Building Wealth on Blockchain
Building Wealth on Blockchain

By Niklas Spille-Scheich | Cryptonic | 15 Sep 2019

$11.47 tipped


First things first: The brethren Greed and Avarice are no good advisors, neither are Men in Grey Suits. When I'm talking about "Building Wealth", I'm not going for the wealth of Elon Musk (Co-Founder of PayPal), Jeff Bezos (Amazon) or Bill Gates (MicroSoft) - unless you've got a good idea, which I do not doubt, your task will be to beat luck by strategy. The Good News: everything is in place for you to start building wealth on a budget. 

This is not financial advice. Whatever you do, take care and do your own research. I'm hiding some important links in this post, please make sure to bookmark it. Consider this post a re-read, your Witcher's 101**. 

To get this straight ahead: "Trading" may be part of what you're doing to acquire some cash to build upon, yet the trading markets are designed to wipe out small balances. I've recently seen a Facebook ad for a small-time forex&stock trading app - the fineprint read "73% of our users lose money". Wow, that sure makes me want to go to that place. With Cryptocurrencies, the market is offering enough exchanges and assets to find trading pairs that are not interesting for those who are moving bigger numbers - I will not cover this aspect, you may find some clues in Publish0x's News&Technical Analysis section.

**needless to say I'm going for their show later this year.

Step 0: Bare Necessities

You are reading this. There couldn't have been a better time for you to start Building Wealth, even if you're completely broke now - all the tools are ready for you to work with other people's money: Brave Browser & Rewards and Publish0x. Even if I had started with nothing but my phone two months ago, I'd have unexpected $3 to work with now from swiping away Brave Ads a few times a day. Again: You are reading this post. You've got all it needs to get started. Add another $2 available from other devices.

Another $50 in Stellar Lumen is waiting to be picked up on Coinbase Earn, even more ($20 in) DAI, ($50 in) EOS and ($10 in) BAT are waiting to be picked up - all of it can be swapped and withdrawn to your Ethereum wallet immediately. As of the time of writing this post, you'll end up with about $130 in Ether. In the worst case, you'll spend about an hour or two in total picking this up. $65-130 for an hour's work picking up other people's money, does that sound like a fair deal? Actually, free money seems too good to be true, yet the current universe of Cryptocurrencies is in the state of Let there be Money - grab it, and run.

Whatever excuse for not having the money to build anything like wealth or an additional low-effort source of income, when you've read up to this point, you've got a fair chance of starting with $95 you did not have before; assuming you drop out of classes early.

Check out Publish0x's Faucet&Giveaway section if you've got spare time but no spare cash ;-)

Step 2: Why you need to take care for yourself

VAG § 314 Zahlungsverbot; Herabsetzung von Leistungen

(1) Ergibt sich bei der Prüfung [...] eines Unternehmens, dass dieses dauerhaft nicht mehr imstande ist, seine Verpflichtungen zu erfüllen, die Vermeidung des Insolvenzverfahrens aber zum Besten der Versicherten geboten erscheint, so kann die Aufsichtsbehörde das hierzu Erforderliche anordnen, [...] Alle Arten von Zahlungen, besonders Versicherungsleistungen, Gewinnverteilungen und bei Lebensversicherungen der Rückkauf oder die Beleihung des Versicherungsscheins sowie Vorauszahlungen darauf, können zeitweilig verboten werden. [...] (2) [...] Die Pflicht der Versicherungsnehmer, die Versicherungsentgelte in der bisherigen Höhe weiterzuzahlen, wird durch die Herabsetzung nicht berührt.  

This is a quote from the main german law regulating insurances, more specific: it's talking about life insurance in this paragraph. In a nutshell: should an insurance company get into financial problems, it may be banned from delivering on its contract or buying back on life insurances while the person insured is still obliged to pay in full. Would you bet on a contract that, in the worst case, leaves you stripped of your money without any rights on any service at all? This is a very real risk, though the European Union and United States are constantly pushing billions of Euros and Dollars into the financial system, current reports state that most financial institutions would not be able to cope with a situation like the one leading up to the collapse of Lehman Brothers ten years ago. There's a similar clause in the laws concerning banks. This quote is from a german law, all across the European Union, member states have adopted the same; similar lines can be found in the Terms of Service of US insurance companies and banks;  I'm not familiar with the situation outside of EU or US jurisdiction yet I doubt it's any better. To get out of a contract with a bankrupted insurance company you'd probably have to file insolvency yourself.

Good News, again: Taking care of your own is not as hard as it may seem - all I need you to learn from the next step is the concept of Inflation and Exponential Growth

Step 3: Crunching the Numbers

Take your time to learn and understand the Wheat-and-Chessboard phenomenon:

If a chessboard were to have wheat placed upon each square such that one grain were placed on the first square, two on the second, four on the third, and so on (doubling the number of grains on each subsequent square), how many grains of wheat would be on the chessboard at the finish?

