The global financial crisis of 2008 was the worst global economic shock since the Great Depression (1929-1939). The unavoidable loss of economic wealth on the heels of a relatively prosperous period led to widespread mistrust of the modern banking system. Many sought US government intervention to solve the problem and were rewarded with the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010), while others increasingly began to view governmental intervention as a band-aid, plastering over years of state policies that enabled and propagated the banking crisis in the first place. If one were to believe the restricted debate in mainstream media, it would seem the crisis was caused by a lack of regulation in the financial sector. I suggest that the mortgage collapse in the lead up to the financial crisis was merely a symptom of government policy, and design flaws inherent to fiat (i.e. government-backed) money creation. Wall Street was the conduit through which these failures were realized. While the detailed causes of the crisis are beyond the scope of this chapter, the debasement of the fiat money supply was a contributing factor that provides some context to what follows.
For the better part of a century, US government fiscal policy and central bankers had been given academic justification by the writings of John Maynard Keynes (1883-1946). Keynes popularized the idea that governments could regulate economic performance with political decisions that would influence consumer demand (spending). By lowering interest rates below the market price, the Federal Reserve was only able to accomplish this “better” economic performance by inflating the money supply. These policy decisions distorted rational consumer behavior and investment decisions. Consumers responded to the policy’s incentives by purchasing houses and other commodities that they otherwise would have been unable to afford.
Increasing the money supply and higher government spending are both highly effective ways to boost economic growth indicators in the short term until economic reality forces corrections, known as recessions. It is similar to how hangovers are the inevitable result of drinking; the only variable in outcome is the severity. Continuing to drink may postpone the hangover for a short time, but eventually you must stop drinking and endure the discomfort of recovery.
Global financial models have relied on this ‘drunkenness’ among the public encouraging them (with low interest rates) to continue borrowing, thus spending more. In this way, governments spurred on economic growth and staved off recession, allowing politicians to claim that the economy remained healthy under their stewardship. But this was merely an illusion; in reality, financial wisdom was traded off for political capital. As with a game of musical chairs, everybody has a great time dancing until the music stops and the last person to sit loses.
Unfortunately, the people who lost the most were the ordinary working and middle classes who only responded rationally to the incentives put before them by decision makers in government and bankers who mostly remained unaffected (or worse, were bailed out using the public purse). The crisis demonstrated that Joe and Jane Six-pack had little control over their financial destiny; in response, a man pseudonymously named “Satoshi Nakamoto” drew the proverbial straw.
“The Times 03/Jan/2009, Chancellor on brink of second bailout for banks.” – Satoshi Nakamoto, inventor of Bitcoin.
These words, included and processed in the first transaction by Satoshi Nakamoto via his pioneering payment protocol called “Bitcoin” is where it all began. It is a rhetorical, but polite statement in line with the widespread public mistrust of the modern banking/monetary system and general disapproval of bailouts of those responsible using taxpayer money.
It is said that “necessity is the mother of innovation”. Satoshi, convinced that fiat currency was no longer the optimal monetary system, wrote a white paper that would result in the first modern decentralized currency. His 2008 paper “Bitcoin: A Peer-to-Peer Electronic Cash System” made a compelling case for implementing digital currency as a new payment system that would allow any two parties to send payments directly to one another and securely store money without the need for banks or financial services. This innovation opened up the future potential for people to be their own bank, and neither hand over the security of their money to any third party, or pay fees for the privilege. Bitcoin was a proof of concept and it works.
Satoshi’s invention was built with maximum security in mind. The Bitcoin network is currently considered “unbreakable”, and this gives Bitcoin a significant advantage over credit cards and other forms of electronic funds transfer for payment processing and the movement of money or digital assets.
Not only are digital currency transactions essentially free compared to the merchant and banking fees in the range of 2-4%, but digital currencies do not require their users to send their personal data over the internet. It is commonplace for credit cards to be stolen and unauthorized purchases made online. With digital currencies you can be certain that the payment came from the money’s legitimate owner – your identity is protected online. Also there are no risks to businesses of chargebacks which account for, on average, one-percent of all payments made in the USA.
