Blockchain’s Trillion Dollar Futures

Like many people who’ve been following the blockchain space for a long time, I try to learn, unlearn and revise my opinions on it. I’m going to try to capture where my views stand as of November 2018 by dedicating posts to different parts of the ecosystem that could end up creating trillions in future value:

1. Higher Order Antifragility: Why I’m Still Bullish on Crypto as Store-of-Value
2. It’s About Values, But Values Don’t Always Win: Why I’m Bearish on Web 3.0

Note: I deliberately avoid discussing private blockchains. They have nothing to offer over well-designed, well-built software that uses no blockchains. Between trusting parties, any use of blockchain isn’t only pointless, but also a terrible design choice (my post about web 3.0 might give you an idea about why). Suits don’t get fired for choosing private blockchains in 2018, but they most likely should.


Thanks to my friends Matthieu Courtin (Kenetic), Kenrick Drijkoningen (GGV) and Benjamin Joffe (HAX) for their thoughtful feedback & contributions.

It’s About Values, But Values Don’t Always Win: Why I’m Bearish on Web 3.0

— This post is part of the Blockchain’s Trillion Dollar Futures series —

Web 3.0 (also known as “the decentralized web” or simply the emerging space of decentralized networks and applications) is the crypto category that everyone should be watching in the next few years. Thousands of founders, funds and media outlets make daily claims that cash and store-of-value were just the beginning, and that just like the unsuspecting earthlings of 1995, we’re about to witness the emergence of massive, world-changing applications powered by blockchains.

It’s too early to make outlandish predictions, but it doesn’t prevent many people from making them and defending them religiously. What I’ll try to do in this post is boil the situation down to a list of observations and key questions that I’m asking myself when thinking about the future of web 3.0.

Let’s start with some observations:

  • Blockchains are not unique enablers for any app. Unique enabler is what smartphones were for Uber. Technically, 100% of the apps that could be built with blockchain could also be built with any commercially available database
  • However, blockchains differ from regular apps by providing “unbreakable guarantees”: they are permissionless, censorship-resistant and out of the control of any single entity. They predefine roles and rules for all participants
  • Those guarantees appeal to some people because they imply openness, competition, true ownership, technocracy, freedom and free market
  • Those guarantees come at a cost for users who use blockchain products. We live in a world where many people can’t do simple foreign exchange math. As of 2018, using the decentralized web requires understanding technical concepts such as private keys, using a new set of software tools and managing an inventory of different utility tokens to consume different services. Users also have to accept the finality of disasters such as loss of private keys, and the fact that often there is no customer support phone number to call when the worst happens
  • Those guarantees also come at a cost for founders, compared to traditional tech businesses. Founders who take a radical decentralized route can’t use the world’s most advanced cloud infrastructure (AWS, for example). They can’t charge dollars for their services. They put sky high barriers in front of potential users (from obtaining utility tokens to installing special software). They sacrifice governance and the ability to iterate and change their product over time, which is a fact of life in tech startups. They have to think about liquidity and choose one blockchain to live exclusively on, because blockchains aren’t interoperable yet

The internet is where it is today because it made life convenient for users and founders. But the success of the decentralized web doesn’t seem to be about convenience as much as it’s about values. I think about web 3.0 as a version of the internet that trades convenience for better values.

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Higher Order Antifragility: Why I’m Still Bullish on Crypto as Store-of-Value

— This post is part of the Blockchain’s Trillion Dollar Futures series —

I’ve been a believer in crypto as store-of-value ever since I discovered Bitcoin in 2013. I made public bull cases for Bitcoin when it was at 450 USD and 4,500 USD, and my views haven’t changed much since. Ten years after the launch of Bitcoin and the global financial crisis, it’s clearer than ever that monetary policies (in functioning economies and broken economies alike) are extremely hostile to savers.

While the “digital gold” story around Bitcoin continued to evolved, we saw the emergence of its many experimental siblings, all trying to give Bitcoin a run for its money. This includes privacy coins (ZCash) claiming “taking privacy further is better”, stablecoins (Basis) claiming “price stability will change everything”, other faster-cheaper-better-performing coins (Nano) claiming “speed, cost of transfer and scalability will change everything” or design-first-coins (Eco) claiming “carefully designed networks and user experiences will change everything”.

The fresh approaches of the projects I mentioned above are very interesting, but they haven’t been compelling enough to challenge bitcoin’s market cap, liquidity or overall brand. Bitcoin continues to be a primary choice for new dollars in crypto, suggesting that the Lindy effect is at play. The near zero adoption of the siblings also revealed the obvious barriers that creators and speculators chose to ignore: thin liquidity, high volatility, alert regulators, custody issues and above all an impossible battle for consumer and merchant adoption.

In the background, countries are experimenting with putting fiat money on blockchains. As a store-of-value, such money is hardly interesting as it will inherit all the problems of government fiat money.  It might have a future as a medium-of-exchange, if you believe in the future of a layered web 3.0 (and that’s a big if), but that’s beyond the scope of this post. 

Here’s where my views currently stand on crypto as store-of-value and medium-of-exchange:

  1. I think it’s becoming clearer and clearer that most people don’t see the appeal in crypto as medium-of-exchange. Many crypto believers say this would change once the right assets and infrastructure are in place, but I think such chicken-and-egg arguments are copping out of the core issue: in a world where most money is digital anyway, most people just don’t care about paying with cryptocurrencies.
  2. Store-of-value remains the strongest (and perhaps single proven) use case of cryptocurrency and blockchain in general.

