Disclaimer: Amateur perspective from several week’s research only, so if you’re a crypto-expert and stumble into this post – please don’t judge and troll, just correct me in the comments. Let’s all get better at this.
Hackers have always fascinated me. About 8 years ago a hacker(s) under the name Satoshi Nakamoto invented an encryption tool that both cloaked the identity of any person interacting with the tool, cloaked the contents of the transaction itself – other than the amount of value exchanged between two anonymous pin numbers, and documented the register of that transaction into a nearly hack-proof ledger. It’s known as blockchain.
Blockchain is the technology that enabled the creation of Bitcoin, commonly referred to as “digital gold.” More recently, a variety of spin-offs from the blockchain/bitcoin tech concept have now sprung into action as the collective “cryptocurrency” revoluion.
Mark my words – this moment is to our generation what the dot-com boom was to the late boomers and gen-X’ers that happened upon a computer science/graphic design/web development skillset in the early/mid 90’s. In my view right now, it’s not if – but when – and by which method/software/coin/wallet/cryptocurrency – our world will be fundamentally altered by this new technology.
The blockchain/cryptocurrency revolution will modify the status quo of biz-as-usual and the type of business/contractual relationships that are the knowledge base of our financial, economic, and ultimately entire social system. Read this tweet storm from last night (6/20/17) by Naval Ravikant.
I learned of Naval about 3 weeks ago listening to a podcast recommended by a friend from the Integral Theory Conference, Jonathan Mozenter, whom I’ve noticed on Facebook seems to be and avid follower, advocate, and investor in the crypt-world.
The podcast is an episode of the Tim Ferris show featuring an interview with Nick Szabo, co-hosted by Naval. Nick Szabo is a crypto/blockchain aficionado with a passion for computer science, law, and all the things regarding human intelligent cultural systems. Here’s a link to his blog.
So – quick rewind. What Naval points out in his tweetstorm is that from a fundamental “basic nature of things” perspective, all human systems are simply networks, some of which have intrinsic value and are known as markets. Currently all networks and markets are governed/ruled by an elite or privileged class of individuals/organizations with the beneficial access to capital and assets needed to assure the stability of the said network/market – thereby providing a basis for consumer confidence and spurring participation in the network/market. The inherent risk of the current status quo is a plague of bad-actors with corrupt intentions willing to collude with other bad-actors to fleece the citizens/participants, and line their own pockets at the expense of others and our environment.
From a nation-state perspective, think USA, Mexico, Brazil at this moment in 2017. USA is a primary value source for the network of global nation states vying for political power, influence, and credibility to further the interests of their own state, as well as all networks and markets inherent to their state. All roads lead to Manhattan, and all nation’s economic, political, and social value and power are compared by some measure to the performance of the USA as a basis for value judgement and sense of efficacy.
Mexico is currently a fairly stable but less credible value source for international markets due to rampant corruption and drug-related violence, however they leverage lower cost labor and lax regulations to attract investment in critical infrastructure assets and economic markets.
Brazil is a resource rich state but due to decades of political instability and recent upsurge in autocratic failed-state governance, it is a drag on the value of networks and markets associated with its inherent systems and while it gains great wealth from oil, gas, and natural resource deposit extractions, it’s lack of credibility and ability to govern are taking a huge toll on its citizens.
In all three cases, the one thing all states have in common are networks and markets run by elite class of powerful individuals – thus the inherent health of the state and value of the networks and markets within are subject to the whim of leadership capacity and integrity of eligible citizens vying to lead the government and internal organizations, institutions, and businesses.
The USA has a robust constitutional government with well-established checks and balances, so even while imperfect at best – it remains a stalwart of the means and methods of combating corruption in public officials. So even as the Trump presidency careens towards disaster in so many ways, the separation of powers is serving as a critical mechanism to reassure the international community that while USA volatility is currently at a peak, the long-term viability of the state as a primary value source in the greater network of geopolitical relationships remains credible.
Mexico has a semblance of this type of governance but with far greater deference to the elite ruling class and corrupt collusion between law enforcement, military, and political officials which leads to an environment where justice is only pursued for those that are not able to buy their freedom and innocence.
Brazil, at this moment, is quite possibly a failed state with governance in shambles and unable to shore up even a semblance of credibility in the international marketplace of value, and is thereby potentially reducing the apparent value of businesses, governments, and organizations doing business within and in conjunction with the state.
Now introduce blockchain in its Bitcoin iteration.
