Sunday, December 10, 2017

On Basic Income and Cryptocurrency

I’ve long been pondering why “poverty” still exists in the world, given how advanced our societies have become. The per capita income for United States, for example, is USD 57,000+ as of 2016. In a household of four (two parents and two kids), that means an average annual income of USD 228,000, or USD 19,000 per month before tax.

That’s a lot of money for a household to spend!

Even in other places such as Taiwan, where I live. The per capita income is USD 22,000+, the above household would have an annual income of USD 88,000, or roughly USD 7,333 per month. That’s also a lot of money, given Taiwan’s living standard. If a household that spends just half that amount would have a very comfortable life.

The issue then, isn’t about productivity, or whether society at large is capable of producing enough goods and services for everyone to live a comfortable (not just adequate) life, but about the distribution of the wealth generated.

I first read about Basic Income (also known as Universal Basic Income, UBI), from the book Redesigning Distribution years ago, and have been fascinated by its potential to eliminate poverty as we know it, while keeping the productivity incentives of capitalism. I’ve since found out that many prominent world leaders and thinkers also support the idea.

However, whether one supports or opposes, the consensus is that implementing Basic Income is hard and will require a lot of effort, with issues range from funding to public support. Although its realization might sound utopia, reasonable estimates are that it would be many years away before we see any mass adoption.

I change my mind recently when I learned about Crypto20, the first cryptocurrency index-fund. An index fund tries not to actively pick investment targets, but to simply build a portfolio based on a known index. It’s also the only fund type Warren Buffet suggests to own for most. The logic is simple: index fund grows steadily as long as the underlying economics grow, whereas there’s no guarantee how good or bad a given company stock will perform long-term.

Cryptocurrency, being in its infancy, has seen some very wild ride, with the most famous Bitcoin growing 17-fold since the beginning of 2017 to USD 17,000. There are over 1,300+ altcoins now, with new additions every week. Given crypto’s volatility, its best bet appears to be an index fund.

There are a few big IFs I’ll be making now: IF cryptocurrency is for real and will last (as argued by James Altucher), and IF its growth rate is phenomenal like nothing we’ve seen before (as suggested by its recent growth), THEN it means that it will create (or shift) a lot of wealth.

A long-term index fund on cryptocurrency will then be able to generate retirement fund for people, even with a small initial investment. If a crypto index fund somehow pays dividends on its profits as well (which Crypto20 does not do), then it could effectively act as a form of Basic Income system. If it’s also open-end and able to accept new investors any time (Crypto20 is closed-end), then it could provide basic living support for many people.

This is an interesting possibility to realize Basic Income sooner than we might have thought.

Wednesday, November 22, 2017

The Power of Leverage

I’ve been learning from James Altucher, the entrepreneur-blogger-author for a few months, and following his advice on investment to manage our family fund. Immediately the performance of the fund has been multiplying.

This got me into thinking how did it happen?

Well… the answer is simple at the outlook: because James is a very experienced investor / businessman / entrepreneur, so naturally his experiences on what to do, what not to do, and how to do, is more correct than what I’ve used to be doing, possibly for a very long time.

However, digging a bit deeper, what really separates James and I, at the levels of.. say how atoms and molecules work, so that vastly different results are achieved?

I recall that Elon Musk once remarked how Internet companies operate at the levels of bits, and now other companies that operate at the levels of atoms will also be seeing Internet-style innovations now (his Tesla Inc. is one example).

So I start to wonder, what’s really happening, eventually happens at the atomic levels of the material / physical world, but before that, it occurs in the binary worlds of bits (info processing on financial IT systems). And before that, it happens at the levels of human ideas and thoughts.

Ideas and thoughts are really abstract and intangible things that are hard to evaluate. You cannot see nor touch an idea or thought (before it’s realized through actions), yet it’s the most powerful “pusher and mover” of the physical world that’s eventually affected by these ideas and thoughts.

What determines the actual effects of these thoughts/ideas then? I think both “correctness” and “leverage” are into play.

Correctness” refers to whether the particular ideas captures properly some “truth” about the universe or how the world operates. With the correct idea, predication that flows from the idea would then correctly describe the states of affairs in the world, and possibly impact it as well. This is like whether we’ve formed the “right model” in Science about some phenomenon.

Leverage” relates to the environment in which the idea is being executed. For example, an idea to build a spaceship launching people onto Mars, would likely find considerable less support in terms of manpower, experiences, funding in a country like Malaysia (or Taiwan) than in the U.S.

Part of the reason for the change in performance of my investment is that not only I’ve started to follow James “correct ideas” about how to view and execute investment strategies, but I’ve also switched gears from investing in Taiwanese stock only previously to now investing in U.S. stock.

This “leverage” effect becomes very interesting in the age of globalization and Internet though, as you can now pretty much tap into any talent via outsourcing sites such as Freelancer.com or Upwork, or perform global transactions with much less regulations using Bitcoin.

When access to both manpower talents and capital becomes democratize via remote work and global currency (say a VC that invests companies via cryptocurrency), the “leverage” part may become much more powerful and interesting than what currently is.