We live in strange times.
Things seem upside down and time seems accelerated.
This is what happens in times of upheaval. And we’ve seen lots of upheavals.
Crypto has been coming of age during this time.
The adoption rate has increased dramatically.
The entire ecosystem has proliferated across different spheres of life.
It’s overflowing with innovation and new ideas.
In periods of upheaval, innovative ideas get tested. During these periods, some products will adjust and move forward. Others will fail. And there will be fertile ground to develop new solutions to previously unknown problems.
And here we are.
Beyond the trading plan is the overall thesis, your overarching idea about where crypto is going and why. This big picture idea is there to guide your overall thinking as you develop trading plans and strategies. Or decide how and why you want to participate.
Your crypto thesis helps you navigate challenges presented by the world. It gives you a vision of how you see things unfold and why you are participating.
A big picture view of crypto
Let’s start with a big picture view, look at the foundations of that view. Then we will explore some implications.
Here is a big picture view.
> Crypto is the world’s first grassroots, networked, distributed, decentralized global innovation lab.
> And this separate or parallel innovation lab will exist in perpetuity.
> The current open regulatory environment creates significant room for the development of innovative concepts.
> Crypto helps people to develop essential life skills and financial literacy in a new way.
> Crypto innovation will influence the development of products, services, and culture in the traditional physical world.
> Businesses will eventually acquire crypto projects to access the infrastructure they need.
Now let’s look at some ideas that provide a framework for this crypto thesis.
A framework of thinking for this crypto thesis
Here are some concepts that help shape this thesis.
American economist Thomas Sowell reminds us that the only difference between a caveman and people today is knowledge. This means that the caveman had access to all of the physical assets provided by the earth that we do. It was accumulated learning that transformed those resources into the world we have today.
Yuval Noah Harari (before he got all nutty) describes the power of imagination. He reminds us that all things on earth created by humans are products of human imagination. This includes forms of government, economic systems, organizations, and all the goods and services they produce. And this also includes virtually all money and capital markets products. This idea is expressed in his book Sapiens.
Hernando De Soto explores the conversion of property into an idea in his book The Mystery of Capital. This is what happens when you get a loan using your property as collateral. You use a physical asset to create and convert it into an idea. That idea is called capital.
George Gilder explains that innovation relies on surprises, risk, and information-rich environments. These surprises create wealth and opportunity. There must be friction, noise, and risk of failure for these surprises to be valuable.
And finally, the concept that the power of technology is not the technology itself. Rather it is how technology changes and shapes our vision, relationship, and interaction with the world around us. That vision changes the world and leads to further innovation and new ideas.
These are some concepts underpinning the thesis I’m going to describe.
Crypto borrows from the physical world
Crypto’s growth has taken place at a time when digital became dominant as a result of outside events. People became more comfortable with digital concepts. And as a result, they became more comfortable with assets that are products of human imagination.
Part of crypto’s appeal was the way it challenges traditional ideas about money. And it also borrowed the right elements from the existing financial system.
But the primary difference is that crypto is developing in a largely unregulated, organic, and self-organizing model. It is doing this in parallel to the traditional financial structure. However, crypto development isn’t constrained by the history, regulatory frameworks, and traditions of finance.
As a result, crypto and traditional finance look very different.
Crypto has complete freedom to explore new concepts unconstrained by the physical. The internet, open-source technology, finance, incentives, and corporate governance provide ample learning foundations to draw from. They innovate without layers of regulation and adherence to the confines of these areas. The result is communities of developers, enthusiasts, and traders exploring the area freely.
This exploration accelerates learning and discovery.
The regulatory environment shapes innovation
The advantage of a giant grassroots, decentralized, and distributed innovation lab is twofold. One is that it keeps governments competitive. Another is the unique interactions that it engenders between users and builders.
This open innovation lab makes it difficult for regulators to regulate away risk. Risk is where all the magic happens and where information rich discoveries are made.
In his book Knowledge and Power, George Gilder explores the financial system and innovation through terms normally applied to physics. He describes ideas, creativity, and money as either high entropy or low entropy. These two forms of entropy are necessary in society.
Low entropy is law and order, tradition, and regulation. Low entropy is low information and low risk, making it friction-free. It means no surprises. Low entropy is a foundational part of the innovation process. Think money market funds or tapping your card to pay.
High entropy is the opposite. It’s information-rich, high risk, and full of surprises. You win big or lose big. High entropy is high friction and the way in which our world moves ahead. Bitcoin is a high entropy example.
So crypto is a high entropy environment in Gilder’s vision where new learning creates and builds wealth.
And crypto does this by drawing people into voluntary associations. Crypto communities self-organize to develop, build and use innovation.
An intermingling of cultures, incentives, and traditions
If we look at crypto as a giant worldwide innovation lab, we can imagine the implications of what is taking place. Numerous new ideas spring forth shaped by different cultural, legal, and historical foundations. People are gathering to create solutions in unique ways based on a model of contribution and ownership.
Anyone can choose their contribution level. They can contribute to existing innovation through various blockchains. Or start a new one using open source code.
Then those concepts are borrowed, reshaped around solving a problem, and released. As new problems arise or are identified, these prompt various solutions and releases. These solutions are subsequently tested.
Communities coalesce around these ideas, helping them grow and prepare them for testing.
And the process becomes an accelerated exploration of several ideas at once.
This is a true grassroots movement, and it represents a powerful form of modern financial literacy.
