The whole point of using a blockchain is to let people—in particular, people who don’t trust one another—share valuable data in a secure, tamperproof way. That’s because blockchains store data using sophisticated math and innovative software rules that are extremely difficult for attackers to manipulate. But the security of even the best-designed blockchain systems can fail in places where the fancy math and software rules come into contact with humans, who are skilled cheaters, in the real world, where things can get messy.
To understand why, start with what makes blockchains “secure” in principle. Bitcoin is a good example. In Bitcoin’s blockchain, the shared data is the history of every Bitcoin transaction ever made: an accounting ledger. The ledger is stored in multiple copies on a network of computers, called “nodes.” Each time someone submits a transaction to the ledger, the nodes check to make sure the transaction is valid—that whoever spent a bitcoin had a bitcoin to spend. A subset of them compete to package valid transactions into “blocks” and add them to a chain of previous ones. The owners of these nodes are called miners. Miners who successfully add new blocks to the chain earn bitcoins as a reward.
What makes this system theoretically tamperproof is two things: a cryptographic fingerprint unique to each block, and a “consensus protocol,” the process by which the nodes in the network agree on a shared history.
The fingerprint, called a hash, takes a lot of computing time and energy to generate initially. It thus serves as proof that the miner who added the block to the blockchain did the computational work to earn a bitcoin reward (for this reason, Bitcoin is said to use a “proof-of-work” protocol). It also serves as a kind of seal, since altering the block would require generating a new hash. Verifying whether or not the hash matches its block, however, is easy, and once the nodes have done so they update their respective copies of the blockchain with the new block. This is the consensus protocol.
The final security element is that the hashes also serve as the links in the blockchain: each block includes the previous block’s unique hash. So if you want to change an entry in the ledger retroactively, you have to calculate a new hash not only for the block it’s in but also for every subsequent block. And you have to do this faster than the other nodes can add new blocks to the chain. So unless you have computers that are more powerful than the rest of the nodes combined (and even then, success isn’t guaranteed), any blocks you add will conflict with existing ones, and the other nodes will automatically reject your alterations. This is what makes the blockchain tamperproof, or “immutable.”
Creative ways to cheat So much for the theory. Implementing it in practice is harder. The mere fact that a system works like Bitcoin—as many cryptocurrencies do—doesn’t mean it’s just as secure. Even when developers use tried-and-true cryptographic tools, it is easy to accidentally put them together in ways that are not secure, says Neha Narula, director of MIT’s Digital Currency Initiative. Bitcoin has been around the longest, so it’s the most thoroughly battle-tested. People have also found creative ways to cheat. Emin Gün Sirer and his colleagues at Cornell University have shown that there is a way to subvert a blockchain even if you have less than half the mining power of the other miners. The details are somewhat technical, but essentially a “selfish miner” can gain an unfair advantage by fooling other nodes into wasting time on already-solved crypto-puzzles.
Another possibility is an “eclipse attack.” Nodes on the blockchain must remain in constant communication in order to compare data. An attacker who manages to take control of one node’s communications and fool it into accepting false data that appears to come from the rest of the network can trick it into wasting resources or confirming fake transactions.
Finally, no matter how tamperproof a blockchain protocol is, it “does not exist in a vacuum,” says Sirer. The cryptocurrency hacks driving recent headlines are usually failures at places where blockchain systems connect with the real world—for example, in software clients and third-party applications. Hackers can, for instance, break into “hot wallets,” internet-connected applications for storing the private cryptographic keys that anyone who owns cryptocurrency requires in order to spend it. Wallets owned by online cryptocurrency exchanges have become prime targets. Many exchanges claim they keep most of their users’ money in “cold” hardware wallets—storage devices disconnected from the internet. But as the January heist of more than $500 million worth of cryptocurrency from the Japan-based exchange Coincheck showed, that’s not always the case.
Perhaps the most complicated touchpoints between blockchains and the real world are “smart contracts,” which are computer programs stored in certain kinds of blockchain that can automate transactions. In 2016, hackers exploited an unforeseen quirk in a smart contract written on Ethereum’s blockchain to steal 3.6 million ether, worth around $80 million at the time, from the Decentralized Autonomous Organization (DAO), a new kind of blockchain-based investment fund.
Since the DAO code lived on the blockchain, the Ethereum community had to push a controversial software upgrade called a “hard fork” to get the money back—essentially creating a new version of history in which the money was never stolen. Researchers are still developing methods for ensuring that smart contracts won’t malfunction. The centralization question One supposed security guarantee of a blockchain system is “decentralization.” If copies of the blockchain are kept on a large and widely distributed network of nodes, there’s no one weak point to attack, and it’s hard for anyone to build up enough computing power to subvert the network. But recent work by Sirer and colleagues shows that neither Bitcoin nor Ethereum is as decentralized as you might think. They found that the top four bitcoin-mining operations had more than 53 percent of the system’s average mining capacity per week. By the same measure, three Ethereum miners accounted for 61 percent.
Some say alternative consensus protocols, perhaps ones that don’t rely on mining, could be more secure. But this hypothesis hasn’t been tested at a large scale, and new protocols would likely have their own security problems.
Others see potential in blockchains that require permission to join, unlike in Bitcoin’s case, where anyone who downloads the software can join the network. Such systems are anathema to the anti-hierarchical ethos of cryptocurrencies, but the approach appeals to financial and other institutions looking to exploit the advantages of a shared cryptographic database. Permissioned systems, however, raise their own questions. Who has the authority to grant permission? How will the system ensure that the validators are who they say they are? A permissioned system may make its owners feel more secure, but it really just gives them more control, which means they can make changes whether or not other network participants agree—something true believers would see as violating the very idea of blockchain. So in the end, “secure” ends up being very hard to define in the context of blockchains. Secure from whom? Secure for what? “It depends on your perspective,” says Narula. Sources: MIT Technology Review
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Last year saw Bitcoin's value balloon rapaciously, but its stunning ascent now seems to have faltered.
Slow transactions, exorbitant energy usage and the looming threat of regulations have all raised doubts about the future of the world's most prolific cryptocurrency.
