Admittedly, I have been a bit behind my Silicon Valley colleagues & friends, in terms of ramping up on Blockchain & Crypto-currencies. Being deep in the eCommerce operating trenches, combined with frequent trips to Asia, has pretty much consumed all my bandwidth over last 2 years. However, with developments in the space evolving to levels that can’t be ignored, I finally decided to start researching on it.
Over last 2 months, I have studied all the core white papers (Satoshi et. al.), read numerous blogs by both the bulls and the bears, discussed it with numerous VCs in the valley, listened to many podcasts and seen numerous fireside chats on YouTube. While I got the mechanics of it early on, I have been waiting for my ‘aha moment!’ on it. All gigs throughout my career (IB, VC, tech startups) have pretty much involved ramping up on new sectors/ companies/ investment opportunities extremely fast (ranging from Oil & Gas, med-tech and enterprise s/w to search, eCommerce and logistics) and building an actionable POV. While furiously consuming content around these topics, there is always an ‘aha moment!’ I wait for. That point where I truly ‘GET’ the problem statement & the proposed solution in a very basic, first-principles kind of way. It just goes into my soul and from that point onward, I either become a strong ‘believer’ or ‘non believer’.
My ‘aha moment!’ on Blockchain & Crypto happened yesterday, while I was listening to this beautiful podcast by Andreessen Horowitz. I connected the dots between some of the points made in this piece, and some of my own learning and experiences. The following insights have turned me into a believer in Blockchain (& Crypto):
- Users able to capture value that they helped generate in the first place — In all centralized marketplaces today (social, commerce, ride sharing etc.), it’s users like you and me that generate value for the marketplace (you and I post pics, buy and sell products, hail and give rides etc.). In these so-called “Supply-Demand” systems, you and I bring both supply and demand. However, think about it — do we really capture any economic or monetary value out of this (aside from the emotional utility)? I mean, I have been posting pics and content on Facebook for 10 years; in that period, Facebook has become a $500Bn market cap company. What has been my tangible gain out of it? Zilch! Of course, besides giving a social boost to my ego :). If the same products & systems are built on Blockchain, you and I would be rewarded with economic incentives (tokens, which can be used as so-called “currency”) for participating in them. Essentially, ‘supply-demand marketplaces’ will become ‘P2P networks’. The broker (read — companies that run these marketplaces), who took a fat commission for running the place (read — ad revenue, subscriptions, market cap), gets eliminated. Economic value, instead, accrues to users who are anyway, driving and generating value in the network.
2. Skin-in-the-game — I have been a big fan and follower of Nassim Nicholas Taleb, ever since my Investments prof. handed me a copy of ‘Black Swan’ 10 years back. Just finished reading his new book ‘Skin in the Game’ — this concept has always come naturally to me and something that I feel, is poorly understood in the venture ecosystem (implications for angel/ VC deals, advisory gigs, CEO comps, founder equity dilution etc.). Connecting the dots, decentralized networks create perfect skin-in-the-game’. You participate in the network, contribute value to it, help to keep it going, and for that, you get awarded economic incentives accordingly. In this scenario, you can’t blame a broker/ intermediary/ 3rd party for f**king things up. As Nassim Nicholas Taleb says in the book — “it’s much easier to macro bulls**t than micro bulls**t”.
3. Economically-viable biz models now possible for open source — open source has arguably been one of the biggest movements of human-collaboration and generosity in last 20 years. We wouldn’t know the Internet the way it is today, if it weren’t for OSS. Sadly, due to lack of economic viability of several open source projects, they have been typically run more as ‘academic’ or ‘enthusiast’ projects, rather than commercial ventures that attract the requisite talent and capital (personally for me, the decline of Mozilla has been extremely sad). This all changes via Blockchain-based projects, wherein the participants who contribute and drive the project, get economically rewarded with ‘tokens’. Also, as an investor or even just a supporter of a particular project, you can ‘invest’ in a project alone (no formal ‘company’ incorporation is required) via buying these tokens. The network driving these projects can now potentially raise institutional capital — as the protocols being created by these projects start getting traction, the tokens go up in value. The ability for open source projects to be transformed into commercial ventures that can attract resources, is huge!
4. Reverting to the ‘Tribe’ — human beings are essentially wired to operate in ‘Tribes’. Be it our desire to stay in communities, create social groups or even what we call “herd mentality”, the tribe manifests in all these ideas. At a meta level, I am viewing Blockchain as a tech manifestation of ‘human tribes’ — people getting together to build stuff & deciding how it should work and grow, and using the tribe to drive progress of humanity. It resonates with the basic DNA of humanity!
Is Blockchain the right technology for re-imagining every problem? Definitely not. Will crypto-currencies replace traditional fiat in near future? Probably not. Will Blockchain based systems completely replace traditional enterprise s/w? Looks unlikely, especially given its nascence and untested scalability.
Blockchain, or any technology for that matter, isn’t a silver bullet. But now that my ‘aha moment!’ has happened, I have at least started thinking around Blockchain & Crypto in terms of the “what-ifs?” and “why nots?”.
Closing words — real-life use cases, and not the technology itself, will decide the future of decentralized systems. Remember, use cases always….always win over just a technology!!
Bonus point on investing in crypto-currencies as an asset class — they are volatile, no-one can time them or predict future movements (for that matter, no one can also time the stock market, interest rates, inflation etc.), no one really knows which currency will survive after 10 years (you can see individual market caps to check out relative adoption as of today). Agree with all this, but I really like how Chamath Palihapitiya puts it — the beauty of crypto-currencies is that it’s completely uncorrelated to all other asset classes (like stocks, bonds, real estate, gold etc.). And as any finance guy will tell you, that’s a beautiful hedge to have in life. Just in case the world goes to s**t (the current financial systems almost got wiped out in 2008, and from what I see, the same risk-taking behaviors, derivatives, inflated valuations etc. are still around), even a small, really small allocation of personal networth in crypto-currencies could save the day!
What has been your ‘aha moment!’ on Blockchain & Crypto? Are you a believer, non-believer or ‘on-the-fence’? Do share your thoughts.
Disclaimer: the above views are personal and don’t represent those of any organization I am part of.