RanchiMall ICO

WHITE PAPER

www.RanchiMall.net/ICO

facebook.com/RanchiMall

Initial Coin Offering - White Paper

Offer Summary

RanchiMall FZE is offering 21 million tokens representing 1% of its equity as a blockchain contract executed on FlorinCoin blockchain. The offering is continuous with a term of 3 years from the initial offer date. The terms of capital raising for the newly emerging field of Initial Coin Offerings is entirely decided by individuals and firms making the offering. In alignment with Milton Friedman’s philosophy in his free market model, no permissions will be sought from any regulatory agency worldwide and the principle of buyer beware will prevail. Freedom to choose without seeking anyone’s concurrence is a fundamental tenet for individual liberties. Milton Friedman’s model represents maximum wealth generation potential for society as a whole. So we are making this coin offering in the general space of internet with a specific disclaimer that we are not operating from within the legal jurisdiction of any specific country.

Subscribers to the coin offering should proceed further only when they understand clearly that they are electronically exiting the borders of their country and entering the general space of internet.

The internet is a decentralised system with no courts of law. In case of complaints and disputes, complainers can talk about it in social media platforms and that will impact the trustworthiness of this coin offering. That should impact the coin prices downwards in immediate terms, and the ability of the promoters to raise further capital in the long term. This type of accountability is beyond borders and puts the power in the hands of the buyer.

ICO in a snapshot

What does a RanchiMall ICO token represent

• One token represents a proportion of the total token asset pool.
• The token asset pool consists of 70% of RanchiMall’s share of profits of Bitcoin Bonds for a period of 3 years.
• The token asset pool also contains the proceeds of 80% of the ICO offer. This portion will be used to bootstrap initial value to the tokens
• The token asset pool consists of 1% of share capital of RanchiMall FZE.
• The token pool will also consist of assets that do not yet exist but that will be added by RanchiMall as they emerge.
• RanchiMall will dynamically add or remove assets in the asset pool in such a way that per token asset value gradually increases.
• The market value of one token may be on discount or premium of per unit asset value as financially calculated.

Token Release Schedule

• 21 million tokens will be released over 3 years in 14 phases.
• The ICO will commence with pre-release of 30,000 tokens at a fixed price of 1 USD per token in Phase 1.
• In the subsequent thirteen independent phases, 70,000 tokens, 100,000 tokens, 100,000 tokens, 100,000 tokens, 100,000 tokens, 500,000 tokens, 1 million tokens, 1 million tokens, 1 million tokens, 1 million tokens, 5 million tokens, 5 million tokens, and 6 million tokens will be released.
• A token release phase will be opened when prices stabilise at around 20 percent above the previous phase.
• The minimum amounts to be raised per phase will be 30,000 USD in Phase 1, 84,000 USD in Phase 2, 144,000 USD in Phase 3, 173,000 USD in Phase 4, 207,000 USD in Phase 5, 249,000 USD in Phase 6, 1.49 million USD in Phase 7, 3.58 million USD in Phase 8, 4.29 million USD in Phase 9, 5.16 million USD in Phase 10, 6.19 million USD in Phase 11, 37.15 million USD in Phase 12, 44.6 million USD in Phase 13, 64.14 million USD in Phase 14.
• Special terms will be offered in the first phase to bootstrap the value of the tokens.
• Two different phases can be clubbed together if sustainable price increase over the previous phase is more than 40 percent.
• In the first 4 phases, all trading of tokens will be done on RanchiMall’s own trading platform. After 4 phases, we will consider listing it in public crypto-exchanges subject to their approval. There is, however, no guarantee that we will meet all the requirements of public crypto-exchanges, as the number of ICOs being offered is skyrocketing. Either way, all investors will have the ability to cash out through our own trading platform.

