October 25, 2021
The similarities between these early days of cryptocurrency and the early years of the internet are staggering. I know because I was there.
Like most of you, I’ve been aware of crypto and blockchain technologies for many years. But as with many new technologies, I typically stay on the sidelines awhile to see what’s really going on, then try to understand as much as I can. 2021 has been that year for me and these incredible technologies. I’ve gone deep into it, its use cases, and the broader market conditions. Similarly, in 1993, I downloaded the first web browser, and within two years, I had started Ciceron. During that two-year period of 1993-95, I immersed myself in the new technology, started an online community, and embedded myself within the burgeoning internet culture. This year has been a pure study hall on cryptocurrencies, blockchains, and their potential impacts on brands, financial systems, entertainment, loyalty, and pretty much anything that involves a transaction of any kind. It’s the economy, stupid.
I’ve emerged from the din of my laptop, having consumed my Gladwellian 10,000 hours of immersion on YouTube, paid Patreon accounts (including my personal favorite, James from InvestAnswers), and sifted through the rubble of speculative madness. And here I am, absolutely certain that these new technologies are ready to pop just like the web did in the mid-90s and, especially, the early 2000s once the dot-com party was over. But this thing is most likely bigger than the internet itself. It will affect everyone in ways we can’t even imagine right now. Traditional power structures are in serious jeopardy.
Now, before you think of me as some sort of newfangled fanboy, I’d like to provide some context around why I’m so “bullish” on this technology.
The Promises of Decentralization
At the core of the most exciting areas of blockchain technology is a promise to decentralize many industries, cutting out middlemen who provide little to no value in endless ecosystems, and create a more level playing field for market participants. This, too, was the early promise of the web: creating a platform that allowed any person or brand to become a publisher of content. Remember, in 1995, this was barely the beginning of ecommerce. Hell, I had to start an ecommerce company, IndiSonic, in 1996 just to prove to my Ciceron clients that people would put and store credit cards online.
Decentralization of the traditional banking industry is where the real war is taking place right now. Crypto pioneers are not fucking around. They’re going right after centralized banks. As you might expect, traditional bankers like Jamie Dimon, CEO of JPMorgan, are calling Bitcoin “worthless” and “pure speculation.” I remember hearing company CEOs of Blockbuster saying the same about Netflix. When Amazon was still just an online bookseller, traditional brick-and-mortar bookstore behemoths like Borders were saying the same. How’d that work out for them?
The current promise of Bitcoin, in particular, is really as a store of value, like digital gold, and not currently as a transactional standard (yet). Yes, it’s true that Bitcoin dumped 50% of its value earlier this year, but it’s nearly back to its all-time high. The real promise of decentralization, on the other hand, doesn’t necessarily derive from Bitcoin but from an entirely new ecosystem of new blockchain protocols like Ethereum and Solana. These are entirely different types of technologies than Bitcoin, with transformational platforms on which entrepreneurial offshoots exist, even though all have their own tradable tokens. There’s an entire ecosystem of interoperability players, like ChainLink and PolkaDOT, to make these various systems talk to one another seamlessly and extremely quickly. This environment is really no different than computer operating systems like MacOS or Windows, where countless other applications and companies live. But we need to remember something important here: These technologies are growing at a faster pace than any other technology in human history, including the internet itself.
DeFi — as the new industry is abbreviated to — protocols like Ethereum and Solana are providing increasingly faster transaction speeds that are totally secure and completely transparent (in a method called smart contracts) because they’re all based on a public ledger rather than the anonymity of cash. Lastly, they’re open 24/7, unlike banks and other financial institutions, making them set up perfectly for global commerce, especially to the millions of “unbanked” people in underdeveloped and developing markets who often experience hyperinflation. Banks can’t or won’t do this. It’s a problem for them. They simply aren’t fast enough for the modern world.
