singapore and Switzerland are creating ecosystems such as Crypto Valley in Zug, with forward-facing regulation and flexibility towards cryptocurrency. The Ethereum foundation and a host of Ethereum token projects are now growing in Zug.

··· The Financial Conduct Authority in the United Kingdom has created and embraced a fintech sandbox for cryptocurrency startups, giving them the flexibility to experiment.

··· In Canada, the Ontario Securities Commission, the largest provincial securities regulator has created Launchpad: a similar regulatory sandbox.

Ultimately, legislators in Congress passed the Telecommunications Act of 1996 and codified the regulatory positions of the FCC into legislation, marking an end to telephone policies for the Internet and allowing Internet providers to escape burdensome common carrier obligations such as mandatory bundling and rigid price controls.

This allowed the private sector to be more innovative on how they could provide broadband services. It helped spur the growth of the Internet in the United States.

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

We are facing a very similar moment in the blockchain and cryptocurrency industry, one where regulatory agencies are starting to define their policies. It’s a time of uncertainty and change, but also a tried-and-true part of many innovative shifts in technology.

tried-and-true part of many innovative shifts in technology. It’s a time of uncertainty and change, but

It’s a time of uncertainty and change, but also a tried-and-true part of many innovative shifts in technology.

On the technology side, you have programmers from Harvard and MIT flooding into the industry to build on this exciting new technology: on the legal, compliance and financial side, you’re seeing an equivalent pull for forward- facing, talented individuals who want to explore dynamic new ideas.

For some more insight on this rapidly evolving field, we interviewed John Beccia, who spent five years leading compliance at Circle, the cryptocurrency-based startup that recently raised $110 million at a valuation of $3 billion from investors such as Goldman Sachs.

of $3 billion from investors such as Goldman Sachs. 15 CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

John Beccia Co-founder and CEO of FS Vector Ex-General Counsel and Chief Compliance Officer of
John Beccia Co-founder and CEO of FS Vector Ex-General Counsel and Chief Compliance Officer of

John Beccia Co-founder and CEO of FS Vector Ex-General Counsel and Chief Compliance Officer of Circle

John A. Beccia, III is the co-founder and CEO of FS Vector, an advisory firm that provides regulatory, risk management, government relations and compliance consulting services for fintech, cryptocurrency and other financial services firms.

Prior to his current role, Mr. Beccia was General Counsel and Chief Compliance Officer of Circle Internet Financial, Inc., a company that provides digital currency solutions for consumers. He also served as Senior Vice President and Deputy General Counsel for Boston Private Financial Holdings, Inc., a publicly traded bank holding company and was Chief Regulatory Counsel and Research Director for The Financial Services Roundtable where he was responsible for all regulatory affairs and assisted with legislative efforts for the trade association. Mr. Beccia is currently an Adjunct Professor at Boston University School of Law and is a frequent speaker on fintech and cryptocurrency matters.

Mr. Beccia has a Bachelor of Arts degree in Political Science from Providence College, a J.D. from Roger Williams University School of Law, and a LLM in Banking and Financial Law from Boston University School of Law.

Tell us your story and what got you involved with Circle? What’s your role there like? The cryptocurrency industry is filled with people from various backgrounds. Mine comes from what you can regard as a more “traditional” background in finance. I did a lot of work on legal and compliance matters with banks and dealt with policy issues while at The Financial Services Roundtable in Washington DC. I collaborated with government agencies and regulators on compliance questions such as those associated with money laundering and consumer protection.

I was one of the first employees at Circle, joining the company as the General Counsel and Chief Compliance Officer. I helped build out the compliance framework from the ground up and focused on trying to shape the regulatory framework for the nascent blockchain industry. My previous experience in financial services was useful in trying to apply certain laws and regulations to a new business model in an uncertain regulatory environment. Regulators are focused on protecting consumers and investors.

In the early days, the regulators had serious concerns about the risks associated with cryptocurrencies, such as potential money laundering or the security of digital assets. It was important to alleviate these concerns to allow these businesses to get to market and develop products that could benefit the consumer. My philosophy has always been to engage regulators proactively and focus on educating and collaborating with them. We had a very strong team and culture around compliance at Circle. We understood the importance of active engagement with regulators as well as developing strong processes and controls to mitigate risks.