Token Monetary Policy 

• It is the express intention of RanchiMall for the tokens to be traded as freely as possible.
• Tokens will primarily derive value through their underlying asset pool. Effective management of the asset pool will be our focus in directing long term value increase for the tokens.
• The tokens have been designed with  long term investors in mind. Investors who stay for the long term will benefit from significantly higher value appreciation of their tokens than investors who trade tokens on a regular basis.
• RanchiMall will intervene in initial days when trading volumes are expected to be low by publishing a pre-disclosed purchase schedule in order to provide confidence to initial investors.
• RanchiMall will also intervene in times of intense speculation. Prices that rise too fast are not easy to sustain and can lead to rapidly falling prices when investor passion subsides. This hurts the late-to-join investors. We aim to avoid loss to any class of investors.
• RanchiMall has two market intervention tools in its arsenal: Control the supply of tokens if prices rise too rapidly due to speculation, and buybacks of tokens if prices fall too rapidly.
• Special terms will apply to induce initial value creation in bootstrap phase one. Without these terms investors will have no basis for judging value, and will find it difficult to commit.
• RanchiMall will offer to buy back the first 30,000 tokens with a minimum buyback price offering 10% simple increase for the first 6 months. This will be executed as an end of month purchase by standing order of 30,000 tokens. Any tokens which are bought back will be reoffered to the market typically at higher than procurement price.
• RanchiMall expects prices to rise higher than 60% after the first 6 months as the fair valuation on an asset basis of the token asset pool is much higher. That’s why the guarantee buyback purchase schedule has been announced in advance. It is, however, possible that market prices may not be reflected within 6 months. In that case the phase 2 release of 70,000 tokens will be delayed.
• The cost of the buyback guarantee is 18,000 USD for RanchiMall if prices stay flat at 1 USD after six months. This an amount will not put RanchiMall operations at cashout risk. This offer is well within our comfort zone. Of course, we expect that this buyback offer is within reasonable expectation of price increase.
• If market depth increases over time, RanchiMall resources will not be significant in proportion to market size. Thereafter our ability to make meaningful market interventions will reduce. We will consider that as a favourite scenario implying RanchiMall tokens have gained neutral market acceptance.

Bootstrapping Value for RanchiMall ICO Tokens

• What is bootstrapping? Since RanchiMall tokens are absolutely new with no comparable asset class, their value lacks the benefit of social proof. Therefore, the initial 30,000 tokens in Phase 1 have to be given artificial and provable value. We will call this process bootstrapping  value to the tokens.
• The provable initial value will be set by the promoter of the project, RanchiMall.
• Providing investors a sense of initial value, which everyone agrees upon, the growth in asset pool backing the ICO tokens can then be upvalued or downvalued by a market trading process. Over time, this will result in an independent and fair market value for the tokens. At that stage we could say that the token valuation has been bootstrapped.
• The initial floor value will be set by RanchiMall at 1 USD per token for the initial 30,000 tokens representing a total valuation of the underlying asset pool of 30,000 USD. RanchiMall’s share of profits in its product, Bitcoin Bonds, as of 27th September 2017 was 38,000 USD. Since 80% of the Bitcoin Bonds have been assigned to the asset pool, the initial value of 30,000 USD is justified.
• Of course, 30,000 USD market valuation is grossly undervalued because it does not contain the asset value contribution from other components in the pool. We expect the market trading process to uncover this value.
• Most other ICOs have raised millions of USD merely by publishing a white paper without having a working product or provable profits. RanchiMall on the other hand is profitable and has at least one settled profitable product, Bitcoin Bonds. We are lowballing our initial valuation to give maximum possible upsides to our initial customers.

We will now describe the details of initial value bootstrap process:

• To provide exit and liquidity to all our investors, RanchiMall has created a trading system where tokens can be exchanged for cash.
• As a key pillar of initial value bootstrap process, RanchiMall will procure back any tokens offered at the pre-issue price of 1 USD anytime during first year of the issue no matter what the market price is. This should provide a floor value of 1 USD to all our tokens. However this will require RanchiMall to block the majority of proceeds raised during the ICO process to back this guarantee. We are comfortable doing this as RanchiMall runs a profitable low cost operation whose operational cash needs are met from its regular business.
• After one year, the token values will be bootstrapped and this facility will no longer be needed.
• 80%of funds received from the token sale process will be reserved for buybacks until the market is deep enough to be able to provide unmediated liquidity.
• For the first 30,000 tokens, RanchiMall will open a purchasing window offering 10% increase over the initial price of 1 USD every month end. This is to provide a graduated floor increase to the initial 30,000 tokens.
• If RanchiMall meets the various milestones in its innovation journey, it is expected that tokens should grow consistently but not too rapidly in value.
• Our express intention is to discourage speculation. We are seeking to build long term relationships with  our token holders.
• A trading facility has been made available to provide liquidity for token holders.
• Token holders may exit either through our trading system or by selling tokens to RanchiMall as a last resort buyer.
• We expect the trading volumes to be extremely low initially, but increase gradually over 6 months. However, the managed trading process should ensure that the value of tokens will increase consistently but not too rapidly.
• After 1 year we expect that there will be enough neutral demand for RanchiMall tokens and the managed-value bootstrapping process will conclude. If this does not occur, we will extend the bootstrapping phase.

