Category: Tech

How Does The Blockchain Work?

I’m writing from the old mining town of Virginia City which is near to Lake Tahoe. So why not discuss the modern version of mining… the blockchain.

How Are Blockchains Verified

Bitcoin is backed by millions of computers around the world called “nodes.” Today, the Federal Reserve, VISA and MasterCard back the current currency system but only THEY have access to the data. THEY also control the system. Bitcoin is open source to everyone and NO ONE controls it. Bitcoin mining is highly uncertain like mining for gold. Miners solve complex math problems to verify transactions in a block performed by high-powered computers.

Blockchain seems to be that hot topic that everyone talks about but no one seems to understand.

The luck and work required by a computer to solve one of these problems is the equivalent of a miner striking gold in the ground. So the miners insure both privacy and security. For example, the miners make sure that bitcoin transactions are not being duplicated (aka “double spending”). So if you have $100 in your crypto wallet, the miners verify that you didn’t spend the $100 on a music festival ticket for $100 AND on buying a $100 skateboard online. If the miner solves the complex math problem, then a new block is added to the blockchain and the miner is rewarded a block reward in bitcoin. This is the only way that new bitcoins get issued.

The block reward is halved every 210,000 blocks, or roughly every 4 years. In 2009, it was 50. In 2013, it was 25, in 2018 it was 12.5, and sometime in the middle of 2020 it will halve to 6.25. At this rate of halving, the total number of bitcoins in circulation will approach a limit of 21 million, making the currency more scarce and valuable over time but also more costly for miners to produce. 

Six Parts To A Blockchain Transaction

(1) A party requests a transaction.

(2) The transaction is broadcast to all on the entire network.

(3) The transaction is validated using validation rules set up by the blockchain network.

(4) Validated transactions are kept in a block and sealed with a hash algorithm.

(5) The block approaches the blockchain for authentication and specifically the hash is authenticated.

(6) This process is very secure because if a hacker tries to change the hash algorithm, the block will be rejected by the blockchain.  Only after every computer on the blockchain network validates  the block via a hash authentication, then the block becomes a part of the blockchain.

An Overview Of Influencer Software Platforms

At Ryco Capital, we primarily focus on investing in software in Media, Ad Tech, Real Estate and Blockchain. Software for influencers specifically lies near and dear to my heart.

Winter is coming… in Napa Valley.

In my last blog post, I shared some concerning indicators in the economy that lead me to surmise that a Stock Market crash is coming in 2020 or 2021. Because capital vanishes as well as big tech exists in a bear market, it’s more difficult to find 100x opportunities. So here is how I see the world.

Imagine a world where the Dow Jones drops 40%. Wall Street panics… a big name investment bank goes down. Crypto and Cannabis take major dives as well as emerging technologies such as AR/VR and 3-D Printing. The FED vows to make historical cuts to interest rates to recessitate and pump up the economy.

How do you invest in a world like this?

Post stock market crashes are typically the best time to buy stocks at a discount. In my working thesis, we’ll invest in distressed manufacturing companies at huge discounts. During times prior to anticipated market uncertainty, I’d prefer to focus on free cash flow. As explained in a prior blog post, it make sense why VCs don’t focus on free cash flow and rather why they take a “winner-take-all” approach in big markets.

Influencers use a tool called a “product launch” (first created by Jeff Walker at Product Launch Formula) to sell their digital products during event-driven launches. An influencer may have different types of opt-in funnels such as a “Waiting List” funnel. For example, you may sign up for the lead magnet on my website, but only the opt-ins for my product launch can be considered for the “launch list.” The calculation of Earnings Per Lead is Launch List / Total Marketing Spend.

Free cash flow is not enough. In addition to free cash flow, you want the Earnings Per Lead to be greater than the Cost Per Lead. Furthermore, you want the Earnings Per Lead to be continually increasing by using an Ascension Model to push up the Customer Lifetime Value (CLTV).

Let’s say you sell a software subscription. Your first ascension model campaign maybe a free content strategy such as a blog and podcast. Next you’ll want a DIY Software Saas. To increase CLTV, you’ll want to add Monthly Workshops to support Certified Ambassadors. Then you’ll want to create an annual Dreamforce type of conference. In addition to free cash flow, you also want an Earnings Per Lead that is ever increasing it’s CLTV. Whatever company has the greatest Earnings Per Lead can pay the highest Cost Per Lead and win the Game Of Thrones (winner-take-all).

In my working thesis, when investor’s panic and the economy collapses into a recession, companies will downsize and cut their marketing budgets. According to INC, influencer marketing has a return on investment of about 11x compared to other forms of paid digital media. During a market correction, I expect distressed companies to increase their influencer-based direct response marketing where their Earnings Per Lead exceeds their Cost Per Lead.

In Napa Valley wineries look so different in the winter ❄️ lots of brown and red.

How does influencer marketing work? An example may be helpful if you’re not familiar with this space. Revolve runs an influencer campaign called #revolvearoundtheworld for their millennial customers. It’s been a huge success. For companies targeting millennials, influencer marketing is almost an absolute necessity as 84% of millennials don’t trust traditional advertising according to an article by Brookings. This article also points out that 1 in 3 adults are millennials and that 75% of the workforce will be millennials by 2025.

BI Intellgience predicts that influencer marketing ad spend will reach between $5 billion and $10 billion in 2022, a five-year compound annual growth rate (CAGR) of 38 percent. Companies are already converging their influencer marketing along with their video and social media marketing strategies. The trend is moving towards long term relationships with influencers who share similar values to their company. Interestingly, celebrity marketing is being eaten way by influencer marketing.

