Avoiding Dystopia and Messari’s Secret, Optimistic Plan

If you’ve followed me for any length of time, you probably know I’ve grown highly disillusioned with the current state of affairs in crypto.

I thought I would enjoy the moon, but like many of the other saner people in the industry, I instead wake up most days look at the euphoria (and OnChainFx) and simply think: “this doesn’t end well.”

So you might be surprised to learn that — scoreboard watching aside — this is the most bullish I have ever been on the long-term health and potential of the industry.

In the past week, we saw the soft launch of Lightning, which could transform bitcoin transactions from packets to circuits and truly lead to the development of a crypto-currency TCP/IP equivalent; we read the news of the integration between Ledger and RadarRelay, which is a bleeding edge application that could facilitate truly private, peer-to-peer asset exchange; and we learned a bit more about the potential for token-curated registries, something we’re extremely excited about for Messari.

There are multiple paths we can take to build a better, fairer, and more transparent financial system, and I spend a lot of time wondering which path we’ll ultimately take.

This weekend, I let stream of conscious take over in a series of somewhat dystopian, but intentionally provocative tweets. Many asked me to repost in a Medium article for easier sharing, so here they are:

0/ At scale, the only way to tax crypto will be at the miner level. That’s how BTC, ETH or the dominant cryptocurrency will become a true global reserve.

1/ Soon, possibly as soon as 2018, crypto holders will have a choice between two major risks wrt government oversight: a) disclose all holdings and have them subject to seizure, or b) evade taxes and move to the shadow financial system.

2/ It starts small. You as a BTC holder move 1–2 BTC in an off-the-grid wallet backed up in a hardware wallet, or split between family members, or simply a seed in your head. This will never get reported. Even if you were apprehended, you could say you lost the keys. Sorry.

3/ Those assets over time, with privacy enhancements and improved liquidity in the crypto-only economy, become impossible to trace. They are essentially tied to your unseizable identity. You’ll pay for things with that currency without a trace.

4/ Paying with that currency privately at a restaurant for instance will be no different from going to a friend’s house for dinner. No money will appear to change hands. The debits and credits will happen completely privately. Unless your host must KYC every one of its patrons.

5/ This seems like a dystopian future, but it’s one that largely already exists with wechat in China and the credit card driven and increasingly cashless western economies. So where do you go to avoid this oversight?

6/ There will probably be two options. Join an underground economy where you live currently. Or move to a new crypto-friendly country.

7/ The former doesn’t seem tenable. You would be relying on conducting your entire economic life in the equivalent of speakeasies. You can’t serve private customers and report taxes in the future economy. Again, you have to choose: on or off the grid.

8/ So you get to the point where crypto tribes do ultimately move en masse. Slowly at first and then rather quickly. Crypto “citadels” umm…actually become a thing. Smaller and intrepid emerging economies hang up a welcome sign for sovereign individuals.

9/ These countries could get ostracized at first in global trade, but they will be wealthy. Very wealthy. So they will always have trading partners even if China and the US don’t like it. And indeed! At scale, these massive macro payments can be made in private as well!

10/ Around the same time, global asset bubbles begin to collapse. The disintegration of the dollar as reserve causes a global financial panic. The crypto-friendly countries become the leaders of the free world, redistributing aid like the US once did to war-torn countries.

11/ ahhh, but who pays for the aid? Who pays for social services? How does taxation work in this completely private galt’s gulch type of economy? At that point, it might be the only place you can actually trace crypto activity. The energy intensive miners.

12/ If crypto becomes a) liquid, b) truly private, c) scalable, d) widely self-custodied, e) tradeable primarily on decentralized exchanges, only way to tax it will be at the source of new currency issuance: energy intensive PoW miners or via “inflation treaty” in a PoS system.

13/ This is why I think we’ve reached the tipping point in crypto already. The final boss to beat is the incumbent financial system and national authorities. Banning crypto is a real — and I’d argue smart — option for banks and governments.

14/ If I were to guess how this plays out, I think we’ll see a continued frenzy in 2018–2020, followed by chaos. Bans + hunting down tax evaders + crypto crash and/or global recession + physical relocations of holders.

15/ This is not just a disruptive technology, but an economic movement that — coupled with the rise of nationalism, massive job displacement due to tech, and frustration with big brother oversight — will ultimately lead to wide scale economic and political disruption.

