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Blockchain Investing with Impact

by Serge Shlykov

The world of cryptocurrency is getting bigger and more complex every day. There are people who buy and sell cryptocurrencies just on their own, and this is a form of investing too. But there are also people who believe that investing in cryptocurrencies can be both fun and profitable. The only difference is that they do it in their spare time, and they do it for a profit that they can donate to charity. The idea behind doing this is that by investing in cryptocurrencies, you can make some extra money mostly by the price appreciating in value.

With cryptocurrency markets going through a huge bull run over the past year, many investors are taking a closer look at how they can get involved in the blockchain and cryptocurrency markets. There are two main ways to do so: directly or indirectly. Direct investments can be made by trading cryptocurrencies, but there are also ways to invest in the blockchain and cryptocurrency industries, without actually investing in cryptocurrencies. These are indirect investments and include various blockchain funds and companies that are set up to directly make investments in blockchain companies.

Nathan Cummings was an agribusiness tycoon (you don’t hear those two words very often) who founded Consolidated Foods, which later became Sara Lee Corporation. You may know Sara Lee from its ice cream cakes, but the company was much larger and sold a wide range of food, beverage and household products all over the world.

Although he came from a modest family and was the first child of Jewish immigrants from Lithuania, Cummings became a very wealthy man. As his fortune grew, he gave most of it away and became a passionate philanthropist, especially in the arts. Then he founded the Nathan Cummings Foundation, a philanthropic foundation that manages some $450 million in assets, and that changed my life this week.

Inspired by a New York Times article titled A Family Opens Up About Its Investing Mistakes (great title), I read the Nation Cummings Foundation’s account of the mistakes they made in transitioning their foundation to using 100% of their assets to fulfill their mission of creating a more just, vibrant, sustainable and democratic society.

In simple terms, they said: Instead of putting 5% of our funds into profitable investments for you, we put them all in.

We call this impact investing, investing in companies and causes that a) provide a return and b) have a positive and measurable social or environmental impact.

Both are important, so I will repeat them. Influential investments should :

  1. (a) make money (otherwise it is a charitable donation), and
  2. (b) have a measurable advantage in ESG:*.
  • Environment: Investments should contribute to (or at least not actively harm) the environment.
  • Social: Investments must treat workers fairly (or at least not violate human rights).
  • Administration: Management and the board of directors must be transparent and honest (or at least not hostile to each other).

Conventional investment wisdom says that a) you won’t make as much money as b) you want to have a measurable and useful impact. The Nathan Cummings Foundation took a big leap of faith when it decided to invest between 5% and 100% of its assets in impact investing.

The story of their transition is fascinating. While the fund has taken incremental steps toward responsible investing, the 2017 board meeting was marked by a significant showdown in which several generations of Cummings family members had to defeat independent directors – and each other – to gain a majority of confidence for 100% impact investing.

I assume cake has been served.

The drama is full of managerial politics, family relationships and risky firsts. They hired Lowell Weiss, former editor of Atlantic Monthly and White House speechwriter, to write a story that could make a great Netflix series (imagine Legacy for a socially conscious generation).

Perhaps most remarkably, the Nathan Cummings Foundation puts into practice what it preaches and is open about what it has done right and wrong on its path to impact investing. In this column, I’ll talk about how their story changed my thinking and how we can apply those lessons to the new world of blockchain investing.

Investment impact: Three important points

I learned these three lessons the hard way, and I am very grateful to the Nathan Cummings Foundation for taking the time to share them with me. They have influenced my thinking on impact investing – especially in our new world of blockchain.

1) You can make as much money investing, or more. Our new approach to investing has not required any financial sacrifice, the fund said. No.

The fund has done extensive modeling to show that its new impact investment strategy will deliver higher returns than its traditional strategy, even in the volatile economy of 2020. They have helped to debunk the myth that impact investing doesn’t make money.

The reasons for this may be counterintuitive: Maybe companies that get their act together, pay their employees more fairly, and limit executive pay, will naturally become stronger. They attract the best people, leading to the production of higher quality goods and services and to innovation. They can be more successful because they do the right thing, not because they save money.

A simple example: American automakers seemed like solid blue-chip companies for decades, until Tesla came along. Now they’re all cashing in on Tesla’s stock price. The mission to build high-quality electric cars seemed like a lost cause until Tesla showed that it is possible to earn just as much, if not much more, from clean cars.

2) Impact investing takes work. When the fund switched to 100% impact investing, they interviewed a ridiculous number of fund managers and discovered that most of them were doing impact investing as a side benefit, mainly to cater to a certain clientele with a penchant for global crises. Few of them had the idea of influential investment in their DNA.

