Google Trends for Bitcoin and the Bitcoin price track pretty closely. In bull markets, we are at the top of the hype coaster, all breathless exuberance. During bear markets, we are at the bottom of the hype coaster, all doom and gloom. Even during the time of writing this book, I have seen quite a few of those boom bust cycles. It is a consequence of the decline of online advertising revenue leading to overworked and underpaid journalists looking foe a clickbait headline. Try to ignore both the top and the bottom of the hype coaster – or at least enjoy the ride without taking it too seriously.
This is Part 2/chapter 14 in The Blockchain Economy book.This serialised book is a practical guidebook for investors, entrepreneurs and employees who want to learn how to prosper during the transition to an economy where value exchange is permissionless and disintermediated. For the index please go here.
To bring it back to a wonderful children’s book (equally beloved by adults), try to avoid being Tigger all the time or Eeyore all the time. Strive for the wisdom of Pooh Bear, who while declaring himself a bear of little brain, listens to both his friends but makes up his own mind.
Tigger has been promoting how Blockchain will change the world for a few years now. In his breathless narrative:
- every asset will be tokenized and traded/settled globally in real time without intermediaries.
- the cost of intermediation will crash by at least 90%, wiping out huge incumbent businesses and reshaping almost every market it touches.
- this crash in cost will expand demand by bringing billions of the unbanked into a huge new global middle class and that rising tide will lift all boats.
- there will be total transparency with the full history and provenance of every asset recorded on an immutable distributed ledger, bad actors will have nowhere to hide.
- Blockchain will make your morning coffee and make you a better lover and bring you eternal happiness (OK, not even Tigger goes quite that far).
Meanwhile, gloomy old Eeyore is already out there debunking what he sees as ridiculous hype and tells us that:
- The only real use cases are for a) illegal activities like buying drugs and money laundering b) speculative hoarding of Bitcoin and c) ICO Altcoin Ponzi schemes.
- Governments will soon put a stop to all this silliness as they want to keep their monopoly on money issuance.
- Human nature does not change and all this ICO bad behaviour shows that greed, fear, venality and stupidity are still very much with us.
Eeyore rightly points to the picture on the left saying in his most gloomy voice “we already have distributed databases with digital signatures, Blockchain is just a really slow and inefficient version of what we already have”.
Pooh Bear, humbly proclaiming himself a “bear of little brain”, was heard on the Blockchain At Pooh Corner panel saying:
- Most innovation starts at the edge with sketchy characters, so don’t sweat it.
- I don’t yet see how Blockchain will do anything useful for me, like bring me more honey, but being an optimistic kind of bear I kind of believe it will one day bring me more honey.
- From past cycles, the lesson has been that tech driven change takes a lot longer than anybody forecast but that when change does come it has far bigger impact than anybody could imagine, so be patient (but having said that I would like more honey right now).
Even the humbly wise Pooh Bear was visibly shaken by data such as Dogecoin – which was created as a joke – valued over $1 billion and XRP valued over $100 billion with only a few pilot projects. As Pooh put it wistfully:
“That is an awful lot of honey”.
Pooh is wise to be worried. It is the same concern that Vitalik Buterin expressed. If the business of business is making money, the simplest and quickest way to make money is best. Today the simplest and quickest method is copying something from Github, paying somebody via Mechanical Turk to write a Minimum Viable White Paper, raise $ gazillions via an ICO and buy a house in Monaco. If it is that easy, actually building a valuable business (which is hard) seems like a stupid thing to do. That lack of motivation to build real value is what could strangle innovation and lead to Eeyore being able to say – in his most gloomy voice:
“I told you this would end badly”
Tigger is then seen happily chasing after AI and IOT.
Then again we see news such as Soros investing $100m into Overstock and $20m going to fund DeSoto Inc., the blockchain property rights joint venture he is working on in partnership with economist Hernando DeSoto. This is one of those massive change-the-world use cases for Blockchain – immutable property rights for the unbanked – that will make Tigger look prescient.
“Yes but” says Eeyore, using his favourite opening words:
“Yes but, all this speculative fever only makes the currency use case invalid. Those transaction fees make Visa/Mastercard look like a bargain. No way I would pay those fees for my thistles.”
That is why the last chapter in Part 1 – Infrastructure – was all about Multi Layer Scaling solutions such as Lightning Network on Bitcoin and Raiden on Ethereum. So Eeyore will just have to wait a bit longer for cheap thistles.
The humble Bear of little brain has the last word when he says “Very, very few systems need Blockchain, but the few that really do will change the world (and maybe bring us more honey) than all the non-Blockchain systems”.
This is the end of Part 2. In Part 3 we look at the Blockchain Economy from the point of view of the investor. Entrepreneurs need a lot of Tigger characteristics to persevere through hard times, but smart entrepreneurs listen carefully to Eeyore as a way to create their action lists, because Eeyore will define today’s market realities very well. Investors must cultivate the wisdom of Pooh Bear and avoid both excess exuberance and excess gloominess.
Bernard Lunn is the CEO of Daily Fintech and author of The Blockchain Economy. He provides advisory services to companies involved with Fintech (reach out to julia at daily fintech dot com to discuss his services).