This is Part 3/chapter 1 in The Blockchain Economy serialised book. For the index please go here.
Imagine somebody in 1992 telling you how to make money in the Internet Economy. All I got in 1992 was somebody showing me how to send an email over the Internet. My takeaway was:
1. I can only send an email to a few people and none of them are people I know.
2. It is way harder than sending a fax.
Wrong takeaway. A couple of years later we had the Netscape browser and then Hotmail. The rest is history.
History does not repeat, but it does rhyme.
This is like 1992 and like 1999 for the Blockchain Economy:
– Like 1992: it is not very useful yet to the mainstream.
– Like 1999: speculative hype and overvaluation. Blame that on the meme that Blockchain is like Internet in 1992 (which is true).
This chapter/post introduces Part 3 of The Blockchain Economy serialised book. This is where we turn to the practical question of how to make money in The Blockchain Economy. Future chapters will focus on:
- Investing. How to get the optimal risk adjusted return on investment whether by investing in Utility Tokens, traditional early stage equity or Security Tokens.
- Working as an employee or contractor. How to increase your salary/billing rate whether in technical, marketing or management and how to think about and negotiate stock options and other non-linear compensation options.
- Creating a venture. How to create a venture that beats the odds stacked against new ventures.
Learning from past waves
History does not repeat but it does rhyme. Each wave is different in subtle ways, but all waves have a lot in common and so you can learn from looking at past waves.
Blockchain is Wave 3 (or Version 3 if you prefer that analogy):
- Wave 1 was the Web wave, from the Netscape browser and through the Dot Com bubble and burst. It is easy to mock the hype of the Dot Com era, but in hindsight almost all the innovations we now use were started in the Dot Com era. Most failed and many of those ideas were picked up later by entrepreneurs riding the next wave. Even digital cash, which we now call Blockchain & Cryptocurrency, appeared first in the Dot Com era (and failed in that era).
- Wave 2 was the Social Media wave, emerging from the rubble of the Dot Com nuclear winter. The book that inspired me at the time was Wikinomics (How mass collaboration changes everything), which was published in 2006. Dan Tapscott did an amazing job of describing why social media was not just a fad but something that would change the world; it inspired me to blog and then become the COO of ReadWriteWeb.
- Wave 3 is the Blockchain wave. This wave is even bigger and rolling even faster because it builds upon the two earlier waves. The ability to transfer assets over the Internet matters because more than half the 7 billion people on our planet already have access to the Internet.
One fundamental thing changes in this wave. In earlier waves you could transfer copies of content over the Internet. In this wave you can transfer value over the Internet, because the Blockchain protocol solves the double spend problem (if I give you a $10 bill, I no longer have it, whereas If I send you a digital file, it is only a copy and each digital copy costs virtually nothing).
The five lessons from earlier waves:
- Change takes longer than forecast.
- Change, when it happens, is even bigger than than the wildest forecasts.
- The winners are hard to forecast early and those winners are massive.
- The early adopters are critical but totally different from mainstream.
- There is a valuation crash between early hype and eventual value creation.
Those 5 lessons are important whether you are an investor, employee/contractor or entrepreneur. One thing that is different in this wave is that the lessons are being learned faster because in many cases investor, employee/contractor and entrepreneur are a single human.
Humans say – don’t classify me
When you talk to the people who are making things happen in the Blockchain Economy and you dig below the PR surface, the wonderful rich complexity of human beings eliminates the artificial barriers defining somebody as either an investor or an employee/contractor or an entrepreneur.
Today you meet many people who are all three. They are investors and employees/contractors and entrepreneurs This blurring of the boundaries is one of the differentiating factors in this wave of change. In earlier waves there was a clean boundary between investor, employee/contractor or entrepreneur. Today you meet people who:
- buy/sell some Bitcoin and Altcoins (they are investors).
- pay the bills by working for somebody else as an employee/contractor.
- build their own venture as a side project in their spare time (they are an entrepreneur).
This is one human with three hats. You have to engage in real conversation and dig below the PR surface because that human is practically focussed on pitching one of their three hats:
- If they see you as a smart crypto investor, they will pick your brains to help make them a better investor.
- If they see you as an employer, they will pitch their value as an employee/contractor.
- If they see you as an angel investor, they will pitch their MVP.
So in a normal professional setting you only see one hat, not the human who wears all three hats.
This wearing of multiple hats goes against conventional wisdom which is based on this theory:
- Only a wealthy person can invest and wealthy people don’t work.
- An entrepreneur must quit their day job to get their venture funded.
- Employees are expected to follow orders and complete tasks.
When reality diverges from conventional wisdom it means that the (usually unspoken) theory behind that conventional wisdom is no longer valid:
- Theory = only a wealthy person can invest. Reality = tell that to the techies who invested early in Bitcoin or Ethereum, most of whom had way more tech smarts than cash (they now have both). There is some move by regulators to only allow wealthy people to invest in early stage tech, but it is likely that the toothpaste is already out of the tube. You can argue that investing in these coins is dumb, but you cannot deny that people are investing.
- Theory = An entrepreneur must quit their day job. Reality = it is so cheap to build a Minimum Viable Product (MVP) and nobody wants to fund this stage of a venture, so a side-project is the best way to get past this stage. Being an investor makes you more conscious of what may work for your own venture.
- Theory = Employees are expected to follow orders and complete tasks. Reality = many employers are entrepreneurs with relatively young companies who prize employees who can think outside the box and bring innovation to the table.
This matters because building a portfolio is both hard and essential.
Building a portfolio is both hard and essential
Those 5 lessons from past waves mean that portfolio diversification is critical. The number of investments in a portfolio is a debatable point, but less than 10 is certainly considered high risk. This is relatively easy for an investor, but much harder for employees/contractors and entrepreneurs.
Lets say that it takes at least 10 years to build something with sustainable value and 10 years is how long most waves last; the 10 year wave is when the market is open to new venture not when it has consolidated which may last much longer. An entrepreneur can create one, maybe two ventures in that time; you could build one to Product Market Fit, sell it before it is big, move onto the next one. Entrepreneurs are the least diversified. A portfolio with only two companies is massive concentration risk. This has to change for new venture creation to sustain and in the future chapter aimed at entrepreneurs we will focus on how and why this is changing.
Employees can work for 3 to 5 ventures during that time. That is better diversification but still high concentration risk. If you change jobs every two years, you can work for 5 ventures during those 10 years. If you get options in all of them, you now have a portfolio of 5. That is concentration risk, but with some luck it may pay off. Note that with a 4 year vesting, you will only get 50% of those options if you leave at 2 years; if the venture looks like a winner you may “roll the dice” and accept concentration risk by staying.
Whether you are investor or an employee/contractor or an entrepreneur, you are sitting on the same surfboard looking at the same wave.
Think like a surfer to ride a wave of change.
- Be patient but don’t overthink it. Catching a wave too early is just as bad as catching it too late and vice versa. Reading this book will give you the framework/context for the torrent of news that hits you daily. Research shows that timing matters more than funding, team, technology or idea. Surfers understand this.
- Choose how big a wave you want to ride. If you are still learning, don’t go for that massive wave, it will kill you. You can have fun and make money from the smaller waves. Don’t let media hype distract you from this. Media make money talking about the mega stars – such as Bezos and Zuckerberg – who are riding the mega waves. The story of somebody making a life-changing amount of money in a tiny niche market won’t sell page views – yet there are millions of these stories and one of them can be you.