Wikipedia wouldn't be Wikipedia if there wasn't an answer to the question at hand, it goes like this:

[There would be] 18,446,744,073,709,551,615 grains of wheat, weighing about 1,199,000,000,000 metric tons. This is about 1,645 times the global production of wheat in 2014 (729,000,000 metric tons).

Back to your Finances: If you put down a Cent at the age of 18 and double it every year, never taking anything out, you'll have 18,446,744,073,709,551,615 Cents (a hundred and eightyfour quadrillion fourhundred-sixtyseven trillion fourhundred-forty billion sevenhundred-thirtyseven million ninetyfive thousand fivehundred sixteen Dollars and fifteen Cents) at the age of 82. Chances are you won't quite get there because doubling your assets' worth every year, sixty years in a row is quite a tough job, yet we're starting out with 9,500 Cents. A slight advantage on the first half of your chessboard. 

Let's look at the numbers if there's just 10% added to your asset's value every year; historical data shows that this is what the US Stock Market returned over the last one hundred years on average. News indicate that it may not be so for the hundred years to come: the $95 you've just earned may be $38,500.19 in the year 2083. Do we dare looking ahead this far? 

Even by simply not touching the $95, you could cash out $95 in eight-and-a-half years' time and still have $95 invested. Plain math and historical data on other people's money.

How does Inflation work in?

Here we go: Money makes the world go 'round. Kindness to your fellow beings is essential, yet Money in all its forms is the grease that makes our society work; it's a generally-accepted IOU. I am trained in the medical field and very specialized in what I'm doing - when directly exchanging my services for the goods provided by the people I work with, I'd have a hard time living my life. Yet the community I live in values my work and has set a monetary price tag on it. Even though the people I work with will never be able to climb the scaffolding, the IOUs I receive make it easier for me to get the roofer to climb up there and do what he does; I can't wait for some roofer to fall of the roof and need my service before he'll fix my roof. Maybe he'll do it before in an act of kindness, yet this is not how things work for most of us. Many of these Euros I earn are put right back into circulation, my grocery dealer is always happy taking these IOUs off my hand and, on long and winding roads, actually needs the service of the people I work with. The thing is: whenever I earn more Euros than I need for my daily living, there's no incentive for me to keep the rest in circulating supply, I can start hoarding Euros. These Euros are missing from the overall supply and while my individual stockpile may not have a major impact, all of us together (or some big player) can bring things to a halt - thus, monetary authorities all over the world try to keep their currencies losing purchasing power*** slightly every year. We need to consider Inflation when calculating returns on investment - all across the world, monetary authorities are targeting 1.5-2% of annual inflation, so I need to have a yield of at least 2% to keep inflation from nibbling away on my earnings. It's hard to get this rate by simply working together with banks and insurance companies (I've pointed out above why it's actually not a good idea to let them have more of your money than is necessary: regulatory laws may part you from what's yours and you still have to give them more).

***thank you very much, Daniel, for putting up this post. 

How do I get out of the Inflation Game?

There's ancient knowledge working behind banks, hedge funds and insurance companies: As money loses purchasing power all the time, step out of the game and start working with things that either give you an interest or, at least, gain in monetary value over time - Precious Metals, Stocks, Real Estate. Each of these types of assets has a habit of gaining more value than is being eaten away by monetary inflation and, except for Metals, might give you an additional stream of monetary income (dividend or rent payments).

This is not financial advice.
Whatever you do, take care and do your own research.
While holding any currency exposes you to the reality of Inflation,
someone may come up with a way of creating artifical gold.
The Stocks you invest in may crumble to ashes.
Real Estate may be subject to floods, tornadoes, vandalism, bankrupted tenants.

Got that? Accumulating Euros, Dollars, Yuan, Bolivar on your bank account or in a sock hidden behind your wardrobe is connected to risks just like anything else we do in life.

Let's crunch some more numbers

Above, I have done the math on a one-time amount of $95 out aside in late 2019 that may be cashed out to $190 in 2028. May I safely assume that you can put aside $10 a month? If it's $100, just add a zero to all the figures given, if it's $50 get out your calculator and multiply by 5. How much you should put aside? "Enough", it's a serious piece of work getting down on building future wealth - the German national pension fund takes 18.9% of all wages paid and is running into a future problem of paying out more than is being paid in; when I reach retirement age in 2056, I'm expected to live of 35% of my last income. This is more than I'd get in many other places, yet I doubt it will make for a sustainable living.