Token Ownership Trading & Transfer System

• FlorinCoin blockchain will be the authoritative and final token ownership and transfer of ownership record system for RanchiMall tokens.
• All tokens can be directly and--independently of RanchiMall--transferred to anyone by token owners by transferring it to the FlorinCoin blockchain.
• The ownership of RanchiMall tokens can be established through proof of ownership in FlorinCoin blockchain. Proof of ownership comes through tracing the origins of a token to one of 21 million tokens originally issued by RanchiMall.
• A blockchain is a permanent unhackable record-keeping system, if enough processing power supports it. We will use FlorinCoin blockchain to keep a record of token holders and direct people-to-people transfer of token ownership.
• Blockchain is a distribution system. It does not run on any one computer but on hundreds or thousands of computers communicating with each other and running an identical piece of software. This architecture makes it extremely resilient. It is impossible to shut the blockchain down unless every one of those computers are shut down. This is a theoretical impossibility. Therefore, we believe that blockchain, as a record-keeping system, is best suited for our needs.
• FlorinCoin as a blockchain was selected because it has a commenting system which other well known blockchains do not have. This commenting system provides the flexibility we need to design the token ownership records.
• A user can participate in the FlorinCoin blockchain ecosystem using FlorinCoin wallets. However, as of September 2017, the official FlorinCoin wallet need more than 40GB of blockchain data download. All our investors may not be able to do this. We therefore provide a centralized RanchiMall operated token trading system in parallel either until all of our investors are comfortable with FlorinCoin blockchain or a simpler to use wallet is developed.
• The centralised trading system will borrow tokens from RanchiMall blockchain transfer system and allocate it to initial users in the trading system. This will provide linkage to the FlorinCoin blockchain token records system.
• We do not intend to make all transfers done internally in the trading system visible on the blockchain system and vice versa. This is intended to avoid the same transaction being recorded in two different systems. All users will have the capability to transfer their tokens back and forth between the trading system and the blockchain system.
• We anticipate most of the trading to initially happen in our trading system and gradually shift to the blockchain systems as users attain maturity.
• RanchiMall will participate in FlorinCoin ecosystem development using some of the proceeds in this Initial Coin Offering.

Application of funds raised through ICO

• RanchiMall is cash positive through its own operations and does not plan to spend the cash raised through this ICO for regular operations or product development initially. Instead we are treating our investors as customers of our second product, the Initial Coin Offering. 80% of the cash raised will be reserved for backing the value behind the tokens.
• Spreading the word is very important for a new enterprise. So 15% of ICO proceeds will be used for marketing. We prefer a gradual and slow growth in our customer base in order to ensure quality. The marketing budget will be spent on pure marketing and there will be no sales agents appointed.
• We will use 5% of the proceeds toward investing in the partners who are supporting us behind the scenes for this ICO.
• Once the value of RanchiMall tokens is sufficiently and securely bootstrapped, our initial blocked 80% will be released. It will be  aggressively deployed towards growth in the form of new blockchain-based products, investing in our candidate product testing phases, improving customer experience, backend support technology and further marketing.

BACKGROUND OF RANCHIMALL

What is RanchiMall

• RanchiMall is an eCommerce enterprise with all its products having two key characteristics: 1) Every product is unique and does not exist anywhere else and 2) Every product is created and distributed solely on the internet.
• The difficulty finding products that meet these strict criteria results in relatively long product development cycles.
• RanchiMall is a pure internet-based, officeless enterprise. Our team operates from different geographical locations. This structure gives us flexibility in working with almost anyone on the internet in a fun-filled work culture. We are naturally suited for blockchain based initiatives.
• Currently we have one commercialised product called Bitcoin Bonds and seven different candidate products.
• RanchiMall is an unincorporated entity. However for the purpose of the ICO, an entity called RanchiMall FZE was incorporated in Fujairah UAE, primarily because zero corporate income taxes in UAE make it blockchain friendly.
• RanchiMall, as the parent body has transferred the asset pool behind the ICO to RanchiMall FZE. RanchiMall FZE is the corporate entity issuing trust for 21 million tokens.
• The legal status of blockchain based ICOs in UAE is still not clear. If UAE decides to ban ICOs, as some governments like China have done, we plan to simply dissolve RanchiMall FZE and revert the root trust to RanchiMall unincorporated.

