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Elon Musk's Craziest Gambles
Shane Addinall posted a post in BlogBusiness and gambling aren't terms many combine when referring to success, but Elon Musk isn't like most in more ways than one. The Tesla co-founder is known as a serial entrepreneur who takes massive risks with his business ventures. Despite his critics' lack of faith or vision, the outcomes of Elon Musk's business gambles prove he knows how to play the game. And he is playing it right. What makes his bets so interesting is the variety of games he plays, and his best bets include, among others, financial solutions, alternative energy, AI cures for degenerative diseases, space travel, and, most recently, social media. His wealth comes from a list of successful business ventures that include startups and ideas way ahead of their time. Let's dive into the craziest wagers he's made and unpack numerous decks initially stacked against the multi-billionaire. We also look at some plays where the dealer still needs to reveal their cards. Big Bets After completing university qualifications in Pennsylvania, Musk, his brother, and a partner founded Zip2 through angel investor funds. The city guide and maps company changed hands via M&A deals, eventually leaving Musk with his share of a $22 million buy-out in 1999. He gradually built an empire from this success, increasing his stakes with every opportunity. His business success proves the importance of knowing which hand to hold, raise, or fold. ✓ X.com and PayPal Many may not know this about Elon Musk, but he co-founded one of the first federally insured online banks called X.com. Following the success of Zip2, Musk moved into the financial services sector, and this bet eventually made him part of the PayPal Mafia. During its first couple of years, there were intense political struggles in the company, and following its first 200,000 sign-ups, the board voted against Musk as CEO. As an initial funder of the company and its biggest shareholder, Musk stepped up as CEO once more when X.com merged with its biggest competitor, Confinity. This was short-lived as the board ousted him again, and Peter Thiel replaced him as CEO. Confinity owned a product named PayPal, which allowed PalmPilot owners to send money via infrared ports. As we know, this technology expanded to include email and web transfers worldwide. With Thiel as the leader, the new board renamed the company PayPal in 2001. One year later, eBay acquired PayPal for $1.5 billion, and Musk received $175.8 million for his 11.72% shares in the business. Many of the founders became giants in the tech world, and they dubbed this group the PayPal Mafia. Fifteen years after the sale, Musk purchased the X.com domain from PayPal for an undisclosed amount, claiming it had sentimental value. ✓ SpaceX With no time to count his gains, Musk moved on to his next bet upping the ante and triggering many negative responses. Two decades later, the man is one of the greatest visionaries, but most thought he was mad. In March 2002, Musk founded his own privately-owned aerospace company, SpaceX. Musk commenting about the mission of SpaceX said: "You want to wake up in the morning and think the future is going to be great – and that's what being a spacefaring civilisation is all about. It's about believing in the future and thinking that the future will be better than the past. And I can't think of anything more exciting than going out there and being among the stars." True to his pedantic nature, Musk stated that SpaceX would decrease the cost of space travel by a factor of ten. After failing to purchase refurbished rockets in Russia, the visionary plotted how he could manufacture his own rockets at a fraction of the cost of traditional spacecraft. Much to his critics and competitors' disgust, Musk's SpaceX is an enormous success story in the aerospace industry. Valued at $74 billion in April 2022, SpaceX successfully launched satellites with reusable rockets and outperformed NASA with innovative engineering. Their current focus is on Starship, the first all-purpose space vehicle. Musk seems willing to go all-in on the fact that it will reach orbit this year. ✓ Tesla Musk currently holds the position of Tesla's CEO and leads all product designs, engineering, and global manufacturing. He staked $6.5 million in the automotive and clean energy company in 2004, becoming the biggest shareholder and chairman. Five years later, the company produced its first electronic car, the Tesla Roadster. Since its inception, Tesla has released seven electronic vehicles ranging from low-priced to high-end sports models. The engineers who founded Tesla believed that it isn't necessary to compromise to drive an electric car. Musk agreed and, since stepping up as the company's CEO in 2008, made bold bets that mostly landed in his favour. Less than two decades after his gamble on futuristic engineering and electric cars, Tesla boasts a net worth of $58 billion. Musk attests to the risk he took when moving into a highly saturated automotive industry and following many who failed in the Electric Vehicle mass-market. Today the Tesla Model 3 holds the record as the top-selling electric vehicle, and thanks to big gambles made by Musk, the company's portfolio includes other renewable energy subsidiaries. With their sights set on clean energy and transport, Tesla acquired battery production companies, built the Gigafactory, and bet on solar energy products. ✓ SolarCity and Tesla Energy In April 2015, Elon