It’s possible that crypto would be used as medium-of-exchange in distressed economies (making the adoption process a step function driven by black swans). For now, however, I’m choosing to be the most boring guy in the room and settle on the single uninspiring use case of store-of-value.

There’s merit to the idea that Bitcoin is antifragile. But I’m doubling down on the category knowing that any single store-of-value project might fail, including Bitcoin. My reasoning is based on the idea of “hierarchy of antifragility”. Consider this example, borrowed from Nassim Taleb: your body is antifragile. Exposure to small doses of poison makes it stronger, but exposure to too much of it will kill you. And if poison does kill you, a larger antifrgaile entity – in this case, the human race – gains as a result. It gets a stronger gene pool and precious knowledge (or, as a favorite saying in the Israeli army goes: what doesn’t kill you makes you stronger. What kills you makes your parents stronger). Systems that exhibit such hierarchy are especially well positioned for stress and disorder.

Whatever its future might be, Bitcoin released the genie of self-custody and math-backed scarcity from the bottle. Cash and store-of-value projects will continue to try and take those ideas to the next level of adoption. This category now home to a variety of independent initiatives, each one taking a different approach to tech / go-to-market while learning from the successes and failures of others. Most of those project will fail. But the category boasts a higher level of antifragility than any single animal within it.

As of November 2018, I believe that the markets (again) underestimate the possibility of cryptographic store-of-value gaining ground. Optimists suggest that there is a 100t USD market to be taken from gold (via “digital disruption”), the monetary premia of hard assets and offshore banking. But if the total market cap of this category grows 100x over the next 10-15 years, towards or beyond gold’s USD ~7t market cap, that would already be a serious dent in the world.

If crypto store-of-value does take off, it’s interesting to think what it would mean for hundreds of alpha-seeking crypto funds. If the growth comes from many assets, active fund managers will be able to justify their costs. If it comes from a few big assets exploding in a power-law fashion, active fund managers will lose business to ETF’s and passive funds. Many of them will then cross their fingers for web 3.0 to take off.

Blockchain isn’t the solution to old problems

I like the story of CLS (Continuous Linked Settlement), one of the most boring and important institutions in global finance. CLS is the world leader in FX settlement. It was launched in 2002, and just like with many other important things in the world, very few people have heard about it. That’s what I like about it. Also, the story of CLS is the perfect argument for one of my favorite quotes: “the older the problem, the older the solution”.

Now let’s talk about blockchain. When you give a little kid a hammer, everything looks like a nail. Blockchain is still a hammer looking for nails. Over 2016 it has been hailed as the future of insurance, identity, exchange and property tracking– mostly by people without skin in the game (media, banks, governments and consultants). Meanwhile, founders & VC’s with skin in the game, who tackle big problems in finance, are usually not talking about blockchain and not using it. Here are some of them: m-Pesa, LTSELemonade, YueBao, LendingClub, Wealthfront. Isn’t it strange?

Technology serves us best when it solves a real problem. The financial system has huge problems: financial inclusion, friction in payments, low access to asset management, system risk from off-balance sheet derivatives… we can go on and on. Is blockchain, a database that someone invented in 2008, the solution to these problems that have existed for dozens/hundreds of years?

Let’s take an example. Can you use a blockchain to simplify and improve the settlement process in the FX market, as some articles suggest? Yes, you can. Blockchain is a database, and you can build anything with it. But would you?

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‘Blockchain’ has officially turned into an empty buzzword

We need to talk about something, fellow fintech folks: the word ‘blockchain’ has left the ground and started going completely out of control recently. It takes only a quick look at Twitter’s #blockchain page to get that.

I started suspecting when well intentioned marketing people of a large bank used it non stop in a fintech event in Hong Kong. Banks seem to be all over the blockchain right now. I doubt that this technology can solve any acute problems for HSBC or Citibank, but I get them. “Blockchain” sounds cool and they’re too rich and too threatened by Bitcoin (the asset) to ignore the technology behind it.

On another event I heard the following question from an investor: ‘I got pitched by several blockchain startups. Would you advise me to invest in them?’. Yesterday TechCrunch joined the bandwagon and announced that the blockchain might be the next disruptive technology. For serious media that wants to look deep into the future, it’s a fair title and it can invite a serious discussion (which the Bitcoin community doesn’t lack). But the content mostly glorified ‘blockchain’ as a buzzword, and that’s wrong.

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The maker crunch: is the HK tech scene doomed?

In a talk titled Inside Israel this month, I shared my company’s story and my insights on the tech scene in Israel. The next thing everybody wanted to know was what HK can learn from “the tech miracle” of Israel, a country only slightly bigger than HK in population.

It’s a good question, because the scene in HK is still hardly impressive compared to that of Tel Aviv, or London or Singapore (yes, Singapore). The government and local entrepreneurs have plenty of pride and good will. Some people say that HK will eventually explode. I understand where the argument comes from. After all, startup scenes are magic. The success factors (risk tolerance, talent, capital, ideas and heroes) get built up slowly and reinforce each other. Once they reach a tipping point, the scene catches fire and sustains itself in a big party. But I have a feeling that HK lacks some big things if it wants to catch up with the fully burning ecosystem in Tel Aviv or the catching-fire scene in Singapore. Let me present the most obvious one, in my opinion. Let’s look at some facts:

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