Cryptocurrencies — a bubble or real dream come true for humanity ?
Everyone says we are sitting in the 1993 of internet and a new world is going to emerge out of block chain. This time, only it is going to be much faster, and even bigger for the masses and worth $300 trillion. It’s like how all technology adoption curves are getting compressed due to the connectedness of the world with smartphones and internet. So, what is the good part about block chain? hmm lets see..
The first core invention is the immutable public notary — that gets replicated across the globe and therefore tamper proof over time. So, think of it as a one immutable big rock you can write on and stays there for the end of humanity that can be electronically signed by you. Once written you cant delete it unlike your FB status or a tweet.
The second innovation is using it as a ledger — to keep track of transactions. For example putting an asset in someones name and then tracking if he later transferred it and tracking who finally owns it. Think of it as a registry owned and controlled by no one. It can not be manipulated. It can store any asset or even used to track personal wallets.
The third innovation is the smart contracts — it was probably invented to make the ledger balancing faster. Earlier it would take an enormous amount of effort and time to calculate a balance of a ledger or a wallet by looking at the transaction history. By adding a code on to the ledger enabled it to have checks and balances. It made the ledger much smarter. Think of it like a infinitely trusted accountant under no ones control. (Yeah! its true :)
The fourth innovation is crypto-currencies — now think of this as a laboratory for economics. We have equipments like exchanges, wallets, investors, markets and governments. You can run your own cryptonomic experiments and to create social benefits and measure them by your currencies market cap.
A new business model is born — where there is no equity or dividends as such. You can create these algorithms for everyone to participate and help create these self balancing transparent mini-economies (called a protocol). Everyone is paid by loyalty coins that are tradable in exchanges. So think of it as an excel model which has zero profit in the end. The supply side scales automatically with demand using the same amount of coins and thus a scarcity of coins drives the price up. Think of it as the acting middleman or trader who has a unlimited supply side and a consumer side with a total profit maximisation algorithm. The profits are then programatically or democratically reinvested or burnt to maximise the coin price. There is no dividend.
Whats the benefit ?
Trusted marketplace — The protocol is transparent, fair, non-discriminatory and decentralized. (That itself is a topic of a different post).
Lower taxes — No income tax, or corporate tax. And, there is no personal or dividend tax just capital gains and that too only on the portion you take out. That is just legally perfect !! Huh! (That again is another topic on it own)
Shared Economies of Scale — the network’s protocol delivers the quality. Therefore everyone enjoys the common branding and reduced cost of shared pool of services. Think of it as an automated Mcdonald’s franchise run by a parliament made of its shareholders.
Maximum Social Impact — the network although is geared to maximize the price of the coin, ends up attracting unlimited capital from the get go till the supply meets the demand and eventually monopolizing the market in the most efficient manner.
Competing protocols — The elasticity of supply chain and investment is unlimited and can easily alternate between protocols. The protocols having the greatest demand will also have the greatest supply. This would eventually lead to multiple products positioned based on brands delivered by protocols and self adjusting supply chain.
Initial Investor Liquidity — Since a protocol requires that all goods or services be sold in its own coin there is a liquid market for the coin which otherwise would not have existed for the coin. Further all trades are transparent and with a live deficit or surplus that do not need accounting or quarterly reporting.
I think its way more than new business models and protocols..
You must have played the game of Monopoly where eventually one players ends up owning all the hotels and the game ends? We have a similar problem in our world and hence “Occupy Wall Street” movement was born in 2011. With the whole automation and globalisation the income inequality is rising.
To me it just seems that we have many things that need a new operating model for example —
- We have hardly any incentive to reduce wastage and pollution.
- How do we simplify and legislate faster ?
- Its more profitable to provide palliative care than eradicate diseases.
- Why getting justice is still so expensive ?
- How do we stop cruelty on animals ?
- Can we incentivise to build things that last a life time ? vs sell a shaving blade every week.
- Can we price out fake news ? or fake medicines ? fake goods ?
- How do we stamp out dictatorships ? without using force.
- Why does wealth really not represent true happiness ?
So, the beauty of cryptonomics lies beyond new business models in realm of the unknown. For the first time in human history we will have access to programatic economies. We can code human behaviours directly using loyalty points or crypto currencies. We can generate trust worthy data onto a transparent common ledger, drive long term behaviour through smart-contracts without the cost of monitoring and compliance.
For example: you could build in disposal tax into hazardous material at the point of production and auto credit the disposal entity per item without the governance cost by adding a smart contract built on to every product unit with a guid on public ledger.
Or one could add the cost of prescribing antibiotics at the manufacturing and claim it back based on a lower regional consumption otherwise redirect it to research pool.
We are probably entering into an era of dynamic taxation and incentives that reduce the cost on environment or bad behaviour from the economic system.
The big question is how do we fund the best people into politics and quickly price out the rest ? Can we measure social impact instead of relying on the patent system or corporate balance sheets ?
The next human era is perhaps waiting to be unfolded. We may be entering to an era of programatic economies that drive social behaviors. Soon, new forms of democracies will be born with least amount of social-economic friction.
When you drive social impact
- with algorithms and rules
- using market forces
- not for profit
- but the value of transactions it generates
- without any taxes or capital
then you are a legislator.
The real disruption is perhaps already started!
We have developed a market that starts pricing the legislation written by technogeeks and cryptonomists without the need for giving them blanket power of politics. ICOs are the fastest growing market in the world. Is this a disruption of centralised power for a better world ? if the Crypto-currencies are the new central banks then tech-founders the new legislators ?
When money itself can be programmed by a student living in a dorm room and automatically starts appreciating in value not because of the profit but for the core value proposition. The humanity’s dream has already come true..
Its perhaps a disruption worth $300 trillion and nothing even close to what we have seen in last 200 years! Stay tuned..