Just like the early days of the web — including the dot com era — people are inventing like crazy on blockchain and crypto tech. In developer communities, the rumor is that this emerging space is essentially consuming the majority of highly skilled engineering talent across the globe. That’s right. The very best developers in the world are working on this technology. They’re sniping for anything that smells like insecure, outdated systems that involve any sort of middlemen (and women) who add little value to the current value chains. They know the tech obliterates these barnacles of capitalism.
You’ll notice I’m not saying anything so far about “shitcoins” like ICP, Doge, or XRP that have no intrinsic value. Those are memes, near scams, or have terrible “tokenomics.” Nope, I’m talking about protocols like VeChain that aim to decentralize and make secure the entire supply chain ecosystem, which we all know took a beating during COVID. I’m talking about technologies like Rally.io or Chiliz, which are squarely looking at the entire entertainment, sports, and music industries as places where artists who create the products receive relatively little in direct financial benefit. These evolving new players’ models flip the entire recording industry on its head.
Many of these technologies are just babies. But don’t ignore the babies. They grow up, too; just ask any parent. The dot coms of the ’90s were often pump-and-dump schemes by VC investors. But many others were launched simply to disrupt the status quo. I don’t think anyone questions the 1990s disruption of Google, Netflix, RealAudio (which essentially spawned the promise of streaming radio), or countless other technologies that today are household necessities.
The Network Effect
Adoption for new tech can happen near instantaneously because the rails on which these protocols run are the internet itself, meaning that there is very little standing between them and the adoption of their users. The speed of adoption, the flow of money into the networks, and the growth curves (as well as downfalls) all happen at hyperspeed. The majority of the world has access to apps through smartphones and internet access. In fact, some of the more promisingly robust tech, like the much-anticipated Cardano, is focusing much of its market building efforts in emerging markets like Africa and Central and South America, where the traditional financing and banking systems are underrepresented but mobile technology is ubiquitous. Perhaps it’s not surprising then that El Salvador is the first country to accept Bitcoin as legal tender. Perhaps this is how the second and third worlds break free.
What’s driving the exponential growth in crypto and blockchain is what’s called the network effect. It has been explained in great detail by people like Raoul Pal. (In fact, I should just pause right now and ask you to invest 90 minutes of your time to watch this video. It pretty much explains in macro terms what’s actually happening in the crypto space.) The network effect essentially says that the interconnected nature of all of us creates opportunities for exponential growth. We add friends and family, they do the same, and the network grows. But the difference between the network effect on Facebook and Bitcoin, for example, is that the beneficiaries of the network effect on Facebook are traditional shareholders, whereas the beneficiaries of Bitcoin are those who hold the assets. This is monumentally different. This is monumentally powerful.
I’m not sure I’m qualified to predict the future with much specificity, but I do know this: The cat is out of the bag. Neither the U.S. government nor the Chinese government or anyone else can shut down the technology. The entire system is decentralized. It’s peer reviewed. It’s totally secure. The crimes that happen using cryptocurrencies pale in comparison to what happens in the world of dollars and FIAT currencies. The development resources pumping into these platforms are unprecedented. And now the money flows! Institutional money, private-family money managers, and other high-net-worth entities are pouring into the marketplace, mostly as a hedge against inflation due to insane money printing by the Fed or simply because we’re moving beyond the pure speculative nature of the early adopters. And the financial upside is potentially parabolic, as the crypto evangelists like to say. Assets like Bitcoin are becoming rarer and rarer — there are and will only ever be 21 million Bitcoins. All that does is drive greater scarcity, which drives up value. That, we know, is a normal economic principle.
A few predictions
Finally, you don’t need to own a whole Bitcoin or a whole bag of crypto assets to participate in this economy. You just need a Coinbase or FTX account and some cash. Just like everything in investing, it’s all up to your own personal risk tolerance. But owning something (and may I suggest Bitcoin?) will give you exposure to the market, help you gain some understanding of the space, and hopefully inspire you to rethink what’s normal and how the future might take hold. That’s what I told all my friends in 1995 when they thought I was crazy starting a digital agency when only 40 million people worldwide were on the internet.
Crazy is happening again, and I strongly encourage you to embrace it.