How does your experience in “traditional finance” generalize to cryptocurrencies -- and what are some of the differences? Regardless of whether it’s traditional finance services or

cryptocurrencies, it is important to form relationships with regulators and understand what they are focused on as it relates to your business or the broader industry. In terms of regulation, the approach

is risk-based, regardless of the business model. Regulators have

a mission to protect consumers and the integrity of the financial

system and thus are focused on the safety and soundness of firms

and how the business interacts with consumers and investors.

Businesses should be aware of the risks of associated with their model and implement controls commensurate with the risks to ensure consumers are protected, regulators are satisfied and other stakeholders (such as investors and other business partners) have confidence in the approach taken.

Many of the regulations (and government agencies) are similar whether is traditional finance or cryptocurrency. The distinction lies in the differences of the model, types of activities, the delivery of the products and the risks posed. New business models, and especially new technologies like the blockchain, make it challenging to interpret and apply certain laws and regulations. Although many of the agencies are similar, most of the focus with regulation in the early stage was at the state level and that has shifted over the last year or so.

The main difference between cryptocurrencies and traditional finance

is that new products and technologies are developing so quickly

and the regulations are a moving target whereas financial services regulation is more stable with the largest overhaul happening in 2010 with the Dodd-Frank Act following the financial crisis. In traditional financial services, major changes to regulation seem to be a reaction to major events. With cryptocurrency, the agencies have been somewhat proactive in trying to account for innovation and work with industry players to develop a framework. As a practitioner in this industry you need to be engaged early and often to ensure compliance.

What about money laundering? Aren’t cryptocurrencies just a form of “flight capital?” Money laundering exists throughout the entire financial sector

-- it’s not just confined to cryptocurrencies. The anti-money

laundering efforts of industry are vital to protecting the financial system. Partnering with law enforcement and regulators is important to detect and deter bad actors from using the financial system for illicit means.

It is important to acknowledge is that while we can mitigate risks, we

can never fully eliminate it. The key distinction for cryptocurrencies

is that they pose unique risks that need to be accounted for and

addressed through regulation and industry compliance. The

Financial Crimes Enforcement Network (FinCEN) established the first guidance in this industry in 2013 which stated that firms engaging

in converting (or exchanging) digital currency are money service

businesses and must register with FinCEN and establish an AML

(anti-money laundering) compliance program.

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Industry players have dedicated substantial resources to this area and have created comprehensive programs to detect illegal activity. These programs include strict Know Your Customer reviews at the onboarding stage, monitoring of transactions and reporting of suspicious activity. Given these firms are technology-based, they have been able to develop innovations on how to monitor and detect risk in a manner that is more efficient than traditional financial institutions. External vendors have also developed forensic and other regtech tools that have bolstered compliance efforts. In many cases, this actually makes it easier for government investigators and regulated exchanges to track down financial criminals.

[Author’s note: this was how the FBI was able to track down the transactions done by drug exchange Silk Road on Bitcoin].

How are governments, regulators, and policy-makers viewing the cryptocurrency industry right now? Almost every government agency has a working group looking into bitcoin, cryptocurrencies, and blockchain. Some of the regulatory focus has shifted over the last year. With the advent of ICOs, tokens and the increased trading activity, agencies like the SEC and CFTC have become more engaged from a policymaking perspective as well as enforcing laws against bad actors.

I would expect to see more enforcement actions over the next year as regulators conduct sweeps and look to crack down on bad players in the industry. From a policy perspective, regulators and legislators have signaled that they want to balance their need to satisfy their missions with the ability to promote (and not stifle) innovation.

With this said, more clarity is needed in several areas so the technology can thrive. There needs to be more coordination among global regulators to ensure that minimum standards are established and that there is some level of consistency among regulations. The industry also needs to do a better job of coordinating with regulators and establishing best practices for their activities. This is a critical time as the industry develops with quite a few uncertainties that need to be resolved in order for the sector to really mature.

What are some of those uncertainties and regulatory grey zones? There’s a lot of uncertainty around initial coin offerings (ICOs), tokens and trading activity. There is a lot of focus on issuers (in the case of token originators) and exchanges. The emphasis is on what is or isn’t a “security” and the impact that may have. The most commonly traded cryptocurrencies (i.e. Bitcoin, Ethereum, Ripple, etc.) do not meet the definition of securities under the Securities Act of 1933 (although some have questioned whether Ether and Ripple are securities). The SEC has not given definitive guidance on how to treat cryptocurrencies. In March 2018, the SEC issued a set of requirements that it deemed necessary for a digital asset exchange compliance for firms trading “securities”.