Even so, the technology behind Bitcoin has piqued the interest of financial industry figures.
As a result, alternatives to Bitcoin – each with distinctive advantages – are springing up all the time. Here are six of the hottest cryptocurrencies tipped for success by those in the know: The number two Ether is the cryptocurrency with the second highest total value after Bitcoin: US$99bil. The currency is particularly well suited for so-called "smart contracts", whereby payments can be made automatically. For example, someone with travel insurance covered against flight cancellation could receive a pay-out without having to make a claim to be checked by the insurers. As soon as the cancellation is logged in travel data bases, the money could be sent out. The same principle is being tested in various industries.
The eco-friendly one
Peercoins are thought of as the environmentally conscious alternative to Bitcoin, the operation of which requires ever greater computer capacity – and vast amounts of energy. For example, Iceland's Bitcoin miners could use more energy this year than all the country's private households combined, according to energy provider HS Orka. The same is not true for Peercoins, yet it has struggled to stake out a large market share. Of the around 1500 cryptocurrencies, it ranks 159, with a market capitalisation of US$125mil.
The banks' favourite
Some crypto-fans reckon Ripple could be the beginning of the end for the SWIFT system, currently used by most financial institutions for transfers. According to its Californian developer, Ripple can handle 1,500 transactions per second, meaning that a single payment can take just four seconds. Some big players, including Spanish bank Santander or Swiss UBS, are already making using of it. The total worth of all Ripple coins stands at around US$50bil. The machine currency Thanks to the Internet of Things, household appliances and industrial machines are increasingly self-sufficient. If your fridge sees that you're low on milk, it will automatically order more. Here's where Iota comes into play, as a cryptocurrency specialising in small transactions. Transfers are free. With a total worth of US$5bil, Iota comes in 10th among the cybercoins.
The anonymous one
Cryptocurrency Dash is made with discretion in mind. Due to special masking technology, transactions cannot be tracked on the public blockchain. Critics say it attracts criminals. Another bone of contention is the algorithms used by the developers of Dash, which apparently direct a large amount of the starting coins into their pockets. Because of these controversies, Dash has already undergone two name changes. Yet with a net worth of US$6bil, it remains an important part of the crypto-world. The law-abiding citizen For many, the young cryptocoin Cardano is a rising star. Its creators prioritised the ability to be flexible, adapting to state regulation. China, Japan and South Korea have already gone on the offensive against cryptocurrencies; the same could well happen in Europe. This could well explain why Cardano has climbed to the cryptocurrency Top 5. Sources: DPA
From November 2017 through March 2018 I’ve been collecting insights from my LinkedIn connections, asking them about their ICO experiences. I asked people in different roles covering founders, legal, technical, marketing. Represented here are people from more than 120 projects, from more than 15 countries.
I learned a lot about how to run a great ICO, some of which we have applied at our Holo ICO. What surprised me most about the responses I’ve received so far is that there is hardly any contradictory advice. Almost all responses fit neatly into eleven categories, with the only tensions being the use of advisors (some advocate some do not) and the use of Telegram channels (some say essential, some useless).
Of all the things I learned from this survey, a few big points came up over and over again:
Know yourself & your product This point seems so obvious, but it is only 18 months ago that you could publish a slideshow and smart contract, scramble a $2 million raise and watch your ETH grow 100x. The bar is higher now. There is huge competition, there are the frequent rises and falls of Bitcoin and Ether and there is a lot of money and constant chatter. Everyone has an idea of what you should be doing and how you should be communicating.
Your community does, your team does, the regulator does, your advisers do, your crypto investors do. But you need to know what you want to achieve and how you want to do it. Remember, you are trying to build a currency or an ecosystem that actually works so make the fundraiser work for the ecosystem you want to build and not the other way around.
What we did best was staying firm on our beliefs and not give in to peer pressure. Jacobo Toll-Messia, Founder & CEO, Hubii Get your community right At the core you need to have a product or service that a lot of people want to build on top of and ultimately use. Nurture this community, be honest with them, keep in regular contact and give them means to communicate. If you can do this then you can survive challenges like bad timing and you don’t have to rely on whales to gobble up supply.
What went wrong? The ICO bubble popped, the industry went from 90% of ICOs capping to 90% failing. Thankfully our community was strong enough to pull us through to a successful sale. Nick Saponaro Full Stack Engineer, The Divi Project
Make your big investors happy and build partnerships and relationships with funds. An ecosystem may like having whales, institutional investors, lots of small participants, participation from an existing community as the primary fundraisers.
One of the first things we learned was to make sure you listen to potential investors. They are the people who will become your own marketers and will drive your business forward so making sure they feel they are heard is vital. Nicolle Maltwood, Head of Operations, FundingTec
Make your team work Crypto-startups can be more distributed, more anarchic, more complex and experience greater uncertainty than most startups given the vagaries of the crypto ecosystem. Many ICOs struggled with communication, building a strong team and creating a team that can last beyond the ICO. This is common to all organizations but not really discussed in the normal ICO wash-ups. Take it seriously and get it right. I’ve been part of an ICO team for some weeks but it didn’t work really. Basically after the ICO started I’ve been completely ignored. The founders didn’t send any message or communication. Maybe because the ICO didn’t collect the expected amount, so they were obliged to downsize the project. I would say that the whole experience was quite negative even if interesting for many reasons. Nicola Marangoni, Senior Consultant, Woodmark Consulting AG. Product not vision Gone are the days you can run an ICO off a shitty PowerPoint. The most successful ICOs have a product that exists, that people can play with and ideally with users, not just a vision.
I always recommend people build a product first. I understand the motivation of doing an ICO is to help fund the vision, but that’s the kind of behavior securities commissions are literally designed to prevent. Find some initial capital and build a solid and feature-rich first iteration for people to use the token with. Graeme Douglas, CEO BlockCAT Technologies.
