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Category: Think Tank Page 2 of 39

Cryptocurrency Needs to Go Mainstream

I wrote a blog post on CoinDesk a couple of days ago, Defining Cryptocurrency Is the Best Way to Kill it.

It’s a plea and a case for allowing cryptocurrency to become as pervasive as today’s money in all of its applications variety, plus much more. It’s also about the realization that the industry has tied itself in knots with various classifications and definitions trying to please regulators. Let’s stop playing that game, so we can let cryptocurrency become accepted as an alternative digital currency that is here to stay for the long term.

Cryptocurrency inherits all of money’s properties (as a unit and a store of value that is transferable, fungible, verifiable, divisible and scarce), in addition to adding unique functions that money doesn’t have:

  • its immutability is digital (the physical is gone)
  • it can be fungible or non-fungible (non-fungible is an innovation)
  • its policy governance doesn’t need to be centralized
  • it has very powerful programmable capabilities with imbedded logic (if-this-then-that)
  • its transferability is peer-to-peer (without central intermediaries)

If cryptocurrency is so much better than money, why are we erecting so many barriers for its adoption?

Please go and read this article, Defining Cryptocurrency Is the Best Way to Kill it.


Friday March 13 2020, AKA The Morning-After

Friday the 13th of March 2020 will be remembered as the morning-after. 

The morning-after North America came to grips with the fact that the Coronavirus is among us.

The morning-after US and Canadian stock markets tanked like they haven’t before, in decades. 

The morning-after global crypto-markets reached lows that set it back to December 2018.

The COVID-19/coronavirus situation has already done its damage, not just to human lives, but to the financial markets, and consequently it has affected people’s wallets, investments, and many businesses that will suffer, at least in the short term.

As if it wanted to punctuate the point, we now know that the Coronavirus has also hit a known Hollywood actor, a top NBA player, the wife of the Canadian prime minister, and the president of Brazil. That’s a good dose of celebrities at once for the mainstream headlines, pushing awareness, fear or knowledge to another level.

I don’t watch the crypto markets on a minute by minute basis, but I did so intermittently yesterday to better understand what was going on. Around 10pm EST, when I saw Ethereum dip into the 90’s and Bitcoin cross below the $4,000 mark, I said to myself – this is now overdone. 

Sure enough, shortly after 10pm, the crypto markets started to bounce back, in part due to short interest covering, and in part due to the traders’ realization that this was overdone.

That said, I expected the crypto markets to do better than the (traditional) markets, and I can’t understand why that didn’t happen. Cryptocurrency should have offered a flight to safety for those who were liquidating their stock equity positions and getting into bonds. Perhaps that was wishful thinking on my part. Others, such as Brian Armstrong, CEO of Coinbase were also surprised.

Either investors didn’t have enough confidence in cryptocurrency as a safe haven, or they didn’t have easy linkages to efficiently enact capital transfers from brokerage accounts into crypto-trading ones. Or maybe it was a bit of both.

Regardless of the real reasons (and there may be several of them), it is noteworthy that during this mayhem, stablecoin USDT’ trading volumes were higher than Bitcoin’s at $52B+ over the past 24 hours. That’s close to 35% of the total market crypto market cap (as of March 13th 2020). That doesn’t necessarily mean that $52B in stablecoin holdings are sitting in people’s accounts, but it could be a factor when demand starts to flow back into cryptocurrencies.

The US economy is getting a $1.5 Trillion stimulus package. What is the crypto-economy getting? Nothing. So, it will need to pick itself up on its own, and grow again. 

This is a challenge that the industry can tackle, and I believe it can do so if we continue executing on the following ideas:

  • Continue working on the best projects that highlight variety and innovation in the application of the blockchain, not just work on the technology itself.
  • Communicate in clear, precise and non-obscure language the benefits of specific implementations.
  • Don’t stop knocking down the barriers with regulators who are erecting them and being tough gatekeepers.
  • Continue funding the best projects, companies and ideas that promise to make the crypto market (as in usage) larger and relevant to the average consumer.

The good news is that the fundamentals of blockchain technology have not changed, and they have not been altered. The recent downturn in market prices is just another stress test on the sector. It can only emerge stronger and better than before, because it has been there before. Extreme volatility is part of the history of cryptocurrencies.

