Reactions to “Beyond the Bitcoin Bubble”
DNA’s James Glasscock on the crypto craze, the best way to invest in blockchain, and how a decentralized ecosystem will attack the Facebooks of the world
Is the crypto craze another Tulipmania? What’s the right way to invest in (and develop on) the blockchain? Will decentralized apps be able to take down the Netflix, Facebook, and Ubers of the world? Are most I.C.O.s scams?
Those are all topics discussed in “Beyond the Bitcoin Bubble,” an in-depth look at the blockchain/crypto world that was featured in the NY Times. Below are some reactions to that article from James Glasscock, co-founder of DNA.
After all, Bitcoin and Ether’s runaway valuation looks like a case study in irrational exuberance.
So is the crypto craze another Tulipmania? Well, first off it’s worth noting that the 400 year old Tulipmania has repeatedly been debunked as a myth. But sure, these runaway valuations look irrational when viewed in isolation. At this stage, most projects are 99% marketing-driven and only 1% real-product-driven, similar to the dot com bubble of the late 90s. But although many of those companies crashed and burned, the technology involved created transformational change in the world and many big winners did emerge. The same is true here.
My advice on entering the cryptocurrency market is to avoid a quick win mentality. It’s a dangerous idea to think in timelines that involve months or even a few years. Think bigger picture: 5, 10, and 20 year time horizons. In 10 years, the 2018 market adjustments will be an unnoticeable blip on a chart. Bet on the long-term foundational change happening here instead of trying to win the lottery overnight.
My advice on entering the cryptocurrency market is to avoid a quick win mentality.
Here’s a smarter way to think about it if you are making your first crypto investment:
1) Figure out how much money you can afford to lose. This should be money you will not need in the next 5 years.
2. Open an account on Coinbase or Gemini Exchange (both are easy) and split your investment it across the crypto currencies offered here as these are highly curated platforms. No need for analysis paralysis on which exchange to use or who has the higher/lower fees. Squabbling over a 1, 3, or 5% fee is a waste of time when there are wild swings happening anyway.
3. Sit back, watch, and learn. The law of attraction will start working and you will gradually learn what DLT (Distributed Ledger Technology) is about. Making money is a byproduct of the true value of this elegant technology that will change the world.
I started with a $2k investment (in Q4 of 2013) when Bitcoin was $1k each, right before Mt. Gox, a bitcoin exchange based in Japan, blew up (Q1 2014) and the price dropped to the $200s. Of course I was like, “Damn, this sucks!” But for some reason, I decided to keep buying. Now it feels like 2013 and 2014 are irrelevant. If you think something is a good buy at X, then its an even better buy when it drops to Y.
The same advice is true for people developing with blockchain. Yes, there are charlatans in the space right now. But that will pass over time. Stay focused on building something great. Avoid being intoxicated by price swings. The bubble may burst at some point. When it does, rebuild. People lost huge amounts during the dot com bubble but the infrastructure kept growing and evolving nonetheless. In the long run, huge value was created and there were plenty of big winners. If you were holding Amazon on a 10 or 20 year timeline, you did fine.
The Bitcoin bubble may ultimately turn out to be a distraction from the true significance of the blockchain. The real promise of these new technologies, many of their evangelists believe, lies not in displacing our currencies but in replacing much of what we now think of as the internet, while at the same time returning the online world to a more decentralized and egalitarian system. If you believe the evangelists, the blockchain is the future. But it is also a way of getting back to the internet’s roots.
The way the Bitcoin bubble is driving attention to the space has been incredible. It’s been a huge marketing machine increasing awareness and education around blockchain. The network effects have been astounding.
And yes, blockchain can return the online world to a more decentralized and egalitarian system. No centralized company is going to beat Netflix, Facebook, or Uber at what they do. They are too far ahead of their competitors with great products (well, great enough).
However, decentralized ecosystems can be very powerful when friction is reduced. Open source movements have revolutionized the software world. DLT is an enabler to reduce friction in lots of other businesses.
For example, as good as Facebook is, it has many flaws. It doesn’t really reflect who you are right now. The truth is being controlled by a central entity means being programmed by a central entity. The more we open the system up, the more it becomes equitable and balanced (if designed correctly). DLT is an enabler for smaller open source pods of activity to be connected into one big ecosystem.
DLT is an enabler for smaller open source pods of activity to be connected into one big ecosystem.
If I tell you I like yoga on Facebook, that is different from an ecosystem knowing I did yoga today at 6:32am. If I tell you I am single on Facebook, that is different from an ecosystem which knows I was on a dating app at 7pm yesterday followed by partying at a dance club at 9pm. If I tell you I can’t sleep on Facebook, that’s different than my Apple watch monitoring my sleep habits last night and populating my personal data wallet ecosystem.
No one is going to beat Facebook at what Facebook does. But if users control access to an armada of connected applications in an open source ecosystem, watch out. These applications will tie together to create social and human experiences beyond the computer screen. They’ll know what you need, when you need it.
History has proven when you give people more quality choices, they take advantage of them. 60 years ago, television video was controlled by a handful of broadcasters. Today there are millions of broadcasters. The advent of cable TV’s 500 channel universe and now the YouTube unlimited channel universe are all steps toward decentralization.
Decentralization allows innovation to move faster because more people are working on these problems with fewer barriers. The Ethereum platform is a big enabler for this given its robust developer community. These people are the essential ingredient to envisioning and building things. The greater the volume of building, the more we will see both failures and successes. The Apache internet servers that are the most widely used in the world today were built by decentralized contributors working for free, even though there were many well-financed corporations angling to do the same.
Fred Wilson, a founder of Union Square Ventures and an early advocate of the blockchain revolution, thundered against the spread of I.C.O.s. “I hate it,” Wilson wrote, adding that most I.C.O.s “are scams. And the celebrities and others who promote them on their social-media channels in an effort to enrich themselves are behaving badly and possibly violating securities laws.”
“Scam” is a strong word. That makes it sound like there is an intent to hurt others. I don’t think this is what’s happening in the vast majority of I.C.O.s. I just think there are inexperienced entrepreneurs looking to survive and raise money anyway they can. They believe in what they’re building.
But it’s also true that some of these people do not truly understand the market forces at play, especially given how unproven and new this technology is right now. Heck, blockchain apps are actually slower (today) than many centralized apps. We have a long way to go. My recommendation is to not get caught up in the bubble debate. Start investing and think on a 10-year timeline — and get ready to learn.