A place for digital natives
I attended a talk with several startup innovators. The conversation included a discussion around the challenges of the remote workplace.
A striking comment was about young people coming into the workforce during 2020. The remote, fully digital experience was especially challenging to people not accustomed to a physical environment. They struggled to adapt to the existing culture and relationships that existed before the digital change.
This socialization can be a crucial part of becoming a productive member in some firms. These tend to be traditional business environments.
Crypto work, on the other hand, is in many ways like the blockchains themselves, decentralized and distributed. In an upcoming article, I’ll explore DAOs (Decentralized Autonomous Organizations). These projects are ideal environments for digital natives to join, contribute, learn, grow and become owners.
Crypto overcomes the challenges of the physical to digital divide. It provides crucial participation for large numbers of digital natives entering the workforce. They have a way to gain critical work experience while learning on the job. Or earning their way into a job.
DAOs have only been around since 2016, but they are growing this year. DAOs provide a unique view of organizing around a core idea. The organization is typically built around a blockchain, treasury, smart contracts, and a messaging channel.
DAOs are in the process of redefining ways of working, governance, incentives, and investment.
Bitcoin and Ethereum have changed our relationship with the world
Depending on how you define a cryptocurrency, you might consider BTC the only cryptocurrency. In this case, you likely see everything else as an altcoin or token. Or you may classify several different crypto coins as cryptocurrencies, including LTC, DOGE, and ETH. Whatever your view, the distribution of digital programmable money allows for the rapid exploration of currency concepts in real-time.
Is deflationary money better than inflationary money? Are there use cases for one the other or both?
The crypto innovation lab allows us to see this in real-time. We may discover that different currency concepts might be suitable for different applications. Time will tell.
Bitcoin is the foundation of this global innovation lab as the foundational technology. It has reshaped visions of free exchange, money and ownership. Bitcoin has influenced our relationship with each other and the world around us. And it continues to evolve and innovate.
Ethereum took this concept and approached it as a platform for developing on top of it using smart contracts. This approach has led to numerous financial innovations and value exploration.
These two platforms have influenced innovation and competition in their own unique ways. At their core, they have reshaped the way an entire generation sees the world around them and how they interact with it.
The world has influenced early crypto
The influence of the outside world on crypto is undeniable. Much of crypto is valued in fiat. Crypto exchanges and crypto trading platforms draw from elements of traditional exchanges and institutional desks. Crypto trading products are often adopted directly from capital markets. This includes currency trading, futures, options, leverage, and trading tools. These platforms enjoy maximum flexibility to explore new takes on these products with innovations.
Through DeFi, smart contracts enable DEXs, automated market makers, lending, and numerous other dAPPS.
We are seeing evolution taking place across numerous crypto products.
You can buy virtual property in the metaverse and wear NFTs of physical branded products. Stablecoins provide a fiat derivative interpretation of the gold standard. NFTs allow the expression of content in unique forms.
What will be interesting is how the activity in the vast crypto innovation lab shapes the physical world.
How will DeFi influence global trade and finance?
Will NFTs create a new Renaissance in art and creativity?
How will the metaverse influence movies, books, and entertainment?
What will work be like as firms based on DAOs move from the lab into the mainstream?
Crypto will influence the world of the present and future
The evolution and structure of crypto make it a perpetual innovation lab. Countries looking to avoid losing competitive advantage have been slow to regulate. The main regulatory focus has been on the gateways from traditional finance to the crypto lab. Right now, crypto trading platforms have similar gateway regulations that any traditional exchange does.
Otherwise, the space is open for exploration, development, and risk-taking. As brands bring crypto into the low entropy world, one should expect appropriate regulation for that environment.
As these innovations mature, they will be acquired and adopted from the worldwide innovation lab environment.
For example, payment networks are likely to move towards crypto as they become more secure and faster relative to existing alternatives. Moves by VISA and Mastercard indicate that they believe their current advantage isn’t permanent.
New VC arrangements will likely develop using the DAO model as a foundation.
Large asset management companies are already developing smart contract platforms for their operations.
Crypto exchanges and crypto-asset trading platforms may be acquired by traditional exchanges for their infrastructure. Or they will be updated to support a vast network of programmable security tokens.
The crypto innovation lab as a vision for a better world
The power of crypto is said to be about decentralized money. Money outside of the control of the government. That is one thesis.
Another thesis is that bitcoin is digital gold.
There are many more.
These views are all plausible but narrow.
The most important part of crypto is the way that it allows people from all over the world to interact, build, create and benefit.
It does so in a world where you become supremely responsible for your activities and the risk you are taking. With crypto, your wallet is your bank. Your wallet is free from expropriation but not free from the loss of your private keys. Nor is it free from the loss of the physical wallet.
This return to personal agency is one of the most powerful aspects of crypto because agency is the foundation of financial literacy.
I have argued that it was time for crypto to cross the chasm not long ago. It may have already done that in some respects. What I see now is a perpetual innovation lab operating on a grassroots global basis. It is the ultimate manifestation of free assembly and participation.
As crypto projects continue to explore existing ideas in new ways and influence old ones, crypto will shape our relationship with the world and each other.
It will shape our attitude towards risk, governance, organization, digital products, value creation and exploration.
Looking around today, there is potential for a brighter future.
And that happens when people from around the world voluntarily gather their minds, treasure, and talent to develop a better world based on what they care about.
What’s your thesis?
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