Timing is everything For every quarter when Bitcoin and Altcoins rise and rise there are many more months when regulation changes, there is banking feedback, holiday season, tax notifications, scandals, pump and dumps, general economy, internal infighting, forks, jurisdiction support, all driving down the price of ETH and other coins which reduces crypto activity and makes crypto holders feel stressed and poor. Launching your ICO through a sustained period of excitement and growth is ideal. How can you find it? Impossible, it’s just luck. Biggest surprise was all the crypto drama, I think we endured two hard forks between BTC and ETH, plus Segwit 2x being canceled. Nick Saponaro Full Stack Engineer, The Divi Project. Cross your Is and dot your Ts Whether it is KYC, AML, banking applications, terms and conditions, legal, regulatory, website text, SEC implications, smart contracts, you need to be clear in what you are doing and triple check everything. Plan plan plan. Get your lawyers over everything. Max out your exposure on socials, be prepared for FUD (it stings)… and stock up on coffee! Good luck. And mind-changing regulatory practices (e.g. KYC/AML, taxes) early, reacting in post is quite time-consuming. Dave Martin, Co-founder and Managing Director Power Ledger.
Crypto is a business not just a movement
It can feel like everybody in the crypto world wants to take your money. 1 ETH for a feature article, 2 ETH to list on an ICO website, tokens for advisors, marketing scams. Be clear about what you want, why you want it and what you are willing to pay. Everything in the crypto world has a price. What surprised us the most is how greedy some websites/companies are when you are trying to get your ICO listed, or generate some traction around your ICO. We understand that it is a business opportunity for some people, and we have no problem with that, but a lot of them are trying to sell you something at a high price, when they are actually offering nothing at all in exchange. Kevin Konczak, Head of Sales and Marketing SelfPay Co. Misinformation is so much easier online Imagine you are waiting to participate in an ICO. You sign up to the whitelist, you join the Telegram and Slack channel. On the day you have messages on Slack, Telegram and email telling you what to do. You have official messages telling you to ignore other messages. Who do you trust? Who do you believe? When you are alone on your laptop misinformation is the greatest security threat you face.
What went wrong is that, we feel some “competitors” sent some trolls on our social media channels to try and discredit us by crying scam or whatnot, when we are one of the few ICO’s with an existing product (understand here, not a development project, but something that works and has been beta-tested, etc…). This was a low blow for us, and we did not foresee that kind of action. Kevin Konczak, Head of Sales and Marketing SelfPay Co.
Find the right forum to build awareness Every ICO has a different way of building awareness. It could be conferences, articles, PR, websites, ads. It is critical to know your value, your audience and your message and then pick the right channel for the audience. You should do as many conferences as you can, and marketing only on specific high profile publications. PR is also important but for it to work you need a big budget and constant pressure. Julien Charrel, Co-Founder & CEO, The Gimli Project. Sort out security Please don’t get security wrong. There is plenty of information about this elsewhere. Use Cloudflare for website — the DDOS attacks are real. Taras Semenov, CEO CarTaxi. Summary A huge thank you to everybody who participated in the survey. I hope this helps you with your ICO. Best of luck building your product, your community, your fundraising platform, and in getting your ICO mechanics in place. If you want to share your ICO experience please find me, David Atkinson, on LinkedIn. If you want access to the complete data set, let me know and we can discuss your project and your needs. Sources: Iris Tech News
China’s crackdown on ICOs and cryptocurrency exchanges might lead those of us in the West to conclude that it isn’t the most “crypto-friendly” jurisdiction at the moment. But as with most Western opinions about China, such a conclusion is almost certainly an oversimplification and most likely wrong. China still has an enormous amount of influence on the global cryptocurrency marketplace, and it’s not a country that is known for voluntarily handing over its global influence.
So how can Westerners find out what’s really going on in the Chinese crypto space? In this article we cover that topic from the perspective of an American expat who has been living in China for the greater part of four years, and who goes by the pseudonym “Jiami shushu” (“Uncle Crypto”) since becoming an active crypto trader and investor in China two years ago.
First things first, for our readers in the West, how did you end up in China? I first came to China about four years ago as an international transfer student and started working here shortly thereafter.
How did you get involved in cryptocurrency?
I was living in Silicon Valley in 2011 when I first heard about Bitcoin, but I didn’t start actively trading cryptocurrency until 2015. So pretty much my entire exposure to cryptocurrency trading was from within China. In general, how difficult is it for foreigners to trade and invest crypto while in China? Even prior to the bans on Chinese cryptocurrency exchanges, most of them were still quite difficult for foreigners to use. That’s because you needed a Chinese ID number to set up a trading account. After the bans, the only way to access any exchanges was by using a VPN to connect to foreign exchanges. But for most expats, that’s something we are already familiar with, so it never presented much of an issue. Is that because things like Facebook, Google, etc. are all banned in China? Exactly. So firing up a VPN is just part of the regular daily online routine for all the expats I know.
Besides using a VPN, what other steps should expats take to avoid getting into trouble in China?
The most important thing is to be careful how you’re actually getting the funds into your account. My best advice is to use Tether or another proxy from a non-Chinese exchange, or another coin already in an outside wallet, to fund your account and start trading. I wouldn’t recommend foreigners trying to use RMB (Chinese fiat currency) to directly fund an account. Why is that? Because whenever you convert fiat currency to crypto, you have to comply with KYC/AML requirements, which in China is the equivalent of notifying the Chinese government that you are getting ready to do some illegal crypto trading and also providing them with your wallet address so they can trace all of your transactions. If your objective is to stay out of trouble then I really wouldn’t encourage doing that. Are there any other special tools you might recommend to help expats stay secure in China? Shadowsocks is an alternative to using a VPN. It is one of the more foolproof systems I’ve used for getting access to things that you’re not supposed to be able to get access to.
Once all the necessary software and security protocols are in place, what sort of crypto trading/investing is accessible and safe?
The most popular exchange in China right now is Huobi. It has been around since 2013 and is now very diverse. Also, because it has much larger international use, some of the access requirements like a Chinese ID number are no longer necessary. Binance is another popular exchange with Chinese traders because it has more available coins and trading options than Huobi.
Since you can read Chinese, have you picked up any significant differences between how Chinese crypto traders invest compared to Western traders?