RanchiMall Financial Performance

• As of September 2017, the only product being offered by RanchiMall is Bitcoin Bonds. Bitcoin Bonds is a bitcoin price linked instrument where customers are offered full price protection and minimum 12 or 13% rate of return per annum. Investors are also eligible for 50% of all price gains. There is a minimum lockin period of 3 years. We issued Bitcoin Bonds when Bitcoin prices were USD 975, USD 1057, USD 1064, USD 1205, USD 1285 and USD 2513. Bitcoin prices are now around USD 6000 inclusive of gains from a hard fork of Bitcoin cash as on October 20, 2017.
• We generated profits of 45,000 USD in Bitcoin Bonds on an asset term basis net of all our expenses as of 30th September 2017. Our investors have invested 34,000 USD with us since February 2017 for us to be able to generate that profit. These profits are unrealized as we have not sold any of the Bitcoins we own.
• We have a conscious strategy of scaling up Bitcoin Bonds slowly. We take up new customers only when we are absolutely sure that we can meet our guarantee requirements with a high margin of safety. This product is highly scalable in its present form, and we can deliver it with almost no expenses.
• Since we are unincorporated, we can choose our own system of accounting. We operate a single-entry cash approach to accounting, not the traditional double bookkeeping system.
• RanchiMall is a bootstrapped enterprise which is funded totally through its operations since inception. This gives us a large amount of freedom in making operational decisions.
• RanchiMall does not own or rent any fixed assets, office, or property. All our assets are virtual and, all our expenses are either people or technology costs on the internet. Most of our technology needs are met through cloud-based offerings. Since February 2017 when we launched our first commercial products, our operating expenses have been less than 1000 USD per month. We intend to keep our low cost structure until our profits have reached a high level of stability. We aim to keep our expenses at less than 20% of our revenue for the foreseeable future. This target was met in the first two quarters of operations in 2017.
• Our profits from operations in the first 6 months have given us an expense cover of 40 months if we continue to keep our expenses low.

Brief Description of RanchiMall future product lines

• All products mentioned here are in the conceptual stage. We pilot new products on a small scale so that we understand what it really takes to offer the product In addition, we measure the business risks.
• Global Merchant Services: One of the pertinent questions for general consumers is what they can buy with Bitcoins. We plan to launch a service, only for our customers, enabling them to pay for purchases with Bitcoins. We will convert the Bitcoins to the local currency of the merchant and order directly for the customer. We made two trials with conventional banking channels in Colombia and UAE where free repatriation of foreign currency is permitted. Conventional banks’ wariness of Bitcoin inhibited our ability to explore this approach. Therefore, we changed gears and are now working on a direct peer to peer payment model. We already have some trusted individuals with high ratings on localbitcoins.com So individual counterparties are emerging that could support this service and we should be able to bypass conventional banks altogether in the transaction chain.
• Painting Blockchain Contracts: Blockchain contracts are immutable contracts on the blockchain. If the person issuing them can be trusted, the blockchain contracts will have value. Some supplies of constrained goods like paintings can have their ownership traded on the blockchain and, if the painter is promoted well, the asset value can grow at a faster rate than conventional assets such as real estate or gold. We issued 3 painting bonds for USD 500 each on an emerging painter in Colombia, Cesar Romero, with a confirmed buyback price of 2000 USD per painting five years into future. If the paintings go up more than 2000 USD per painting, RanchiMall will make profits. If the idea succeeds, we intend to scale it up.
• FlorinCoin Bonds: We see a lot of potential in the FlorinCoin blockchain. We think the token of this blockchain, Florins, has the potential to go up in value significantly. We want to offer a financial product to our customers which is linked to the price growth of Florins in lines of Bitcoin Bonds.
• RanchiMall is an eCommerce company, not a crypto-assets company. We try to develop and sell products to general consumers. These products are to be unique, new, and entirely created and sold through internet. We take all our product development through a candidate stage where we do limited customer trials. Our candidate products in non cryptographic assets space are: Mass Open Internship Program, Silicon Valley to Ranchi, Global Stock Purchase Program, 1 Gbps internet service at home, RanchiMall Accelerator Program. Details of these products are available at facebook.com/ranchimall These products will be commercially launched only when they successfully clear candidate product testing and attain proof of commercial viability.

RanchiMall Ownership Structure

• RanchiMall is an unincorporated entity owned completely by Mr. Rohit Tripathy. RanchiMall FZE is an  incorporated entity in Fujairah Free Zone UAE also owned 100% by Mr. Rohit Tripathy.
• 1% of RanchiMall FZE was transferred by Mr. Rohit Tripathy to Mr. Anil Uttamchandani in July 2017 as an independent blockchain contract.
• A further 1% of RanchiMall FZE was transferred to NITIE IM6 Bobs Fund again as an independent blockchain contract.
• A further 1% of RanchiMall FZE has been transferred to ICO token asset pool as a blockchain contract. The asset pool of ICO contains assets other than 1% RanchiMall FZE ownership.
• RanchiMall unincorporated is a pure internet enterprise, with no physical office and operates in no single country jurisdiction. This is consistent with Bitcoin blockchain organization which exhibits similar characteristics.
• Disclosure: The owner of RanchiMall, Mr. Rohit Tripathy, also owns a U.S. based single member LLC, Intricap LLC incorporated in Nevada. Mr. Tripathy has no other directorship or corporate positions.