The Dominant Players In Influencer Software Platforms

Software is making influencer marketing more accessible to smaller companies and individual brands. Influencer marketing differs from Google AdWords or Facebook ads in that they require managing the relationships with influencers (who are people after all lol). Nevertheless, let me dive into some of the predominant influencer software platforms emerging today.

Everflow. Everflow is an affiliate management Saas with more features than Cake, HasOffers, Linktrust and Hitpath but at an extremely low cost of only $200/month (as well as a great interface although some disagree). Everflow’s targeting and blocks allow you to eliminate irrelevant traffic sources and focus on the sources getting your target measurements. 

Brand24. This is a social monitoring platform for small and medium size businesses to track “social conversations” about your brand. It’s used to prevent PR crisis, find brand ambassadors, gain consumer insights, and maintain a good online reputation.

BuzzSumo. This is a powerful tool that allows you to research your target audience, get ideas from other content creators and find other influencers to help promote your ideas. By the way, I use BuzzSumo for this blog.

Upfluence. Upfluence is all-in-one influencer marketing platform that allows you to market through influencers including keywords, geolocation, engagement rates, audience demographics & more – influencer outreach through bulk emails – multiple campaign management – analytics & mentions monitoring.

Rocketium. A simple and effective way to create video marketing for influencers.

Proof-Of-Work Vs. Proof-Of-Stake (Blockchain)

I am writing this post from Bar Harbor and Acadia National Park in Maine. If you’re looking to understand the blockchain, you’ll first need to know the difference between Proof-of-Work and Proof-of-Stake consensus rules.


Proof-of-Work (POW) was created by Satoshi Nakamoto as the consensus algorithm for the Bitcoin blockchain network. On the Bitcoin blockchain, miners authenticate transactions onto blocks on a “first-come, first-solve” basis. Essentially, larger miners with the fastest supercomputing servers “win” the Bitcoin reward by solving the transaction puzzle first.

Proof-of-Work (PoW) consensus rules allow decentralization and security at the same time, but at the cost of expensive server capacity and energy. As a result, the larger miners with faster supercomputing capacity tend to dominate the smaller miners… inadvertently reducing some of the decentralization value of the node networks. In a nutshell, PoW works for simple transactions like cryptocurrency but is too energy inefficient for more complex touring tasks needed to run apps.


The genius of Satoshi’s blockchain innovation was to make it prohibitively cost-inefficient to hack the Bitcoin network. In other words, hackers would have to inefficiently pay for the supercomputing costs of mining 51%+ of the block verifications if they wished to change the consensus rules. A proposition that makes no financial sense. Read my blog last month to understand details of how the blockchain works.

Ethereum founder Vitalik Buterin, however, plays “devil’s advocate” and claims that the risk to the Bitcoin blockchain security would be malicious attacks by governments or attention-seeking hackers.

“What about attackers who have a really large, extra protocol incentive, or just want to watch the world burn? Could be a government. Or hackers that want to have some fun. The critique here says we’re assuming we have these participants motivated by economic incentives. What if there are people who just want to break the thing regardless?” Buterin said.

Buterin is moving Ethereum 2.0 from a Proof-of-Work to a Proof-of-Stake (PoS) consensus model that will gradually be implemented over the next five years. He claims increased security, performance and scalability for an Ethereum built on the PoS consensus model.

The Proof-of-Stake (PoS) replaces “miners” (who create new blocks) with “validators.” Staking is when validators voluntarily put their own ether (the currency used to pay validators on the Ethereum network) into an “escrow like deposit” lock up utilizing smart contracts. So instead of a PoW “first-come, first-solve” reward system… the PoS grants transaction validations based on how much ether the validators lock up.

Buterin plays “devil’s advocate” on his own PoS system by explaining the possibility of Evil Smiley Face Guys who purposefully adds new blocks with incorrect transactions. So the new Casper PoS system including a “challenge period” where anyone on the blockchain can challenge the validator’s validations. If the challenger finds an error, the challenger will receive a portion of the lock up deposit that was due back to the validator.

“The challenger can submit a transaction that points to [the block in question]. That calculation runs on the blockchain. The blockchain’s like, ‘wait the actual answer is 256 and this guy submitted 250 so this guy’s wrong.’ The original guy’s deposit is destroyed and part is given to the challenger,” Buterin said.

Weaknesses Of Proof-Of-Stake

Proof-of-Stake consensus systems can work as long as the platform is widely in use. On the Bitcoin network, new coins are issued in exchange for successful authenticating transactions onto the blockchain. Because only a finite number of Bitcoins will be issued, the limited supply encourages the value of Bitcoin to keep going up.

Because new ether coins do not have a limited supply, the value of ether has no underlying basis and fluctuates wildly based on market whims. If a better blockchain system came along causing everyone to jump on the bandwagon, the value of ether could theoretically collapse. Furthermore, because validators need to own ether to participate in validating transactions into blocks, a collapse in the value of ether will likely create a “panic” scenario where validators leave in flocks.

Perhaps, this is worse case thinking… but I’m just playing the devil’s advocate. Nevertheless, the likelihood of an ether collapse has a higher probability than a government or attention-seeking hacker attempting majority control over the Bitcoin Proof-of-Work system. In addition, a government or attention-seeking hacker could also manipulate the markets to create an ether collapse.

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