16/ Like people working on AI and gene editing, it’s on the innovators to think about the long-term ramifications of this tech and design the foundation of the crypto economy appropriately.

17/17/ We like to play the role of the good guys and the cowboys and the people who will change the world for the better, and I hope that plays out. “However, I have seen how it ends.” https://www.reddit.com/r/Bitcoin/comments/1lfobc/i_am_a_timetraveler_from_the_future_here_to_beg/

Pretty f*cking dark, right?

It doesn’t have to be this way, and I think there are ways to avoid re-centralization of power and wealth, while still building a new aspirational, freer, and more decentralized world that most of us want to help come to fruition.

I’ve written about the “why” behind Messari here and here, and encourage you to check out the great fireside chat I had with William Mougayar at Token Summit to learn more.

But the related question to “why Messari?” is “why you, TBI?” How does this new project help the industry develop and evolve in a positive direction, and why do I give a shit?

To understand that, you have to know three of my core theses about this industry and its future. I don’t need you to agree with them, but grokking them will help you understand where I’m coming from.

1) The future economy will be radically decentralized. Money and state will be separated. Financial institutions will be among the earliest to be dis-intermediated. And over time, we’ll come to find the very concept of the firm antiquated. Instead, the economy will rely on a series of interconnected markets where qualified individuals volunteer for work vs. remain beholden to any given company.

2) That will be highly disruptive and could cause massive economic and political dislocations, so it’s actually pretty scary. The rate of change will usually outpace workers abilities to retrain themselves for new work.

3) The best path forward will be one that sends incumbent financial institutions and governments to hospice vs. one that shoots them in the face or stabs them in the back. The alternatives are tantamount to either bringing a knife to a gun fight with huge adversarial powers or watching the industry devolve into some form of the dystopia I tweeted out.

Conclusion: If we know the future is going to be radically decentralized and that will be really scary to wealthy and extremely powerful incumbents (that can literally kidnap and kill you), then the smartest thing we can do is a) educate and disarm those that could do the crypto economy harm, and b) do the work to build the foundation of this new economy responsibly.

Given my background and reputation (for better and for worse), that leads to a pretty clear set of problems I can help solve: aggregate clear-headed thinking on the current crypto economy (I already try to do that); drive data and reporting standards that reduce the opacity of these markets for all stakeholders (we’re starting to do that now, and this requires a deep network and history of herding cats — a la event planning); and finally, build the tools that help crypto information move as quickly as tokens themselves.

With no enforcement mechanisms other than social pressure and a reliance on good citizenship, we need to get projects, exchanges, and investors to volunteer a sizable chunk of their private information to help improve the integrity of the crypto markets.

Piece of cake.

Here’s how we plan to attack the opportunity and do our part to shoulder the responsibility for building a responsible foundation for the crypto-economy.

1) Build a small army of volunteer analysts that will aggregate, synthesize, and verify data and information on the universe of cryptoassets. Project 101 info; news feeds that elevate the very best and most informed analyst commentary on a given project; supply, pricing, and blockchain data; basically anything of value that can be easily contributed and verified, and that could have a material impact on an individual’s or firm’s decision to contribute to a cryptoasset project, whether as an investor, developer, or user.

These are volunteers who will help us do most of the work, and as such, we can only expect good people to contribute if the information that is aggregated will be free as well. We want Bloomberg, the New York Times, CoinDesk and anyone else that needs consistent cryptoasset info to scrape this database liberally for their own purposes.

That’s the whole point. Standardize information across the asset class and create a single source of truth.

We’ve already have 50 applicants to join our initial volunteer core. I hope we get hundreds more, and that we find the right research coordinators who can manage the incoming chaos. The product deliverable for quite a long time will be: am I satisfied that this is the best and most comprehensive list of resources that help me personally navigate the ecosystem?

If not, we need to do better.

And spoiler alert, I’m a complete dick when it comes to synthesizing information and making it more digestible to a broad audience.

Success will not happen overnight, and I’ll probably never be happy. But we will try to get as close as possible, and in the process, I hope we’ll help every reporter, investor, and developer separate the signals from the noise.

2) #1 is no small task, but it still only gets us to first base.

There’s a really good post that we liked about the hierarchy of data crappiness. You should read it.

