Stock Trading - Entry 17

Finally! An article with a structured analysis based on a list of things I can check (online) in the comfort of my own home. While the following is an example of applying my blueprint to determine if investing in a company with a blockchain or mining their blockchain appears to be a good investment for me, this is NOT advice. But wow does it ever serve as a great example for, what I would consider, a well-rounded investor-style analysis - not to mention the blockchain is kinda neat.

There's a lot you can find online about the Helium blockchain. In this article I describe my very simple take on its use case and then go through the first seven of my 13 questions (listed in my previous article), which are based on the technology. Again, I'll keep it simple. (My next entry covers the questions on motivations of key parties and the entry after that covers questions on things external to the whole blockchain.)

Description

The use case for the Helium blockchain is to turn nodes (Internet-connected computers dedicated to mining) into a decentralized network. Basically, companies have valuable assets (that don't need to move) that need to be tracked/monitored by having a small device (e.g. a LoRaWAN sensor) installed on them that constantly sends signals out to tall telecommunications towers you can see here and there. The signal basically gets passed from the asset to tower to tower...to tower until it eventually ends up back at that company's office for someone to track/monitor those valuable assets. The Helium blockchain seeks to replace the tower-to-tower part of that signal transfer process. With what, why, and how?

That's where my 13 questions come in.

Questions 1 - 7: The Technology

Question 1 - Is "puzzle processing time" actually useless to the running of the blockchain?

With the Helium blockchain, most definitely since the use case is all about sending data from assets to a company office. If nodes spend time processing puzzles just for the sake of it, that means less processing time available for relaying data - not to mention the need for larger and louder fans on the nodes themselves. Also, the Helium blockchain is designed to only reward data transfers, not solving puzzles, so miners wouldn't want to waste money on unnecessary additional computer processing power.

Question 2 - Has the "puzzle processing time" been converted into something useful for...well...anything outside of the blockchain?

In this case, the nodes spend their time receiving data from assets and relaying it to the companies that own those assets. Instead of the tracking/monitoring device on assets sending signals to towers, they send signals to the nearest node on the Helium network and then to the Internet. Basically, the "puzzle processing time" is instead used to change the signal transfer process as follows:

from: asset -> tower 1 -> tower 2 -> ... -> tower 1,000 -> the Internet (maybe) -> a company's office

to: asset -> node -> Internet -> a company's office.

Question 3 - How does the blockchain's use case (which has real-world/analogue applications) impact the general technology requirements of a node?

The Helium approach basically requires very simple, compact computers (nodes) spread out all over the place to be connected to both the Internet and other nodes. That means people in many places can mine and/or use the blockchain - although it's currently limited to continental Canada and the USA.

Processing power is minimal given all that needs to happen is receive small bits of data and send them to the Internet, plus check other nearby nodes are doing that properly. As a result, the size of a Helium node can be similar to the one in the photo above. No loud fans. Minimal space. Antenna size and location can make a difference, but it can be as simple as leaving the node in front of a window. In short, there is a major impact on Helium mining technology requirements resulting in a small, quiet box with an antenna that need only be a few inches long.

Question 4 - What is the optimal supply limit for the blockchain and what happens when that is reached?

The Helium blockchain creators/builders did impose a maximum amount of Helium tokens that could ever exist (AKA supply limit), making the calculation of a few things inescapable:

• the supply limit (the max number of tokens that could ever exist);
• the quantity of tokens released at any given time;
• controllership via tokens retained; and
• rewards for founders, employees, and early adopters/investors.

Since this question is about the basic structure of the blockchain, I will leave the last two bullets for later questions that focus on intent and motivation of various parties.

Calculating the supply limit is interesting and I will digress for one easy-to-understand paragraph using Bitcoin as an example. No math, I promise. (If I were a numbers geek, I'd embrace the fact, be proud, and would have gone down all the rabbit holes of possibilities.)

Bitcoin has a maximum of 21 million tokens that can ever exist and the quantity made available has grown steadily from 0, but it will be a over a century before the full 21 million are made available. This article suggests that setting a supply limit (maximum quantity):

(a) can use scarcity to maintain a high value for the tokens; and/or

(b) simply be the basis for the maximum number of tokens all the miners in the world can mine every ten minutes.

If the amount of processing power dedicated to mining Bitcoin around the world does not change over time then the number of Bitcoin tokens mined in a ten-minute period will be lower than the previous ten-minute period. Ten minutes of mining at Bitcoin's debut would have gotten me around 250,000 Bitcoin tokens. Decades later, ten minutes of mining will only get me less than ten tokens.

While there's a lot of fun math to address the supply limit and release rate, the Helium blockchain creators/builders decided on a supply limit of 223 million tokens and a steady release schedule (see Helium's white paper for the math on that). As far as what happens when all 223 million Helium tokens have been mined, this article poses lots of questions regarding the same thing happening to the Bitcoin blockchain. I am not sure either.

Question 5 - What happens to tokens that are simply lost (like a penny falling into the ocean)?

I have always found this curious, but I could not find anything in Helium's white paper on lost tokens, since people can forget their crypto-wallet login credentials or put tokens on a USB stick that ends up getting lost! If there are super-clear indications that a significant percent of tokens are no longer being used or traded (thereby messing with use, mining, and the value of the tokens), the Helium blockchain could have its tokens migrated to a new blockchain (like old European currencies to the Euro). It's a simple procedure with mega implications, but you can check out some of the nitty gritty on token migrations in this article. In short, this question seems to me to boil down to the motivation/intent of the Helium blockchain's owners at Helium's end-of-days.

Question 6 - How is the blockchain structured from an economics/business standpoint?

My first thought regarding this question was wrong. The value of Helium tokens is not necessarily tied to how many companies use Helium's asset tracking system. This article suggests an unlimited supply of tokens guarantees inflation whereas a supply limit invites value-from-scarcity. Helium blockchain creators/builders selected a supply limit, imposing scarcity as a core component of analysis, kind of like:

(a) the only child at lunch who has thirty chocolate bars and is willing to trade all except one or two of them; and

(b) ten children who each have three chocolate bars where each is willing to trade only two bars.

From what I gather, Helium tokens do NOT flow according to standard pay-per-use pricing models like the three-step process below:

Helium blockchain owners (1) -> a company with assets to track (2) -> miners (3) -> Helium blockchain owners (1) -> a company with assets to track (2) -> miners (3) -> ...

Why do I say that?

Having Helium tokens available to buy on some exchanges means other people can swing in and disrupt the process. From what I understand, the flow that Helium tokens currently seem to take, when simplified, is:

the owners -> anyone else -> anyone else -> ...

At some points along the way a company will track its assets using the Helium network, resulting in:

... -> someone with Helium tokens -> the company with assets to track -> miners -> anyone else -> ...

In short, there are lots of players involved.

Question 7 - Can the parameters of the blockchain be changed after-the-fact?

I would think this is typically not the case, especially given the token migration option. That said, the white paper says they don't know what the next stage will be once things catch on and the vast majority of tokens have been released. From an investor's point-of-view, this uncertainty strikes me as likely to result in a shaky end.

To check out my analysis of the key players of the Helium blockchain (questions 8 to 11), click here. Or, to read about other topics in my stock trading journey, click here.