RanchiMall Employee Model

• Being an officeless enterprise means all our employees work from places they like. Our employees are located in different geographical locations.
• We have no performance appraisals, no timesheets and no HR policies.
• We have a simple relationship with our employees. We pay them a fixed monthly amount and assign them critical work only when it arises. And we expect critical work to be handled immediately, at high priority, and with good quality.
• Our employees usually have a lot of free time, although this could change in the future. If there is no work, their time is entirely theirs and they can use it however they like. We only allocate critical work to them. We design work for employees on a minimal basis.
• We also have a deep intern pool which we onboarded using Mass Open Internship candidate product piloting.
• RanchiMall, by September 2017, had 3 monthly paid employees not including the owner and an intern pool of 70 people. We operate a lean employee model by design and intend to keep it that way.

BACKGROUND INFORMATION NECESSARY TO UNDERSTAND THIS WHITE PAPER

What is an ICO

• ICO stands for Initial Coin Offering. An Initial Coin Offering is a direct people-to-people fundraising effort using Bitcoin, Ethereum or any other cryptocurrency. These funds have traditionally been raised for other crypto or blockchain products, but are now being raised for a variety of common world applications.
• Usually fundraisers publish a Bitcoin or Ethereum address and issues tokens on ICOs to everyone who sends cryptocurrency, tokens on ICOs are issued. One kind of crypto-asset like Bitcoin or Ethereum is exchanged for another kind of crypto-asset like tokens of an ICO. Tokens are the basic monetary unit of exchange in an ICO.
• We will also publish a Bitcoin and Ethereum address for our ICO. However for the Phase 1 of 30,000 tokens, we will also accept the currencies our investors are comfortable with.
• The first known ICO was MasterCoin, which raised 5120 Bitcoins valued at 500,000 USD at the time. Soon after the issue, the token value went up 10 times. As of September 30, 2017 the initial value of 500,000 USD has increased to 14 million US, representing 28 times price appreciation on total net worth.
• The next exciting ICO was NXT in November 2013, which raised just 22 Bitcoins representing 20,000 USD at the time.  As of 30th September 2017, their net worth had risen to 72 Million USD. This represent an appreciation of 3600 times on total net worth.
• After that Ethereum did an ICO which raised 18 million USD to create a blockchain platform for smart contracts. The total value of Ethereum tokens is now 28 Billion USD as of September 30, 2017. After that a flood of ICOs came, following a short period  where it tapered  in 2015.
• Between 2014 and 2017 an average of 270 ICOs were raised every year. This number is currently growing 10 percent annually. The number of ICO issues might spike up dramatically if the idea catches on.
• For every viable ICO, there are at least 20 poor quality ICOs. Investor due diligence is a must for picking the lotus flower out of the muck.
• The difference between ICOs and crowdfunding is that ICOs are denominated into cryptocurrencies like Bitcoin and Ethereum whereas crowdfunding funds projects.
• ICOs are totally unregulated. Anyone anywhere in the world can come up with a project, release a white paper and, get funded if it appeals to investors. Of course there are many fly by night operators. Untrue declarations are often made in white papers, but markets by themselves have turned out to be fascinating regulators. In general investors put only a small portion of their portfolio into any given issue, and even if they are scammed out in a few, overall they make more money through the ones that turn out to be good ones.
• It seems that ICOs are making a very strong case for letting everyone have unrestricted access to ICO markets and try any trick in the book. Markets will separate the wheat from the chaff. The winners of this churning process are giving exceptional financial returns.
• It also seems that having a centralized regulator who uses a regulator defined process to control who gets funded is inefficient. This system is doing more harm than good as it restricts choices available to investors. The direct result is a depression in economic rate of return available to investors without a corresponding reduction in risks.
• As per a study done in April 2017 by analyst Aadhi Mannivannan, the ICO market yields an average CAGR (Compounded Annual Growth Rate) of 16%; this is better than the average 10% that VC (Venture Capital) yields and definitely better than the SP500 average of 6–7%. Also token returns are more extreme than VC—although nearly 75% of tokens return 0–1x, 10% of tokens have returned 10x+. Whereas only ~4% of venture investments returned greater than 10x.
• A key difference between conventional ICOs and RanchiMall’s token issue is RanchiMall’s commitment to keep investors’ interests higher than RanchiMall’s cash consumption needs. It is also the first ICO where an asset pool concept is unveiled which backs tokens with measurable financial assets. Additionally, instead of one shot capital raising, we are releasing tokens in phases over a period of time with price milestones.
• In that spirit RanchiMall ICO can be seen as a product being offered to its customers, as well as an investment to its investors.

