Token Advice - #3 📈

Today ≠ The Future | The Utility Value of Crypto | How to Self-Custody your Crypto | The Pillars of Wealth | Crypto Quests

December 02, 2022

Hey everyone,

👋 Welcome to another monthly edition of Token Advice!

❓ So what is Token Advice? In short, Token Advice is a curation of what the 401 Financial team is reading, writing, listening to, and thinking about at the intersection of crypto, financial planning, and traditional finance. We didn’t see a newsletter that consistently combines these 3 topics, so we created one for you. We hope you enjoy!

Before we dive in, here is a quick update on 401 Financial!

Tyrone joins CNBC to talk FTX fallout and it’s impact on crypto investors 🗣️

Erik & Tyrone contributed a report for S&P Global on the pros & cons of cryptoasset diversification strategies 💡

Our good friend Justin Castelli joins Tyrone on Queue & A 🔥

401 Financial lists a curation of cryptoasset educational resources 📖

👇 Now let’s dive in.

4 Insights

🔭 Today ≠ The Future - Taking A Long Term View of Web3

“The most important software innovation of the last decade, which started with the Bitcoin white paper fourteen years ago, is the emergence of open-source software and decentralized protocols that are the foundation of web3.  These protocols have survived recent market volatility. It is the promise of software that is not controlled by a company, but instead by an open-source community with built-in safeguards and increased transparency relative to today’s tech and financial systems, that gives us so much confidence in the future of web3.”

Where do we go from here? This is the question many within crypto are asking themselves following the past month of turmoil across the space. The fallout of FTX was a massive shakeup, make no mistake about it. It will be a long path to recovery in the public eye. The fact is, today many don’t understand the differences between “crypto”, “FTX”, “decentralized finance”, “blockchain”, etc. While cryptoasset education has taken a big step forward the last few years, most people around the globe remain unaware of the vast landscape that we refer to holistically as crypto. At 401 Financial, we’ve done plenty of reading, thinking, and talking with industry leaders about how the space moves forward. Here are some thoughts:

First, as Katie & Fred point out in the above article, crypto technology is not just an investment and trading tool. The use cases are already significant and it’s important to keep in mind that crypto today is not the crypto ecosystem of the future. Just like the internet of the 90’s is not the internet of today. This quote from the article sums it up perfectly: “This is another hard moment for web3 and we will see negative headlines about “crypto” for some time. But it’s important to remember that these headlines are all about the speculating/trading part of web3. The much more important underlying software innovation continues unabated. And that is what we remain so excited about and will continue to fund and champion.”

The ironic thing is, crypto technology was created to minimize and/or remove the impact of bad actors, including FTX. The first sentence of the Bitcoin white paper states: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

Does this sound like FTX? We argue the answer is no.

Ever since crypto exchanges started launching over a decade ago, they’ve been used as an onramp into “true” crypto on-chain. While there have been numerous cases of exchange failures, the fact is that people trusted FTX to hold their assets 1-for-1. This was clearly not the case and is yet another sign that bad actors will act bad if they are given the opportunity to do so. While this is a blow to public sentiment around crypto, we see it as one of the largest catalysts for self-custody in crypto’s short history.

Decentralized blockchain technology is not only a financial innovation, but can also provide a range of benefits to other industries. The promise of decentralized blockchain is security, transparency, immutability, and interoperability among other things. When we think about “crypto” today, we think about asset prices. Crypto is so much more than that.

Ultimately, crypto set out with the premise to provide users with greater control and accessibility over their own data and assets, allowing them to participate in a more open and inclusive digital economy. This has the potential to negate central powers of influence such as large social media companies, financial services companies, and even governments. The goal is to bring power back to the individual and decentralized applications are being built to do just that.

While short-term challenges will always be present, we continue to take a long-term view of how this technology could be utilized. Innovation will continue. Ryan Selkis, the CEO of Messari, put it best in this visual: “These innovations will not be uninvented.”

If you want to read/watch more on FTX, here are a few links:

🌐 The Utility Value of Crypto

How does crypto move from a speculative investment to a real world tool that enables economic freedom, privacy, and digital identity? Brian Armstrong, CEO of Coinbase, and Jeremy Allaire, CEO of Circle, dive into a variety of cryptoasset “use cases” that are commonly discussed within the ecosystem.

It’s worth noting while many continue to search for new crypto use cases, there are a few areas that decentralized finance already outshines traditional finance today, such as cross border money movement.

🏦 How to Self-Custody your Crypto

Let’s start with the basics: “Self-custody” refers to the process of storing and managing your own cryptoassets without relying on a third-party custodian, such as a cryptoasset exchange. Self-custody involves you, the user, taking full responsibility for the storage and security of your funds versus outsourcing this security. A comparison to traditional finance is holding cash within your very only digital bank vault where only you have the code to the vault. Based on the events that transpired in November regarding a failed cryptoasset exchange, more people are taking it upon themselves to self-custody their funds than ever before.

So how do you get started taking full control of your funds? What are the pros and cons of self-custody? Let’s take a look.

To get started, you will first need to choose a wallet provider. There are many types of wallets, such as hardware wallets (Ledger, Trezor), and mobile wallets (MetaMask, Coinbase Wallet, Argent).

Once you’ve chosen a wallet provider, the process to self-custody is relatively simple. First, you will need to “create” the wallet using instructions from the wallet provider. This will typically involve generating a set of private keys, which you should keep in a safe and secure place. Following your wallet creation, you’ll be given a “public key” that you’ll be able to use to send funds into your new self-custodial wallet. Here is what that looks like on Coinbase Wallet:

One of the biggest hurdles to self-custody to-date is moving funds into the wallet. Historically speaking, most people will fund an exchange account (such as Coinbase) and then transfer the crypto directly from Coinbase Exchange into their self-custodial wallet. Just a few days ago, we saw Stripe announce a new onramp solution:

These onramps will be crucial in order to improve the UX for individuals to onboard into decentralized finance. We anticipate more to be built in the coming months in this area.

In conclusion, self-custody is a crucial step in securing your cryptoassets and ensuring that you are in full control of your own funds. Additionally, self-custody allows you to fully participate in the decentralized financial ecosystem. You will have the ability to swap on Uniswap, lend on Aave, stake on Lido, and so much more.

📈 The Pillars of Wealth - How do we responsibly build wealth?

“The ones who allocate their capital to things that make the world better are the ones who contribute to progress. These are the people who build new businesses, develop real estate, or create technology that increases the size of the pie."

This is an excellent piece written by Darius Foroux on the fundamental concepts of wealth building and investing in yourself for the future.

We could all use some encouragement to develop our skills, knowledge, and abilities. To put ourselves out there. If we invest in ourselves, we can ultimately take control of our legacy. Invest in you, bet on you, believe in you.

1 Bonus

🧰 Crypto Quests - Layer3

If you’re looking to take the leap into self-custody, here is a tool you can use to help guide you through the journey. Layer3 helps you reach, acquire, and retain users with powerful, interactive experiences on the blockchain.

📖 Looking for more? Check out the links below.

Final Bits

📚 Articles

🐦 Tweets

🎧 📺 Podcasts/Videos

📝 Long Form Reports

🧰 Tools

Interested in becoming a 401 Financial client? 🤝

This newsletter is copyrighted by 401 Financial, LLC. It is published and provided for informational and entertainment purposes only and not for individualized investment advice.  Please go to our website, www.401financial.co for additional information.