Most people who listen to comments from anti-crypto naysayers like Warren Buffett, Charlie Munger, Jamie Dimon, and others might buy into the argument that the whole crypto establishment is just one giant Ponzi scheme. But if you actually take the time to understand the technology, crypto and blockchain is basically an automated redundant way to record transactions, ownership transfers, trades, and related activities. Blockchains are what computer scientists call “replicated state machines.”
All that involves people like software developers, server owner/operators, testers, and the like. It brings benefits to people like faster remittances, loans, spot and derivative trades. The same services we get from traditional finance entities like Web 2.0 tech giants like Google and Yahoo!, banks like Wells Fargo and Bank of America Merrill Lynch, trading firms, but without the need for the “trusted human third party.” That’s probably where some of the negative pullback from the high and mighty comes from – the threat of massive layoffs and the obsolescence of the experts running these giant companies.
Another criticism is that you can’t analyze it using traditional stock metrics learned in MBA school like P/E and EPS ratios, cash flow and the like. But experienced crypto hands will use tools like Total Value Locked, the size of users and adopters (Metcalfe’s Law), Stock to Flow model (like with gold), and other alternatives. Also experts say that crypto is really more a commodity than a stock, and is more a reflection of current and future macroeconomic realities and expectations.
Those who say that crypto is intangible and cannot be held like gold coins and paper bills might be in for a shock. In the 70s, when the US went off the gold standard, the only thing that backed each US dollar bill was a promise from the US government that it would stand behind that note.
According to Elon Musk, most money outside of coins and currency only actually exists as ledger entries in discrete bank mainframes that still run COBOL. Technologies from the Seventies and Eighties like SWIFT, Fed Wire, ACH, are no longer appropriate and will break down in the future. So even a large part of present day money only exists as records in ledgers around the world. Hence the criticism is unwarranted. They also fail to realize that every new technology introduced to the market often encounters resistance and attracts all sorts of fraudsters and scammers.
For those who favor things of value like gold and diamonds that you can hold, it may come as a shock that Gen Z and Gen Alpha kids consider “in game” digital assets as assets. While gold and diamonds do have intrinsic and extrinsic properties that give it value, the digital generations that never saw any LP albums, tape cassettes, phone booths, give more value to the ability to exchange something with their friends in other countries when needed as opposed to something we hold physically but is hard to send to someone abroad. Try asking a kid if he/she prefers to have their Venmo or Paypal loaded or receive a paper bill. You might be surprised at the answer you’ll get.
There’s also looming trouble ahead for fiat currency. Several decades later post COVID, the US faces a major crisis – a looming unpaid $32T debt to itself. Recently Treasury Secretary Janet Yellen admitted that they were already dipping into government pension funds just to sustain government operations, as Congress had enacted a debt ceiling beyond which they could not spend.
There is actually a major change that will be coming in the next few years and has started. This is the tokenization of real world assets on the blockchain which will further erode arguments against this new technology. These can include faster and better trading and record keeping for watches, works of fine art, collectibles, classic cars, films, and even real estate. The list of possibilities are endless.
Last February 2023, German industrial giant Siemens released the world’s first corporate bond on the blockchain. Corporate bonds are debts issued by companies to fund their operations and expansion instead of equity. In the case of Siemens, they released a one year maturity corporate bond totalling EUR60M. [1]
In several television interviews, successful investor and Shark Tank host Kevin O’Leary mentioned a blockchain project he is a part of that involves tracking the provenance of very expensive watches. By putting the transfer of ownership tracking on the blockchain, the buyers of used but very expensive watches like Rolex, Audemars Piguet, Patek Philippe, Omega, and the like are able to trace the ownership lineage and provenance of those watches. This serves as part of the protection against fake watches being introduced into the market.
For film, award winning Director and Producer Sofia Coppola and her partners have launched Decentralized Pictures, a company that aims to fund new indie films using the blockchain. Coppola, famous in her own right but also the daughter of legendary Godfather and Apocalypse Now producer Francis Ford Coppola, hopes that the blockchain can help finance innovative and groundbreaking film ideas that have traditionally been snubbed by the traditional financing mechanisms in that sector.
In art, many of us have heard of Non Fungible Token (NFT) digital art. But NFTs do not just mean those jpegs of apes or other digital drawings. NFTs simply represent ownership of the item in question. Fine art and other assets can also be represented in terms of ownership by NFTs in much the same way that a signed piece of paper does.
For real estate, blockchain opens up a lot of possibilities. If in the current systems, especially in less developed countries, it is possible to fake a land title because the town or city hall registries are unreliable, in the blockchain that will be hard to do. That is because each and every sale and title transfer for each property is recorded and time stamped on the blockchain in many servers. You would need to hack all those servers to override the current provenance of the real estate property.
Another possibility for real estate is fractionalized ownership. Think of how a large piece of land is subdivided into many titles then sold individually. When a property is recorded on the blockchain and fractionalized, people can then exchange their shares of their land ownership in much the same way they can trade crypto or stocks. The possibilities are just starting to emerge in this arena.
In summary much of the pushback against crypto and blockchain comes from a lack of understanding of the technology, and associating the negative news that fraudsters are doing in the space and confusing it with the technology. In the history of all technology cycle adoption, whether it be the automobile, the Internet, and now crypto and blockchain, there have been naysayers and false prophets, but eventually the masses understood that a technology whose time had come was now to be adopted widely by everyone.
NOTES
[1] https://press.siemens.com/global/en/pressrelease/siemens-issues-first-digital-bond-blockchain