Digital currency enables efficiency, reduces cost, and increases profit margins for small businesses. It should not come as any surprise that Alan Yong and I believe that digital currencies are crucial to improving small business bottom line and survival rates. The cost savings and other benefits, including gaining a competitive edge, are significant.
Perhaps the greatest benefit of Satoshi’s creation is the algorithmic money creation process. The predetermined increase in a digital currency’s money supply controlled by the network itself can protect users’ savings by preventing inflation by any third party – (government or bank) – which uses discretional tools such as “Quantitative Easing” to affect money available for loans. The decentralized nature of the network meant that money was no longer held in the hands of a few large banks, nullifying the ability of central banks to influence the demand for money by manipulating interest rates.
While the market does operate cyclically, and market movements will naturally sometimes overvalue assets, the severity of any potential bubbles will not be fueled by monetary stimulus nor backstopped by governments that destroy the incentive for due diligence by financial institutions. Digital currency’s algorithmic money creation process is the solution to the fiat money creation problem.
Contingent to this is the invention of the blockchain, the verification technology which underpins Bitcoin and perhaps the most important technical innovation. The Blockchain, a series of immutable transaction records (‘blocks’) associated with a particular ‘coin’ which must bear a very specific mathematical relationship with the previous ‘block’, even has utility far beyond capital transfer. This technology has massive implications for any field in which the verification of transactions plays a role, and has already led to numerous viable business opportunities and innovations.
Bitcoin was the first of many peer-to-peer digital currencies that would allow the transfer of capital directly between two people. The fact that it can do so instantly, for anybody, anywhere in the world at nearly zero cost makes it an incredibly valuable asset for the benefit of humanity. This caught attention of the DNotes founder Alan Yong, and by late 2013, when the value of the Bitcoin network exceeded US$10 billion at one time the rest of the world took notice as well.
Bitcoin’s dramatic rise in value inspired a proliferation of copycat currencies which essentially reinvented the wheel, with, at best, marginal improvements enabling their creators to also get in on ground level investments. Over time, the industry’s unprecedented earning potential and relative immunity from interference by governments struggling to catch up, caught the attention of bad actors.
The digital currency industry quickly became littered with scam currencies and predatory speculators manipulating the attractiveness of currencies in elaborate pump-and-dump schemes (the so-called “whales”). It became difficult to sort out legitimate investments from get-rich-quick schemes causing confusion for serious investors and concern for regulators. This resulted in negative headlines for the industry in the mainstream media, which naively failed to recognize the far-reaching societal and economic potential of what they were reporting on.
Blockchain has many potential applications where immutably time-stamped bookkeeping of any activity or asset transfer is of great value for verification, publicly or privately. Essentially, blockchain provides an undisputable audit trail of irreversible records. This poses serious threats to various industries faced with the need to innovate or else decline and has already stimulated the creation of many new startups with viable business models.
Digital currency is a once in a generation opportunity that will catalyze a multitude of new jobs and wealth over the next several decades. Many startups will have the chance to participate, but few will succeed without a clear vision and sound strategic plans that are successfully executed over a sustained period. However, being a social-economic movement, rather than a typical business, it also requires strong leadership to inspire and build communities of passionate supporters dedicated to long-term organizational objectives aligned to be mutually beneficial to everyone.
This leads us to the introduction of DNotes.
Following several months of meticulous analysis, the DNotes founding team concluded that the incipient digital currency phenomena would likely be the beginning of the next greatest technology revolution since the internet. Their forecast was that the decentralized payments technology would be the ultimate disruptor to banking and financial services systems worldwide. The lack of business expertise and experience in bringing forward new technology to the mainstream present in the industry did not escape their notice. Convinced they had a massive competitive advantage in mapping out and effectively executing crucial winning strategies, DNotes was launched on February 18, 2014.
