Bitcoin and Ethereum represent a fundamental transformation of one of the oldest technologies we have... Money
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Underrated & Undervalued
Bitcoin is a Fundamental Breakthrough in Computer Science First uncopyable digital asset. Solved the Byzantine Generals problem.
Bitcoin is a Fundamental Breakthrough in Accounting Triple-entry accounting.
Bitcoin is a Fundamental Breakthrough in Money Allows value to be transferred instantly, globally, trust-lessly.
Another little known fact is that bitcoin is the best-performing asset year to date (2020), in 2019, and for the past 3, 5, and 10 years. Keep in mind, all this was achieved during the largest and longest bull market in stocks EVER. How? Fundamentals! Why will this continue? Fundamentals!
Some like to say crypto is just a fad. Nothing more than tulips, beanie babies, or pogs. None of which lasted longer than a few years or outperformed the stock market, let alone the top stock (Netflix) over an entire decade. Comparing those things to Bitcoin shows lack of intelligence or worse, intellectual dishonesty. Tulips, beanie babies, and pogs weren't a fundamental breakthrough in anything of value.
When humans invented double-entry accounting hundreds of years ago, the world took off. It gave us banking, corporations, and markets, which laid the foundation for the industrial revolutions that gave us modern society. Do you really think the advent of triple-entry is going to be a bust?
Couple that fundamental with the others above and it's not hard to see why this is a technology that is not going away. It will generate shifts in nearly every industry because it allows us to make more things digital.
A famous investor/early internet pioneer once said, "software is eating the world." Indeed, the software version of lodging (Airbnb) has disrupted that industry. The software version of Taxi (Uber), disrupted. The software version of payments (Paypal, Venmo, etc.), shopping (Amazon), markets (eBay), the list goes on.
These things have fundamentally changed us. Don't believe me? We were always told never to talk to strangers, now we get in their cars freely or stay in their houses. More things will become digitized because digital = increased efficiency + reduced cost, this trend is not changing.
These are the early days, most don’t understand how profound borderless trustless programmable money is, or what it can spawn. Subscribe for updates and be one of the few that do.
Blockchain Not Bitcoin
Recently, popular thought-leaders who love to impress upon the world their shallow views are trying to make the saying "blockchain not bitcoin” popular. Implying the blockchain is the real innovation, not the currency/coin built-in — no need for the bitcoins or Ether (Ethereum's currency).
I cannot stress this enough, you cannot have a blockchain without the currency! It would just be a database. We have plenty of those, controlled by Amazon, Google, Facebook, et al. These are the centralized, trusted (for the time being) gatekeepers of our data.
Blockchains in their current form are not faster, more efficient, or cheaper than the databases we have now. So how have they become so popular?
Trust-less ~ don't need to trust anyone on the other side of the transaction (b/c of fraud), and when the transaction verifies you can trust it to be counted/authentic.
Permission-less ~ anyone anywhere can interact however they want with the chain (database) and those using it.
The currency is what incentivizes the use, growth, and security of the world's first and only true open ledgers/databases. In other words, you can’t get the qualities and benefits of a blockchain without the currency (incentive layer) on top. The qualities and benefits are the fundamental transformations of society. Because of the features and incentives, Bitcoin may be the best money humans have ever had.
There are nearly 180 currencies in the world, but only two that are borderless and permissionless. These 180 currencies require trust and control by central banks and governments, but only two controlled by math. Math can’t lie, cheat or steal, unlike banks and governments.
Currency and payments are the fundamental infrastructures that will enable further adoption of real blockchains, but this is about more than money in the long run. The vision of blockchain tech goes far beyond money, but you can't create that unless you first build the money part.
Into The Ether
The Internet Connected The World Socially
Blockchains Connect The World Economically
While Bitcoin spawned digital gold or currency of the internet, blockchains will also birth a new internet, Web 3.0. One where you control your data AND YOU GET PAID for it. One with real online privacy, no borders, and no censorship.