Musk announced the launch of their home energy storage system, Powerwall, and Tesla Energy came into existence. The clean energy subsidiary of Tesla develops, manufactures, sells, and installs photovoltaic solar energy generation systems, battery energy storage, and related renewable energy products. The following year, Musk would stack his chips to the value of $2.6 billion in a highly debated acquisition. While attending to his duties as CEO of Tesla and managing his aerospace dream, Musk and his partners at Tesla broadened their sustainable energy horizons. In 2016, Tesla gained a residential solar company, SolarCity. Musk bet on a family business as SolarCity founders Peter and Lyndon Rive are cousins of Musk. Perhaps, taking a significant gamble on the blind. At the time of acquisition, SolarCity had installed over 325,000 solar energy systems throughout the US based on a popular leasing system. Unfortunately, the company had $1.5 billion in debt, although it was the largest residential installer in the States. The contentious acquisition had Musk in hot water and shareholders up in arms. Since the controversial buy-out of SolarCity, Tesla Energy rolled out its solar roof and solar inverter and underwent a business model shift. The company focuses on making its systems the most economical in the market, and from 2021, customers need to purchase a Powerwall if they have a solar roof or inverter installed. Since then, the business increased installations by 68% from 2020 and deployed 32% more battery energy storage products. ✓ Gigafactory One of Elon's biggest gambles to date is the $5 billion investment in the mammoth lithium-ion battery plant. Gigafactory, named for its sheer size, had critics calling Musk's bluff while others admired his audacity. With Tesla's mission to accelerate the adoption of sustainable energy solutions and offer affordable electric vehicles (EV), they need to increase their production. This motif drove the development and completion of the Nevada Gigafactory. The intention is for the factory to supply enough batteries to support the production of 500,000 EVs per year and produce Model 3 vehicles. Musk explained that this number exceeded the sum of all the EV productions throughout the world. The facility reached completion in the past month as the Tesla CEO cut the red ribbon for opening the largest factory in the world. Since the Gigafactory announcement in 2014, Tesla opened smaller Giga branches throughout the globe, and today the company produces more batteries than any of its competitors. Nevada's 1.9 million square foot factory is a self-contained energy facility producing its renewable energy sources and is a net-zero energy factory. Bets on the Future The big difference between gambling and business ventures is that gambles have much shorter waiting periods before you find out whether you go bust or take the pot home. As the famous country song says, the secret to survivin' is knowin' what to throw away and knowin' what to keep. The Tesla CEO has a knack for risky bets, and so far, it seems like he's been right on the money. We await the results on some of his gambles as they are 'works in progress'. With Tesla finally ready to scale up as its Gigafactory opens its doors, we believe the following projects may enjoy a gear change too. ✓ Hyperloop and The Boring Company What started as one of Musk's imaginative "wouldn't it be cool" ideas turned into a new possibility of public transport. In 2013 Musk announced a dream of creating a vacuum-tube train system with costs cheaper than other modes of transportation. This may have sprouted the launch of The Boring Company in 2016. Although the vactrain does not exist yet and large companies like Virgin are chasing Musk's dream, The Boring Company works on more straightforward projects like digging tunnels. The company aims to create detours and faster routes with underground tunnel networks to solve 'soul-destroying traffic'. ✓ AI Elon unveiled that Tesla is working on a robot and the Tesla Bot project is the most important one for the EV company this year. Musk believes they can only solve the autopilot conundrum when real-life AI is a reality. According to its CEO, the company aims to have a bi-pedal, humanoid robot available in 2022. Essentially, the robot will be capable of performing tasks that may be unsafe, repetitive, or boring. The development is quite interesting as Musk is known for his warnings against AI and robots specifically. Yet, he champions the Tesla Bot project and insists the company invests heavily in this project. This is not the only stake he has in Artificial Intelligence, though. Musk co-founded a neurotechnology startup in 2016, Neuralink. Musk described the work as a "Fitbit in your skull" and introduced one of the early devices in 2020, and explained how the technology might soon cure paralysis and other neurological disabilities. Although neuroscientists criticise the claims and call them highly speculative, Musk remains hopeful about linking their technology with the brain and changing lives in the process. A Revolutionary Mind Whether you agree with his crazy ideas or not, Elon Musk's track record shows how brilliant and reckless he can be. Some of his insane ideas pay massive dividends, while others come back to bite him years later. One thing is certain - the 21st century would be a lot more monotone without his revolutionary mind. Considering the billions of dollars he has to back his ideas, we are bound to see more gambling from the billionaire.
