I don't see institutional adoption of crypto happening in any permissionless ecosystem and I don't see permissioned access, with AML/KYC if full effect, happening unless it's regulated and forced upon them. That said, there's massive efficiencies offered in crypto...er...blockchain that will continue to find its way into fintech as well as other areas that require immutable record keeping (health records, voting, education, supply chain, etc).
Crypto needs to pull away from "currency" and perhaps even "crypto". The momo behind CBDC is going to keep a lid any "currency" aspect. CBDC's have way too much weight behind them. Don't throw out blockchain tech with cryptocurrency. They're different animals. You got a blockchain shark being fed off of by cryptocurrency remora.
I would love to see you argue against yourself here Jeffrey. I know you could. And you probably have in the past on this! The debates in our house on crypto are raging at the moment across the generations -- and I'm doing a lot of work on broader Web3 enterprise apps which are getting started (in my day job). It's hard for a 48 year old tech guy to rethink everything about enterprise architecture! Bottom-line is we are DCA-ing into BTC, ETH and Cosmos this year (heavily weighted to the former two).
The argument against me is one @Jeffrey L. Minch points out, "the killer app". There is no killer app. The blockchain stuff I have seen used in practice are really just centralized ledgers. They aren't the "decentralized" ecosystem that you need to make the entire ecosystem validated. By the way, the folks that say "I love blockchain but hate crypto" really just like accounting because there is no difference. Can't have decentralized ecosystem without a cryptotoken attached to it
Some of the folks I'm looking at closely include Centrifuge, Grainchain and Sekai. Provenance is one of the use cases besides payments. In terms of tokenization, cross-border is the only payments element that makes sense now in B2B -- can't get my head around in-country payments benefiting from crypto yet. But there's so much to come here :-)
Cogently argued. The gist of your piece: we have natural sellers but no substantial force of natural buyers. So let's consider potential buyers.
Have you looked into the Lightning Network?
It's being built out as a way to pay for things using BTC. OK, you say, fine. But who is going to buy things using BTC? Can't they just buy using their local currency?
So here is a thought. It might be wrong but worth thinking about. The natural buyers of BTC are people whose local fiat currency is in a pathological state. Not for us "Norte Americanos" but for the people of Lebanon, Venezuela and other dank economic areas.
Are the pathological economies growing in number or decreasing? With the US debt into the $30T space ... with the EU succumbing to the Green Mania ... well, the argument can be made.
With governments using their power to dictate monetary usage (see Canadian Truckers having accounts frozen, see the onrush of Central Bank Digital Currencies) and inevitably using their power to oppress political opposition, a similar consideration to the above comes into play. I still need to think more deeply about it but a recent analogy I heard is interesting. In the 1700s and 1800s many nations had a designated National Religion. If you were born in a place, it determined your spiritual beliefs. Over time, this loosened and few nations require you to observe a One Religion. Could we someday have a neutral money? Is it possible, even desirable, to have money and government severed? Instead of dollars, Euros, rubles, renminbi, lira and on and on, could we eventually transition to money which is not backed up at the point of a gun but is instead autonomous?
Fair. Agree if I lived in Argentina or Venezuela AND NOW BRAZIL the local fiat currency sucks. Current work arounds involve USD. But no killer app yet. Maybe someday. But not today. Not this year.
Canada froze some due to centralized ownership. Some could not be frozen; there is no CEO of bitcoin to arrest.
There are many stories out of Ukraine where fleeing citizens found it safer to "carry" an emergency stash of BTC rather than gold coins or a bag of precious stones.
In Chinese cities people cannot pay for anything without a phone. Stores and buses, etc don't accept cash. Govt control is sweeping ... not all govts are benign.
Great post! I've always been amazed at blockchain technology opportunities & deeply confused about the utility of crypto...you've helped me understand why my confusion made sense.
There are natural buyers for bitcoin in black market transactions and criminal enterprises who need to keep their activity undisclosed to govt (tax) authorities. And that's probably not sufficient demand to sustain a functioning market. Legitimation, e.g., by regulation, as anything other than an underground activity would remove these players.
There are some other buyers that fall in the speculation camp, e.g., gold bugs and alternative asset aficionados who want diversified exposure from fiat currencies--but that demand appears quite small, with myriad "alternatives" currently available.
