The Evolution of Trust
Blockchain technologies have been around for years now. Bitcoin went up, an exchange valued at 32 billion dollars went down, and most people still can’t grasp the concept.
A couple of years ago cryptocurrencies were used to buy online images where cool monkeys wore hats and smoked cigars. These days, people talk about them in the context of ETFs and regulated wealth management.
Rolling back the years, we recognize the foundations of today’s society deriving heavily from Hobbes’ social contract theory — it’s all about trust! The theory, a response to deteriorating trust in the monarchy, is a popular realisation that society must be able to test its confines to advance.
Fast-forward to the present day, central entities still exist and will likely do so for the foreseeable future, but a lot has changed. For example, the world has advanced in its ability to check trust. Immutable digital ledgers can trace the history of an item to its inception. Not having to take someone’s word, or double-check for proof has created what are known as trustless systems. Seems like a strong use case.
In its first decades, blockchain use cases have often revolved around abstract ideas, and while monkeys may still pop up once in a while, they will not conquer the world. However, blockchains may hold the key to solving a philosophical question that has haunted humanity for generations: Who shall we trust? In other words, is trust in the digital era solely owned by central institutions or are those as manipulative as their alternative? Understanding that truth is subjective, but it is a key driver of the digital economy.
Just like the internet diverted the narrative from the “owner” of information to the reader, there may be another shift. The last 15 years have given blockchain technologies the time and environment to mature, discovering an array of applicabilities to current systems where let’s face it, trust isn’t always implicit.
To create an investment thesis around this space for 2024 we started by identifying particular industries that stand to gain the most from the core tenants of blockchain technologies; traceability, transparency and, you guessed it, trust. 2023 provided investors with a quiet market, allowing for a deeper dive into various investment opportunities; meeting determined founders creating category-defining products is always the best form of due diligence.
Find our key findings in the table below, where the main areas of interest are outlined:
Demand by consumers for real-time payments is one of the biggest trends in Payments. Aided by their programmable nature, blockchain technologies could be a breeding ground for innovators to build payments that fit every consumer’s preferences. Companies like PayPal (PYPL), Square (SQ), and Visa (V) have all launched new products in the last year, discovering new and innovative ways to pay. In the current economic climate, PYPL’s new USD Stablecoin provides dollar access in a world with high inflation and rising interest rates, shielding investors globally from microeconomic volatility.
Cybersecurity and payments are symbiotic. Mastercard’s (MA) product launch of Ciphertrace, an intelligence solution that helps financial institutions safely process cryptocurrency and digital asset transactions, is a living testimony. With traceability at its core, it’s comical how blockchain products aren’t associated with being safe. That needs to change. ~20 billion dollars have been stolen in cryptocurrency due to fraud, hacks, and phishing scams. Safe interaction will be paramount for the adoption of public goods in a blockchain-impacted world. Moneta VC’s strategic location in Israel, home to industry leaders Fireblocks, is also not a bad incentive.
If you’ve made it this far you’re likely expecting a mention of the newly approved spot Bitcoin ETF. Early 2024 saw the first-ever regulated crypto product, promising a major shift in the infrastructure of Wealth Management. With Coinbase (COIN) going public in 2022, and the popularity of Grayscale’s Bitcoin Trust (GBTC), the wealth management industry seems eager for a facelift. Perhaps tokenization will be the technology to deliver it. Take Gen Z investors, with over half expecting to invest in more stock-related investments this year than last year. Compared to 43% of millennials, 19% of Gen Xers, and 9% of baby boomers, it’s clear that younger generations are increasingly interested in markets. Tokenization is simply the next step in further digitizing these, creating increased interconnectivity across more liquid markets.
2024 will be a crucial year for the establishment of digital assets and blockchain technologies as a legitimate industry. As different technologies such as AI evolve, so will the capabilities of blockchain technologies. Hobbes’ theory had a major omission; with trust existing on a sliding scale, there is no framework to quantify a degree of trust — one should just know. Perhaps a feature or perhaps a bug, blockchain technologies could hold the key to solving one of mankind’s core dilemmas.
1 PayPal: USD Stablecoin Product
2 Visa: Stablecoin settlement
3 Mastercard: Ciphertrace
4 Commerzbank: Crypto custody license
5 IBM: Blockchain for Industry
6 JP Morgan: Coin systems
7 Project Guardian: Apollo, JPM, Citi, +
8 Goldman Sachs: GS DAP