DNotes is a Bitcoin alternative digital currency, built from the ground up to succeed where Bitcoin has been struggling. It is designed to exploit the strengths of Bitcoin and overcome the baggage that has discouraged Bitcoin’s popular mass acceptance. The DNotes vision is to build DNotes as a trusted global digital currency to supplement national fiat currencies in global commerce by simplifying its use so that anybody in the world can participate. In order to minimize industry threats and be in the best position to succeed, DNotes has been created within and alongside its own business ecosystem.
As Alan Yong recalled he had just completed a seven year project to help Smokeys Daylily Gardens from its beginning to become one of the largest daylily growers in the world:
“I was looking forward to enjoying retirement and spending more time with my family. Initially, I was very skeptical if I would even invest my ‘lunch money’ in an industry that seemed to be dominated by bad actors, fraud, and hostile communities. As a favor to an old friend, Joe, who had worked very hard with me at Smokeys, I agreed to take a serious look at Bitcoin and any potential business opportunities with a commitment to at least give him some advice.
It took me a while to catch on – but it became clear to me that digital currency had fundamentally transformed every aspect of money with built-in capabilities to be far superior to fiat currency. It is much like a precious rough diamond left to be recognized and treasured.
There will be many challenges to overcome. I thrive on big challenges; big bold ideas or problems that demand exceptional strategic thinking and execution. That was how I got hooked. In order to come up with a clear vision, I must first gain a very deep knowledge of the industry so that we can be in the position to develop winning strategies and build an organization that others can not replicate.”
In any major emerging industry or technology, pioneers and early adopters are always confronted with significant challenges. These obstacles may include a variety of unknowns, unproven technologies, untested assumptions, and commercial hostility. Furthermore, technologies always evolve over a period of time. While there are first-mover advantages such as name recognition and network effects, being a true pioneer in any industry can also come with the excessive and unpredictable costs of navigating unknown territory.
Bitcoin is a truly decentralized and leaderless system. There are no centralized controllers or coordinators. Some have referred to the Bitcoin snag as a new experiment with some level of frustration and struggle being unavoidable, having more than the normal growing pains typical of other new technologies.
In essence, a fledgling and leaderless industry has emerged and now seeks to challenge the most powerful incumbents in the world’s monetary power structures. It is fair to assume that there will be forceful pushback and multiple attempts to slow the impending threat. This has already been observed in anti-cryptocurrency regulations, banks refusing services to cryptocurrency firms, and even creating their own blockchain technology.
This problem is further compounded by competing parties promoting different agendas, making this the most controversial and well-publicized technology revolution in recent memory. In any case, it can take up to decades for new technologies to gain mass acceptance by the general population. There are many examples; such as personal computers, the Internet, online banking, and more recently, mobile devices.
There will remain resistance, reluctance, and doubt for many years. And the costs of mistakes to first-movers are significant. Consequently, strategic positioning is wiser than simply jumping in to join the party with costly attempts to develop speculative applications without viable commercial use cases. Instead, the DNotes team and its communities have focused on creating strategic units as the foundation of its own ecosystem while building a trusted brand.
Naturally, the main incumbents who face the most disruption from this new technology – banks, credit and debit card processors, and providers of other financial services – were instinctively dismissive of the early growing threat of digital currency. Fast forward a few years and these players have back-pedaled to pursue their own version of the blockchain technology – “permissioned blockchain” – a reduced and stripped down version that provides only a few of the advantages that unrestricted digital currency offers. Permissioned blockchain preserves incumbent revenue streams only possible with centralized monetary systems by blocking the advancement of more efficient and cheaper systems.
Although permissioned blockchain does not take full advantage of all the original features, the DNotes team has recognized that this development should not be underestimated. We believe that the better strategy is for DNotes to offer a full array of financial services in cooperation with partner banks worldwide, than to work against them. Global collaboration for mutual benefit is the key to progress.