In February this year, electric car manufacturer Tesla made headlines when it announced that it had purchased $1.5 billion worth of Bitcoin (BTC) and would shortly begin accepting Bitcoin as payment on a limited basis. At the time, industry experts lined up to question the wisdom - or madness - of the decision, with one commentator openly declaring it a "publicity stunt". Another publication did not see the humour in Elon Musk’s future-forward approach to his business calling it a "dangerous bet" that endangered the company and those who would follow in his lead. Contrary to the predictions of doom and gloom, the move is proving to be a masterstroke for Musk and his company with recent reports postulating that Tesla has netted more than $1.2 billion from its BTC investment. This would mean that the company has earned nearly twice as much from its gamble on Bitcoin as it did for the entire year of 2020 where it reported profits of $721 million. Showboating or Necessary Action? Musk has been a vocal supporter of cryptocurrencies, taking to social media and even waxing lyrical in interviews about his belief in the burgeoning technology and what it means for the future of finance. Detractors of Musk have called the investment in Bitcoin a risky bit of showmanship, however, the company had declared its intent to diversify its cash holdings and investment as part of their US Securities and Exchange Commission (SEC) filings. The filing they submitted for review spoke of their desire to maximise the value of their holdings saying: “We may invest a portion of such cash in certain alternative reserve assets including digital assets, gold bullion, gold exchange-traded funds and other assets as specified in the future." It is also important to view the investment as a percentage of their value, rather than simply looking at the dollar value. At $1.5 billion, their investment in Bitcoin only represented a 7.7% divestiture of their $19 billion asset pool. A position they made clear in their SEC filing stating that they were updating their investment policy to allow for flexibility on “cash that is not required to maintain adequate operating liquidity”. In layman’s terms, Tesla checked under the couch cushions and invested the change they found there. Big Business Boards the Gravy Train While Tesla is one of the more recognisable names to get involved with Bitcoin, and certainly one of the most aggressive in terms of investment size, they are by no means the first. Over the past few years several well-regarded companies have shifted a portion of their investment portfolio into crypto. ✓Morgan Stanley Wealth management company Morgan Stanley has shrugged of its stuffy demeanour in favour of embracing Bitcoin. A recent internal memo indicated that the company is planning to provide access to funds that will allow investors to purchase BTC. The bank took this decision after high profile clients petitioned for access to the token. However, this option is not for everyone; only clients who have at least $2 million in assets with the bank will be eligible to access the new Bitcoin fund. Morgan Stanley has also laid out certain minimum investment conditions which include having an account that is at least six months old, as well as limiting bitcoin investments to a maximum of 2.5% of a client’s total net worth. ✓Square Inc. E-commerce firm Square Inc. is firmly on the Bitcoin bandwagon. In October last year, the Jack Dorsey-owned enterprise committed $50 million to Bitcoin, a financial outlay that represents about 1% of Square’s total assets. At the tokens current value, the investment is currently worth around $200 million – a fantastic 6 month return on investment by anyone standards. Amrita Ahuja, the group’s Chief Financial Officer, said: “We believe that bitcoin has the potential to be a more ubiquitous currency in the future … As it grows in adoption, we intend to learn and participate in a disciplined way. For a company that