Hello,

I’m just back from the Grand Canyon after nine days of rafting the lower half. I can’t believe it took me so long to get there--it’s truly one of our great national treasures. Whenever I return to Boulder after a big nature trip our local mountains look like tiny hills. Our impressive Flatirons seem smaller: the Grand Canyon has basically over 200 miles of continuous flatirons, on two sides, and then many rows of them wide. It’s hard to contemplate.

But I’m quite refreshed after this first post-COVID travel for me and I hope you are fully enjoying summer as well.

Best regards,

David

Friends & Family Spreadsheet Help Offer

I regularly get calls from folks who are stuck on some Excel problem. They range from very basic to quite advanced, and I enjoy helping out. I’d like to extend that offer to you, since you subscribe to the newsletter. I like hearing from people randomly and I find the issues to be like a little puzzle I get to solve before getting back to work.

Helium Crypto Crowdsourced Telecom: How Does This Make Sense?

I love the audacity of the Helium Network. Having said that, reading about Helium is like playing buzzword bingo. I suspect most people haven’t heard of Helium, so here are some basics.

First, it’s a telecom network. More specifically, it uses the LoRaWAN (Long Range Wide Area Network) protocol to carry traffic for Internet of Things (IoT) devices. It uses 900 MHz spectrum, a public-use band which in the olden days of the 1980s and 1990s we used for our cordless (but not cellular!) phones or baby monitors. This spectrum goes a long way, penetrates walls well, and is well-suited to carrying short IoT messages. And, impressively, there are over 40,000 hotspots in the Helium Network, including many in Boulder:

It’s crowdsourced. Helium nicely turns the economics of telecom networks on its head. Helium is a VC-funded company, but it doesn’t own any of the network assets. Instead, individuals buy the radios and antennas and install them in their own homes. So Helium has no capex, no cell site rent, no backhaul (traffic gets to the internet over your own home broadband connection). This is impressive! Typically you have to spend beaucoup bucks to set up a wireless network before you can get your first customer. Here, the network build costs and operating costs are dispersed among thousands of individuals and the company hasn’t spent a dime.

It uses blockchain! One nice innovation is that the network is self-organizing and self-describing. It uses blockchain for showing what areas of the planet are covered by the network. When you assert that you’ve added a node at certain coordinates, other nearby nodes try to send messages back and forth. Based on the strength of the signals, it’s possible to verify that the node is real by triangulation.

The economics, at one level, are quite simple. I like to think about where the money comes from and where it goes. Money comes from network users, who purchase Data Credits (DCs) which allow them to use the network.

Compensation flows to

1. Hotspot owners for providing coverage and carrying the traffic of paying customers,
2. Blockchain maintainers (i.e. computing resources) for verifying that the network is up and running and handling the back-end accounting, and
3. The Helium company for their role in creating this whole scheme. This is another brilliant aspect. There is a complex scheme about how the money is split, and the company gets 35% via a bucket called “Security.” That sounds important and unobjectionable, but it’s basically their cut. They have no expenses which scale as the network grows, but they pretty much own 35% of a telecom network while putting up no money to build it or operate it. That’s what I mean by audacious! It’s always good to use other people’s money.

If the story stopped here, it would make sense to me. There’s a well-developed market for transporting wireless GBs of data--everyone with a smartphone participates. There’s also a more specialized market for IoT device data.

Now here’s where we go deep into the rabbit hole. Things get really goofy when you add in the cryptocurrency angle. Helium doesn’t pay the hotspot owners in good old U.S. dollars; instead they are paid in what folks colloquially call “Helium” or $HNT (Helium Network Token). A $HNT is similar to $BTC (Bitcoin) in that it’s a blockchain-based cryptocurrency. And $HNT can be converted into dollars, just like Bitcoin. When I started researching Helium in May it was trading at $18. After a few bad days for cryptocurrencies the value fell to $10. And a year ago it was trading under $2. So it’s pretty volatile. But still, it’s a floating currency and all of this network activity turns into $HNT and can then be turned into dollars.

When you read about the Helium Network from the perspective of the hotspot owners it sounds like a gold rush / land grab. People are rushing to establish a hotspot in an area which extends the network. Then the process of validating that you have established coverage is referred to as “mining” Helium, because you earn $HNT for doing that.

And Helium is doing ok as a cryptocurrency. At the $10 price, the market capitalization of the entire currency is about $800M. So in the early days of “mining” folks were earning 400 $HNT/mo. Since that’s now worth $4,000 you can see why you’d be willing to shell out $500 for a “miner” (i.e. a radio and antenna) and connect it to your electricity and broadband.

But does it make sense for $HNT to be worth nearly a billion dollars? Helium’s fundamentals are challenging:

1. They have practically no customers and no revenue.
   Helium started selling Data Credits (DCs) in August, 2020. By May, 2021 they announced that they had sold one billion DCs. Since you get 100,000 DCs for $1, that means their revenue over the last nine months was $10,000.
   
   
2. Despite having a 40,000+ node network, it’s carrying almost no traffic.
   One DC = 24 bytes, so there are about 45M DCs per GB and the 1B DCs correspond to 22 GB. To put that into context, that’s approximately the monthly usage of the average smartphone in the U.S.
   
   
3. Their price to use the network is really high.
   To use the Helium network, users will pay about $450/GB. By contrast the average consumer pays about $2.50/GB. Now, it’s true that plans typically charge a fixed fee per device plus a consumption charge per GB, but still...the price differential here is huge. And the industry $/GB price is forecast to fall in half every two years for the rest of this decade.

There seems to be a disconnect between the $HNT created each month and the revenue.
Regardless of the amount of network traffic or the number of hotspots, 5M $HNT are created each month. At $10/$HNT, that’s $50M! Since revenue is currently about $1,000/mo, it seems the speculation is overvaluing the currency by 50,000x.

So the good news is that, unlike Bitcoin, there is something backing up the token value. The bad news is that it’s off by a factor of 50,000. (And it’s likely worse, as there are already some 76M $HNT out there.)

Still, when I look at the NB-IOT unit and usage estimates, I just don’t see enough traffic for Helium to be worth this much.

A contrarian position holds that this will all work out. Maybe Helium is brilliantly using an inflated currency to build a network which they’ll somehow be able to monetize later.

I have to admit, I don’t see how this can work out in the long run. But if you can tell me why this does work, I’m all ears.