It is vital to gain an up-to-date and clear understanding of the complexities and the dynamics of an industry at its formative stage. As the vision is refined, sound knowledge is of paramount importance for the formulation of great strategies in its pursuit. Alan went on to explain:
“In reality, one can only start with a general vision at such an early stage. Many issues are unsettled, with constantly moving targets. Nonetheless, it is important to be able to articulate your sense of direction or vision as to where you want to lead your organization with the benefits of new information.”
Instead of joining an increasingly crowded industry as a “me too”, DNotes decided to take a very different route, creating a long-term vision that could take decades to accomplish in its entirety. The decision to develop and deploy all the ecosystems necessary to achieve DNotes’ core goals and objectives of building a globally accepted digital currency is one such example.
The team made the strategic decision to remain lean and nimble by self funding our projects during the formative years: an agile development method often not possible once others’ money has been taken to grow. Strategic positioning using highly scalable building blocks is incorporated as a part of our tool kit. We build each component of our infrastructure block by block, analyze where we’re at, adjust if necessary, and continue building.
“I strongly believe that success in fast-paced industries like ours comes to the swift, to the agile, to those able to respond to the industry’s ever-changing demands, and the relentless pursuit of innovation. As you can imagine this approach combined with some hefty goals can only be accomplished with dedicated commitment over a long period of time.” – Alan Yong
I have observed, supported, and acquired DNotes since its launch in February 2014. During this time I have read every post at the forum. I have listened to, and absorbed Alan’s consistent message about what the goal is, where we’re at, and where we are heading next. One by one I watched those plans come to fruition in his favored “block-by-block” manner.
Alan is a leader who toils to ensure his team and the communities are onboard with his vision, values, and philosophy with consistent communication; he reminds us of the meaning and purpose of what we are working for. Alan has taken DNotes in a different strategic direction from the “me-too” in the industry. When analytical pioneering entrepreneurs like Alan look at a sea of opportunities, they look to the future when payoff potential is not patently clear. Market conditions are not constant phenomena, and Alan is building business strategies that will flourish under a likely different set of environmental factors. For Alan, DNotes is to lead, and not to follow others.
What has impressed me the most is how DNotes differentiates itself from the rest of the industry.
Looking around at the cryptocurrency industry, DNotes’ competitors seem to behave in an impractical and idealistic universe of their own. They are trapped in the belief that enhancing the technical aspects of their currency is key, rather than improving the ‘usefulness’ of the currency as money itself. With a background in economics this approach was obvious to me as meaningless and cosmetic – like the government releasing banknotes in a new color. It might look new, but it doesn’t improve money in any meaningful way (in fact, the inflation from printing it would probably even slightly devalue it). Bitcoin and the blockchain are revolutionary because they improve the durability, portability, fungibility, scarcity, and divisibility of money.
DNotes recognizes these improvements in the characteristics of money; however we contend that focusing on upgrades to our currency beyond these characteristics is not an efficient use of our resources at the formative stage. We are focused on bringing digital currency to the mainstream. To do this, digital currency must first meet all of the key functions of money – to be a unit of account, a store of value, and a medium of exchange.
Digital currencies are excellent mediums of exchange, and will make for a great unit of account for mainstream use. They remain, however, volatile due to low market liquidity. Until digital currency better acts as a safe store of value, people won’t want to hold onto it for fear of devaluation. Technological advancements that neither improve the characteristics or functions of money should therefore be considered a secondary concern to the creation of a currency with ongoing relevance in the future as anything more than a trading instrument for speculators.
DNotes’ leadership has always been very respectful and appreciative of the community’s suggestions and contributions. Together our community actively identified and recommended solutions to industry challenges and problems. The best of these ideas were promptly responded to with the creation of community projects. I specifically recall one member highlighting the industry’s divide in gender participation – with males outnumbering females ten-to-one in what will be one of the biggest markets for future wealth creation. A few weeks later CryptoMoms was launched as a community to help women get in at the ground level.