is building products based on a more inclusive future, this investment is a step on that journey.” This is not the company’s first foray into the crypto space. In 2018, Square launched Bitcoin trading via its mobile payments service, Cash App. Two years later, Square announced that Cash App’s crypto revenue had surged by an astronomical 600%. Following this success, the company formed Square Crypto, an independent company that focused on Bitcoin open-sourced work. ✓Grayscale Investments Grayscale Investments is rightly considered a frontrunner when it comes to corporate Bitcoin investments. Through its Bitcoin Trust Fund, the firm currently manages more than 656,166 BTC. This amounts to almost 3.1% of the total BTC currently in circulation on the blockchain. With the cryptocurrencies sharp increase in price the company's BTC holdings are valued at more than $35 billion, giving it the largest bitcoin portfolio of any institutional investment platform in the world. ✓CoinShares Group Digital asset management firm CoinShares is another UK-based, publicly-traded organisation with substantial Bitcoin holdings. The company is noted for being the first to launch a regulated BTC hedge fund as well as an exchange-traded Bitcoin product. CoinShares CEO Jean-Marie Mognetti summed up their attitude toward Bitcoin when she clarified that it was no longer a risk to invest in Bitcoin, rather investment houses now see not allocating funds to Bitcoin as the risky play. This is a massive about-face for the traditional investment houses who only a few years ago considered Bitcoin and its ilk a passing fad. As of February 2021, CoinShares Group held a little under 70 000 BTC which is valued at approximately $3.2 billion. ✓MicroStrategy Inc. Nasdaq-listed MicroStrategy specialises in developing mobile software and providing cloud-based services. It is also the owner of more than 71,000 BTC, currently valued at more than $3 billion. Back in September 2020, MicroStrategy made headlines when it bought $425 million worth of BTC. At the time, CEO Michael Saylor stated: “This investment reflects our belief that bitcoin, as the world’s most widely adopted cryptocurrency, is a dependable store of value and an attractive investment asset with more long-term appreciation potential than holding cash.” This crypto treasure trove ensures that MicroStrategy holds the largest number of BTC by a publicly traded organisation. The company has officially adopted Bitcoin as its primary reserve asset due to its “compelling returns”. ✓Ruffer Investment Company UK-based asset management firm Ruffer Investment Company has decided to dip its toes into the Bitcoin pool. Late last year, the company diverted a fraction of its Multi-Strategies Fund into crypto, purchasing 45,000 Bitcoin. Ruffer views this investment as an “insurance policy against the continuing devaluation of the world’s major currencies”. Their investors are praising this bullish policy as the $870 million the firm invested in BTC is currently worth a little over $2 billion! ✓Galaxy Digital Holdings Galaxy Digital Holdings is an investment and asset management company which owns an astounding number of Bitcoin in its own rights. The company was founded in 2018 by former Wall Street icon Michael Novogratz specifically to cater to the needs of investors looking to get into the digital asset, cryptocurrency, and blockchain sectors. An early BTC adopter Galaxy currently holds 16,400 BTC with a resale value of more than $770 million. How Big Can This Bubble Get? Regardless of origin, core service or origin the one trait all of these company’s share is their reason for investing in Bitcoin - they see the cryptocurrency as an effective buffer against the continuing devaluing of fiat currencies around the globe. Only time will tell if their fears prove to be founded or if the current cryptocurrency bull market becomes this generations dotcom bubble.
Are Double Spend Attacks the Bitcoin Kryptonite?