Assumption: We put aside $10 every month, re-invest the earnings and performing not as good as we may do, say, 5.5% "on top" per year or  0.46% per month. This is an estimate on the safe side, I don't want you to blame me if you do not make 20% per month, every month - that's possible by playing Cryptocurrencies, yet it's an awful lot of work keeping track of them and estimate their going up or down. This is as hassle-free as it can get.

At the end of our first year, we've paid in $120 but have reached a net worth of $123.08. Remember: It's the first square on the checkerboard. Let's fast-forward to six years from now (all I do all this time is put aside $10 per month).

Over the course of six years, our total wager is $720 - our balance is $851.26, making some $131 in revenue (that's more than we paid in during the first year!). Another six years, the balance comes out at $2,035.87 with just $1,440 out of our own pocket. Not bad, now let's make our $95 be the starting balance... ;)

As expected, starting with other people's money (without getting into the debt trap) makes our balance at the end of year six be $969 while we put in only $710 out of our own pocket; reaching a balance of $2,200 by the end of year 12 with a mere $1,430 out of our own pocket.

What if we managed to set aside $100? The balance by the end of year 12 would be $22,000 with $14,300 out of your pocket - suddenly, there's a whopping $7,700 available you wouldn't have had if you spent your days like before. Stick to this plan another 25 years, you'll have $30,000 that you didn't expect yesterday - remember the chessboard.

Step 4: Bring in the Chains

Gone are the days where you'd have to bring in some obscure minimum investment - using contract-enabled platforms, you can start following this plan starting from next to nothing. Mostly automated data handling and accounting bring handling costs for small orders to a bearable size and "on a budget", you can always check ETHGasStation for a good time to squeeze the last cents of handling cost out of your plan. Tokenizing physical things is a matter of trust and due diligence, yet partnering with a sound company takes some of the risk out of our endeavour - while Cryptopia funds are largely lost due to the nature of blockchain technology, a compromised database on physically existing goods may be restored in a secure environment.

"Never put all eggs in one basket" is as true as it has always been, blockchain keys may be compromised, companies may fail, villages and towns may be abandoned. I will showcase "How To" at the example of two companies, it will be your task to evaluate for yourself if you believe the to-the-best-of-my-knowledge-examples are your cup of tea to follow. 

4.1 Stock Market

As Stocks are subject to strict regulations, many blockchain projects and companies have been pushed out of operation by the SEC. Either way you look at it, it's tough. Creating an Exchange-Traded Fund making Bitcoin et al. tradeable on exchanges and more accessible to Big Finance, has been worked on for the last two years without getting SEC approval. The other way around, tokenizing ETFs, has been busted by the SEC at the development level. No stocks for you on-chain yet, neither for me; the closest thing we get are individual projects' own tokens that may or may not bring us additional value, see @viraladmin's "Guide to Making Money without going broke". To be on the safe side, consider any money that you put into random cryptocurrency projects lost money; finding a hidden gem may be possible. I'm not doing the research for you here - and John McAfee put a huge resistance to Bitcoin's future price ;).

4.2 Precious Metals

Whatever Company or Metal-backed token you look at, make sure you figure out who is considered owner of the underlying asset and where it is being stored. Among all the possibilities, things can go as bad as "10% of the token's initial price is backed by physically existing gold" - you are not considering even looking at this token again, do you?

However, Precious Metals are among the favorite long-term stores of value - it's usually following the rate of inflation, in times of economic uncertainty the gold price often rises without going down in the following years. There's more Precious Metals than Gold out there, though.

This is where my favorite broker, Bitpanda, enters the game: It's a Vienna-based company, registered and licenced as Payment Service Provider according to EU regulations, and nominated as Best FinTech Startup 2019. Why? I can easily move funds from my bank account (supported: Euro, US-Dollar, British Pounds, Swiss Francs) to the brokerage dashboard and swap to most major Cryptocurrencies [this is what I first needed but not my point today], Precious Metals (Gold/Silver available now, next in line to be accessible is Palladium); they're working with regulators to be allowed to offer tokenized stocks.

The catch: Buying small amounts of metals is usually a very expensive game as it does not really matter if the people involved handle an ounce of metal or a full bullion. Here's where brokers like Bitpanda have their use-case, I can buy tokenized metals at tiny fractions, starting from $1, yet get the price I'd pay if I bought a full bullion. As I can swap between Metals, Crypto and Fiat with a few simple clicks, it's easy to proceed to the next step when my balance has reached a point where I want to lock up some funds in real estate.

Bonus: Bitpanda launched an Exchange in August, starting with a few crypto trading pairs and the added benefit of fiat/crypto trading pairs. Crypto/Metal and Fiat/Metal pairs are en route to being launched in late 2019.