Most of the largest US exchanges offering these cryptocurrencies are licensed as money transmitters and are not registered with the SEC or CFTC. Money transmission regulation in the US exists at both the state and federal levels. At the federal level, these businesses must register with FinCEN and comply with AML requirements. While state laws vary, the majority of the states require licensing as a money transmitter for platforms that exchange cryptocurrency, regardless of whether fiat currency is used. The state of New York has regulations specifically designed to cover cryptocurrency activity. Seeking multiple state licenses requires significant resources to prepare applications, establish compliance protocols and ensure ongoing reporting and oversight obligations are met.

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There is also different levels of regulation and philosophies from an international perspective. Some countries have taken a hands-off innovation first approach while others are discussing ways to ban certain activities. The United States has been slow to develop a comprehensive framework that fosters innovation. Other countries, like the United Kingdom, for example, are using things like regulatory sandboxes to allow for new products to get to market in an environment in which regulators and industry players can learn about the risks and develop appropriate guideposts.

There is also a lot of overlap and interest between cryptocurrency firms and traditional financial services. In the early days, exchanges were reliant on bank partners to facilitate transactions. Now, banks are trying to find ways to leverage the technology directly and cryptocurrency players have been reportedly exploring getting their own banking license in order to expand offerings. Meanwhile, regulators are trying to determine how certain business models should be regulated. The Office of the Comptroller of the Currency, for example, tried to develop a new fintech charter to oversee innovative companies.

Through it all, what got you motivated to get into cryptocurrencies, and what keeps you motivated? When I first started with Circle, I didn’t know much about the blockchain. I had a steep learning curve when it came to the associated technology and the opportunities it presented. As I started going down the rabbit hole I became excited about the possibilities because I understood how clunky existing financial applications were and I saw the ability to disrupt these models and provide benefits to consumers, some of which were underserved by traditional financial services. In 2013, the focus was on how the blockchain (and Bitcoin in particular) could change payments by offering the ability to improve the speed and security of these transactions.

I was excited to work for a company that was a pioneer in this industry and was building products based on this technology. I was also attracted to the challenge of working in an industry where new regulatory frameworks were being developed on a global basis.

The power of blockchain technology is limitless and could impact industries beyond financial services. I’m really motivated by the amount of change in the cryptocurrency sector over the last year. There are new platforms based on smart contracts and an explosion of different investment vehicles as the capital markets have been impacted positively by these advances. I feel privileged to work in such a fascinating industry and I look forward to seeing how this technology is leveraged in the future and what benefits it can offer.

industry and I look forward to seeing how this technology is leveraged in the future and

THE ANSWERS YOU’LL NEED

Here’s how you can use this section: Understand the general landscape of both blockchain and cryptocurrencies, then tackle commonly asked questions from your clients.

Now that you’ve brought up some of the upside and downside of blockchain and cryptocurrency, we want to equip you with common answers to the most frequently asked questions your clients might ask.

What are the differences between cryptocurrencies and fiat currencies?

There are in practice quite a few differences between cryptocurrencies and their fiat counterparts. Here are a few of them enumerated.

··· While fiat currencies are backed by a government and usually run by a central bank, cryptocurrencies are not issued by any G20 governments (as of yet). The vast majority of cryptocurrencies do not have any government backing.

··· Cryptocurrencies are virtual-first. There are no physical representations of cryptocurrencies that can be traded, unlike physical cash.

··· Many cryptocurrencies have limits set on how many can be mined -- so there is a physical limit to how much cryptocurrency can be in circulation -- something akin to when the USD followed the gold standard. In practice, there are few fiat currencies now that are pegged to another currency or which are pegged to a certain supply level.

··· Cryptocurrencies are often validated by a process that involves “mining” -- what’s called “proof-of-work”. There are other validation systems for their creation including proof-of-stake. What’s important to note here is that in order for a cryptocurrency unit of value to be created, it requires consensus from a set of distributed nodes rather than the central authority that fiat currencies require.

··· The transaction of value involving cryptocurrencies is recorded in a root blockchain: a distributed ledger that has a validated record of cryptocurrency spend. This means that unlike cash, which can be circulated and passed through in the economy with little oversight, cryptocurrency spend can actually be tracked in depth.