In late 2014 team member Cindy Williamson (“Chase” in the DNotes online community) proposed trust accounts for children in cryptocurrency. This idea allowed people to save and use cryptocurrency as “money”, and a key component of encouraging adoption is to enable participants to use their money in the same ways that they have always been accustomed to previously. With the usefulness of our currency, and the future in mind, we released an offering of CRISPs (Cryptocurrency Investment Savings Plans) including trust funds, retirement plans, charity accounts, student services and employee benefits.
There is something special about DNotes. It is built with a clear vision and passionately supported by a community committed to building a new world with better financial inclusion and opportunities for all to advance up the socio-economic ladder. This extends all the way to developing nations, where a low-cost decentralized payment network utilizing mobile phones and DNotes can service the billions of unbanked worldwide in countries where establishment banks are largely only patronized by the local elites.
What has DNotes been doing differently?
In consideration of the fragmented, chaotic, and insular nature of our industry, where users often prefer anonymity that often resulted in aggressive online disagreements, DNotes began by creating a culture of mutual respect and cooperation. This resulted in a productive and rewarding community atmosphere that many characterized as “refreshing”. Every new member is promptly welcomed and all questions are respectfully answered. DNotes is respected as a mature community, and a currency with a purpose. This team-work made it possible for DNotes to establish the beginnings of its ecosystem system without outside funding. It is quite a remarkable accomplishment for anyone who knows what it takes.
2. A Trusted Brand
With a great sense of direction, coupled with a well defined mission, and a clear vision early, DNotes has built a trusted brand by being engaging, appreciative, and respectful. We highly value the support and confidence of our communities as well as that of our stakeholders and supporters. Our commitments have always been to follow through with all our stated plans and goals. We have built a proven track record of doing so. Trust is invaluable in financial services, which will account for a significant part of DNotes’ future growth.
DNotes’ leadership has always been responsive, transparent, and trustworthy; committed to building a purposeful currency focusing on educating and benefiting the largest population possible. Outside of Bitcoin, DNotes is among the most publicized digital currencies in the industry.
3. Dedicated Long Term Commitment
The DNotes team and many of its stakeholders are long term investors. The vast majority of them are net buyers investing for the long term. Our goal is to make DNotes the first currency to fulfill money’s requirement as a store of value. Unfortunately, trading bots including a few likely operated by some exchanges [market operators] are making price stability nearly impossible to achieve in the short-term. That said, high volatilities are not a great concern until we start promoting DNotes as a medium of exchange. By then, we believe that other mechanisms will be in place to address the issue.
4. Women’s Full Participation – CryptoMoms
DNotes is committed to encourage and assist women’s participation in the digital currency space. According to Forbes magazine, women account for 70 to 80% of household spending and half the population. However, the female population today represents just one in ten of the industry participants. We created CryptoMoms as a community to help remedy this underwhelming participation. CryptoMoms has been well received, reaching more than 20,000 registered members in its first two years. A lot more will be done to assist female participation in the market and women’s small businesses using DNotes.
5. Saving For the Future – CRISP
”It is not how big the project is at launch, but how well positioned it is for global expansion at the appropriate time.” Alan often reminded us.
Our family of CRISPs for children, students, employees and retirees is designed to fulfill our mission to make DNotes’ ecosystem available for everyone worldwide to participate. We believe that disciplined long term savings, done on a regular basis, is a good thing for everyone. Our job is to provide for the convenience, safety, and long term appreciating value of DNotes. Consequently, DNotes is managed as a business, but not controlled as one. The CRISP plans have been launched as pilot programs for second stage development that can be scaled up quickly.
DNotesVault is a significant accomplishment that is difficult for its competitors to replicate. It demonstrates the mantra of DNotes’ willingness to go the extra mile of “doing things that others will not do, so that one day it gains the advantage to do things that others can not do.” (Alan Yong)
DNotesVault is one of the major steps to positioning the digital currency as money. While it does not sell or trade DNotes, the vault is set up like a bank with comparable convenience and ease of use. It is easier to set up an account at the DNotesVault than it is to set up a bank account. DNotes can be conveniently sent to an email or a DNotes deposit address. Account holders also have the option of scheduled payments or “timed released” over a user defined period of time with specified amounts.