Brief Background on Bitcoins

• Initial Coin Offerings as a phenomena emerged as a result of another phenomena called Bitcoins. A Bitcoin is a financial asset whose value is created by direct people-to-people interactions without needing a central authority.
• In the pre-Bitcoin days, we had no known mass method of creating value directly because it was not easy to trust a stranger without something like a central authority vouching for them. However using a technology called blockchain, this problem was sorted out.
• Now it’s possible to create a game in which all kinds of players can enter into the game. Of course, this leaves things open for both scrupulous and unscrupulous players. Trust behind the asset comes from the fact that in this game, for every dishonest act, an honest player steps in and covers up for the dishonesty and in exchange for a reward.
• One of the problems of the systems where monetary assets are backed by a centralized authority is the imposition of involuntary conditions on all participants. For instance the playing field being restricted to a few chosen ones under an arbitrary licensing or application process.
• This raises transaction costs by raising barriers to conduct a transaction under the guise of protecting consumers under KYC (Know Your Customers) and AML (Anti Money Laundering) laws.
• Of course KYC does not tell you anything more about your customer except their name, and address, and a government issued ID number. For instance, it does not provide any information about such things as eventual criminal intent of the applicant. Therefore, KYC has spectacularly failed to stop fraudulent customers from entering the system. In addition, the sheer bureaucracy of KYC imposes a very high system cost and reduces participation levels.
• Similarly Anti-Money laundering provisions have failed to prevent money laundering. Official banking channels are still the biggest channel of transmission of illicit money. In addition, they impose a universal cost in the form of increased paperwork--to the point of absurdity. The latest additions to this growing list are the new provisions of CRS and FATCA which makes it very complicated for a newcomer to perform international banking transactions efficiently.
• Bitcoins change the landscape dramatically by totally eliminating the need of a central authority. Coupled with the trans-national nature of the technology, for the first time in the history of the modern world, we have a financial asset backed directly by the people of the world and unhindered by centralised bureaucracy.
• The fact that his asset has a geographical footprint which spans the entire planet coupled with the fact that there are no artificial constraints by central authority imposed transaction costs, the asset has grown very fast from about 0.003 cents per Bitcoin in March 2010 to about 5000 USD in 2017. It’s been a kind of gold rush not even seen in Californian Gold Rush days.
• To understand what caused this explosion of value, we have to get under the hood and look at the concept of  value. Economists have struggled with this question for centuries. One of the first formal theories was the ‘utility theory of value’ stating that anything which has utility or usefulness has value. This led to creation of a unit called Util to measure utility.
• However utility theory of value was given a death blow by the Diamond Water paradox: Water is much more useful than diamonds and yet diamonds have much greater value than water. This is a paradox if the utility theory of value were correct.
• To patch this problem, economists came up with an updated theory, called the  ‘theory of marginal utility’, where the value of an asset is not described by its utility, but by the utility provided by an additional unit after all previous units have been consumed. Since water is plentiful, the utility provided by an additional glass of water is very low if you are already full of it. Essentially the utility theory gave way to a scarcity theory. If something is scarce, and is useful, it has value.
• We will go with this definition of value: Anything which is useful but is scarce will have value.
• A common confusion people have is they feel something physical or real is required for anything to have true value. This is absolutely wrong. Physicality has no relationship to value. Gold and sand are real physical things and yet, gold has value whereas sand does not.
• What gives gold value but not sand? Gold is just a shiny yellowish looking material. Gold has no real utility except for minor applications in industrial conductors. It cannot be even worn by people on a daily basis because of security threats. Most gold lies hidden in bank lockers or ultra secure vaults. Its value comes from the common consensus of society that someone is always ready to part with his wealth in exchange for gold. As an owner of gold, you are always sure that someone in this world will give you its worth. This consensus is absent for sand.
• Similarly, Bitcoins, which are nothing but digital data pieces, derive their value because as a Bitcoin owner, you are sure someone in the blockchain world is ready to part with his wealth in exchange for it. In fact, since 2009, the amount of wealth that someone else is ready to part with in exchange for Bitcoins is growing rapidly.
• Bitcoins also have utility. This utility is complex and therefore mostly perceived by experts. Bitcoins are used as a platform to transfer value to buy equipment for the crypto industry. They are recently coming to be seen as a base asset to procure other crypto assets. The scarcity of Bitcoins comes from the artificial constraint imposed, as a consensus, on all participants. Their total supply is restricted to only 21 million. This constraint is a foundational agreement amongst all participants and cannot be changed.
• The combination of utility and scarcity gives Bitcoins value in the same way gold gets its value.

We will turn our attention to the question of how much further the value of Bitcoins can go up and why it has gone up so fast.