The purist/idealist view might be that wider use/acceptance (as medium of exchange?) creates its own demand, but that centers on regulation/legitimation, which makes it subject to govt manipulation, and ultimately no different than fiat currency.
There's certainly a safe bet to be made that the security & surveillance state will want to lard over the (bitcoin/crypto) space so as to tax transactions or assets that escape current reporting, among those drug dealers or anyone engaged in "not-approved" activities. "Everything in the State, nothing outside the State, nothing against the State," as Benito Mussolini's formulation becomes one of the most revealing definitions of modern government.
It was my understanding, back in the day, that the killer app for BTC was having the ability to buy your illegal goodies and receive payment for ransomware attacks without a pesky bank knowing what your doing. Except that this is really not the case, as if the feds want to trace you, they can.
Imagine that the FBI is able to track down and seize digital currency of overseas thieves but unable to tell if a laptop full of naked selfies is russian disinformation or not. Arguably the most advanced cyber cops in the world just "couldn't figure it out".
Asset seizure/forfeiture is already abused beyond any legitimacy by govt. And their actions are already blatantly partisan. At this point, there should be no further expansion of govt authorities.
VC's love getting in on the unregulated stuff so they can control who regulates it and eventually they build their competitive advantage by eliminating anything remotely resembling a free market. Step 1: Latch on to promising technology and build out the ecosystem from the bottom. Step 2: Build fortifications (make power regulate it) to prevent the siege of private market participants. Step 3: Lobby politicians to prevent anyone from even looking at your fortifications, leave it to us, we're smart and we know what's up. Step 4: Die.
Actually, everyone needs bitcoin. Reminds me of the pharisees that told Jesus the same, Jesus was nobody from a nowhere, everyone was "speculating" if he was the messiah, everything was pointing to that, but still many had doubts. Bitcoin is in similar situation. The opponents always come with the same argument, "We don't need a "savior" we don't don't need to be made better, we don't you, we fine by ourselves and our stablished institutions" There is no doubt about the correlation with bitcoin and Jesus as they are been seen as an intruder rather than the key to next human evolution. Saying there is no natural market for bitcoin is like saying no one wants to abolish slavery. Speculation will lead many to adopters, there is nothing wrong with that it's only a phase. Staying in that phase is just greed, but there always be some. Bitcoin will either got zero or to trillions, which way you think it's pointing?
Before BTC falls all the way to zero, a low value will create incentives to build markets where people will accept it for goods and services. The reward for accepting it will be the potential increase in value from wider use as a medium of exchange. Someone will have to prime the pump to get that going, but the rewards could be great.
Your statements on the need for a user on the other end of crypto are thought provoking and true. Tokens try to create a faux owner who derives some benefit from the digital ownership of "property" but that is increasingly looking like the Emperor's new britches.
When you have a "high potential" athlete, a good coach can impart a change through coaching and practice. You can't coach crypto.
This is particularly not true with crypto. Since the beginning the constant refrain has been: "What is the bloody killer app?"
The division of the crypto currency/token and the software blockchain is permanent. There is hope for blockchain, but the crypto is slowly winding around the drain for its tenth time and soon it will be sucked into the black hole.
You can get "dividends" from holding the token which would bring a natural buyer, similar to a stock investor looking for return. But, in order for there to be dividends, there has to be revenue and that pesky thing called profit!
Not sure i agree. I believe cryptocurrency/ digital assets are here to stay. Crypto is at approximately 4% adoption rate. And still in its infancy, if you liken it to the internet in the late 80s, the same thing could be said. It took 19 iterations to get to google. I’m surprised at your summation as a fintech guy. I guess anything is possible, but we are on the cusp of a brave new world as true digital finance takes hold.
I don't see institutional adoption of crypto happening in any permissionless ecosystem and I don't see permissioned access, with AML/KYC if full effect, happening unless it's regulated and forced upon them. That said, there's massive efficiencies offered in crypto...er...blockchain that will continue to find its way into fintech as well as other areas that require immutable record keeping (health records, voting, education, supply chain, etc).
Crypto needs to pull away from "currency" and perhaps even "crypto". The momo behind CBDC is going to keep a lid any "currency" aspect. CBDC's have way too much weight behind them. Don't throw out blockchain tech with cryptocurrency. They're different animals. You got a blockchain shark being fed off of by cryptocurrency remora.
