My generation’s moon shot
I have no earthly clue whats going on here. And a lot of my friends in crypto can’t explain it either. Why this insane influx of capital (approaching 500 billion) into the space right now? I’ll be straight and admit that I took my eye off the ball, right around the time Mike Hearn dropped this bomb. But at about the 6k mark, I started paying attention again. Studying the recent developments with ICOs and getting my opinions up to speed:
First opinion: The price of bitcoin is still the least interesting thing about bitcoin.
This was a popular refrain back in 2014. It’s much harder to say with a strait face now, but the true believers will stand by it. We know for sure that a huge proportion of the capital flooding into cryptos right now is not smart money. They read some hyped up articles, they don’t fully understand bitcoin, probably don’t believe in the purpose envisioned by the early community, and (so the greater fool theory goes), as soon as the explosive growth slows or stops, the dumb money leaves. And this whole thing crashes.
Second opinion: The greater fool theory doesn’t apply, bitcoin is not a stock. It’s the entry point to a large and growing ecosystem of blockchain technologies that have already succeeded in changing the corporate form.
The “DApp” model (behind all the ICO token companies) aligns incentives in a way that eliminates the inherent conflicts in the corporate model and supercharges network effects.
Lets unpack that a little: The incentive structure of the modern corporation creates three constituencies that are basically at constant war with each other: Shareholders, employees, and consumers. Shareholders want consumers to pay top dollar and employees to work for free, creating maximum returns for them; Employees want to gouge consumers and use all the profits for their salaries; And consumers want the cheapest possible products at the expense of investors and employees.
This dynamic brings out the worst in each group causing lawsuits, fraud, mistrust, abuse and waste.
With blockchain companies, being an investor is actually a prerequisite to being a customer. If I like Civic or Zcash products, I need to own their token in order to participate in their ecosystem. The power of that cannot be understated. As an investor with a real stake the success of the network, I’m more likely to become an active participant. I may tell my friends about it, get involved in governance, or even throw all my effort in and build an application.
Essentially the three roles are collapsed into one. Investors, early adopters, network operators, and developers are rewarded with pre-sale tokens that have the most upside. And users receive micro-incentives for their contributions. Tokens are the unit of account for the network. They have cryptographically guaranteed caps on issuance, meaning they guarantee value of tokens is retained over time. The bigger the network grows, the more utility in the token, the more valuable it becomes. Theoretically.
Opinion 3: The next generation of internet protocols are being built on blockchains and tech savvy millennials are all in.
Governments around the world have been printing money, effectively inflating assets and driving yields down for decades. If I want to create wealth, I can’t really find hard assets that aren’t overvalued and that will deliver significant returns over time. The stock market is basically closed to small cap, high opportunity IPO’s. When a company does IPO, VCs and private equity funds have first dibs and load the companies up with so much capital that the general public doesn’t really get to participate. In practically all the traditional investing routes, I’m either taking on asymmetric risk or chasing single digit returns.
Bitcoin is offering my generation a different path, and we’re taking it. A young company can do an ICO and raise tens or hundreds of millions of dollars within hours, without even the backing of a VC. And the money is coming in large part from millions of young people worldwide that have never had the opportunity to participate in this kind of thing. Now they have high upside crypto portfolios that look a bit like VC funds, with lots of high risk bets and the hope that a tenth or a hundredth of them pay off at a rate of more than a hundred to one.
In crypto, it’s possible anyone to construct an Efficient Frontier portfolio (sort of like what YC does), spreading out investments to mitigate risk but still getting sufficient alpha from the big winners.
Opinion 4: We’re not in the clear, far from it. A lot of people have been burned in scams, hacks, or just bad market timing. There’s a lot of shit out there right now. But that’s why the winners get a payoff at a higher rate. To cover the cost of the losers. And taken together, hopefully our portfolios can stay active and the whole movement progresses.
The transfer of wealth from the boomers to the new generation is happening and has found it’s way to bitcoin. Millennials have disposable income to invest. But more importantly we have time and we have hope. Time to study crypto, get absorbed in the space, open accounts, monitor trades and participate in these growing ecosystems. With luck, we’ll be able to avoid the tremors and navigate to the promised land.
Yes, the promised land. There is an element of idealism baked into this. It was stronger in the beginning but remains a key driver today. Many of us are still hoping for a better world. The global unbanked who were left out of opportunities because of the boundaries of the financial system are here. And now everything is on the table: Currency, investing, business systems, even government.
It’s going to be a crazy ride. People will lose their shirts and it may look like its going to fail. But I think those who persevere will be rewarded in the long run, and will be able to say they participated in the blockchain revolution. ✊