 

FIAT

CRYPTOCURRENCY

GOVERNMENT-BACKING

Yes

No

VIRTUAL

Some physical representation in cash

Entirely

LIMITS ON CIRCULATING AMOUNT

None unless enforced with regulation

Designed by default with limits

CREATION

Stamped and approved by a central bank

Mined or validated by decentralized servers

TRACKING

Cash is untrackable unless marked

Transactions are tracked by default on a public blockchain

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

How are blockchains/cryptocurriences created?

There are three main mechanisms for creating blockchains and cryptocurrencies:

··· Creating it from scratch: When Satoshi Nakamoto launched Bitcoin, he was creating a blockchain and cryptocurrency from scratch.

··· Forking: this is a hard reset for an existing

blockchain that segments the existing blockchain into

two separate chains

when Bitcoin Cash split from the main Bitcoin chain.

This “forking” is what happened

··· There are also what are called “ICOs” or initial coin offerings: These offer the opportunity for tokens built on top of blockchains (such as those built on the Ethereum blockchain, known as ERC-20 tokens) the ability to go to market and start being distributed widely.

How are units of cryptocurrencies created?

Cryptocurrencies follow different consensus protocol rules for determining when a new unit of value has been created.

··· Proof-of-work: a system where nodes have to “mine” new blocks of cryptocurrencies through solving cryptographic problems.

··· Proof-of-stake: where validators who lock up parts of their cryptocurrencies are given a probabilistic chance of validating a new block.

··· Other consensus algorithms exist, such as the hybrid proof-of-activity used by the popular blockchain Decred to dictate how cryptocurrencies are created.

What are the governance features of cryptocurrencies?

··· Most cryptocurrencies are run by organizations that resemble early-stage tech startups: usually teams of designers, engineers, and product builders.

··· There is generally no central authority governing a blockchain or cryptocurrency, but rather a loose consortium of stakeholders, usually a combination of the founding team, programmers contributing open- source code, and some important investors and users.

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··· An important distinction to make here is between public blockchains and private ones. Private ones can be permissioned and a central authority can decide who can participate in a private blockchain. Ripple, for example, builds blockchains for a consortium of banks. Ripple acts as a central gatekeeper, giving only certain agents the possibility of recording their data on that particular blockchain.

··· In public blockchains, it’s very hard for this gatekeeper to exist: anybody with computing power can go out and buy or sell cryptocurrencies and interact with the blockchain either through mining or through owning tokens.

··· There are organizations like the Ethereum Foundation for public chains, composed of notable figures in the Ethereum industry. However, while they help guide stakeholders towards proposed solutions, they don’t wield any force or clout beyond that. The Ethereum Foundation offers grants for novel solutions to Ethereum problems, but doesn’t enforce their use.

What’s the scalability problem of cryptocurrencies?

You might have heard that Ethereum and Bitcoin can process much less transactions per second than the Visa network. This is because each transaction needs to be verified by a set of decentralized nodes. Solutions are currently being implemented to address this, with sharding on the Ethereum blockchain and the Lightning Network being looked at for Bitcoin. These two technical solutions will allow for many more transactions to be processed through the Ethereum and Bitcoin blockchains

What is the long-term utility/endgame of cryptocurrencies?

Think of cryptocurrencies as being an expression of value for the blockchains they reside on. The Ether cryptocurrency is built on the Ethereum blockchain.

The Ethereum blockchain and the Ether cryptocurrency will gain value as more people have to use Ether to trigger different functions and different smart contracts.

You can imagine different blockchains evolving as TCP/IP did into the Internet. Instead of all of the value accruing to utility providers and software companies built on top of the Internet, you could argue that the protocol itself will be worth something.

CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

What are the tax treatments of cryptocurrencies like in the United States and other jurisdictions?

··· In the United States, cryptocurrencies are regarded as commodities, and you must report capital gains tax on any realized capital gain to the IRS. The IRS has subpoenaed tax records from exchanges such as Coinbase, which have complied. You can expect tax law enforcers to be vigilant here.

··· It’s advised that you send your client to a tax advisor who is familiar with the industry.

··· The recent tax law passed in the United States specifically forbade the like-for-like exemption on capital gains some had been employing for trades between different cryptocurrencies. Tax legislation is quickly evolving in the industry and regulators are constantly looking at different treatments of

cryptocurrency: make sure that you’re up-to-date with recent changes in relevant legal jurisdictions.

.

Are you able to trade between different cryptocurrencies?

Yes, different marketplaces exist for you to trade cryptocurrencies for other cryptocurrencies such as Binance. Exchanges like Binance have about 400 high- volume cryptocurrencies that you can trade with each other and you can cash out in fiat. In practice, you’ll probably need to use a cryptocurrency such as Bitcoin or Ethereum to cash out your holdings in fiat.