I feel like when it comes to investing, a lot of it is quite similar. In fact, I think in many ways, Western crypto investors are starting to act more like Chinese crypto investors. How do you mean? In the past I always felt that Chinese investors tended to rely too heavily on what their favorite mentors, influencers, etc., were saying instead of doing their own due diligence and research. But after seeing all the hype in the West last fall, especially surrounding ICOs, I realized that people in the West were just as susceptible to FOMO and throwing common sense and due diligence out the window. Any other differences worth mentioning? I think one important difference is how traders in China view cryptocurrency from a philosophical perspective compared to their counterparts in the West. In China, it’s more about cryptocurrency being used as a commodity for trading, and much less about its potential of a long term new age decentralized currency. And when it comes to mining that’s a completely different beast. Anyone getting into mining in China right now typically goes all in, spending enormous sums of money to buy as many of the latest bleeding edge hardware rigs they can afford. That’s to ensure they’ll have a quick return on their investment in case the Chinese government decides to shut them down. Sources: Iris Tech News
Boy meets girl, falls in love, settles down and lives happily ever after - it’s a tale as old as time, but this is 2018 and the wide, wide world of the internet has forever changed the way in which we meet partners, flirt, date and find true love.
As more and more people turn to online dating, there are “enormous” money-making opportunities out there for savvy entrepreneurs, says Victor Anthony, managing director of internet and media at Aegis Capital. “Just look at the market cap of [American dating leader] Match Group. It’s now at $12 billion. That tells you a lot in itself,” he tells The National.
“The stigma that you saw years ago is eroding as younger generations become more mobile focused and internet penetration rates increase,” he adds. “So there is enormous growth potential in this space. Players with scale will continue to dominate the market, but there are also opportunities for niche operators to compete as well.”
One such niche operator is Muzmatch, a dating app for Muslims based in Aldgate, central London. The company was set up four years ago by Shahzad Younas, 33, a former investment banker at Morgan Stanley, and software engineer Ryan Brodie, 24, with the aim of helping young professional Muslims find partners within the community. “We want to be a global Muslim-focused consumer company,” Mr Younas tells The National. “We’re already in 215 countries, and will grow further. There are 1.8 billion Muslims in the world, so it’s a huge consumer market.” It is backed by Hambro Perks, a venture firm co-founded by City veteran Rupert Hambro and former investment banker Dominic Perks, which backs British businesses with global ambitions. Other high-profile investors include Y Combinator and FJ Labs. In January, Muzmatch raised £1.5 million (Dh7.8m) worth of seed funding to help it grow the team and expand internationally.
Ali Qaiser, director and head of Middle East at Hambro Perks, says that his firm chose to back Muzmatch due to its unique business model and its focus on building a genuine consumer brand for the Muslim market.
“Muzmatch empowers young Muslims to meet other singles with a view to settling down,” Mr Qaiser tells The National. “The key differentiator from similar apps targeted at Muslims is the focus on marriage rather than dating. “The app has been in monetisation phase since March 2017, and has an impressive growth trajectory with revenue-generating users in a short period of time.” Mr Younas, himself a Muslim, decided to launch the app as a solution to the problem he saw facing many young Muslims who are unable to find a partner. “For Muslims, a big part of the culture is marriage,” he says. “There’s a lot of pressure to settle down. But I saw that many people, especially in professional circles like lawyers, bankers and doctors, were finding it hard to find that special someone.
“Most of the existing dating apps were old-fashioned and awkward. I thought to myself, if we can create a modern, efficient app that taps into the new generation, who have money and are tech-savvy, it could be really big. So I quit my job in 2014 and set up Muzmatch.”
Over 10,000 people around the world have successfully found partners through the app, including a couple in Uganda. “It turns out they were the only two people on our platform in Uganda,” Mr Brodie says. “When it’s meant to be, it’s meant to be.” The app combines new technology with traditional Muslim values. For instance, users have an option to add a chaperone, and you can blur out your pictures to protect your privacy. Joining is free, but users can opt for a premium subscription which costs £19.99 and gets you unlimited swipes, a host of extra search preferences and a VIP badge to help you find your match faster. Mr Younas says the company has been profitable for over a year. “We’re growing faster than ever now,” he says. “Our goal is to hit 1 million users within the next 12 months, if not sooner. I think that’s absolutely achievable.”
Other dating apps have also spotted a gap in the market, and successfully built a user base around that.
The swanky Inner Circle targets young, attractive, well-educated singletons who are fed up of endless swiping on mass-market apps such as Tinder. People are carefully vetted before being allowed to join, and around half are rejected, says co-founder David Vermeulen “Our biggest USP is that we go for quality instead of quantity,” he tells The National. “Many people are ‘Tinder tired’ and are looking for a more meaningful experience, with like-minded young professionals.” The app launched in Amsterdam in 2013 and has quickly spread across the world, including to New York, Los Angeles, Dubai, London and Paris. It has 900,000 users at present, far less than the tens of millions who use apps such as Tinder, but that’s the whole point, Mr Vermeulen says. “We’re a totally different business, an elite community. At the same time, we have the critical mass you need to operate.” Inner Circle makes money through subscription fees, which range between £20 and £40 per month. It also hosts a series of exclusive events throughout the year, such as a polo event last summer in London, where tickets cost around £35.
He adds that the firm hasn't had to take in any investment, as he funded the company himself.