As they began to decide on the reallocation of the fund’s significant assets, they had to pull out of many existing investments, which was difficult and painful. (Imagine those conversations.) Many of their investments will take years to decommission, further delaying the process.

Then all the potential investments they could make were thoroughly researched and vetted. What are the core values of the foundation? How will they measure the investment – with precise figures – for each of these values? (See the appendix for their values, principles and specific questions they asked about potential investments).

3) Impact investing needs to be better measured. How can we prove that companies are actually achieving certain environmental, social and governance objectives? It is easy for companies to declare their commitment to diversity and inclusion, but how do they know if they are putting into practice what they preach?

The report notes that there are several competing frameworks for measuring investment impact, but no industry standard. Still, they believe you have to start somewhere. As the great management guru Peter Drucker once said: What is measured is managed.

So when we start to specifically measure the impact of our investments – whether it’s through the UN Sustainable Development Goals, the Impact Management Project or your own Excel spreadsheet – that’s the first step. Start measuring what you can.

How do these lessons apply to blockchain investors? Let’s look at it from an ESG perspective.

Blockchain Investing with Impact

First E: Environmental impact of blockchain

Let’s face it: Bitcoin consumes a lot of energy. The mining facilities that power the Bitcoin network consume a huge amount of electricity – about as much as any other data center in the world.

Right: Bitcoin consumes as much energy – and generates as many greenhouse gases – as all the servers that run our spreadsheets, Netflix, and YouTube combined. But simply selling bitcoin is not an option, as most other crypto assets are just as energy intensive.

There are many ways to shift our investments in blockchain to what is best for the environment.

1) We can invest in mining companies that run on renewable energy. In his new report, CoinDesk researcher George Caludis talks about Bitcoin’s rapid transition to clean energy: About 40% of bitcoin mining is powered by renewable energy, compared to 20% of the world’s total energy consumption. Kaloudis says bitcoin could accelerate the global transition to renewable energy. If more solar and wind farms come about because bitcoin miners (under pressure from investors) demand them, that would be a wonderful result for the planet.

2) We can invest in blockchain platforms that work based on proof of commitment. It’s like the difference between solar power and coal: Evidence of commitment is not only marginally more effective than evidence of work, it’s a whole different game. Some blockchain PoS networks, such as. B. Algorand, or even pledge to be carbon neutral: They give back more to the environment than they take from it. That’s why ALGO’s negotiation is much better for the planet than ETH’s.

3) We can HODL instead of acting. Every time you buy or sell a bitcoin, a new item is created in the shared digital ledger, which has a domino effect that repeats on every bitcoin node in the world. If you’re constantly trying to buy the downs and profit from the ups (i.e. buy low and sell high), it’s not only a bad investment strategy – no one can predict the market over the long term – it’s also bad for the planet. If we HODL, we help preserve the CODL planet.

Blockchain Investing with Impact

Next S: Social implications of blockchain

The main argument we keep hearing about blockchain is that it makes banking easier for unbanked customers.

Really?

Last time I checked, people without access to the traditional financial system – which includes banks, lines of credit, mortgages, etc. – weren’t really investing in crypto-currencies. How’d they do it? You always have to deposit money somewhere, usually in a bank.

We talk about redistributing wealth, but my observation is that the Blockchain’s wealth is simply being redistributed to the whales who already own most of the Blockchain’s wealth. The rich are also getting richer in the crypto/blockchain industry.

We’re talking about creating a new system of financial inclusion, but blockchain is still so complex to use – especially on the periphery of DeFi – that I can’t imagine more than 1% of the world’s people will be able to understand it.

There is no doubt that we are making blockchain more user-friendly, but most people still don’t have the time, technology or talent to understand it. If you are a single parent working for minimum wage and living paycheck to paycheck, buying bitcoins is probably not a solution for you.

By the way, investing in blockchain is still an oxymoron. For most people, it’s more of a gamble on the blockchain. The profit mentality leads to increasingly risky derivatives and insane speculative bubbles.

Blockchain investors don’t want a bank for the non-banks. They want to make a bank.

What can we do to change this narrative? We can do that:

1) Invest in low cost (preferably no cost) blockchain projects. Anyone who says blockchain will help non-banking institutions by lowering costs just hasn’t used blockchain lately. When a transfer of 3 ETH costs $12, one can legitimately wonder what is going on. Commissions are the dirty secret of this industry, an insidious problem that needs the best and brightest minds in blockchain to solve. The best rate is zero.

2) Invest in blockchain projects that actually solve social problems. The Binance Charitable Foundation, which we describe in our book, is a non-profit organization that allows investors to make donations in cryptocurrencies that are sent directly to recipients around the world. This has the direct and tangible benefit of encouraging non-banks to open cryptocurrency portfolios to receive funds. It also provides donors with complete transparency on where their donation is going, as everything is recorded on the blockchain.