Are ICOs scams?

··· While many initial coin offerings are unregulated offerings, there do seem to signs of goodwill and good faith in the industry.

··· Each project should be evaluated on its own

risks. Each has its own objectives, teams, and legal

structure.

will eventually offer in public sales, to exclusive partners or large private investors.

In practice, you have to be personally connected to the project founders or know somebody who is in order to get in at the private sale event.

There are Telegram groups and Facebook groups devoted to investing in cryptocurrency that can help you find those different deals if you wanted to, though it’s largely a matter of network and proof of accreditation/funds.

Once you have that, you can begin connecting to

people starting ICO projects and ask to be part of their private list. Calendars such as the following will have

a record of upcoming ICO events.

What are some index funds and hedge funds that cover the crypto sector?

There are numerous funds dedicated to cryptocurrency investment, some with a more passive “index fund” like approach while others are aggressively managed and closer to approximating “hedge funds” in the industry.

Index Funds

··· CRYPTO20 is a tokenized version of

a cryptocurrency index fund.

··· Flipside Crypto offers proprietary data science tools to extract which cryptocurrencies are the ones most likely to create long-term value. It then automatically rebalances the basket of cryptocurrencies fund investors are exposed to, while offering an online learning community for those interested in learning more about cryptocurrency investment.

 

Hedge Funds

How do I get involved with ICOs?

 

··· Polychain

Initial Coin Offerings are a marketing mechanism to distribute cryptocurrencies, often used by tokens

built on one of the foundational platform blockchains (ex: Ethereum). They’re akin to crowdfunding for

··· MetaStable

cryptocurrency-based projects.

··· BlockTower

Most ICOs have a period where they have a private sale of tokens, usually at a discounted rate to what

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

The difference between hedge funds and “index funds” in the industry really have to do with fee structure and the lockup structure of different funds. In practice, many “hedge funds” in the crypto industry have a 2% management fee and a 20% fee on returns -- and a one-year lockup period.

It’s recommended that if you invest with a fund, that you invest in one with a good reputation in the industry, significant assets under management, proactive thinking on compliance, and a favorable lockup and fee structure.

What kind of protective or privacy measures should I take with cryptocurrencies?

··· Always keep your private keys and exchange login credentials safe. Usually, this means storing them on paper, and being very safe with where this data is stored online. You have to hold your private key very closely -- anybody with access to the private key of a wallet or your credentials for logging into a cryptocurrency exchange can access and control your funds.

··· Use hardware wallets such as the Trezor if you want to be more secure.

··· Use privacy coins such as Monero and ZCash if you really want absolute privacy. These cryptocurrencies are built to obscure account balances, ownership, and transaction history.

Are cryptocurrencies backed by any countries or authorities?

··· While many countries are pursuing research in the industry and some are launching their own cryptocurrencies (The Venezuelan Petro for example), no cryptocurrency is currently backed by the FDIC or a major Western government.

··· None of the G20 economies have released a central-bank backed version of cryptocurrency as of May 2018. Xi Jinping and Chinese authorities have spoken about the importance of blockchain, and Russia is looking to launching a central-bank backed cryptocurrency.

.

to launching a central-bank backed cryptocurrency . . 21 CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT
to launching a central-bank backed cryptocurrency . . 21 CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT
to launching a central-bank backed cryptocurrency . . 21 CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

KEY STATS ABOUT THE BLOCKCHAIN AND CRYPTOCURRENCY SECTOR

Here’s how you can use this section: You can use the numbers in this section to summarize what’s been happening in the sector to your clients. Think of this as a cheatsheet for key stats about it.

Bitcoin Price*

2009: $27 USD As of June 14 th , 2018: $6,620 USD

This amusing Guardian story describes somebody who bought $27 USD worth of Bitcoin in 2009 (which was 5000 bitcoin at the time). He then checked in 2013, when it was worth about $886,000 USD. He used about one-fifth of that bitcoin stash to buy a nicely-priced condo unit in the middle of Toyen, one of Oslo’s most pricey areas to live.

middle of Toyen, one of Oslo’s most pricey areas to live. Of course, if he had

Of course, if he had kept that 1,000 bitcoin, at its all-time high (at $20,089 on December, 18th, 2017), he would have netted $20.8 million USD!

