Blockchain’s Trillion Dollar Futures: Cash and store-of-value

I’ve been a believer in the cash and store-of-value category in crypto 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. Bitcoin still solves the problems it was designed to solve, and it continues to be a primary choice for new dollars in crypto, suggesting that the Lindy effect is at play.

What’s new is that many experimental siblings within this category are 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”.

All those fresh approaches are very interesting, but they haven’t been compelling enough to challenge bitcoin’s value and liquidity. It’s pointless to try to predict the future of Bitcoin or the rest of the category. The outcome will likely be shaped by a small number of black swan events (geopolitical, financial, regulatory or cybersecurity related).

There’s merit to the idea that Bitcoin itself is antifragile, but there’s a bigger point I love: even if something breaks Bitcoin, the cash and store-of-value category stands to evolve and even gain from it in the long term.

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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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