3) Avoid investing in meme stocks like GameStop and Dogecoin. They cater to unsubtle investors who want to get rich quick, and Reddit exploits their ignorance by making losing money seem fun.

Blockchain Investing with Impact

finally, G: Administration of the blockchain

Today, the blockchain industry employs mostly white people, and mostly men. The problem is that this leads to testosterone-driven risk-taking behaviour, which is not good for investors or the industry as a whole.

Fortunately, there are many women involved in blockchain through groups like Global Women in Blockchain, but (in my experience) it’s rare that blockchain startups are led by women. Blockchain projects led by people of color are even rarer.

I’m on the board of the Boston Blockchain Association, and this is something we’re actively working on. We started with an all-white male board of directors, but I’m happy to say that we now have three smart, talented women on the board, and we’re much better off because of it. Diversity can be achieved, but must be desired.

As investors, we can:

1) Look for blockchain projects led by women and minorities. Of course we want to find investments with real value, but we need to overcome the unconscious bias that the most valuable projects come from young white men.

2) Avoid projects without clearly defined founders. We keep seeing new projects launched by anonymous teams, which does not bode well for the future of management. If there is no responsibility in the beginning, good luck getting responsibility later.

3) Participate in the process of community-led projects. For many new DeFi projects, management proposals have been prepared by the community (e.g. Uniswap). If investors are not included, the project could be unilaterally targeted against the larger whales. If you have a chip, try to participate (or at least be aware) of what’s going on behind the scenes to make sure you’re still on board.

The greatest influence is the idea of influence

Perhaps the Nathan Cummings Foundation’s most lasting contribution to this trip is the report itself. It is not only the power of example, but also the willingness to talk openly about his experiences. It enables others to join him on his journey, even if that journey has not been easy.

Compared to them, our job is much easier, because our industry is much younger and smaller. It’s important that we start integrating these impact ideas into the industry now, so that they become part of our blockchain DNA.

We cannot just pay lip service to these ideals, we must act. The ideas I outlined above are a starting point, because you have to start somewhere. I hope you will help bring these ideas to life.

Together we can get these ideals into the bloodstream of blockchain. That way, over time, our investments can have an impact on the world.

* Note that I am oversimplifying concepts such as ESG, SRI and impact investing (described in more detail here). The lack of clear and consistent definitions between the two is one of the problems highlighted in the Cummings Foundation report.

John Hargrave is the author of Blockchain for Everyone: How I learned the secrets of the new millionaire class – the blockchain investment bible.

This source has been very much helpful in doing our research. Read more about cryptocurrency news and let us know what you think.

Frequently Asked Questions

Is Impact Investing Profitable?

To understand whether impact investment is profitable, we must first define what impact investing means. Impact investment is investment that makes an impact on society. This is in contrast to traditional investment, which only focuses on making profits for investors. In recent years, there has been an increasing focus on impact investment. Many companies that are listed on the stock market are making an impact on the world. (e.g. Tesla) Everyone likes a good investment. From Warren Buffet’s go-to stocks to the latest hot ICO (Initial Coin Offering), everyone has their own strategy for getting ahead. But when it comes to fund managers, how do you know who to trust? How do you know which ones to avoid? After all, cryptocurrency investing, much like any other form of investment, has its fair share of risks.

What is the best Blockchain company to invest in?

As you may know, blockchain technology has been making waves in the world of finance. The most popular cryptocurrency, Bitcoin, is based on blockchain technology. From a technological point of view, it’s important to understand that blockchain technology is an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way. Investing in Bitcoin may seem like a simple game, but it is interesting to note that Bitcoin has become a popular asset class among investors. In fact, many people have made a lot of money trading Bitcoin and other cryptocurrencies. Why is Bitcoin so popular? The answer is one that is often difficult for investors to understand: the Blockchain technology behind Bitcoin has a lot of potential, and this technology may be useful in other industries in the future.

Does impact investing work?

Impact investing is a relatively new term that refers to the practice of investing in companies or projects that are intended to either create social good or address social needs. For example, an impact investor might put money into a renewable energy company, or a for-profit business that is targeted to low-income customers. It’s a way to do well and do good at the same time. Journalism Impact investing is a relatively new term that is becoming increasingly popular. The term can be applied to any investment that aims to generate social or environmental impact alongside financial return. Advocates of impact investing say that it is a way to create social good without sacrificing returns. However, it is important to note that not all social investments are impact investments.  It is important to make the distinction between the two and to fully understand the potential risks, benefits and limitations of impact investing.

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