83x return on Ethereum

If you held Ethereum between January 1st, 2017 and May, 1st, 2018, you would’ve made more than 83x return on your money. It would have taken you the equivalent of 38 years from 1980 to 2018 holding your money on a fund weighted on the Dow Jones Industrial Average for you to have made a similar return.

$600 million raised in ICOs by mid-2017

By mid-2017, initial coin offerings had raised more than $600 million for different projects. ICO financing has now outpaced traditional venture capital for early-stage capital.

34% loss

This return doesn’t come without risks. Several cryptocurrencies have seen intra-day trading swings of 50% or more. Between December 17th and December 30th of 2017, Bitcoin lost about 34% of its total value.

When BitConnect, a cryptocurrency lender, decided to discontinue its lending program (and after it was subpoenaed by financial regulators), the cryptocurrency lost over 90% of value over a single day -- going from $330 USD to $20 USD in a matter of fewer than 24 hours.

Outranking Jesus**

The growth isn’t just confined to financial return. For a brief period in Google Trends, bitcoin significantly outranked Jesus Christ in terms of search momentum.

of https://trends.google.com/trends/explore?q=bitcoin,jesus 22 CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

BLOCKCHAIN IN ACTION

Here’s how you can use this section: Here are real case studies of the tangible value cryptocurrency and blockchain projects are creating for enterprises and governments. You can use it as examples to your value-investment minded clients about the potential of the sector.

Are cryptocurrencies destined to be some form of failed virtual gold? Or are they going to be useful for the average consumer? Here are some case studies of the blockchain in tangible use cases, solving both business and policy issues.

PREVENTING FRAUD IN THE ART WORLD

Have you ever wondered where that rare art piece came from? Was it perhaps stolen? Is it even an authentic piece?

The blockchain is tailor-made to help with this problem. You can use it to track a piece of data from place to place -- and you can map that piece of data to anything you’d like: a part in the supply chain. Or a piece of rare art.

THE CODEX PROTOCOL IS A REAL USE CASE FOR THE BLOCKCHAIN THAT IS MAKING IT EASIER TO VERIFY AND AUTHENTICATE RARE PIECES OF ART -- A $2 TRILLION MARKET.

Codex was able to raise $190,000 for charity at Ethereal, a blockchain focused symposium in Brooklyn through a rare art auction. The Codex Registry was able to track down where each piece of art came from, and was able to display to bidders exactly who the artist was and how the art piece came to be commissioned and created.

This auction was the first step towards disrupting a $2 trillion industry focused on rare collectibles and fine art.

PAYING FOR BETTER CONTENT

An advertising-driven model for content incentivizes cheap views and bad, clickbait laden content. Alternative models that seek to valorize deeper engagement and more fulfilling content have emerged to fill the void.

Enter a new cryptocurrency-backed content startup, Steemit. The platform operates the same way as players like Reddit, but with one important difference: upvotes for content come with monetary value in the form of STEEM Dollars. It’s a platform where you can be rewarded for posting content with cryptocurrency.

This is what Steemit promises. The platform is now one of the most active social communities on the Internet. People who aggregate posts and get enough engagement can earn $500-$1000 USD worth of Steem dollars per post, a rate that is much higher than any traditional advertising model can provide. In the long term, this may promise to be a better deal for content creators than competitors such as Reddit and Medium that have raised millions of dollars in venture capital.

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

Governments Are Using Blockchain + Crypto

LAND REGISTRIES ON THE BLOCKCHAIN, THE EASIEST AND MOST EFFICIENT WAY TO INCREASE GDP FOR DEVELOPING COUNTRIES

Recently, at a talk at Ethereal in New York City, Bermuda’s premier talked about converting the land registry of the island nation from a traditional records system to one that is placed on the blockchain.

Land registries are often marked by inaccurate or incomplete records. Any inaccuracies can quickly deprive entire families of their livelihood. After the 2010 Haiti earthquake, an inefficient and corrupt land registry service hampered reconstruction and forced the island into a period of tough economic stagnation as businesses and homes could not be built due to confusion over who owned what parcel of land.

Using the blockchain to improve this process has been tested several times in nations around the world. In Haryana, India, a proof-of-concept was presented to highlight real-time transparency and tracking of land/real estate transactions by using the Ethereum blockchain.