• One of the qualitative ways Bitcoins are different than traditional asset classes is that the value discovery is instantaneous and complete for Bitcoins. Take for instance company stocks. The asset backing value of a company stock is its profitability. In some case a company might be making present day loss but if some participants see a future profitability they might ascribe a present day value to it. That present day value on a per unit basis sets the company stock price.  However, the growth in profitability of a company to show up as growth in stock prices is often delayed and has leaks. Not all stocks are valued at full price earning multiples as market average.
• However Bitcoins have no direct underlying linked asset. Their price is totally derived by nash equilibrium of the game being played by buyers and sellers with nothing like profitability metrics of a company to guide the game players.  So the fluctuations in Bitcoin prices is much wilder than stock price fluctuations. Bitcoin prices also reflect changes in perceptions much faster than stocks.
• Since the nash equilibrium changes rapidly, the price of Bitcoins fluctuates a lot, often by 40 percent or so which is considered normal given how fast temporary optimism or pessimism governs the perceptions of buyers and sellers.
• Furthermore, there is a hard limit to the supply of 21 million Bitcoins. About 17 million have already been issued (September 2017). The awareness of Bitcoins is still not widespread. Less than 1 percent of the world population is aware of them. However, awareness is rising rapidly. And as it rises, so does the interest in procuring Bitcoins. So on a secular basis demand is rising whereas supply is capped. This causes a long term secular increase in the price of Bitcoins which will last until a significant percentage of the population has exposure to Bitcoins.
• There is also a network effect in Bitcoins. In Telecom networks Bob Metcalfe discovered a square law that predicts that the value of a network grows four times when the number of users doubles. Bitcoin networks are exhibiting similar behaviour. The price of Bitcoin rises four times when the number of transactions in the blockchain doubles.
• Another interesting way of looking at the price increase of Bitcoin is by Moore’s law. Silicon chips’ value per unit which is measured as processing power per unit doubles every 18 months. So far up to 2017, the value of Bitcoins has also on average doubled every 18 months. Bitcoin prices from 2010 to end of September 2017 have risen on average 4 times every year, which is higher growth than Moore’s law.

What are Blockchains

• Blockchains are the technological building blocks that made removal of central authority possible for Bitcoins.
• One of the fundamental issues with any digital data is it can be copied infinitely and the copies of data identical to the original. So how do we assign originality to digital data? The solution is blockchains. Blockchains are programmed to tell which digital data is original amongst many copies of its data and who is the assigned ownership to it. All of this is achieved without one central entity certifying the original.
• The key idea in blockchains is a process called consensus. Let’s say there are one hundred people in a group. One person claims he owns some data representing a receipt of 200 USD. He notifies some of his neighbors; let’s say 5 of them. Let’s assume another person claims ownership of the same 200 USD. He also notifies 5 of his neighbors. We clearly have two copies of the same data. As per the consensus process, either of them could be the true owner of 200 USD if at least 51 people in the group agree on someone. So the five immediate buyers start asking everyone else whom they think should be assigned ownership. Everyone has been given incentive to participate in the process. Unless the group is split exactly 50-50, one person in most scenarios is declared the winner, and the other person’s 200 USD claim is invalidated. If the split is 50-50, then a tie-breaker method is applied. This process is called consensus.
• Consensus permits blockchains without needing one master to choose one original amongst many copies of data. This method is for instance applied to prevent a problem of double spending with digital currencies.
• Usually blockchains do not operate on one piece of data individually but they pack many data items or transactions in one group called a block. Then the consensus process has to decide which block is original and this has to be accepted in the system.
• In Bitcoins, one block is created every 10 minutes. The list of all blocks since the start in 2009 is called Bitcoin blockchain. The word chains are used because every block has to indicate which block is its immediate predecessor so that one continuous family ruling line can be established. An updated blockchain is a chainlink of all transactions since the start until the present time organized in respective blocks.
• The consensus process accepts a given block as authentic amongst competing blocks. The entity whose block is accepted is given some rewards. In order to prevent immediate data flooding by everyone seeking that reward, and for a fast consensus to achieve, Bitcoin blockchains throw a tough cryptographic puzzle to be solved. Usually only one person manages to solve that puzzle, and then consensus is easy to achieve as there is usually only one candidate. If the puzzle is solved successfully, and consensus achieved, a block is said to be mined in analogy to gold being mined.  
• Because blockchains solve the problem of assigning originality to one data copy amongst many without needing central authority, they can be used to create digital assets in decentralised form.
• We already knew how to create digital assets in centralized form, but doing it in decentralized form is a new possibility that blockchains opened the world to.
• So if some users voluntarily decide to abide by group rules, then blockchains can create their own economy. When the number of participants grows, the economy becomes stronger.
• Blockchains have heralded an era of participatory economics.
• Blockchain contracts is a fascinating new area that RanchiMall is planning on developing and promoting.