While the subscription cost is higher than on many dating apps, Mr Vermeulen says most users quickly see the value. “People are prepared to pay for quality. It sounds cheesy, but £20 to find true love is a bargain,” he argues. “We’re talking about five coffees at Starbucks.” On the opposite end of the spectrum, you have Happn, a dating app with 47 million users around the world. Launched in Paris in 2014, it allows people to see who they have crossed paths with in real life, for example during their daily commute. It currently operates across 40 countries, with its biggest markets in Europe, India, Turkey and South America. It also has around 200,000 users in the UAE. “We are not addressing a niche, but potentially every single urban inhabitant in the world,” Didier Rappaport, CEO and founder of Happn, tells The National. The company has already raised €30m [Dh135.8m] in three funding rounds, with the cash going towards expansion. Mr Rappaport describes the business as a “freemium model”. The app was free of charge at the start, but paid subscription was introduced around six months ago in order to drive profitability. Users can also buy packs of credits, which enable certain in-app features. Becoming a subscriber will set you back between €5 and €20 per month, depending on each country. Mr Rappaport won’t disclose the number of paying subscribers on the platform, but he says the company is profitable, despite huge marketing efforts. Advertising is another source of revenue, contributing around 10 to 15 per cent to Happn’s topline. The French businessman warns that the online dating market can be very cutthroat, thanks to stiff competition. “The sector is very crowded, there are a lot of competitors,” he says. “You need to be competitive and aggressive to succeed and become global, and to convert enough users into paying users.” Stanford professor Paul Oyer, who wrote a book entitled Everything I Ever Needed to Know About Economics I Learned from Online Dating, agrees that it’s not an easy sector in which to succeed.
“The problem is too much competition, it’s too easy to create these sites, the barriers to entry are not as high as we might have thought,” Professor Oyer tells The National.
“There’s another challenge in the business model, which is that, unlike with a platform like Facebook, if an online dating site is successful, the customer leaves! That’s a big issue.” Nicholas Hyett, equity analyst at Hargreaves Lansdown, warns that in a downturn, the first thing people might cut is their subscription to dating apps. “Obviously the more premium the product, the more sensitive it is in a market downturn,” he says. “Also, advertising budgets are heavily market dependent, so if you’re basing your revenue model on getting advertisers in, that could be a challenge in a downturn.” For now, however, there is no doubt the market is booming. Market research group Mintel expects the sector expected to be worth £225m to the UK economy by 2019, while in the United States, the sector churns out around $3bn per year in revenue, according to IBIS World. “The market is only going to continue growing,” Mr Anthony says. “If you look back two decades ago, almost no one used online dating to meet potential partners, but fast forward to today, roughly 30 per cent of all couples have met online,” he says. “That will go to 50 per cent by the end of this decade.” Mr Anthony draws parallels to how e-commerce developed, and how Amazon became the dominant player in that space. “People are shifting their consumption online, in all walks of life,” he says. “Online dating is convenient, it’s relatively economical and you have a wide selection, depending on which app you use.” “You may see some consolidation in this sector, as scale is key but there’s no doubt that this is where the world is going.” Sources: thenational How a 34-year-old turned $200 into a company he sold for over $10 million in a matter of months4/17/2018
Thirteen years ago as a broke college student, Trevor Chapman took a job selling pest control door-to-door to make extra money. Eventually, he launched his own sales operation — a solar panel installation company that quickly expanded across three states. But two years in, something was missing — and it wasn't a shortage of time spent in the office.
"There came a point in time when I had to say, 'I'm in my mid-thirties, am I willing to wait until some of my kids are out of the house ... [to enjoy] my life to the extent I imagined I would?'" Chapman recalls.
His answer became the impetus to spend $200 launching LDSman, an online store offering a strange assortment of items sourced from China (Kevlar pants, charcoal toothpaste, inflatable lounge chairs, fidget spinners and more). Within three months, Chapman went from putting in 12-hour days at his solar company to spending just an hour and a half each week on his site by the time he hit his first $1 million in sales. Then, in 2018, he sold LDSman, along with his corresponding e-commerce logistics companies, to a holding company in a deal worth over $10 million.
The experience convinced Chapman e-commerce offers the best opportunity for anyone to take control of their time and make money, even for the inexperienced just looking to start something, like he was.
How it all started Unhappy running his solar panel business and seeing no path to change there, Chapman came across a quote from Warren Buffett: "If you don't find a way to make money while you sleep, you will work until you die."
Chapman figured the best way to earn passive income would be through e-commerce. It's big business: Global online retail sales grew by 20 percent from $1.9 trillion to $2.3 trillion in 2015, according to a 2016 Ecommerce Foundation report.
But before he gave any real thought to leaving his day job, he wanted to see for himself if it was possible to make a living selling things online. "It requires work like everything else, but you don't have to risk your full-time job to do this," the 34-year-old says. Chapman spent a few hours a night on the project, and start-up costs were minimal, about $200 he says. He bought a domain name for $2.99 a year and set up a Shopify account via a $14 trial. The most expensive thing was when he started spending $100 a day on a Facebook advertising budget. LDSman.com went live on Nov. 11, 2016. Day One, Chapman lost money. At first, he was selling the wrong product. "My initial thing was that I was going to sell Mormon artwork online. That was probably up for 10 hours," he says. "I realized that what I was peddling online was not compelling enough to drive traffic."
To refocus, Chapman used a lesson from his solar panel operation: When selling door-to-door, the product has to be intriguing enough for people to invite you into their homes, Chapman says. "Same thing online — to pull someone away from their friend feed, you've got to be offering something interesting."
Out went Mormon art and in came inflatable lounge chairs, a popular staple among online stores selling viral products. Sourcing from Chinese manufacturers on Alibaba and Aliexpress, Chapman found other products for $4.99 that he could resell for $59.99. To avoid the cost and risk of taking on inventory, he would set up arrangements with suppliers (over the popular Chinese messaging service WeChat) to have his orders shipped directly from their warehouses in China to the customer in the U.S. — a practice known as drop shipping. "That's the best way to test a product to see whether or not it's actually going to sell," he says.
And drop shipping had other benefits: Through a program called ePacket, an arrangement between the United States Postal Service and foreign postal operators designed to encourage e-commerce, it was actually cheaper for LDSman to ship from China, albeit with a slight lag time. Shipping an external iPhone zoom lens from Shanghai, for example, cost $2.29 — more than $5 cheaper than the cost to ship the same package domestically.
Making money while he slept As orders streamed in while Chapman slept, he realized he was on to something. "I made money my second day and every day after that," he says. Just two weeks in, he had his first $10,000 day. The revenue allowed Chapman to hire out time-consuming customer service work to a team of freelancers in the Philippines. Chapman says he pays each team member $700 a month (low by U.S. standards but notably higher than the $400 monthly average a family in the Philippines earns). He also boosted his budget for Facebook advertisements, focusing more money on the ads that attracted the most purchases.
