In Monty Python’s “Life of Brian,” there’s a famous scene in which John Cleese’s character is stirring up a group against the Romans.
He’s trying to get them all frothed up about the supposed righteousness of their cause and the uselessness of the Romans, until reality intrudes. One by one, members of the crowd begin listing off all the things the Romans actually have brought to the community, from roads to medicine to sanitation, thereby contradicting his criticism and undermining his point.
I’m reminded of this scene when surveying much of today’s commentary on blockchain technology.
It’s an odd situation, because while businesses in the blockchain sector are already empirically generating billions of dollars in revenue, the value of digital currencies and assets is often said to be driven largely by speculation on future rather than present utility.
But even if we grant this claim for the sake of argument, stating that most of the value of blockchain lies in the future is not the same as saying that (a) the present-day utility of the blockchain is zero or that (b) the blockchain sector will never live up to its valuation.
In this piece, we review some of the reasons why new technologies like the blockchain are often heavily criticized en route to ubiquity. We then discuss the specifics of how the blockchain has already begun disrupting at least three multibillion dollar verticals: the goldindustry, international wire transfers, and crowdfunding.
Finally, we talk through a few objections, and conclude by discussing the areas where the blockchain may provide yet more near-term 10X advantages.
Fad, bubble, monopoly
Highly valuable technologies typically experience relentless negativity on the way to the summit.
High growth is matched by high volatility and even higher expectations, leading to hypecycles and periods of apparent overvaluation until eventually the technology is globally ubiquitous. Then the new critique is no longer about faddishness or lack of utility but about inescapable monopoly, until the next disruption appears on the horizon and the cycle begins anew.
One example of this with the earlier internet revolution can be seen by comparing IT Doesn’t Matter (published in the trough of the dot-com bubble in 2003) to The Shallows(written after social media and web 2.0 had re-emerged and proven themselves in 2011).
The first book argued that software was no longer a source of competitive advantage and that the internet revolution had been overhyped. The second book, by the very same author, argued that software companies were now too successful and the internet revolution was causing a fundamental shift in society. While the theses were mutually contradictory, the one common thread was unremitting negativity toward the then-new technology called the internet.
Another more recent example is with Facebook and social media.
Despite piling up 500 million users in six years, in 2010 people were still calling the company a bubble that would never live up to the outlandish $33 billion valuation that people had placed on it. This narrative still held as late as August 2012, as Facebook’s stock plummeted after the IPO and it was an open question as to whether they’d be able to monetize on mobile. By 2017, of course, Facebook made $15 billion in net income in just one year.
Now the questions of whether social media is a fad or Facebook is overvalued have silently faded away. The new question is whether Facebook is an unstoppable monopoly that requires government regulation. This may be a legitimate question; however, it is a wholly different one from the contention that social media was a mere trifle or passing fad.
The blockchain is already midway through a similar path. Lest we forget, bitcoin was initially dismissed as something that could never work due to its deflationary mining schedule. Decade-old macroeconomic textbooks were quoted like holy scripture, as if “Econ 101” was relevant to Nakamoto Consensus and the solution of the Byzantine Generals Problem. Tulips were waved like cloves of garlic. Endless processions of the prominent were trotted out to denounce the heresy.
Hundreds of obituaries and dozens of “bans” later, of course, bitcoin is now worth many billions of dollars. It hasn’t just survived but has thrived, and has given rise to ethereum and dozens of other coins and chains.
But it’s far too early to declare victory.
No longer dismissed as a passing fad, and not yet attacked as a dominant monopoly, today’s argument against the blockchain sector is that it’s a bubble without real use. After all, the blockchain space as a whole is worth hundreds of billions of dollars, but where is the utility? What are the daily use cases? What justifies this value? Why is it not just a bubble now and forevermore?
So let’s talk about the successes of the blockchain to date, as those often go without saying. There are at least three multibillion dollar sectors where the blockchain has provided quantifiable 10X improvements over the preceding technologies. These are digital gold, international wire transfers, and crowdfunding.
First and perhaps most obviously, bitcoin is a better gold.
Wences Casares of Xapo gave the canonical presentation on this several years ago. Being digital, bitcoin is infinitely lighter than gold of the same value. Large amounts of money can be quickly transported across borders, easily 10X faster than the equivalent amount of gold can be moved. And bitcoin is significantly more divisible and liquid than a gold bar.
Even given bitcoin’s recent issues with transaction fees and wait times (already partially obviated via Lightning), the technical advantages vis-a-vis gold are obvious and at this point well-nigh indisputable. The gradual replacement of gold by bitcoin on many balancesheets and in a wide variety of financial contexts is now just a matter of time and institutional inertia.
Given that the total value of gold is estimated to range into the trillions of dollars, scaling the digital gold application alone can justify the total market cap of the blockchain sector.
Second, consider international wire transfers…