When I circulate among non-investors in the real world, sometimes I chat them up about cryptocurrency. I do it just to get a reading on where people are at. It’s totally unscientific. Sometimes though, you are what you experience.
It’s a virtue of spending some time in an 1100 person town in far northern Minnesota. Virtually all of them have heard of cryptocurrency, specifically Bitcoin. No one has heard of the other ones for the most part. When it comes to applications, virtually no one has heard of them. But, people might have heard about Coinbase.
For the mainstream, crypto looks like a totally speculative instrument not that different from tulip bulbs.
In the comments section of a prior blog, someone asked me to write about an application for crypto to try and explain it. I will try.
Cryptocurrency isn’t a commodity. It isn’t software. It isn’t a medium of exchange. It is all three. Sometimes in its use it exhibits one characteristic or the other, sometimes two and sometimes all three. Unlike fiat currency, it’s programmable. By the way, we absolutely do not want a digital US dollar for that very reason. Can you imagine the communist that is running the US Office of the Comptroller with digital dollars?
First, understand that the initial internet was built off a base layer of technology. Big companies like Google, Facebook, Amazon etc were built on that layer. You might think of them as very tall independent skyscrapers. When you enter that skyscraper, you can go anywhere you want. You can take the elevator to the top, and you can stop off at various floors and move around. But, you cannot leave that skyscraper with any of your belongings or identity. It’s a fortress.
If you have tried to work with Google, Apple, and Microsoft, you know the difficulty of them. There are workarounds but they are a pain in the butt.
Enter Web 3.0. venture capitalist Fred Wilson said it succinctly in his blog this morning.
Come for the assets, stay for the experience.
People were initially attracted to crypto for money. Greed and speculation brought in the early adopters. Who hasn’t heard a story of a newly minted Bitcoin millionaire?
Great, you missed the boat. People get feelings of envy when they read that. They miss the entire reason cryptocurrency is a powerful technology.
So, where is this powerful tech?
It’s early innings and it is being developed. Let’s talk about one coin called Filecoin. I buy a little Filecoin monthly on Coinbase. I wanted to get out in the open that I own it, and I am long-term bullish Filecoin.
What’s it do?
Filecoin is a decentralized cloud.
Right now, if you are a business that needs to get cloud services who can you go to? Amazon, Microsoft, IBM, Google, SAP, Oracle or Salesforce.
Big corporates.
Guess what happens when you run afoul of big corporates. You lose your data and you lose your permission to use their cloud. See what happened to Parler when they became a threat to Twitter.
Oh, and in this day and age, the cloud companies will use peer pressure to collude.
Enter Filecoin.
It’s not owned by one corporation. Information is not held in one cloud system, but a network of computers. The Filecoin network achieves staggering economies of scale by allowing anyone to participate as a storage provider and compete for your business.
Remember Econ 101? Filecoin enables competition which should drive prices way down for storage.
In current day cloud, you often have to buy a prescribed amount because it’s the corporation that decides, not you, as to how much cloud computing power you need. That can create dead weight loss in your company because you are paying too much. Filecoin allows you to buy what you need, and if you need more buy it. Need to scale down because you don’t need it, scale down! It’s way more efficient.
Now, today Filecoin is a gnat on the arm of the big cloud computing people. But, what happens when we get things like Quantum Computing and it goes mainstream? No doubt, the big corporates will embrace it but companies like Filecoin will too.
That will change the scope of competition.
How do you participate? You can mine Filecoin. That’s a bit more arduous and technical. The other way is just to do what I am doing and buy the token. As the network for Filecoin gets more valuable. the token ought to increase in value too. Be prepared for volatility. Also be prepared for a competitor, or that Filecoin just doesn’t work. It’s like any speculative investment.
I hope that this helps illuminate one application of crypto to my commenter and everyone else. If it doesn’t we will keep trying.
it's nice to see someone from Chicago finance interested in things of this sort. Read your blog while searching for another issue and found my way here. Really nice to see someone from that walk of life adopting "new tech." I'm a CS graduate student at Illinois Institute of Technology studying distributed and low latency computing myself, and its encouraging to see maybe all hope for tech innovation going forward isn't lost.
An interesting thing is, no one who is interested in fair and unbiased social media, especially of mainstream investors and political crowds, is looking into web3 and smart contracts to enforce content being within the parameters for a rule set. For example that posts are auto banned if they do indeed violate Brandenburg vs Ohio's imminent threat test, or violate another US statute else published to permanent storage as a valid transaction. This removes the ability for site owners or community members to remove posts, but it seems to be worth it to guarantee free and legitimate political competition.
The primary issue I see at the moment plaguing all of these defi and decentralized platforms are, is the governance is based on a cheap direct democracy where members put forth a proposal (suppose in defi application add an asset, or in the case of filecoin or arweave remove "unapproved" content) then the voting is based off people have votes proportional to how many coins they own.
The issue with this is, is that similar to direct democracy, you have no preservation of individual rights. As well, no guarantees on users ability to use the platforms as they initially intended because suddenly there is a swell of ideological voting from large stake holders of the platform. Imagine if someone tried to built some communication or records keeping applications using filecoin or arweave and it became popular and helped red america win. Suppose further that in the same way as big tech having a left wing bias, so do the majority stake holders(ownership of greater than 51% of tokens) now they use their voting powers to remove all the content that is at political odds with them.
It shows how early the entire space is, that a primitive form of governance as this is the standard model. I think time needs to be taken to explain to people the problem with the form of protocol governance, and the solution. The solution being some way to encapsulate rights and a written guaranteed constitution of how a protocol is to be governed via smart contracts and automated theorem proving.
The main issue with this is, it might be impossible due to various issues in theoretical computer science. In particular this problem is best posed as: Given a finite list of "rules", first make a representations of the rules with respect to some language(symbol set) and grammar(relationships between symbols) such that the rules are expressible in this language and grammar, second is to construct an algorithm that for a any occurrence in the same scope, it determines if that occurrence is or isn't in violation of the rules.
This should be the ideal mode of p2p/decentralized governance, but it doesn't appear to be the case the space is ready for this if they are still proposing direct democracy via coin holdings. There is also the possibility that it is indeed impossible, due to various issues regarding computation theory.
Food for thought.
Great insights, as usual.
There is no danger to the US having a digital dollar -- USD but in digital form for execution purposes, no bells or whistles -- but allowing the Treasury to decide what the programming is is treacherous.
JLM
www.themusingsofthebigredcar.com