“Web 1.0's architects imagined a distributed system of computers communicating with each other directly, each user owning a bit of responsibility for maintaining their contribution to the network.
Today's Web 2.0 has cast off these original ideals and relies on large corporations to store and distribute information. Over time, these giants amassed huge stores of data on every one of us. This information can predict our probability to purchase an item or take an action – like voting for one candidate over another. But this data also suggests ways we can be manipulated to take actions that might go against our better judgment (like a product you want but don't need magically following you around the web for weeks). These concentrated forces have turned the user into the product driving revenue by selling our data or offering advertising that is targeted to influence.
A new wave of networking technologies (Web 3.0) promises to return the internet to the hands of users. This movement utilizes advances in peer-to-peer (p2p) technology like blockchains to build services that protect users over profits. Its decentralized, p2p nature provides a hard technological cap to the possible accumulation of power and data in the hands of monopolists. This is about architecting a web that protects individual property and privacy through a range of p2p technologies." - Forbes
Keep in mind; the entire crypto-space is nothing more than open-source, customizable software/protocols. Open source means the code is freely available to be modified. It's one of the things that give Bitcoin and Ethereum their trustworthiness. We can see the code and verify it.
It also allows anyone in the world who understands these systems to customize their own or create new and novel ideas to build on top. If these ideas have merit, they or someone will develop it. Remember, the internet itself is just open-source software/protocols.
During the birth of the internet, no one had the hardware to run the software the few (mostly in America) were building in their basements or tiny govt agencies. Not to mention, the populace had no idea how to use computer hardware or software yet. The hardware existed, sure, it just wasn't ubiquitous yet.
Twenty-five years ago, the vast majority of people didn't have a computer in their homes. Now, nearly every American has a computer in their pocket.
Couple that with 1000x more developers and engineers (spread across the globe) than the early internet days, and a userbase now familiar with computers and digitized products/services, and I believe innovation on the blockchain will progress much quicker. Remember, the World Wide Web started in 1989, but most of it’s protocols (TCP/IP) date back to the 70's.
Bitcoins and Ether are programmable money. When you have programmable money, the possibilities are truly endless. You can take many of the concepts of the current system that depend on legal contracts, and convert these into algorithmic contracts.
Enter money Legos...
DeFi is money Legos, where people can essentially connect and build their finances, just like Legos! People are coming up with some amazing ideas. Ethereum is the main driver for DeFi with the most Dapps (decentralized applications) and money locked up inside these protocols (recently surpassed $1billion total locked up in trust-less finance).
Since these are applications built on a blockchain, they can be combined, modified, automated, or integrated according to user needs in a completely transparent way.
Again, the fact that all protocols are open-source allows anyone to build new financial products on top of them. Developers across the globe can collaborate to create new products leading to faster innovation.
One of the main reasons crypto prices went soaring in 2017 was due to the first successful DeFi application called an ICO. Initial Coin Offering is the same thing as Initial Public Offering in the stock markets, minus the regs, compliance, and laws.
Anyone could spin up a token on top of Ethereum and sell it to the crowds promising a better network, tech, or returns. If you bought the token, you had a token to an unproven network, unlike IPO's, where you get an ownership stake of an established company.
Not surprising that most of these ICO were wide-eyed dreams that failed or outright scams. Nevertheless, it was an actual use case--raising money. (Side note: there are now many coins due to this ICO phenomenon, if investing in altcoins it is wise to treat it as a VC does a start-up portfolio and understand most will fail. Never invest more than you can afford to lose, in any asset.)
Just like a bank, users deposit their money into a Dapp. When someone else borrows the digital assets, they earn interest. They are also able to cash out and take their funds whenever, unlike traditional finance. However, instead of intermediaries, smart contracts dictate the loan terms, connect lenders and borrowers, and are in charge of distributing interest. Due to the inherent transparency of the blockchain, with no middleman, the lender earns higher returns.
Currently, a traditional interest-bearing account will get you 0.25 - 1.5% APR. In Defi, it has been 6-8%. That is an astonishing 6x increase in returns. Why would people park their money in a traditional savings account when this is available from your phone, with docs and identity completely unnecessary to set up an account.
