[Note: below is chapter 9 to Great Chain of Numbers]
Even with some froth that has arisen, greater functionality is coming, with a clear consensus emerging that this technology will reduce friction – and overheads – for business if thoughtfully designed for financial applications. Some platforms may succeed, others may fail – it is entirely possible that the platform which will introduce this technology into the mainstream has not even been coded yet. As Yogi Berra purportedly said, “it’s tough to make predictions, especially about the future.”1 Perhaps these matrices can help, at least for now, to prevent paralysis by analysis:
If you, the reader, are now asking yourself: “which platform is the best?” “Which platform should your team or business adopt and integrate into?” The only honest answer is that no one can say.
The goal in writing this guide is to provide readers an overview look into an often-hyped, but nonetheless dynamic and rapidly-moving area in technology, law, and commerce, and in writing this guide I have tried to be as unbiased and diplomatic as I can, giving equal time to different viewpoints, approaches and platforms. What they all share is enthusiasm, which can be found in abundance on the part of developers, entrepreneurs, investors, and thinkers alike.
My suspicion, on overview, is that as the technology evolves over the next two years, there will be a considerable amount of energy devoted to the sector – though there will not necessarily be a clear set of ‘winners’ and ‘losers’ in terms of platform market share and ledger-rot.
Where existing protocols all pursue ambitious goals, they remain subject to significant – and known – technical limitations and, at least to date, a lack of funding and manpower to address them. Additionally, while it would appear that there is some profitable low-hanging fruit with immediate applications, such as betting and gambling, gearing app development towards these market sectors will involve significant legal overheads and diminishing returns as there are already a number of active participants in this ‘math-tax’ segment.
If the goal of cryptoprotocols is to provide frictionless mechanisms to foster real economic growth, then creating applications that provide genuine increases in productivity to end-users that replace expensive existing infrastructure is likely an area for ripe business development (e.g., if gambling actually created real growth, then Las Vegas and Macau would replace New York City and Shanghai as economic centers for growth). The United States casino industry generates roughly $125 billion in revenue a year, yet most people do not gamble in part to the ‘math-tax.’2 Simultaneously there are more than 1 billion bank-issued cards in the US – most of which are replaced on a semiannual basis.3
How, then, can firms tap into the wider consumer ecosystem – where cryptoprotocols have not yet seen widespread adoption? Some veterans in the sector suggest entrepreneurs who are new to the space initially work on projects that do not have high compliance overheads – such as exchanges or money transmitting business – or to look at different geographical corridors to address the needs of the unbanked and underbanked in the developing world.4 One of the reasons why WordPress began accepting bitcoin, for example, was because not everyone in the world has a Visa card and PayPal blocks user access in over 60 countries; WordPress wants to reach places where these services are not.5 Other experts have suggested keeping the idea and execution simple: before trying to obtain a million customers, try to provide a high-quality service to a few hundred, and learn from the experience.
Alternatively, others suggest focusing on purely commercial applications, in high finance or in business-to-business platforms, due to the complexity of money laundering and consumer protection laws which apply when dealing directly with the general public. Perhaps being a software provider that does not hold the tokens, or exchange tokens for fiat, could be a safe middle ground or creating easier point-of-sale merchant accessibility with QR codes. Or as Sean Percival suggested, redesigning interfaces for consumers so that cryptocurrency becomes more accessible.
There is also a growing impetus to build bridges between existing financial infrastructure and cryptoprotocols. While enormous amounts of capital (human and financial) have been invested in this space, some projects are likely redundant – reinventing the wheel as it were – and others may be based in political, rather than commercial, motivations. Anyone wanting to get involved in his space should therefore ask: what profitable business application can be built on top of these systems? Is building another proof-of-work-based blockchain an effective use of resources or can your team sync your features to an existing ledger? Is it possible to provide new value to larger customer bases without having a Turing-complete protocol? Do you necessarily need to use a decentralized processing framework instead of a distributed or even centralized (in the case of intranets) systems? Can your development team work remotely, reducing overheads, or do they need to be located in a specific office or housing complex? Can formal partnerships with existing market participants be forged to secure more funding and better cater to their needs?