Nearly two months in, the woes of drop shipping caught up with him. The vendor in China he paid $80,000 to supply and ship inflatable lounges swapped out the approved product for a cheaper alternative. When customers started complaining, LDSman replaced about 1,500 bags. Even so, Chapman says he's bounced back from the experience to reach a 48 percent total pretax profit margin.
Like any good businessperson, Chapman also turned the setback into an opportunity: He bought a 9,000-square-foot warehouse in Salt Lake City and hired a five-person fulfillment staff. It's a move that enabled LDSman to take the business to the next level but something Chapman concedes isn't for everyone, given the capital investment and commitment. Chapman quit the solar panel business, and with the warehouse and staff in place, was spending just over an hour a week working on the site and updating Facebook ads. Shortly after day 92, when the site brought in that first $1 million in sales, Utah-based VC firm Clarke Capital came calling, interested in adding Chapman's e-commerce company to its portfolio. Chapman says he turned down a buyout offer in 2017 worth around $3 million to maintain independence and to have the income and time to pursue his own projects.
In early 2018, however, Chapman agreed to sell LDSman and his logistics company that specializes in importing good from countries around the world in a deal worth over $10 million with outside investors. The deal also included selling Academy of Arbitrage, the educational site Chapman founded to walk others through getting started in e-commerce.
While a few of the people in his online courses have come close to replicating his initial success, the most common sales total at the one-month mark in one of his early classes was under $12,000. "As with anything," Chapman says, "you get out of it what you put in." His own mother, Chapman notes, was able to build up a site of her own after she followed his lessons despite not knowing anything about e-commerce. It's a full-circle finish that Chapman sees as a sign of just how revolutionary the opportunities provided by a globalized and digital economy actually are. "The data on each individual is astounding," he says about the information he can cull from advertising on Facebook. Before, this kind of consumer targeting would have cost hundreds of millions of dollars, says Chapman. "[O]nly companies like Target could engage in this kind of marketing," he says in reference to Target's controversial marketing tactics which targeted expecting mothers with baby product ads based on their changing purchase habits, even before some were aware they were pregnant. Now, "In a month you can be more powerful than Target ... and you can do that online," says Chapman. "That's the power of e-commerce." Sources: CNBC
With a net worth of $7.4 billion, 48-year-old Zhou Qunfei, the founder and CEO of Lens Technology, is once again the world's richest self-made woman, according to Forbes.
Born in a village in Hunan province in East China, Zhou didn't have an easy childhood. She lost her mother when she was five and her father went blind and lost a finger in a factory accident. She had to learn how to survive on her own, she tells CNBC Make It via email: "I had to constantly think about where my next meal is and how I am going to get it."
To earn tuition, Zhou dropped out of high school at age 16 and went to South China's Shenzhen city to work at a watch lens factory in 1986. She was later promoted to a managerial role. However, she had bigger dreams.
In 1993, with 20,000 HK dollars savings (or about $2,547.80 U.S. dollars), Zhou and eight of her family members set up a screen printing workshop in a three-bedroom apartment in Shenzhen, which served both as their working and living space. In that apartment, she launched her first company. Fast forward 10 years, Zhou had built a factory making watch lenses and employed 1,000 people. But her fate changed in 2003 when she got a call from Motorola, asking if she wanted to be a supplier.
Zhou accepted the invitation which helped launch her business internationally. Now CEO of Lens Technology, Zhou has built an empire manufacturing glass for tech giants such as Tesla, Apple, Samsung and Huawei.
Zhou attributes her success to her perseverance. "My biggest challenge was when I beat other rivals and won the contract with Motorola in 2003," Zhou says. Zhou had just started out and had little flexibility in her company's finances but wanted to ensure the deal went through. As a result, Zhou said she sold her house and other valuables to meet the company's demands. However, she still lacked funding and said she became desperate.
Zhou admitted that it was the darkest moment of her entrepreneurial life. "I stood on the platform at Hung Hom Station in Hong Kong, almost jumped off, delirious," she said, "thinking that when I am gone, all the trouble will too be gone."
But then a phone call from her daughter pulled her back to reality. "I realized that for my family and employees, I cannot give up. I had to carry on." With Motorola's help, she overcame the financial issues. In 2004, Zhou's Lens Technology sold over 100 million units for the Motorola V3 model alone —the flat-screen mobile phone with the iconic greeting "Hello Moto." In 2007, Zhou's cover glass beat the other Chinese vendors to become a major supplier for Apple. On March 18, 2015, 22 years after she started the family workshop at that three-bedroom apartment, Zhou's Lens Technology went public. Today, the company is valued at $11.4 billion, with over 82,000 employees across China, according to Forbes.
In an interview with CNBC Make It via email, Zhou shared three pieces of advice for entrepreneurs:
1. Prepare well Zhou said entrepreneurs always need to be prepared for what's to come. She says there are a few aspects to master: "First, improve your overall competitiveness. Second, you must be mentally strong. Third, strengthen your understanding of the market and your competitors," Zhou tells CNBC Make It. She said her experience while working as an assembly line worker and later as the manager for her first employer helped her gain confidence, which was crucial to Lens Technology's early days. "You must gather the courage to face failures," Zhou added. She also said she would prepare several backup plans when she went to visit clients during her startup years: "I was always thinking about what I am going to say if they reject my proposals, because the rejections were constant, you need to prepare well."