Impact of Crypto-Currencies on Government as an actor

• One of the most critical dimensions in the growth of ICOs, Bitcoins and Crypto-currencies is the interplay between governments and adopters of blockchains based instruments.
• Governments are undoubtedly the losers in the of rise of crypto-currencies as they stand to lose their monopoly on money issuance, and dilute their ability to transfer wealth from the people to themselves through inflating the value of the paper currency held by people.
• Loss of money undoubtedly means loss of power. Therefore, governments will try very hard at some point to stamp out this phenomena. The question then is whether governments can succeed in controlling or eliminating cryptoassets that they do not approve of or controlled by it.
• Bitcoins directly empower people. They unlock wealth generation as never before and are free from government interference. Theoretically democratic governments are supposed to enhance people’s ability to improve the economic quality of their lives, but in practical terms they permit this only to the extent that it does not interfere with their ability to be in control.
• There is one very simple target that governments would try to attack if they want Bitcoins to be eliminated. Its prices. If the prices go up, a new asset not under the control of governments takes root. Government monopoly of asset creation is lost and central banking will lose its ability to transmit monetary policies. If the prices of Bitcoins can be suppressed, it will pass as a fad, and then it’s business as usual.
• The other tool governments have in this survival battle is their coercive power;  the power of law-making. Governments can simply declare Bitcoins illegal. They can use their power to convince people that Bitcoins are a nodal point of criminals, hackers, terrorists and drug dealers.
• This is not as easy as it would seem: The international nature of these assets means these assets will live on even if stamped out by any one country. Being totally distributed means there is no one person or entity to target, no one server to shutdown and no one organisation to issue notice to.
• Since governments cannot control the specifics of Bitcoins as an asset, they are just another buyer or seller in the market. They have no tools to moderate its prices unless they burn public wealth and unload Bitcoins procured at a higher price at a lower price. Any local countrywide suppression of Bitcoins will not yield to depression in prices if not coordinated across all countries simultaneously. And in spite of these measures, if prices continue to rise even all governments put together would not be powerful enough to stop it.
• So far there has been no indication that government actions around the world have made a big dent in the price of Bitcoins. The most aggressive and visible action against Bitcoins was taken by the Chinese government. But their action only resulted in a temporary sharp dip in price. Bitcoin prices have been tremendously resilient in the face of assaults by the Chinese government.
• Vortex threat to governments: If Bitcoin prices rise too much, assets will start shifting from traditional government controlled assets like bank deposits, stocks, mutual funds and real estate to unregulated crypto-currencies in an uncontrolled fashion at a destructive rate. This would destroy property taxes and capital gains as a revenue source.
• However, it’s not all gloom and doom for governments. Governments who do not charge income tax on their residents have a competitive advantage in their citizens being enriched through Bitcoins. They can tax these people independently through consumption taxes or VAT. For instance, as UAE has zero income tax they could become a major hub for Bitcoin millionaires and Bitcoin innovation. This was a possibility that we took into account while registering RanchiMall FZE in UAE.
• Another question we would like to address is whether it is possible for governments to meet their expenses if they do not have control of taxation. The answer is a clear yes. Governments can optimize their costs to maintain focus on defence, administration, the legal system and policing. The amount of independent wealth generated by the free exchange of digital data like Bitcoins. Everything can be supported and supplied directly by markets on a free pricing basis. Better distribution of wealth which is made possible by Bitcoins empowers the people to afford healthcare, retirement, cost of public utilities independent of government subsidised services. Blockchains are ideally suited for creating long-term contracts, like 50 year contracts, for big projects like public roads and government as the need for a last resort funder is eliminated.
• Governments have no competition. They operate as a monopoly. Even if there is a change of government in democratic elections, the same system continues. The cost of basic needs like clothes, food, and houses has fallen consistently as a percentage of household income, but the cost of governance funded by a percentage of income as direct or indirect tax has increased or stayed stubbornly constant over last 100 years. Even at that, it has not met the aspirations and needs of citizens.
• Blockchain-based decentralized governance structures offer an alternative which is available to ordinary people. It could provide independent, competitive pressure on centralised governments that would make them have to strive for greater efficiency.
• The final point we would like to touch upon is general financial performance regulated markets like stocks or real estate versus financial performance of unregulated markets like Bitcoins: unregulated markets create more wealth than regulated markets but they carry the risk of higher price volatility. Things that grow faster have higher rates of return but, they also expose consumers to greater risks. In the unregulated Bitcoin world, geniuses and fraudsters are in the same boat. Therefore consumers have to do greater due diligence to filter out poor quality instruments in unregulated markets.
• Government regulation is a big opportunity for new financial entities to emerge as existing regulated institutions will not be able to enter this space without clear government guidance. For the reasons stated above, this is unlikely to occur. The big banks, big insurance companies and, big financial institutions in the Bitcoin and blockchain world are more likely to come from new entities who made an early start in this space. They have the advantage of not having to worry about the predatory actions of existing big financial institutions, because they will most likely be regulatorily barred from servicing this space. That represents a massive opportunity for new players like RanchiMall. Its an opportunity we are going to embrace.