There will likely be $100 million in formal start-up funding this year however even if they can answer all of these question some of these projects may no longer be relevant once they ship code.
Instead of having to stand in one location to call another fixed location – as the landline-era has conditioned us to think of commerce – decentralization brought about by mobile phones enabled users to call and connect with specific individuals from anywhere. Smartphones and tablets subsequently opened up the ability to perform and use productivity apps, empowering new demographics to utilize virtual offices, leapfrogging the need to use traditional brick-and-mortar office parks. Cryptocurrency is similarly disrupting the way we use money and, more generally, asset management. It is one of the few areas over the past twenty years that has not been radically transformed by new digital technology – but this will likely change, as both Naval Ravikant and Eli Dourado recently analogized, Bitcoin is not money – it is the internet of money.6 While there may be banking apps on phones, at the end of the day it is still essentially a virtual bank teller or ATM. On the other hand, Bitcoin and its progeny empower individuals to be their own financial institution – much like how Linux platforms enabled ordinary users to potentially utilize more powerful use-cases than Windows.
The interviewees for this book – and indeed all of us – are participants in an unprecedented, cryptographic, mathematically constrained experiment that is likely to impact nearly every industry. Yet it is clear that decentralization is not necessarily the answer, the silver-bullet or panacea to every economic problem; it is merely a tool, a solution for some things, but not for all, and corporations, organizations, firms and institutions can still benefit from the technology while employing centralized management systems (e.g., IT support). Furthermore, skepticism is warranted for bold claims about specific future events such as the need to reinvent the ledger-based wheel with a flavor of the month. For every project listed here there are two or three more that could have been surveyed and analyzed. As Carl Sagan once said, extraordinary claims require extraordinary evidence. And based on my interactions with the teams detailed above, I believe that many if not all of them are capable of achieving the milestones and goals they have set.
Community views on cryptocurrency’s future are varied and heterogeneous; it seems likely that entry into constructive, and technical, dialogue with global policymakers is a necessary prerequisite of wider adoption for virtual currencies in some countries – but that is a topic for books others will inevitably write. While decentralized apps geared towards illicit markets may be popular and profitable with certain segments and niches, the key to mass adoption will likely be providing real value by addressing real needs (e.g., why would your mother want to use it; why would a bank use it; how do we empower the unbanked?).
Each of these platforms, even the 1.0 generation, has the potential to provide a trustless storage and transportation mechanism for asset management. Yet, despite the hype and promise, it remains nonetheless entirely plausible that the technology may not meet the expectations of its most zealous advocates, and the only decentralized app that is still popular a decade from now is still relegated to the world of peer-to-peer torrents. It is my view that cryptoledgers have the potential to make smart contracts, smart property and trustless asset management a reality for all.
Exciting days lie ahead in the unfolding “mathematical industrial revolution.”
And you can be a part of it.
- The perils of prediction, June 2nd from The Economist [↩]
- Casino Industry Accounts For Significant Slice Of U.S. Economy: Study from The Huffington Post [↩]
- Point-of-Sale Terminals Should Revolutionize Credit Card Payments by Dave Wilkes and Hack-resistant credit cards come at a price from San Francisco Gate [↩]
- As mentioned in Chapter 6, the Philippines is the 3rd largest remittance-receiving country. Nearly 10% of the population works abroad and most of these workers send money home, yet are faced with fees each month. Reducing and eliminating these fees could be a way cryptocurrencies can provide value and increase adoption. See Hong Kong money senders battle for Philippine trade from BBC [↩]
- Pay Another Way: Bitcoin from WordPress [↩]
- See Bitcoin – The Internet of Money by Naval Ravikant and Bitcoin isn’t Money—It’s the Internet of Money by Eli Dourado [↩]