Love the analogy of the remora and the shark.
Well played and bravo.
JLM
www.themusingsofthebigredcar.com
I would love to see you argue against yourself here Jeffrey. I know you could. And you probably have in the past on this! The debates in our house on crypto are raging at the moment across the generations -- and I'm doing a lot of work on broader Web3 enterprise apps which are getting started (in my day job). It's hard for a 48 year old tech guy to rethink everything about enterprise architecture! Bottom-line is we are DCA-ing into BTC, ETH and Cosmos this year (heavily weighted to the former two).
The argument against me is one @Jeffrey L. Minch points out, "the killer app". There is no killer app. The blockchain stuff I have seen used in practice are really just centralized ledgers. They aren't the "decentralized" ecosystem that you need to make the entire ecosystem validated. By the way, the folks that say "I love blockchain but hate crypto" really just like accounting because there is no difference. Can't have decentralized ecosystem without a cryptotoken attached to it
Some of the folks I'm looking at closely include Centrifuge, Grainchain and Sekai. Provenance is one of the use cases besides payments. In terms of tokenization, cross-border is the only payments element that makes sense now in B2B -- can't get my head around in-country payments benefiting from crypto yet. But there's so much to come here :-)
Cogently argued. The gist of your piece: we have natural sellers but no substantial force of natural buyers. So let's consider potential buyers.
Have you looked into the Lightning Network?
It's being built out as a way to pay for things using BTC. OK, you say, fine. But who is going to buy things using BTC? Can't they just buy using their local currency?
So here is a thought. It might be wrong but worth thinking about. The natural buyers of BTC are people whose local fiat currency is in a pathological state. Not for us "Norte Americanos" but for the people of Lebanon, Venezuela and other dank economic areas.
Are the pathological economies growing in number or decreasing? With the US debt into the $30T space ... with the EU succumbing to the Green Mania ... well, the argument can be made.
With governments using their power to dictate monetary usage (see Canadian Truckers having accounts frozen, see the onrush of Central Bank Digital Currencies) and inevitably using their power to oppress political opposition, a similar consideration to the above comes into play. I still need to think more deeply about it but a recent analogy I heard is interesting. In the 1700s and 1800s many nations had a designated National Religion. If you were born in a place, it determined your spiritual beliefs. Over time, this loosened and few nations require you to observe a One Religion. Could we someday have a neutral money? Is it possible, even desirable, to have money and government severed? Instead of dollars, Euros, rubles, renminbi, lira and on and on, could we eventually transition to money which is not backed up at the point of a gun but is instead autonomous?
Fair. Agree if I lived in Argentina or Venezuela AND NOW BRAZIL the local fiat currency sucks. Current work arounds involve USD. But no killer app yet. Maybe someday. But not today. Not this year.
BTW didnt Canada freeze the virtual currencies too? They do have power over the internet and fascist Big Tech will kneel to them
Canada froze some due to centralized ownership. Some could not be frozen; there is no CEO of bitcoin to arrest.
There are many stories out of Ukraine where fleeing citizens found it safer to "carry" an emergency stash of BTC rather than gold coins or a bag of precious stones.
In Chinese cities people cannot pay for anything without a phone. Stores and buses, etc don't accept cash. Govt control is sweeping ... not all govts are benign.
Our time may come.
Great post! I've always been amazed at blockchain technology opportunities & deeply confused about the utility of crypto...you've helped me understand why my confusion made sense.
Bitcoin isn't holy. There are no natural buyers. Anyone can live life without it.
There are natural buyers for bitcoin in black market transactions and criminal enterprises who need to keep their activity undisclosed to govt (tax) authorities. And that's probably not sufficient demand to sustain a functioning market. Legitimation, e.g., by regulation, as anything other than an underground activity would remove these players.
There are some other buyers that fall in the speculation camp, e.g., gold bugs and alternative asset aficionados who want diversified exposure from fiat currencies--but that demand appears quite small, with myriad "alternatives" currently available.
The purist/idealist view might be that wider use/acceptance (as medium of exchange?) creates its own demand, but that centers on regulation/legitimation, which makes it subject to govt manipulation, and ultimately no different than fiat currency.