The advantages over traditional lending are significant. Immediate settlement of transactions. Interoperability which reduces costs with automation. No credit checks mean access to people that can't tap into traditional services. Now imagine your digital wallet (similar to an email address) automatically goes out and finds you the best returns while you’re sleeping. That is a money Lego.
You’ve heard of streaming video on the internet, now a brand new payment protocol built on Ethereum allows anyone to send continuously streamed payments around the world. This means no more waiting weeks to get a paycheck but your salary earned in real-time to your wallet as you work. This is real-time finance, streaming money. Huge for consultants or freelancers who have to trust someone they don’t know.
“If real-time finance ever becomes a thing, job interviews may not be required anymore. Employers cut to the chase and stream money to several candidates in parallel. Highly efficient filtering w/ little to no downside. Applicants schedule streams for different jobs in a row.“ - Paul, Streamer of Money
Non-fungible tokens (NFTs) are unique, digital items with blockchain-managed ownership. Examples include collectibles, game items, digital art, event tickets, domain names, and even ownership records for physical assets.
The idea of fungibility, which is defined as “able to replace or be replaced by another identical item”. Five dollars is always five dollars no matter the serial numbers or whether its sitting in your bank account. The ability to replace a five-dollar bill with another five-dollar bill is what makes currency fungible.
Domain names, event tickets, in-game items, even handles on social networks like Twitter or Facebook, are all non-fungible digital assets; they just vary in their tradeability, liquidity, and interoperability. Many of them are incredibly valuable: Epic Games made $2.4 billion in revenue selling costumes in their free-to-play game Fortnite in 2018 alone, and the market for event tickets is projected to reach $68 billion in 2025.
The most compelling feature is free trade (trade-ability) on open marketplaces. For the first time, users can move items outside of their original environments (outside Ticketmaster or Fortnite) and into a marketplace where they can take advantage of eBay-style auctions, bidding, bundling, and the ability to sell in any currency. Trade-ability of assets represents a transition from a closed economy to an open, free-market economy. Imagine trading a Fortnite weapon you no longer want for a concert ticket.
One of my new favorite DeFi applications is called PoolTogether. It is a loss-less lottery. That is correct, a lottery you cannot lose.
Just like a regular lottery, people pool their money for tickets. A pile of money never sits idle without collecting interest. Therefore, leveraging the lending section above, the random winner receives all the interest that has accrued over the timespan. The losers get their money back.
This means you can use the same $10 to play lotteries for the rest of your life if you never win. Because it's built on a blockchain, you can verify winners are genuine, and no shady games are played behind the scenes.
The different "Money Legos" being built on top of Ethereum
Whether investors are looking for yield, raising money, or people just saving money over a lifetime on a loss-less lottery, money Legos can be bundled and automated for efficiency and returns while you sleep.
We think DeFi will be one of the first significant bridges to mainstream adoption for Bitcoin and Ethereum along with gambling and video games (a future post). Money Legos are an inevitably due to their increased efficiency and reduced cost, and it’s only one of the many things this nascent tech can provide.
Did You Know…
Every Bank has a “blockchain” plan.
Most Central Banks are looking to incorporate their version of digital currency into its economy.
Governments around the world are talking and figuring out how to deal with cryptocurrency.
A dramatic turnaround from 5 years ago when they laughed or outright dismissed it entirely. I guess the saying is true... "First they ignore you, then they laugh at you, then they fight you, then you win."
These are the early days and most don’t understand how profound borderless trustless programmable money is, or what it could give rise to. Sign up to be one of the few that do.
"Cryptographic currencies are going to be a part of the future of this planet because they have been invented. It's as simple as that. You cannot un-invent this technology. You cannot turn this omelet back into eggs." - Andreas Antonopoulos
Disclaimer: This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the assets discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained within. Past performance is not indicative of future results. Never invest more than you can afford to lose.