Basically, there’s widely available public data (e.g. the SEC’s EDGAR database…it’s all free). There’s scrubbed public data (great scrubbing services make good money like Bloomberg and Thomson Reuters, but there’s nothing revolutionary about what they are doing…merely a UX upgrade). There’s user-contributed data (somewhat valuable like AngelList, but you have completion and staleness issues). And finally there’s exclusive user-contributed content (like CrunchBase and CB Insights, which get proprietary feedback directly from the sources themselves).

At the end of the day, though, almost every data service in the world is a big pile of bear sh*t.

The very best, the creme de la creme, are more like bear sh*t under a pine tree. You can enjoy them at a high level, but if you bend down to the most granular levels, you’re still going to get a nostril full of crap.

Building a high quality data service — free or paid — in crypto is probably next to impossible given lack of an SEC-like entity and the pace of innovation.

Unless you can get all the investors, projects, and exchanges to buy-in to what you are doing. That requires you to be pretty mission-driven, a little masochistic, and 100% willing to offer carrots and mercilessly beat people with sticks until they give you what you want.

In Messari’s case, you can think about all of our research volunteers and token investor, exchange, and advisory partners as the stakeholders that help us bring our crappiness level down to 30%. Pretty good for this industry.

And if we can build this “aura of inevitability” for the project on a global scale, I think we’ll get enough project buy-in to bring the crappiness level down to 10%. But this assumes we make it stupid simple for project leads to update the equivalent of a crypto S-1 / 10-k on a regular basis.

The projects themselves are ultimately our “customers”, and if we build them the tools that help eliminate regulatory, community development, or other operational pain points, we’ll be in great shape, and the Messari database will be more robust, usable, and relevant than anything the SEC or their international counterparts could mandate from on high.

Notice, I did not say that these regulators are a Messari customer or even a stakeholder.

They are not.

Instead, we plan to start by aggregating basic data and pushing common sense disclosures that make sense according to the spirit of existing laws and regulations across the globe and that are relevant and easy for a crypto project to adopt. We will not be beholden to bodies that move slowly, unpredictably, and with potentially misaligned incentives vs. our own and the industry’s.

At this point a lot of things will have gone right for us. We’ll have built a killer team and community, we’ll have pulled off the Triple Lindy of convincing people Messari has in fact built the industry’s data layer, actually have built a usable UX for our basic API library and promoted open-source contributions, and educated the authorities and regulators without being coopted by them.

But all that will probably still not be good enough to solve all of the ecosystem’s opacity issues. When money in crypto moves as fast as it does and with fewer and fewer trusted third-parties to regulate, the potential for abuses will be many.

Insider trading, pump and dumps, tax evasion, and all other sorts of illegal or unethical activity will continue to be possible in the Wild West, and it will get more sophisticated and easier to pull off.

3) The final stage in getting (progressively closer) to 0% data crappiness lies in encoding certain reporting and self-regulation directly into the underlying system architecture itself. Imagine software that reports — in real-time — protocol changes, insider sales, “network financials”, exchange activity, and other key information.

I would argue that such software will be more likely to be successfully designed, proposed and implemented from an industry-trusted standards body and its community, than it would be from a stodgy old regulator.

I’m also fairly confident many top crypto protocols will simply continue to route around regulators forever, and instead (as is the case today) it will be much easier to regulate any centralized participants.

What happens, though, when more actors are truly autonomous and “unregulatable”?

Hopefully, the good ones tap into libraries of formally verified, self-regulatory smart contracts. And the broader ecosystem of self-interested economic actors will only work with organizations — autonomous or otherwise — that have adopted certain standards.

At that point, I think — if we’ve collectively done our jobs right — the incumbent powers that be will be eager to get behind self-regulatory developers’ products like best-in-class compliance and tax software rather than continue to play a losing game of increasingly difficult (or even impossible) cat and mouse.

With the proper network effects, design choices, and resources, I hope Messari will be the entity that helps the industry self-regulate through transparency, synthesize critical project information, and move the industry towards a “can’t be evil” future.

If not, I’ll see you at the citadel.

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Want to help the cause?

We’re recruiting data engineers, full-stack developers, front-end / product / designer devs, and, of course, volunteer analysts. Email me your resume at ryan@messari.io if you’re interested in joining!