An Idiots Guide to Crypto/Blockchain

I am that idiot

I had a childhood friend growing up who’s parents owned a pub. I shared his chores when I was there, pretty exciting being in a pub without adult supervision when you are 12. One chore was to empty the coins from the various machines and pool table. We would happily re-spend coins we collected on the slot machines (fruit machines in UK terminology), any winnings were ours to keep, which was only fair we thought.

Slot machines then were simple affairs, I could play them but gambling was never my thing so I never continued to use them. Dial forward 30 years and slot machines are indescribably complex to me at least, I see them in Las Vegas at Money 2020 and I have no idea how to play them or what they do. They make me feel stupid.

That’s pretty much how I feel about Blockchain and Crypto Currencies. I seemed to be following it OK — Bitcoin, Satoshi, mining in China, environmental impact of mining, rigs, chips, the uses of in logistics, fraud at exchanges, crazy founder stories etc. etc. so far so good. I could hold my own in a conversation and nod reverently when these things were mentioned. I never threw myself into it though.

Reading Fortunes 40 under 40 in Fintech last year was a shock when I realised two things:

1. I was no longer under 40 (maybe 50 under 50? my chances are increasing with age)
2. Fully 32 of the 40 are Blockchain/Crypto execs — 80%!

I could not make myself younger but I could make myself less ignorant. I committed to eradicate my ignorance on blockchain/crypto. Turned out there are many people who do know about it — and they seem happy to put it up for public access. I gained a new vocabulary — is your blockchain permissioned? private? federated? is your coin stable? DLT, STO, dApp. I worried about the scalability of a system with such low transaction velocity rates. An article said I should. I bought my first BTC, BCH, ETH and ZRX on Coinbase — I looked forward to buying a Porsche or house in Tahoe with the proceeds — I lost 35% almost immediately.

Then I started reading the r/CryptoCurrency on Reddit, one of the largest subreddits with 800K members (r/fintech has 7K). Things got really weird and I realized just how out of my depth I was.

I needed help so I turned to actual people. I met and talked with (interviewed even) as many people as I could. Ian Foley at Uphold was especially helpful and provided rare clarity of thought and vision.

I did not really care about the underlying technology or terminology — 800K people on r/Crypotocurrency and r/Blockchain were there to explain that. I was mostly interested in the application of the technology.

This is what I leant.

Cryptocurrency — beyond speculative investment potential

The two primary use cases that jumped out to me at least as the most interesting in my discussions were Cryptocurrency as medium for incentives and fractional ownership.

The ad funded model has driven the rise of Facebook, Google and the internet as we know it. But its becoming frayed around the edges as consumer tire of the endless numbing torrent of irrelevant “targeted” “contextual” “geofenced” “embedded” “influenced” commercials ad nauseum. CPM’s have leveled out if not reduced and consumers are increasingly opting out of ad supported channels. Paid walls have tried their best but never really embraced by consumers.

Both these models could be replaced with token based based payments on a pay per use model. Brave’s Basic Attention Token (BAT) is attempting this as is Coil in a different way. Tippin.me and Lightning Network are also creating a network for micro incentives or tips famously promoted by Jack Dorsey. If you are a smaller publisher being part of these ecosystems could make a lot of sense. If you have scale like dailymail.co.uk (please don’t click on this link it only encourages them) with 100m users or Reddit with 330m it may be worth having your own token system. Facebook having recently reported decided to create their own, although this seems more about straight money transfer rather than incentives per se.

Using Reddit as an example — it’s more interesting than the Daily Mail and famously Redditor's hate ads or any corporatization of “their” site. The Facebook ad model is unlikely to be repeated on Reddit, users will hate it, advertisers will be wary of the NSFW content.

Reddit wants to incentivize users to visit their site often, both new and existing, they want to give them access to great content, this means rewarding content producers. They probably would like developers to build on them as a platform. They may want to commercialize the use of content from their site onto others — ironically the dailymail.co.uk is a frequent users of Reddit content in its own right. Above all they need to maintain the anarchic user centric sense of ownership or risk losing the very asset they have created.

A Reddit coin could potentially do all these things and more, creating greater sense of ownership and community from committed users, attract more users and reward great content without inflicting Facebook style ads and ruining the user experience.

Incentives in a corporate and SMB context could also be supported via crypto tokens, a (currently) tax free way for businesses and employees to recognize and incentivize partners and staff.

Fractional ownership is another compelling use case for Cryptocurrencies, allowing small investors to invest in new asset classes that would otherwise be closed to them due to the high costs, risks and lack of liquidity. Stockpile do this for stocks but using fiat currency. Can’t afford $1,670 for an Amazon share? buy $10 worth instead. This could be applied to horses, fancy cars, expensive art, property, big infrastructure projects, wineries and breweries — the list is endless.

Blockchain — beyond cryptocurrencies

The use cases for blockchain are infinite and beyond the scope of a 6 min read. However the most powerful comment I heard was really how to think about this as a market. I have Ian Foley of Uphold again to thank for this wisdom.

His advice was just to think of blockchain as another form of enterprise software. In this context blockchain is demystified and easier to think about. The most interesting companies using blockchain are not the ones that tell you they are using blockchain but rather they tell you about how their solution benefits them. It’s not about the technology itself any more than the fact they are using API’s — thats not the business, it’s the technology. Shocard is a great example of this.

My brief journey into blockchain/cryptocurrencies has given me a better appreciation of the long term impact these technologies will make on the world. I am genuinely excited now about the uses of blockchain, I can see how this might enable radical change. It also feels like we are at the very early stages of its development. It’s 1995 in internet time for blockchain — some of the ideas we have now will seem laughable and naive in time. Closed walled garden ecommerce portals on TV sets! yes please! sounds plausible circa mid 1990’s. This article gives a sobering reminder of those times, let’s all be humble so we don’t end up doing the same again (we will).

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