As Naval iterates in the tweet storm blockchain/Bitcoin decentralizes power structures by eliminating the central server, central authority, and trusted validation partner (i.e. VISA, Paypal, Notary Public, Auditors, etc.) through creating a hack-proof general ledger of transactions which is crowd-source validated through complex programming algorithms which verify the encrypted transaction details and identities of the transacting parties, and verify/validate that both parties are agreeing on terms (by way of each one entering their pin), and recording the transaction on a decentralized ledger that is digital-carbon-copied simultaneously to a vast network of computing nodes across the globe, each of which self-validate and cross check the details of each potential transaction before approving the batch of transactions and adding to the ledger.
The benefit of this decentralization is multi-faceted.
- Bad actors lose power as their centralized authority dimishes over financial and institutional assets
- Common people gain power as their ability to exchange value internationally without involvement of state/corporate actors increases, along with their data security and intrinsic value of medium of exchange
- Innovation is sparked by new opportunities to improve upon “old-ways” of tired institutions
- Bureaucratic waste at all levels is reduced/minimized/eliminated
The process of validation for each transaction is completed through multiple network nodes performing complex calculations unique to the transaction, and only when a majority of network nodes all return identical results confirming the accuracy and validity of the transaction is the exchange listed in the ledger.
All nodes involved in validating a particular transaction are pro-rata beneficiaries of a of the transaction fee imposed on buyer/seller, thereby “printing gold” to be “mined” by “miners/nodes” which provide the “proof of work” that the accuracy/validity of both the transaction and the historical ledger are credible.
The ledger is recording an exchange of quantity of Bitcoin between two accounts, and the value of the coin being exchanged is variable on a collective market basis (vis a vis DJIA) based on the amount of investment, activity, speculation, etc. on any given day in relation to the credibility and value of the exchange currency. The transaction also generates new wealth in terms of the transaction fee for the node operators/miners that get a % of the fee for each transaction they validate.
Bitcoin is essentially digital gold. A cryptocurrency which can be purchased based on market-variable exchange rates which tag the value of a Bitcoin at this moment to be $2,679.01 per coin. To put this in perspective, a Norwegian man 8 years ago threw $27 at Bitcoin in its infancy – essentially forgot about it – and it’s now worth $980K in today’s dollars. Here’s a complete price history of the digital gold commodity for some additional perspective. Here’s a real-time resource for current crypto-coin values at this very moment.
I remember hearing of Bitcoin, and ignoring it. Had I thrown $100 at it in 2008 (0.15% of my salary), I would be worth nearly $4M today, assuming I held on to all the value. So there’s that. It’s the Amazon, Google, Apple, Youtube, Facebook IPO moment we all slept through as well. Only it’s here now. And in my estimation, the scaling period is going to last another 3-5 years minimum before the new economy emerges, stabilizes, and starts generating transformative value across multiple market sectors.
Early adopters will be web-enabled services because their leadership and clientele share the knowledge-base necessary to understand the technology enough to discern value, understand proper implementation, and incorporate new tech into existing systems.
Imagine a cryogenically frozen Lakota Chief coming back to life from 1412 into today’s world, and expect him to trust a stack of $100 bills as a means of exchange for the stores of dried fish and grain that his community has amassed for the winter. Basic competency in the trustability of the techno-currency is precedent to believing it has value, which is precedent to any investment or incorporation into established business models.
Thus, the early adopter phase will include all of tech, which is a good place to start. And the latest adopters will be big biz, banks, and the state, as they all desire high risk debugging to occur on someone elses dime, and they’ll simply buy-out, merge, or replicate the proven methods when they deem the right time. The downfall of the late stage adoption phase is that a huge amount of capital stays on the sidelines and prevents resources from contributing to the expansion of the beneficial technology.
The best part of the late stage adoption phase is that a huge amount of capital is still on the sidelines and available for scaling implementation once proven means and methods survive multi-generational debugging, testing, and market integration.
So the double edge sword of every investment market since the beginning of time, remains a double edge sword in this current emerging environment. Throwing money at any stock just to invest is a bad idea. Picking a winner can be a life changing surge in wealth. Picking the wrong horse can be the loss of a fortune.
Innovators and early adopters will thrive here. My view, and my call to action, is for the 20’s and 30’s and even early 40’s among us to consider the value of taking big risks for the benefit of all people and the environment right now. And if we can collectively empower ourselves by decentralizing value-exchange methodologies and redistributing power into a more equitable basis while eliminating waste from fraud and abuse of power structures – everybody wins, including Earth.
So this isn’t investment advice, obviously, but it is a call to wake up and at least smell the coffee before you pour it down the drain. Something big is brewing. Don’t sleep on it like you did AOL, Amazon, Yahoo, Google, Apple, Facebook, and even Bitcoin/Ethereum at this point.