A Swedish consortium experimented with the concept in Sweden, and opined that while it would confer

significant economic benefits to developed countries, for “countries without a trustworthy real estate ownership record and land registry, a similar project may be the easiest, most cost-efficient and fastest way to increase GDP in the medium term. It will serve as a foundation for better investments in land, enable the development of a mortgage market and a credit market in general, and become an institution for trust in one of the most fundamental parts of an economy: land and real estate.”

For “countries without a trustworthy real estate ownership record and land registry, a similar [blockchain land registry] project may be the easiest, most cost-efficient and fastest way to increase GDP in the medium term.”fundamental parts of an economy: land and real estate.” VOTING WITH THE BLOCKCHAIN Recent elections in

VOTING WITH THE BLOCKCHAIN

Recent elections in nations around the world have thrown the democratic process into doubt. How can one ensure that votes are authenticated, audited and tabulated in real-time?

At the most recent presidential election in Sierra Leone, a milestone was being achieved. Agora,

a blockchain company accredited by the National Election Committee in Sierra Leone, was using

a private blockchain to audit the results of the national election in real-time.

Agora, a blockchain company accredited by the National Election Committee in Sierra Leone, was using a private blockchain they had created to audit the results of the national election in real-time.to audit the results of the national election in real-time. Agora tabulates results from paper ballots,

Agora tabulates results from paper ballots, and registers those counted by impartial observers into

a transparent blockchain solution. This allows voters in Sierra Leone to trust the results, and gives Sierra Leone’s democratically elected government a stronger claim to the people’s will.

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

HOW TO BUY CRYPTO

Here’s how you can use this section: You can learn how to buy crypto yourself or recommend places where your clients can get exposure to this sector.

You may be wondering how to get your clients set up on buying and investing in cryptocurrencies and blockchain technologies. Here are some common mechanisms for cryptocurrency investment.

Buying cryptocurrencies on Robinhood Robinhood is a popular zero-fee brokerage with a desktop and mobile app. Using this app, you can trade both Bitcoin and Ethereum (the two largest cryptocurrencies) in Arizona, California, Colorado, Florida, Massachusetts, Michigan, Mississippi, Missouri, Montana, New Mexico, Pennsylvania, Utah, and Wisconsin. The app can be downloaded on mobile, and bitcoin and Ethereum can be purchased on it the same way ETFs, stocks and other investment vehicles are available on Robinhood.

The support section of Robinhood offers detailed instructions and an FAQ section on how to get started with the application.

Buying on exchanges You can use exchanges such as Coinbase (the most commonly used one in the United States) to get access to Bitcoin and Ethereum funds. For more coins and tokens, you might use an exchange such as Binance. Exchanges will offer desktop and mobile apps that help you easily set alerts, and buys and sells.

Cryptocurrency-specific funds Cryptocurrency-specific funds are a way to get involved in the blockchain and cryptocurrency industry without any of the risk inherent in any of the processes above. Funds such as Flipside Crypto will help manage funds placed in a cryptocurrency basket and simplify things such as custody, the actual buying and selling of crypto, and automatic rebalancing of your portfolio. It could make for a good option if you’re looking to get invested in the cryptocurrency industry without having to go through the hassle of setting everything up yourself.

to go through the hassle of setting everything up yourself. 25 CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

Glossary Of Terms

Blockchain:

The foundational technology behind the blockchain and cryptocurrency sector, a distributed store of data that is processed and stored on decentralized servers around the world. This is a new way of distributing both trust and data in contrast to traditional systems where a central organization holds all of the cards.

Think of it as a chain of verified blocks of data -- each block of data containing, in the case of cryptocurrency, who has transferred value to others, or in the case of a land registry project, who owns what plot of land.

Cryptocurrency:

A token or currency built on top of blockchain

technology, which helps capture value from users of the blockchain. You can think of Bitcoin as the first application and cryptocurrency stemming from the blockchain.

Node:

Any computing server around the world can run as a cryptocurrency node, which can store a copy of the

blockchain and serve to verify transactions being done

on it.

Hash Rate:

A measure of the computing power dedicated to any

blockchain by the miners validating transactions and blocks. The higher the hash rate, the more active the

chain is and appealing it is to miners, and the harder

it is to attack the chain, and infiltrate it with false transactions (known as a 51% attack).

Proof-of-work:

A system where blocks of transaction data on the

blockchain are mined and validated by specialized computers who earn a reward for solving specific math equations: this is deemed as proof-of-work.

26

Mining:

A practice in proof-of-work systems where computers

are dedicated to solving math problems in order to claim the right to mine a block of data and to get an amount of cryptocurrency.