Shane Addinall posted a post in BlogThe recent months have been an absolute feeding frenzy for new and old Bitcoin fans alike. The granddaddy of all cryptocurrencies made headlines by skyrocketing in value to around the $40,000 mark. After an expected settling into the mid to high thirties, the decentralised coin received another boost a few days ago when electric-vehicle company Tesla purchased $1.5 billion worth of Bitcoin ahead of its announcement that it would begin accepting the cryptocurrency as payment for its products. This move by Tesla saw the currency surge another 16% to peak at an all-time high of $44,795. Amid all the positive press coverage Bitcoin and its altcoin peers are currently receiving, there has been very little discussion of the recent concerns raised by reports of double spending and its impact on cryptocurrencies. At the time that double spending was brought to the public’s attention, Bitcoin saw an immediate 15% loss, a fact that has been whitewashed by celebrity tweets and now Tesla’s big investment. Are Bitcoins Infinite? At the outset, it is worth noting that Bitcoin is not an infinite resource. Much like any other precious commodity, the value of the virtual coin is based on its perceived scarcity and user perception of worth. When Satoshi Nakamoto created the blockchain-based coin he limited its scope to 21 million units. Once all 21 million Bitcoins have been mined there will be no new coins added to the Bitcoin ecosystem, at that point all that will happen is the circulation of existing coins. It is theorised that at the beginning of 2021 approximately 2.5 million Bitcoin remained out in the wild. More importantly, there will never be the full 21 million coins in circulation given that millions of early coins are stuck in wallets where passwords have been lost or owners have passed on without leaving behind the means to access their wallets. This reality of lack raised concerns over whether or not Bitcoin is adequately equipped to combat an activity known as double spend. What is a Double Spend Attack? As the name of the action denotes a “double spend” or “double spend attack” is when a technically savvy Bitcoin holder is able to spend the same Bitcoin more than once. The most like form of double spend that will successfully bypass the verification processes inherent to the blockchain is known as a “51% attack”. This is when 50% or more of a particular series of transaction ledgers is processed by one user. This would allow them to process transaction to multiple wallets and then reverse them before they can be locked into the blockchain ledger – essentially allowing wallets to receive Bitcoin while the originating account never loses the coins it sent. However, the larger the Bitcoin user base grows the more unlikely it becomes for a single user to be able to control in excess of 50% of the computing power that processes a string of transactions. Is Double Spending Illegal? The challenge of a decentralised cryptocurrency like Bitcoin is that it actively resists being boxed into existing frameworks. On the positive end this has created a free, fair and anonymous currency that is not at the behest of local governments, however on the flip side it has led to the coinage being used to process illicit transactions. Looking at existing banking regulations the practice of double dipping is absolutely illegal. A transaction requires the passing of an asset from one user to another in return for another asset. In this case the buyer transfers their Bitcoin in return for a service or product. In the case of a Double Spend Attack there is additional value added to one end of the chain while none is deducted from the source account. The US Computer Fraud and Abuse Act (CFAA) covers the intentional actions of such bad actors under its regulations addressing “fraud and related activity in connection with computers”. The criminal case would assume that it is illegal to: “... knowingly cause the transmission of a program, information, code, or command, and as a result of such conduct, intentionally cause damage without authorization, to a protected computer.” In this case injecting false and/or duplicate Bitcoin into the cryptocurrency’s blockchain-based ecosystem would be deemed as damage. Doing so currently holds a penalty of 10 years in jail and fines to be determined by a court of law. All that is required to trigger this penalty is the attempt to violate a CFAA statute where the loss incurred could be $5000 or more. With Bitcoin values resting around $40,000 BTC violating the $5000 minimum loss trigger of this criminal statute is almost a foregone conclusion. Does Bitcoin Solve Double Spending? The short answer is yes it does. Given the size and momentum of Bitcoin’s network it is highly unlikely that a real 51% double spend attack will be possible. By timestamping groups of transactions and saving them to the blockchain across multiple nodes Bitcoin is protected from having single transactions added and removed at the rate needed to trigger a true double spend attack. While BitMex did report on a potential Double Spend on block 666,833 in January 2021 market analysts do not consider it a real 51% attack based on the fact that no new coins were added to the blockchain. In this instance a user tried to speed up an existing transaction by resending it with a higher fee cap. Rather than new transaction replacing the original one the network processed both transactions, however the one was sent to an active chain and the duplicate was sent to a stale (also known as invalid) chain. In this case the blockchain only recognises one of these transactions, hence the duplicate being stored on an invalid chain. This way it is able to keep an accurate record of all posted transactions without the risk of adding false coins to the network. While double spend attacks are theoretically possible it is very unlikely to be see one occurring in relation to Bitcoin. This is not however necessarily true of smaller altcoins who due to their limited size could fall foul to unscrupulous users who gain the required 51% processing power needed to abuse the system.