If the first decade of the crypto industry’s life were to be documented, it surely would have been one of the most binge-worthy series ever. Over the past few years, we saw everything — from multi-billion dollar scams and projects promised to be the next big thing that burned down spectacularly to projects creating value within and beyond the niche. In the meantime, the price of one bitcoin has gone all the way from being enough for a pizza to being enough to buy you a brand-new car.
But, at the start of the new decade, we should be looking at more than just numbers. If the industry continues its remarkable progress, it has to start solving real problems and build upon…
What we have today
At the Federal Reserve Bank of Chicago’s 41st Annual Conference in May 2005, Allan Greenspan, Chairman of the FED at the time, didn’t miss the opportunity to reiterate that the US financial system had become more resilient thanks to derivatives. Fast-forward two years and some of these derivatives unleashed the biggest financial crash since the Great Depression.
If anything, today’s financial industry has taught us to be worried when we are told not to.
In the months prior to the crisis, Bill Gross of the bond manager Pimco said we were witnessing the “breakdown of our modern-day banking system.” A system so complex that, just a year before the crisis, Ben Bernanke, Greenspan’s successor, required a refresher course from hedge fund managers on what was going on within the industry he was responsible for.
Despite the hissing sound from the last bubble still echoing in our ears even today, many still don’t get the real reason for the recent crash (those, managing your money included).
The simple truth is that bubbles burst when people stop believing big capital gains are guaranteed. Once and for all, we must accept that the economy can’t continue growing indefinitely.
But bubbles, crashes, and the economic distress, coming as a consequence are in the DNA of the way the economy works, and there is nothing wrong with that. Although we continue to repeat past mistakes and replace bubbles with new ones effortlessly, the truth is recently, we have been putting up with a structural problem that is much more serious.
For the last two decades, the conventional financial system has been destroying rather than creating value. Destruction, driven mainly by what Paul Krugman describes as “an alphabet soup,” or the process of structuring instruments like CDOs, CDSs, SIVs, RMBSs, ABCPs, and more. If the choice of words sounds too harsh, we may say that, instead of creating, at best, we are just shifting value around the system. Alternatively — money going from one pocket to another.
The lack of real product and the continuous downward spiral we are witnessing in the financial industry, alongside the last crisis, undermined the trust in the system. In the end, if AAA-rated instruments, in reality, are junk, then what trust is there to talk about at all?
But in the midst of the Global Financial Crisis, something revolutionary was born. Today, in the face of blockchain technology, we have the first real tool to really turn things around, bring trust back into the financial system, and most importantly — to start creating value.
The blockchain industry — a world of extremes
Although the blockchain niche has the potential to build a more transparent and resilient financial system from scratch, in many aspects, we can say we started on the wrong foot. We brought the old skeletons out of the closet, including Madoff-like Ponzi schemes and purely speculative projects, rather than ones with a real purpose.
However, we also witnessed idealistic concepts and projects with the primary goal to build upon what we have, becoming a reality. They showed the technology’s true potential and hinted what we could achieve with the right efforts.
In a nutshell, for a bit over ten years, we’ve seen it all.
For every OneCoin, there is Ethereum.
For every PlusToken, there is Maker.
For every Coinmarketcap, there is Nomics.
Today, we need more of the latter.
It is natural for every young and uprising industry to experience an influx of the good, the not-so-good, and the bad guys. The good guys care for the things they do and want to help the niche grow (while making money on the side, of course). In contrast, the rest just want to exploit the lack of understanding and the greed of investors, naive enough to think there is a Google or Apple under every rock (i.e., a project’s whitepaper) out there.
If we want to move the industry forward, we need more of the good guys. As the niche matures, people will learn to tame their expectations and avoid falling for every scam out there, but instead of relying on this to happen naturally, we need to further speed-up the process.
In the end, the crypto and blockchain industry was born as an alternative to the conventional financial industry. It was intended to solve its deficiencies, build upon what we had, and even replace it, as many proponents believed.
Although a lot had been made, there is the feeling we could have done better. By better, I mean having concentrated efforts in solving real-life problems.
Over the years, I’ve rejected working with crypto and blockchain projects solely due to their business model. Millions of dollars have been poured into ideas that, with all due respect, are just a bleak effort for someone to call himself an entrepreneur or enhance his LinkedIn.