How it works in some more detail: the cryptographic

mining piece involves solving cryptographic puzzles.

A computer needs to find a nonce to combine with

unverified transactions to output a verified string.

Proof-of-stake:

Proof-of-stake allows people who own a selection of a blockchain’s tokens to make decisions on validating the chain: in practice, it’s a much less energy-intensive practice than mining and the proof-of-work system.

Decentralization:

A measure of how much authority is held by a central

holder. You can argue that blockchains are naturally more decentralized than other methods of distributing data because there is (in the case of public chains) no gatekeeper on who can join: as long as you have the computing power, you can participate in the blockchain.

Instead of all of your data residing in one central provider (ex: Equifax), it now sits, and is processed and verified by a global network of computers.

However, while decentralization is an ideal advanced by many in the blockchain and cryptocurrency community, there are different degrees to which it can be achieved

or not under current conditions.

As an example, the mining pools that create most of Bitcoin are mostly based in China: a consortium of these mining pools might decide to mount what is called a 51% attack: where they use their assembled computing power to change the rules of the blockchain and facilitate conditions such as “double spend”

-- the ability to infinitely spend the same block of

cryptocurrencies, essentially creating wealth out

of nothing.

CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

Distributed ledger:

An analogy often made about cryptocurrencies for financial agents: the understanding that instead of a centralized bank ledger, blockchain and cryptocurrency offer the promise of distributing balances throughout a network of computer servers.

An important point to note here is that distributed ledgers aren’t a new concept: the island of Yap used individual tables and yelled at each other whenever transactions were made, as early as 500 AD. However, blockchains and cryptocurrencies do offer a global, virtual network that can scale reasonably well to current financial needs.

Interoperability:

The problem of what happens with so many different blockchains and cryptocurrencies with different functions associated with them. Blockchains like Aion are looking to solve the interoperability piece by making different blockchains and cryptocurrencies interoperable, or compatible with one another: imagine, for example, a world where Bitcoin can trigger the same amount of functions as Ethereum. This is what the interoperability piece is trying to solve.

Hash functions/tables:

A more technical and precise description of the underlying technical foundation of how data is shared and stored on a blockchain. Hash tables are a concept that has had a fair bit of history in computer science and are used to solve other data problems as well.

27

Fork:

When a blockchain fails to reach consensus and has to do a hard reset, with one chain adopting one set of rules and another adopting the original set of rules -- this is known as a fork. This is essentially what happened with Bitcoin (the original chain, now referred to commonly as Bitcoin Core) and the new forked spin- off Bitcoin Cash.

Initial Coin Offering:

Another way to originate tokens for a blockchain, it in practice involves a marketing process, private sale, then a public sale of a newly-listed token, which then aims to be listed on as many cryptocurrency exchanges as possible. Note that there is no standard way of conducting initial coin offerings, or really much regulatory oversight here.

coin offerings, or really much regulatory oversight here. CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT

CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

CONCLUSION

We hope throughout this white paper that you’ve learned more about the blockchain and cryptocurrency sector, and that you feel more comfortable engaging with clients about the topic.

Our hope in creating this guide was to empower wealth advisors and money managers to make informed decisions about a new and exciting sector. With each great change comes different sides, some more resistant to change and some more open to it. We hope you can now decide which side you stand on.

to it. We hope you can now decide which side you stand on. 28 CRYPTOCURRENCIES AND

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CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

ABOUT FLIPSIDE CRYPTO

Flipside Crypto develops baskets of cryptocurrencies based on proprietary algorithms which evaluate market maturity, developer behavior and utility of crypto projects. Our baskets provide investors with a simple way to obtain minimally correlated, diversified portfolios of cryptocurrencies. Investors may access these baskets via Flipside Crypto Funds, our Daily Crypto Basket offering, or through our Institutional Partners.

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Contact our CEO, Dave Balter, at dave@flipsidecrypto.com for more information

CRYPTOCURRENCIES AND BLOCKCHAIN: A GUIDE FOR INVESTMENT ADVISORS AND WEALTH MANAGERS DEVELOPED BY FLIPSIDE CRYPTO

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CRYPTOCURRENCIES AND BLOCKCHAIN:

A PRIMER FOR INVESTMENT ADVISORS AND WEALTH MANAGERS

flipsidecrypto.com

The information provided does not constitute investment advice and should not be used as such. The opinions provided are that of the author and are not to be intended as investment advice. Always consult your investment professionals before making investment decisions of any kind.