4.3 Real Estate

Precious Metals are a decent way of storing your value until you can afford getting into Real Estate, which (a) usually follows inflation in terms of value, (b) is subject to regional development [New York used to be shit-rated for real estate just fifty years ago] and (c) may generate rent payments.

Note this: You can probably earn more out of your real estate if you manage tenancy, repairs and authorities yourself, yet it will eat away your time. For simplicity, I'd suggest getting into managed real estate - it saves you time and trouble, at the cost of revenue. If possible, I do not want to get involved more than necessary over the next years.

By the time I accumulate $61k in my bank account to be able to afford a small Detroit mansion, inflation has eaten away a large portion of the purchasing power. Buying one house, one flat, makes me susceptible to all kinds of possible points of failure: I may not find a tenant, the tenant I do find does not pay his rent (in most jurisdictions I would not be allowed to simply throw his things out of the window - it would take a year-long lawsuit to get him evicted; all the while not receiving rent payments), the house may be wrecked when I finally regain control of it. By utilizing tokenized real estate, the barrier between me and the real estate market is significantly lower and I can spread the risks involved over several houses.

RealT might be doing the entire blockchain ecosystem a favor, by the way: you do not need to put down crypto assets to be eligible for a Real Estate Token, you can opt to pay from your credit card or PayPal as well - paperwork is handled using the DocuSign service, so you end up having some classical paperworks at your disposal. To receive rent payments, though, you need to provide an Ethereum address the Real Estate Token and subsequently rent payments in DAI should be transferred to. While it is a good sign that rent payment distribution has started, it is not certain that a secondary market for Real Estate Tokens will emerge; until then you will need to convince RealT to buy back your tokens. They have confirmed, however, that they are working on a marketplace for whitelisted Ethereum addresses to trade Real Estate Tokens without RealT being involved.

Back to the numbers: The RealToken keeps its value, I hope. All the while, I'm receiving rent payments that may enable me to buy a second token in about six years time if(!) I simply accumulate in my Ethereum wallet. Remember: The DAI stablecoin is closely pegged to US-$ 1. On the way, I can consolidate DAI payments from RealT with tip payouts from Publish0x (great platform, did you ever hear of them?) and leverage through the metal market again. 

Watching the Market

Two things may influence my returns, though:

  • it is no unheard of that rent payments are changed for tenants every once in a while. Sometimes it's sheer greed, other times it's adapting to the politically wanted inflation increasing the operational cost of providing a place other people can rent. I'm no economic genius so I leave this decision to others.
  • Detroit, a town that used to be known as Motor City filed bankruptcy in 2013 but regained control of their finances in 2014. If you want to buy in this city, there's plenty of homes to choose from ... yet:

Re-Booting a City

Over the course of late 2018 and 2019, several plans have been announced to revive Motor City. A whopping $172 million have been announced for neighborhood development (Due Diligence: are the RealT estates on offer that you double-checked on Google Maps part of the seven neighborhoods scheduled for investment?). Car-maker Ford has announced to push either $900m or a total of $1.6b into the Detroit area, creating between 900 to 5,000 new jobs. I did not work out yet if these are two individual projects or one big one. For some more fact-checking to do, check out this list of projects announced for Detroit (finished $650m renovation of the Sports Centre, projects to come including a subway system, a new $1b skyscraper, a $4.6b investment by Fiat-Chrysler). Checking at least some of the facts proposed is part of your due diligence.

Done?

I have shown you, in numbers, what a mere $10 per month can do for your life in 12 years' time, if you're bringing a family through life, these figures may vastly increase by the time your children get to the point they start thinking about their economic decisions. Even if your starting position is not the best (I've seen days when I spent 14 hours at work yet barely managed to pay my bills, and those weren't actually for luxury items but a shared 1-room-flat), all it takes for you to change the course of action in our current economic system is at your disposal. The least you can do is checking out the Brave Browser, pick up free cash from Coinbase Earn, move it through Bitpanda for a little extra - here you go, $95 at your disposal. Pay back your credit card debt if you have any, that's about the biggest return on investments you can get, right next to Stop Wasting Your Time. I sincerely hope for all the best you can get, feel free to use the tipping slider below or, even more important today, leave a comment. This is by no means a comprehensive guide :)

Five years from now you realize this works for you? Great! When (not "If") you can, give something back to your local community and hope it works out the way you planned.

Thank you, Martin, for providing the cover image on Pexels.


Niklas Spille-Scheich
Niklas Spille-Scheich

Mined some Bitcoin for fun in 2011 and hit format c: before giving that laptop away. Got triple copies of my seed words placed all over the world. Unite 3 of my closest friends to recover access to my crypto assets.


Cryptonic
Cryptonic

I am way too busy to feed a blog with clickbait so you'll find some general advice on here. Don't forget to Do Your Own Research!

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