As the industry first, it also serves as the home of “CRISPs” a family of digital currency savings plans for children, students, employees, and others interested in saving for their retirement. Above all, the deposits are securely stored off-line and backed by 100% verifiable matching funds stored in other locations.
DNotesVault is a prime example of the incorporation of multiple viable solutions to overcome known problems typical of an emerging industry. We strongly believe that to gain mass acceptance of digital currency it must meet or exceed the full functions of money along with providing ease of use and secure storage solutions. It must also be conveniently available for everyone worldwide to participate, without barriers, for small savers. Above all, it must earn the privilege of a trusted brand.
The latest addition to our ecosystem – DCEBrief was created in response to digital currencies biased and misunderstood reporting in mainstream media. The site provides objective and unbiased news on the latest developments in our industry with articles written by journalists who specialize in blockchain and digital currency. The target markets are busy executives, business owners, philanthropists, regulators, and other decision-makers to help them understand the digital currency environment. Due to the busy nature of the website’s readership, all articles are packaged into “executive summary” format without fluff or filler.
8. A Book for Small Business Owners and Startups
Alan has always been very passionate about helping struggling small business owners having lent his business expertise to many entrepreneurs in the capacity as a small business consultant for more than a decade. As a community, we are often inspired with respect for his business experience and strong leadership as reflected in the management of DNotes. Consequently, we have often encouraged him to write a book one day.
This book is a key foundation block to our ecosystem. It will serve as a launching pad for funding upcoming projects and further development. Equally important is the opportunity for DNotes to connect with small business owners and their employees. I believe that this book will be of great inspiration and help to entrepreneurs.
Furthermore, I trust that this book will also help to promote our CRISP for Retirement and Employee Incentive Benefit programs which will greatly benefit business owners and their employees. Additionally, this chapter will help spread the word and recognition about DNotes, piquing the interest of potential stakeholders. We are proud to have assisted Alan in an editing capacity and in the writing of the DNotes story.
9. Integrated Private Company
Although DNotes is managed as a business, it is not controlled like one. Being a decentralized autonomous organization, the DNotes currency is owned by its entire group of stakeholders on an “at will” basis. Any stakeholder can change ownership at will without notice. We have taken this ownership structure one step further by owning up to a 25% stake of the equity in the privately held for-profit company, DNotes Global, Inc., incorporated in the State of Delaware, USA. By extension, all of DNotes stakeholders have an ownership stake in DNotes Global, Inc.
This company does not control the currency itself. However, among others plans, the company will help to develop and fund our growing ecosystem and projects that are going to be essential in taking DNotes to the next level; to become the dominant digital currency leading to mass global acceptance. Extending the company equity to currency holders is expected to provide significant fundamental and intrinsic value to the currency as the company expands.
Leaderless organizations can be a big hurdle to ongoing development. This has been witnessed in Bitcoin’s community in solving the issue concerning the maximum number of transactions its network can handle simultaneously. We see the potential of chaos and impotence as an inherent weakness of decentralized systems that forego leadership. This risk can be minimized with the presence of a group of developing stakeholders who have sufficient self-interest to help protect and promote the organization.
Digital currency and the blockchain are the best opportunity in a generation to invest in the future from the ground floor. The next several years will be pivotal to DNotes’ rise to preeminence in the financial technology industry. Upon release of this book, Alan and the team will switch into the next phase from planning to execution of technology development. The last two and a half years have been spent carefully analyzing market and consumer behavior, working on our value proposition, building critical infrastructures, and waiting to spring forward at the most opportune moment. We are confident that we will dominate the industry swiftly when we are ready. This book serves to throw the gauntlet in our self-imposed challenge.
Arnold H. Glasow probably said it best when he said “Success is simple. Do what’s right, the right way, at the right time.” DNotes is focused on exploiting its competitive advantages at the most opportune time.