Cryptos & Tulips: Why the Analogy Doesn’t Hold
Over the past five years, since I became active in the blockchain and cryptocurrency space, I have seen dozens of people compare the current rise in value in cryptocurrencies to that of a Tulip Mania or Bubble.
I am very much aware of Kindleberger’s theory of Manias, Bubbles, and Panics, and, yet, since the very beginning, as a technologist I could see real value in the distributed ledger technology: wallet, digital asset, ledger, and payment system, all integrated into one convenient technology system! It was sheer genius!
In 2013 I was predicting that blockchain was going to become as important in human history as the steam engine, printing press, or airplane in terms of its economic, social, and political impact.
In 2013 I joined a digital currency incubator when the total space had a market cap of less then $200M. Over the next three years I made personal angel and/or pre-launch and/or pre-Series A investments in Ripple, Counterparty, LibraTax, LedgerX, Protocol Labs, and Ethereum. I have recently completed or I am in the process of completing pre-sale investments in Filecoin, Polkadot, and Mobius.
In 2014 I founded an enterprise blockchain company because I believed in the fundamental and transformative value of distributed ledger technology, and wanted to create a bridge between the world of permissioned networks and public networks.
Along the way, I have run into many people who have tried to discredit the space, some of whom have been very vocal. Gold bug Peter Schiff, journalist Felix Salmon, pundit Paul Krugman, Sen. Chuck Shumer, Sen. Joe Manchin, they all have contributed to the Tulips narrative.
My answer to all of this is: Crypto tokens are not Tulips; Tulips were not technology; Crypto tokens are technology; Cryptos are as fundamental as “paper” itself; Paper could be used to create books, newspapers, marriage certificates, diplomas, paper money, and so on. Similarly, crypto tokens can be used to create currencies, securities, deeds of title, rebates, credits, software usage tokens, loyalty points, or whatever the designer of the technology system who needs a secure system of digital objects, value assignment, and transfer wishes to use them for.
I mean, a tulip bulb — a flower on a stem with petals — how can you compare that to a new technology as fundamental in its use as a sheet of paper? How was a Tulip bulb ever going to do anything other than grow Tulips?
Yes, the Tulips craze was a bubble. It needed to come crashing down. And, yes, everything we learned from Charles Kindleberger still applies.
But, everything that we learned from Clayton Christensen also still applies, and disruptive technology can and does change everything.
And the ultimate “history repeats itself” lesson is the tiny bit of truth gleaned from Karl Marx when I read Das Kapital years ago: technological innovation begets disruption to the economic status quo, which in turn begets political transformation. At Marx’s time it was the steam engine driving changes in the labor markets and the class system. In our time, distributed ledger technologies could have similar far-ranging effects on the equilibrium order of economy, polity, and society.
With DLT, we can do better money, better identity, better property rights, better voting, better finance, better network governance, and so forth. These are the core pillars of our modern Western economy. And we can perform these functions better with crypto, blockchain, and decentralized platforms. Better wins in the end.
At a philosophical level, DLT is a post rule-of-law replacement for instilling trust in human relationships.
A very exciting new class of self-sustaining, autonomous, decentralized protocols with tokenized economies are now being created using the technology. For example, sites like Quora, Medium, Reddit, and Wikipedia could all work better with a tokenized economy to support protocols of content generation, curation, consumption, attention, and ratings. These are just a few examples of how the existing Web 2.0 landscape could be upgraded with tokenized closed-loop economies.
Now, to give credit where credit is due, yes, there is a lot of hype and hubris in the crypto space right now. Probably 90% of ICOs today do not make any sense, and it is simply greedy human beings trying to capitalize on the gold rush era that we are in.
Yes, probably many of the current ICOs will lead to utter failures and total investor loss, which is perhaps where the Tulips bulb analogy is apt more recently in the past few months. However, it would be unwise to throw out the baby with the bathwater — i.e. to say that the entire space is flawed just because there are pump and dumps going on.
The truth is, probably within 10 years many Fortune 5000 companies globally will offer their securities, credits, rebates, coupons, and/or other financial instruments as a crypto token, machine-to-machine commerce will emerge and become a humongous part of the global economy, and many decentralized closed-loop token economies will exist on the Internet supporting protocols that are a permanent and value-added fixture of our economy.
Summary: Crypto Tokens are not Tulips — Crypto Tokens are changing everything! And if you have your head in the sand about this, you could miss out on one of the greatest wealth creation and wealth transfer events in human history.