This is not a time to lose confidence, nor lose hope over the blockchain promise. The sector will emerge stronger and more resilient, I am sure about it.


Let's Be Clear About What is DAOable and What is Not.

I wrote today an opinion piece on CoinDesk, with a provocative title, “Cut the Consensus: You Can’t Run a Business Like a Blockchain“. Its original draft title was Beware the Pitfalls of Decentralized Decision-Making.

It’s a 1,400 word essay arguing the important distinction between the “governance of blockchains” and “governance by blockchains.”

Five years ago, I had outlined an An Operational Framework for Decentralized Autonomous Organizations. More recently, I have been involved in a DAO experiment, the Ethereum Marketing DAO, in addition to closely following the key projects in that space, and doing my ongoing research on decentralized governance and decentralization in general. So I have a lot of perspective, and a lot to say on that topic.

I’m supportive of the concept of decentralized autonomous organizations, aided by blockchain technology. But I believe that we are still tinkering with its application in the realm of business. We are at ground zero.

Here is the link to the article, “Cut the Consensus: You Can’t Run a Business Like a Blockchain.


The Benefits of Higher Crypto Market Prices

Scrap Prices Going Up Will Make You Happy If You Have a ...

Last September 2019, I tweeted a prematurely positive position on the overall cryptocurrency sector, with an end-of-year target of $750 Billion for the overall sector.


That tweet was loved and hated by an equal number of people, judging by the 362 comments received, despite an official 1K Likes, but what stuck with me is the fact that I was hammered for being very wrong in this prediction. However, to keep the record straight, it was more of a wish than a prediction.

That wish is driven by my strong beliefs that higher market capitalization as a whole is a good thing for this sector, for several reasons:

Frees-up new investment capital

New pools of capital (from gains) become suddenly available to projects and startups, some of which had been gasping for air in the past two years, stuck in the doldrums of cryptowinter. This also makes capital a bit less discriminating at funding new projects. In early stages, the quality signals are more difficult to find, even to the most discerning and experienced early-stage professional investors. That is why these investors typically choose a portfolio approach to increase their chances that at least ⅓ of that portfolio bears enough fruit to generate sufficient returns to offset the potential write-offs and losses coming from the rest of portofolio. As a side note, individual investors are also well served to follow a similar strategy. It is not easy to precisely pick one or two investments by putting all your eggs in one basket. Unless you are very lucky, you need to spread your bets across several pockets of opportunities, even if it means lowering individual amounts on a per investment basis. 

Good for the psychology of markets

The psychology of markets is a known factor and reason for rising or falling stock prices in the public markets, as it pertains to the general mood of the majority of investors. Cryptocurrency markets are not different from that perspective. With a positive mood, more investors (or speculators) believe that prices will move higher in the future, and they enter the trading dynamics, which drives prices higher.

More public awareness

As prices start to go up in a significant manner, media coverage about this development starts to increase not just within the crypto media sector (which is a niche media segment), but it starts to spill over to the general and mainstream media which is a much larger piece of the attention pie. 

The total market cap of cryptocurrencies is now flirting with the $300 Billion mark, and that’s another important psychological threshold. Once it crosses that barrier, it will be on its way to pass the most recent high of $371 Billion that was reached at the end of June. At $300 Billion+, that sector will begin to experience more broad media coverage, as it did previously when it reached the over 500 Billion mark. More general awareness about cryptocurrency and the blockchain are a good thing.

More regulatory seriousness

If you follow the logical path of the rolling ball effects, you land squarely in the lap of regulators who tend to be reactionists to market developments. As the cryptocurrency market size swells, regulators (especially in the US) will start to re-prioritize their actions, and many of them will start to move off their sitting ducks positions.

Today, during a Congressional hearing, Federal Reserve Chairman Jerome Powell acknowledged that Libra was an important development to the growth of digital currency. I sensed a streak of progressiveness, as Chairman Powell said “we support responsible innovation…” and followed by saying he believes that “the process for addressing these concerns should be a patient, careful one, and not a sprint to implementation.” Of course, Chairman Powell was taking a jab at the US Congress who seemed hyperactive on wanting to apply quick regulatory handcuffs to Libra. Today, Libra doesn’t figure yet in the total cryptocurrency market cap figures, but they are an important proxy for the development of regulation in this market, especially that the US Congress appears to be obsessed with regulating them one way or the other.