There's certainly a safe bet to be made that the security & surveillance state will want to lard over the (bitcoin/crypto) space so as to tax transactions or assets that escape current reporting, among those drug dealers or anyone engaged in "not-approved" activities. "Everything in the State, nothing outside the State, nothing against the State," as Benito Mussolini's formulation becomes one of the most revealing definitions of modern government.
It was my understanding, back in the day, that the killer app for BTC was having the ability to buy your illegal goodies and receive payment for ransomware attacks without a pesky bank knowing what your doing. Except that this is really not the case, as if the feds want to trace you, they can.
Imagine that the FBI is able to track down and seize digital currency of overseas thieves but unable to tell if a laptop full of naked selfies is russian disinformation or not. Arguably the most advanced cyber cops in the world just "couldn't figure it out".
Asset seizure/forfeiture is already abused beyond any legitimacy by govt. And their actions are already blatantly partisan. At this point, there should be no further expansion of govt authorities.
VC's love getting in on the unregulated stuff so they can control who regulates it and eventually they build their competitive advantage by eliminating anything remotely resembling a free market. Step 1: Latch on to promising technology and build out the ecosystem from the bottom. Step 2: Build fortifications (make power regulate it) to prevent the siege of private market participants. Step 3: Lobby politicians to prevent anyone from even looking at your fortifications, leave it to us, we're smart and we know what's up. Step 4: Die.
It is the age old story of who made more money ? Those who were prospecting for gold in the goldrush? Or the cats who sold them shovels an pans?
Actually, everyone needs bitcoin. Reminds me of the pharisees that told Jesus the same, Jesus was nobody from a nowhere, everyone was "speculating" if he was the messiah, everything was pointing to that, but still many had doubts. Bitcoin is in similar situation. The opponents always come with the same argument, "We don't need a "savior" we don't don't need to be made better, we don't you, we fine by ourselves and our stablished institutions" There is no doubt about the correlation with bitcoin and Jesus as they are been seen as an intruder rather than the key to next human evolution. Saying there is no natural market for bitcoin is like saying no one wants to abolish slavery. Speculation will lead many to adopters, there is nothing wrong with that it's only a phase. Staying in that phase is just greed, but there always be some. Bitcoin will either got zero or to trillions, which way you think it's pointing?
Before BTC falls all the way to zero, a low value will create incentives to build markets where people will accept it for goods and services. The reward for accepting it will be the potential increase in value from wider use as a medium of exchange. Someone will have to prime the pump to get that going, but the rewards could be great.
Your statements on the need for a user on the other end of crypto are thought provoking and true. Tokens try to create a faux owner who derives some benefit from the digital ownership of "property" but that is increasingly looking like the Emperor's new britches.
When you have a "high potential" athlete, a good coach can impart a change through coaching and practice. You can't coach crypto.
This is particularly not true with crypto. Since the beginning the constant refrain has been: "What is the bloody killer app?"
The division of the crypto currency/token and the software blockchain is permanent. There is hope for blockchain, but the crypto is slowly winding around the drain for its tenth time and soon it will be sucked into the black hole.
JLM
www.themusingsofthebigredcar.com
You can get "dividends" from holding the token which would bring a natural buyer, similar to a stock investor looking for return. But, in order for there to be dividends, there has to be revenue and that pesky thing called profit!
Not sure i agree. I believe cryptocurrency/ digital assets are here to stay. Crypto is at approximately 4% adoption rate. And still in its infancy, if you liken it to the internet in the late 80s, the same thing could be said. It took 19 iterations to get to google. I’m surprised at your summation as a fintech guy. I guess anything is possible, but we are on the cusp of a brave new world as true digital finance takes hold.
Who is adopting?
Retail for sure. And BlackRock is going knee deep. That’s adoption to me.
Where retail? I can't go to WalMart and spend Bitcoin? Who cares about BlackRock and Fidelity. They could sell as fast as they could buy.
Don't get me wrong. I see a big future---> but no one has built anything yet
Visa and Mastercard are getting into the game. BlackRock is investing in not buying coins. Infrastructure will grow.
Again, no one has built one thing that any consumer, or business can use everyday. Until, it's hope and change and about as good as an Obama policy.
Buy the strangles