2. Keep the enthusiasm for learning
"The clients won't give you a better price for your products simply because you have a higher degree," Zhou said, "but your knowledge of the business will help maintain the competitiveness of your company." As for Zhou herself, she took part-time courses while working as a factory worker and obtained her certificates in accounting, computer operations and even a commercial truck driver's license. "When you have the ability to learn, you have the ability to continue to grow," she said. 3. Never give up easily Zhou said many people would experience a serious blow to confidence when they encountered setbacks. But the key to success is to persevere, especially during the most difficult times. For a team-building exercise, Zhou once took 20 of her company's executive team to climb the Dawei Mountain in Hunan Province, which is more than 5,000 feet above sea level. Some team members wanted to give up halfway up the hill. However, she insisted that they do not stop and march on. "Because when you give up halfway, you won't have the courage to come back and start from the bottom all over again, you will still give up," she said. "Only when we persist, can we succeed. Don't give up because of a little setback." The ultra-rich want to make money through good causes — but there aren't enough options, UBS says4/16/2018
The super wealthy want more out of their investments these days.
In addition to financial returns, they want their money to drive positive changes in the world, but the options for achieving both concurrently is lacking, according to a UBS expert.
The Swiss bank, the largest wealth manager globally, was referring to a money-making discipline known as sustainable investing. That's an umbrella term for investing in financial instruments that generate returns from doing good — or simply supporting something that's not doing bad.
But many of the available investment products marketed as being socially responsible or sustainable simply leave out financially risky companies or firms deemed to be in the business of "vices" — a method that doesn't resonate with all investors, said Simon Smiles, chief investment officer for ultra-high net worth at UBS Wealth Management. "It may turn out that you don't want to invest in tobacco, firearms and alcohol, and so you don't do that. But to assume that everyone has that same value is inherently problematic," Smiles told CNBC in March.
"Some people like drinking alcohol, some people like smoking, some people like guns, so to tell investors they shouldn't be doing it because it's wrong, you're straightaway not aligning with their values. (But) that's the way a vast majority of sustainable investing products have been positioned," he explained.
Instead of avoiding "bad" companies and investing only in firms with good credit ratings, super wealthy individuals want their portfolios to reflect what they believe in, said Smiles. That means building a whole portfolio with investments that best represent their views on the world, he added. For example, investors who want a part in driving global development could choose bonds issued by institutions such as the World Bank and the Asian Development Bank, and those passionate about green efforts could invest in debt instruments that use proceeds to finance activities benefiting the environment.
"A vast proportion of opportunities across the industry focus on specific equities, specific funds, specific ETFs rather than thinking of it in a portfolio context," the CIO said, explaining that clients aren't interested in strategies that exclude kinds of products from a portfolio or pick out single equities in a "piecemeal" fashion.
"Instead, the conversation's more about: How do you ingrain sustainability in a coherent way across the entire portfolio?" he added. The wealthy are still holding lots of cash The mismatch between what's available in the market and what super-rich individuals want is one reason why sustainable investment makes up a "still small" proportion in their portfolios, said Smiles. That's despite the overall growth seen in sustainable investment. The latest biennial report by the Global Sustainable Investment Alliance published last year found that globally, the strategy grew 25 percent between 2014 and 2016 to $22.89 trillion. That's around 26.3 percent of total assets under management.
At the same time, the super-wealthy are still holding onto large amounts of cash — a situation that hasn't changed much since the last global financial crisis, the CIO noted. A UBS survey last year found ultra-high net worth investors — those with at least $30 million in investible assets — allocate as much as 35 percent of their portfolios to cash.
He added that UBS has been advising clients to invest some of that cash, especially now that the environment is still favorable for "risk assets" such as stocks. "But clients still, on average, hold more cash than what we'd recommend from an investment perspective," Smiles said. "The memory of (global financial crisis) is still fresh enough for people to value significant cash balances more."
Safdar Badami had a very successful career in the United States when he “got the call” from his father in 2010 asking him to return to the UAE to join the family business. Mr Badami then joined Al Muqarram Industries - which manufactures construction-grade products such as silicone sealants, adhesives, tapes, waterproofing, canvas coatings and spray paints - as managing director and has never looked back. Originally from Pakistan, Mr Badami, 43, who is married with children, grew up in Dubai, where he attended school before studying in the US.
How did your upbringing shape your attitude to money?
My father is a very successful entrepreneur but he started with very humble beginnings and always guided us on the importance of money in life. I was given the best of education in life growing up. Is your family wealthy? Yes. My father developed a business empire that spans the globe. But again, we have seen him do all the hard work in the beginning that really allowed us to adjust ourselves to the situation and really understand what it takes to earn money. We had a good lifestyle but we were always reminded to value what we had been blessed with. An example would be when I went to university abroad for my education, my father paid for the tuition but I had to earn money to pay for all my living expenses. So the attitude was there to understand the importance and learn the hard way, to some extent.
How much were you paid for your first job?
It was working in the university cafeteria. This was when I was at college and started working at the same time. I earned about $200 a week, working almost 40 hours a week. My studies were always there, but [I was taught] to work hard. And if I had to earn my own living I had to work for it. So I put my effort in and you know the satisfaction you get when you are a young person with your first pay cheque, right? That’s how life progressed for me.
What did you spend that first pay cheque on?
My first purchase with my first salary was a trip to Burger King to buy myself a nice meal that I could enjoy. I was in a very small college town. Yes, I spent all the money. I took my friends out as well and I ended up spending the money I earned. What has been your biggest financial milestone? When I was able to procure my first real job as a business consultant in the US. I was paid at that time $145,000 a year. It was right after college. It was a great achievement, a great milestone. Tell me about entering the family business. I was a very successful person living abroad, so when my father called me I was already involved in multiple situations. I was a director of business intelligence for a company in the US and I had my own side businesses going. But as part of the culture, as part of the ethics I grew up with, when the call comes in from the family member you have to take it. Dubai is a great place for kids to grow up. It is a safe place where you can enjoy your money. It gives you the opportunity to make money if you are smart and know what needs to be done. So, yes, of course when I got the call I made the jump and came back. I was bringing a lot of experience with me from the West. I was able to bring that experience back into our business and really take it to the next level by bringing the right attitude and policies that seasoned entrepreneurs that come from the Asian side are not able to bring to the business.
Are you a spender or a saver?
