Late to the party
I think of myself as an early adopter, so I don’t like to be late to the party. In fact, once it becomes clear that I am late to something interesting, I have to fight the temptation to continue ignoring it out of spite. The good news is that because I am usually an early adopter, what feels like “late” to me is usually still early for a lot of people.
In 2009, I read a long and detailed post on Quora (a Q&A site) about bitcoin. Someone with a history in economics made a compelling case that bitcoin was little more than a Ponzi scheme. I remember feeling convinced at the end of the post. At the time I decided not only to skip out on buying any bitcoin, but also to more or less write off the frenzy of “innovation” that followed as a dead-end street.
Although of course it would be nice to have bought a few bitcoin in 2009, I think the larger cost is that I’ve spent most of the last decade paying little attention to the technology behind the blockchain, the debates around proof of work vs proof of stake, and what kinds of companies can be built (or rebuilt) by the idea of a distributed trust network.
So I am very much late to this party. But it is clear that bitcoin is not going away, and it is also becoming easier to understand what kinds of use-cases are getting people excited about having a reliable and consistent way to build for distributed trust and distributed finance. For example:
If you start a new company and take investment from angel investors or VCs, it’s very hard to include people who don’t meet the “qualified investor” hurdle of having $1m in liquid assets. But if I raise money using a “token” sale, anyone can buy into those tokens and if they accrue value, they can participate in the growth of the company as well.
Transaction costs are based on the cost of trust. If you read the original bitcoin paper from 2008, it’s right there on page one. If you are an institution that has high transaction costs internally, then you could reduce those costs by moving to a proof-of-stake blockchain. If you’re a big enough company, the savings could be significant.
If the price of Amazon stock is over $3,000, then many people can’t afford to buy into the stock except in convoluted ways. Coinbase is an alternative stock market (although, at the moment, it’s probably a better analogy to call it currency trading) where you can buy fractional amounts of a banner stock, like bitcoin, and participate in the ups and downs along with the wealthy.
It’s probably useful to think of “crypto” as having two sides at the moment: the financial side, and the technology side. These examples are all from the financial side.
The financial side is what gets all of the attention because bitcoin is billed as a currency. But it is probably far more useful to think of bitcoin as a stock for now, because that is how most people are treating it.
The technology side is murkier to me but also very interesting. I have a lot more learning to do here still, but I’m looking forward to it.