24-year olds with $3m in funding to develop a browser game — sure, someone somewhere needs that, but don’t we have more glaring problems to solve?
The worst part is funding from that scale doesn’t come only from the average Joe’s determination to find the new Bitcoin, but also from many funds and VCs.
If it was evident to me, a guy without a single day of VC experience, that these projects didn’t have even the slightest chance to create value or survive in the short-term, then why we see millions of dollars poured into them?
The answer is — when there is excess money, we don’t really need value creation.
However, if we need to move forward, this has to stop. Otherwise, we will be talking about blockchain technology as the one that got away.
It is time to get real
The blockchain industry is starting fresh and without the burden of conventional financial system’s deficiencies. It has the opportunity to do things right and fix where what we have in place failed.
It doesn’t even have to do much. With the right efforts and concentrated focus on projects and causes that matter, it will quickly make a mark. Just the threat from the blockchain industry’s existence now serves as a counterweight that brings the self-absorbed financial system back to Earth.
The technology has the potential to level the playing field and boost competitiveness between both industries and the projects within. This will nurture innovativeness and drive, resulting in a healthier and more productive financial system. A system that doesn’t have to be centralized or decentralized. A system that can be both.
An example of a decades-lasting issue that we have continuously failed to address is the high number of unbanked individuals. Today, it is probably the biggest opportunity and problem, at the same time, within the financial world. As of now, the number of unbanked individuals stands at approximately 1.7b, down from 2b in 2014.
The best thing is that the barriers aren’t even so hard to bring down. Over 1.1b of the unbanked currently own a mobile device. The majority also are within countries that don’t struggle to ensure an accessible internet connection. Besides, governments from emerging markets are much more open to disruption and new technologies than strict regulatory frameworks and jurisdictions like the US.
Just solving the issue with the unbanked, for example, will result in an influx of over 1b new users in the blockchain industry. This will immediately cut the barriers to mainstream adoption — proof that big-profit opportunities for the service providers and the mission to solve a real-world problem can co-exist.
“If we solve these large problems of financial inclusion, it will be with new business models, technologies, and innovations.”
Roger Voorhies, The Bill and Melinda Gates Foundation, 2014.
These technologies have long been here, yet we aren’t much closer to financial inclusion. This is not to say we won’t get there, just that we started a bit slowly.
We have identified the areas that need improvement or a total transformation and also have the right tools to make it work. All we need now is concentrated efforts and solutions. Many blockchain projects are starting to address the problem, with solutions already in place in emerging markets countries like the Philipines (Coins.ph) and Tunisia (the national post service provider in collaboration with Monetas and DigitUS). But we can do much more than that.
Blockchain technology is so powerful that it would be a shame not to benefit from it to try solving some of the UN’s SDGs. Financial inclusion, which is a significant enabler for achieving these goals, is way behind the progress we see in other industries.
Despite the financial niche being the birthplace of blockchain technology, projects and organizations in industries and niches like medicine, agriculture, logistics, recycling, environmental governance and climate action, education, and more, are making a much more significant impact.
If we want to make a real impact within the financial industry, we need projects tackling real-life problems, not browser extensions or game interfaces.
So, the financial industry should stop resting on laurels and get to work.
In a nutshell
Blockchain makes things that seemed impossible a generation ago entirely reasonable and achievable today. Despite having arguably the most powerful technology nowadays at its fingertips, the financial industry fails to capitalize on blockchain’s potential and continuously falls for the easy money and funding of useless projects.
If we want to change that, we should set examples and find industry role models capable of moving things further. Unfortunately, in 2020, we are still trapped in the same cycle. Just when we think we have turned a corner and are starting to make real progress, accusations for money laundering, illegal practices, and criminal activities against market leaders like Binance, Bitmex, and Poloniex emerge and bring us back to the drawing board.
To move the industry forward and fulfill the real potential of blockchain technology, the situations that leave us scratching our heads have to stop. Until then, we would have to leave that romantic vision of the new financial industry that we painted in our heads aside and get back into the real world.
The world where the shadows of OneCoin and PlusToken still haunt us.