Welcome to the Future State, Get Ready for the Blockchain Revolution.
Lately I’ve been spending a lot of time talking about blockchain, cryptocurrencies, stablecoins, digital assets, and security tokens. It has been fun to speak with Family Offices, financial institutions and at numerous conferences around the world.
I have been talking about why I believe that blockchain will create more value in the next ten years then what was created in the prior 20.
As I meet with LP Investors, family offices, other venture capitalist and industry leaders I cant help but think…
I have seen this movie before….
When I started the first financial service on the internet back in 1993 I met with many leaders in the financial industry.
I recall the day I met with Dan Tully the CEO of Merrill Lynch at their headquarters in Princeton NJ. After a brief demo explaining what the Internet is and how it will change the world, Dan slapped his hand down on a boardroom table big enough for me to land a plane on and said in a loud forceful voice…
“Nobody will ever trade stock on the internet, that I can tell you with 100% certainty ! It’s a fad”
Two weeks later we met with Charles Schwab, David Pottruck and their team giving the same demo, with the meeting ending with David, the President of Charles Schwab, saying:
“Where do I mail the check?”
When a new disruptive technology hits the market it is easy for the incumbent players to be so entrenched in their ways that they can’t even comprehend a new approach to their business, let alone think how that approach will effect their business.
I believe that Blockchain is one of those technologies that will completely disrupt the world
Let’s go back 600 years…
The Medici Bank (Italian: Banco Medici) was a financial institution created by the Medici family in Italy during the 15th century (1397–1494). It was the largest and most respected bank in Europe during its prime. There are some estimates that the Medici family was, for a period of time, the wealthiest family in Europe.
A notable contribution to the profession of banking and accounting pioneered by the Medici Bank was the improvement of the general ledger system through the development of the double entry system of tracking debits and credits or deposits and withdrawals.
Many people throughout Europe would only conduct business in gold florins, the coin of Florence, as it was considered the most stable, dependable and widely spread.
The general ledger revolutionized the world, that at the time was predominantly peer to peer. The Florin, the most TRUSTED and stable currency was the standard.
The Medici Bank (Italian: Banco Medici) was a TRUSTED third party that held the gold and the ledger and made sure the ledger was up to date.
It was a Centralized Institution of TRUST.
The crazy thing is that 600 years later not much has changed. Our Banks are centralized intermediaries that we TRUST to maintain the ledger.
The problem is what happens when you connect a centralized trust intermediary to a decentralized networked world??
The centralized intermediary becomes a “honey pot” for hackers to target. Just look at the number and scale of the hacks (list here) on these institutions that have been in the press lately.
We live in a decentralized world
I started my first company in 1993 during Phase 1 of the Internet. Phase 1 was all about decentralizing content. What is ubiquitous today, the idea that anyone could create a personal home page and publish their content instantly for anyone in the world to see was revolutionary. While I was at Lycos we bought the companies Tripod.com and Angelfire.com allowing millions of people to publish their own personal content. Over the years this has become easier and easier.
Phase 2 was about decentralizing Commerce, suddenly anyone could open an online store and sell direct.
While Phase 3 which decentralized communication and community quickly followed, this VOIP bypassed the large centralized switched telecom networks.
The TRUST CRISIS
Centralized TRUST in a decentralized world has created a trust Crisis. Hacks are prevalent while fake news, fake reviews, fake accounts explode. Do we even know what is real and what is not? It doesn’t take a genius to realized “Houston we have a problem…”
PROBLEM = OPPORTUNITY
The first thing an entrepreneur (and investor) learns is the bigger the problem the bigger the opportunity. I would argue the Trust Crisis is a $700 Trillion problem, yes that’s Trillion with a capital T. (I will discuss that market size later in my next post so stay tuned) but lets discuss the solution first.
Blockchain : The decentralized trust solution for the centralized trust crisis.
Analogous to the way the Banco Medici revolutionized the financial world discussed above, The cryptocurrency system Bitcoin created by Satoshi Nakamoto in 2009 illustrates how blockchain technology can decentralize the last centralized bastion. The bastion of trust.
By decentralizing trust, the middle man is either eliminated and the value moves out to the ends or he is forced to offer higher value services beyond simple transaction processing.
It is exciting to think about the transformations and disruptions that are possible. I personally haven’t felt this excited about opportunities since the early days of the Internet. Where did I leave my check book?? This is going to be exciting.
Welcome to Phase 4: The Decentralized Trust Economy.
Blockchain allows us to finally build an Inter-Trust-Net, or Money over IP.
But… Let’s not forget its early.
In product diffusion theory a new technology isn’t considered to be “lifted-off” until it hits 10% market penetration.