Here is a clip of the Q&A segment that covered cryptocurrency and Libra:

Overall, I’m encouraged that many positive and promising applications of cryptocurrency are entering a second phase of their evolution by building strongly on iterative learnings from the past 2-3 years. 

One promising sector that is jolting out of the gate, is stablecoins. Whether government-backed or not, they bring the novelty of programmability to money, a feature that didn’t exist before because we never had truly native digital money. As Fred Wilson pointed out on his blog today, USDC is one such example, citing the Venmo analogy. But let’s take that concept even further. 

Imagine that you can use cryptocurrency-based stablecoins to make large transfers much easier, and at the speed and convenience of blockchain transfers. Imagine a smart contract built into a financing round that automatically transfers respective funds in stablecoins when all signatures are in place. And if you take that vision one step further, imagine that we then have widespread stablecoin-to-stablecoin transfers with exchange rates, e.g. from USDC to Libra, or USDC to QCAD (a recently launched Canadian Dollar stablecoin), or any other combination.

I’d love to see the above scenarios play out in practice because all the pieces are already in place today.

There will not be one killer app for crypto or the blockchain, but there will be several of them. While there are undiscovered ones, many are advancing today in unisson, albeit with small market shares and usage numbers, which make them less visible to the naked eye, but with the passage of time, they will become gradually more noticeable.

Follow the rolling ball –> Higher prices, leading to mainstream headlines, leading to more projects being funded, leading to more positive psychology, leading to more regulatory certainty, and culminating in the solidification of a large global market of users, believers, and a solid infrastructure of services and capabilities to make it all happen at a significant scale.


Let's Imagine. What if Plaid Was Acquired by a Blockchain Company?

A couple of days ago, Plaid, a fast growing FinTech company that lets users connect their bank accounts to a variety of financial services, announced that it was being acquired by Visa for $5.3B.

The first thought that came to my mind is that I wished Plaid would have rather been acquired by a large blockchain company, like Coinbase. The only issue is that $5.3 Billion is a hefty price for even the largest of blockchain companies, whereas it’s only a digestible bite for a behemoth like Visa. 

Many analysts referred to Plaid as “FinTech plumbing”. For me, Plaid symbolized more than plumbing. It was an essential on-ramp/off-ramp component that enabled consumers to loosen their reliance on banks. I have previously written about and continue to believe that FinTech, DeFi, and blockchain-based financial services are allowing us to gradually depend less and less on large banks as our primary financial services providers. In Banks as Back-ends: The Decentralization Has Started (January 2016), I gave examples of that trend, asserting that the decentralization of banking is already here, but it hasn’t been evenly distributed yet. 

I became aware of Plaid in the past years as it is used by some cryptocurrency wallet providers to provide an essential on-ramp to bank accounts. Basically, Plaid users connect their bank account to participate in off-banks personal finance, payments, lending, brokerage, wealth management, and a plethora of ancillary financing services. Plaid’s metrics were impressive: they signed-up 11,500 banks/credit unions and touched more than 20 million consumers via popular apps like Venmo, Robinhood, Betterment and 2,500 others. 

Of course, FinTech broadly is a big culprit in this unstoppable finance decentralization trend, but I had wished that the companies leading this trend (such as Plaid) would not be swallowed by incumbents. 

I don’t know the Plaid team, and I congratulate them on this amazing exit. At the same time, I’m a little apprehensive because we all know too well how these types of acquisitions typically end. Will Plaid services continue to flourish as before providing more freedom to consumers, or will that service become eventually suffocated and dictated by what’s important for Visa before what’s important for decentralized finance? 

When big companies think of innovation, it doesn’t mean the same as when startups do. Big companies are restrained and chained by their current business models, and everything gravitates towards, and aligns behind their existing strategies and direction. This means that innovation will be boxed-in instead of flying according to its own path.

Just imagine for a moment how different the significance of this acquisition might have been if Coinbase had acquired Plaid, and not Visa. 

I see this acquisition as another successful FinTech company that was supposed to give users freedom from big banks, yet it is brought back under the claws of big Fin.


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