I save as well as I spend. I am very successful in managing my savings and my spending. I spend so that my family and I can enjoy a good life. For example, if I am on vacation I don’t look at my wallet. I make sure we have a good time, because if you are earning then you can enjoy the money that you own. But at the same time I have saving habits, which you have to keep to balance your financials. What’s your most cherished purchase? I don’t have any particular one. There are many of them and they all revolve around my kids or my family. For example, I still remember the first car seat I bought when my first son was born, back in the US. That’s something I could never forget. The first house I bought with my wife; the stuff we did. These are the first things you do in life that you cherish. Where do you save your money? I work with a financial adviser who helps me invest in money market accounts and portfolios that I have put together. I have my own retirement fund and I invest in properties in the UAE, because I think it is a good product to have in your savings. The UAE presents many opportunities to make money in real estate.
What has been your best investment?
If you look at only pure investments then it is my kids, but if you mean a financial investment, then it is the investment I have done in my business here in the UAE. That has been the best investment because I believe the UAE is a great platform to develop your financial targets. They offer the means that are required to have a successful business. But apart from that I invest in properties. I have a portfolio of investment products that I work with. But I think anything to do with investments in the UAE has been the best for me so far. Have you ever had a month where you feared you could not pay your bills? After coming back here, no. I never have had, touch wood. But earlier, yes. When you leave college and are starting to look for jobs, things are tough for someone who is starting his career and I have gone through that process. What luxuries are important to you? I am a very low profile person. Luxury for me is happiness. Spending time with my family. How much do you have in your wallet right now? I have Dh1,010 in my wallet right now. I am a credit card user but I always keep money in my wallet as anything can happen. You could be stuck somewhere where cards are not accepted. I spend on credit cards but I always pay them off every month.
What car do you drive?
I drive a Tesla Model X. the SUV that has those crazy doors that open up. That’s been on my radar for a long time. I bought this at the end of last year. It is an amazing car - it satisfies your responsibilities for having a greener vehicle as well as enjoying the ride. Do you consider yourself to be environmentally responsible generally? Yes, I think we as individuals all have a social responsibility that we need to carry. I have done work in my business. We have launched products that are environmentally friendly in the construction industry. I personally make sure we recycle at home. What would you raid your savings for? Savings are meant to give you a good retirement. I have goals in life that help me plan for what I need. Based on that I have developed a financial plan, which will allow me to have a strong financial future. When do you plan to retire? If you ask me today I will say tomorrow. But I have set up a time. I think before I turn 50 I should be out of work, that’s the plan. What will you do with your time? I have started thinking about this and in my mind I am thinking that I have to have social responsibility, to do something good for people maybe.
Private equity funds have historically leaned heavily on a combination of cost cutting and multiple expansion to underwrite future value projections. But today’s macroeconomic and competitive conditions challenge either approach. In most markets, slowing economic growth or the outright threat of recession suggests that multiples are more likely to retreat from current record highs than to expand even further. At the same time, the most obvious cost-cutting opportunities are typically baked into inflated asset prices or have already been captured by a previous PE owner.
What’s typically not baked into the price is the ability to deliver profitable organic growth—and to do it quickly. As discussed in Bain & Company’s Global Private Equity Report 2018, that involves focusing value-creation efforts on the top line and developing commercial excellence capabilities to help portfolio companies sharpen how they approach their chosen markets. Boosting revenues, especially in the face of economic headwinds, is unquestionably harder than improving a company’s cost structure, because it often poses complex questions about which products to offer, how to price them effectively and how to optimize the sales effort. But accelerated top-line growth has the most powerful impact on exit multiples, which means that spotting growth opportunities early can help general partners bid for companies more confidently, generate more value post-acquisition and exit more easily.
Hard work, big payoff
Creating value by actively managing for top-line growth works because it lifts profit along with revenue, generating impressive momentum. In a business-to-business (B2B) setting, we typically see a 10% to 20% top-line acceleration, and a 10% to 15% uptick in earnings before interest, taxes, depreciation and amortization (EBITDA), when companies target multiple commercial capabilities—and even bigger benefits when they infuse digital. Our research also demonstrates that median return on investment is 20% to 30% higher when companies use a commercial acceleration program vs. simply improving costs.
Innumerable factors affect revenue growth, from the strength of the company’s overall vision to the most basic frontline interactions. The sheer complexity of the issue is one reason that PE firms have tended not to focus much on the go-to-market model. There’s often a perception that commercial acceleration is more art than science and that targeting these capabilities would take too long, be too risky, and require a deep change to culture and mindsets. By contrast, cost reduction is more straightforward and easily measured—you know what you’re starting with, and you know where you’ll end up if you execute a few tried-and-true efficiency strategies.
But firms that have developed the ability to spot deficiencies in a company’s commercial operation find that it opens opportunities that might have been foreclosed to them previously. That’s because many companies—especially in the B2B realm—have yet to reach full potential when it comes to turning an adequate commercial organization into an excellent one. In our research, around 60% of all companies say they haven’t done a good job of focusing their value proposition on their most critical target accounts. Few companies invest in the kind of pricing capabilities that eliminate lost revenue and maximize EBITDA margins. Fewer still regularly zero-base their sales capacity and coverage to ensure that the company has ample resources aligned to the most valuable opportunities.
While solving these problems within an average holding period can appear daunting, the most effective firms break down the challenge into the elements of commercial excellence they can address quickly. In our experience, the most successful commercial excellence programs target their initiatives carefully.
The objective is to create a practical set of prioritized initiatives that can have significant impact and produce early wins. The list depends on each company’s individual circumstances, but the low-hanging fruit often involves aligning the sell/serve model to where the value is, optimizing governance and strategy around pricing, addressing potential cross-selling opportunities or the retention model, and tweaking the portfolio of products or services to better align with customer needs. Longer-term issues—but still addressable in year one—include revisiting the salesforce culture, adjusting compensation and making sure the best people are focused on the biggest jobs. Delivering results consistently will challenge PE firms that have relied on efficiency measures and market beta to drive multiple expansion. But by focusing on the nuts and bolts of commercial excellence, firms can develop relatively straightforward, repeatable strategies for diagnosing problems in diligence and quickly tackling them upon securing ownership, opening up a new set of viable targets among the large number of companies that underperform commercially. |
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