What’s interesting to me about the blockchain/cryptocurrency revolution though, which in many ways differentiates it from any previous investment “bubbles”, is that it is performing fundamentally new functions:
- Creating intrinsic value to its own market cap (i.e. digitally printing gold, not relying on central bank to print currency to empower investors to increase holdings)
- Providing an inherently secure platform for exchange of value transactions (i.e. trustable Craigslist, no fee paypal)
- Enabling simplification/automation of contractual relationships (see: Ethereum Smart Contracts, i.e. Siri meets your lawyer)
- Providing an ever increasing encryption security functionality akin to amber encasing an encrypted mosquito whereby as more and more time passes, the encrypted mosquito fossilized in the amber becomes carbon datable and unable to be forged, and is simultaneously replicated across thousands of nodes in the global network so if any single record is altered, the majority consensus of all previous records stored in the network re-establishes the prior trusted ledger before recording new transactions. This is a complex but simplified metaphor/analagy shared by Naval and Nick Szabo in the podcast linked above.
- Creating new economic opportunity due to the specialized skills needed to implement 1-4 above, and the newness of this technology. It is still very much in the early adopter phase and moving through its fits and starts of a new industry birthing into the world.
So as the bugs are worked out, and the investment market is rife with opportunities to win and lose big, there’s an extended period of time right now to get involved, own a stake, and watch it grow. The scaling of this technology will not happen over night, and while it may prove to be rapid in how it infiltrates a certain market sector, industry, or even single company – it will be months or years before the next sector/industry/business finds its stride in the same vein.
This tech literally empowers a fundamental transformation to occur in every business, organization, institution that relies upon cash, assets, documents, contracts, and transactions – so, like, everything. All the things.
At this moment, I’m planning my entry into the crypto marketplace and incubating some very exciting ideas for how this technology will rapidly reformat the hard drive of our society’s operating system.
In a utopic, future is now, proverbial paradise of blockchain/crypto implementation across all sectors and segments of society, the following scenarios provide a glimpse of what is possible.
- All financial institutions will convert to blockchain technology to store critical records, documents, ledgers, and potentially invest stores of value into cryptocurrency coin as part of mutual fund-esque investment portfolios.
- All government bureaucracies will rely on blockchain technology to synchronize registers, databases, and other documentation clearinghouses.
- All local election offices will implement blockchain technology eliminating the need for voter registration and ensuring accurate, verifiable vote counts in all precincts, with instantly tallied results and no manual counts necessary.
- Basic contractual relationships between small businesses, entrepreneurs, landlord/tenants, etc. will migrate to ethereum based smart contracts, simplifying the process and enhancing the efficiency of contract administration and AR/AP invoicing, collections, and payments.
- Crypto-coins will become the next “stock” asset and digital portfolios will replace 401K, mutual funds, etc. within 10 years – which will serve to both simplify the process through smart contracting, and will also resolve much of the “unfunded pension liability” problem by allowing such investments to benefit from more robust and trustable growth-oriented investment market which generate additional “digital gold/coin” to increase holding w/o requiring outside cash.
- Universal basic income will be enabled and become plausible and efficient through cryptocurrency allocation and distribution systems/blockchain validation ledgers.
- Welfare and social assistance programs will implement blockchain technology to validate participation qualifications and utilize cryptocurrency (possibly create their own coin) for the purpose of distributing resources to those in need.
- All ATMs, and other status quo financial systems will recognize some cryptocurrencies as having instant fiat/cash value in any international exchange market.
- AIG type crypto insurance industry will spawn to insure the “gap” period between transaction execution, ledger entry, and a short period thereafter to insulate investors from potential market tumbles while providing the insurer with 50/50 chance to benefit from the change in value for a pre-defined holding term.
- Public infrastructure financing, contracting, and implementation migrates to smart contract-based transactions, and blockchain based prequal processes and other documentation systems, and possible create ‘coin’ to replicate the ‘voter-approved bond’ financing model. Instead of holding an election and raising taxes thru voter-approved bonds on property (the typical way schools, jails, and government buildings are funded), municipalities/states will partner with blockchain/crypto finance org to create ICO offering to purchase a stake in project, which becomes debt service for municipality/state, and investment income for ICO participants.
I could go on. My brain is literally exploding. I’m all in mentally, emotionally, and spiritually, and am now just charting the path logistically to stay out of the bubble traps that are certainly out there, and stake my claim in the crypto world.
Stay tuned, I”m out of gas for tonight but look forward to continuing this thread.