Just Some Random Thoughts on the Crypto Economy
The Crypto Economy is coming into focus. Returning from #Polycon18 last week, I jotted down these random notes that I want to share.
No doubt there are some bad actors…Of course, the anonymity afforded by blockchain, and the quick-hit profits of crypto attract criminals. But Wall Street hides plenty of criminals and drug addicts…they just wear ties and have houses in the Hamptons.
The crypto community is building some impressive tech.
Consider this – and you may be way ahead of me on this…
SMTP, HTTP, DNS, TCP/IP, etc…are protocols that were developed 20+ years ago by the government and academia. The Internet has been build on these technologies. Unfortunately, there’s been a notable lack of innovation in protocol development– for years. gmail, Facebook, and the internet giants have built businesses on top of an essentially co-opted these protocols and centralized control of our data. Closed has won. There was little incentive for the open source community to innovate in developing more low-level infrastructure for the Web. Centralized has taken over…again.
Enter Bitcoin
What’s interesting about the blockchain crowd is they’re attempting to replicate many of the Web’s core capabilities as de-centralized services. And innovation is flowing into infrastructure for the new Web at an unbelievably fast pace. They’re on a heat-seeking mission to find inefficiencies where firms are collecting tolls so they can disrupt them. Most notably, developers built the Internet and most didn’t make FU money. But the developers who are creating crypto token-based protocols are making bags of money. Last week I met at least 50 crypto millionaires…most in their 20’s but a lot of old money too. Developers have huge incentives to innovate. And they’re investing back like crazy into new companies and projects to take back control of their data, the Internet, and the economy. Screw “too big to fail.”
Blockchain in Large Scale Projects?
While it’s true that there aren’t really any notable large scale examples of blockchain adoption outside of Bitcoin; and the many challenges of blockchain adoption have been well-articulated – it’s very early…Bitcoin’s scripting language was purposely built to be arcane – most likely so that the originators could basically make sure people didn’t screw it up and fork it too soon. Ethereum is pretty young – less than 4 years since commercial launch really. But its scripting language, Solidity, is much easier to use than Bitcoin’s and developers are building zillions of digital services on top of Ethereum — horizontal infrastructure for the new digital matrix (stay tuned for more on this from my friend and colleague David Moschella).
Scaling and security problems notwithstanding – the crypto community is an open, de-centralized, innovation honey-pot that is challenging Silicon Valley. Not only will SV be faced with a fractured disruption agenda (e.g. both tech and industry)…but much of the developer world is saying FU to the valley and its VCs (who of course aren’t stupid and are getting in on the act).
What about the Bubble Bursting?
Who knows…it may all blow up and these kids will lose all their money and walk away. But I don’t think they’ll bail. I see them as really smart. They’re diversifying, buying overseas real-estate…relocating to tax-friendly havens and finding governments who want to partner with them. And they’re mission-driven. Looking for markets ripe for disruption from this virtual value store. I think there’s more to this generation than crash and cash in. I think they truly want to make the world a better place.
Regarding the bubble…One theory I heard put forth by Bradley Rotter is that crypto prices are sideways right now because for years people thought they could avoid taxes and now they’re realizing that they’re exposed because of the run up this year in crypto prices. It’s kinda like when folks exercised their options during the dot.com bubble but held onto the shares. Then the shares crashed and they didn’t have the cash to pay the tax man. They were under water. Similarly, it’s possible that people are selling their crypto to cover massive gains. And possibly after tax season prices will rise again – maybe fast…then at some point the bubble will burst. At that point – when everyone says “well that was a tulip-craze – I knew it would end badly,” and no one wants to touch crypto and it’s totally out of favor… I believe, like the Internet, the bubble will be the beginning signal that the market under-valued the impact of virtual currencies.
Looking Ahead
I have no idea what the price of Bitcoin will be in August or next year or the year after. But I do feel that over time, crypto asset classes, powered by the crypto economy, will be one of the most valuable and useful because of their technology underpinnings, it’s a passionate community with disruptive potential. Let’s face it…even the government wants to get rid of paper money.
One of my colleagues recently said to me about the crypto economy: “it’s basically open protocols vs walled gardens, and if anything is to disrupt today’s giant’s, it’s probably this….but crypto is a true Wild Wild West right now– full of pioneers, hotshots, crooks, snake-oil salesman, and wide open market spaces – fun stuff
What do you think? Reach me @dvellante
