I hear these types of questions from friends, on Reddit, and now even on mainstream media. The truth is no one can accurately predict the price. Those who try are often just telling bedtime stories with math.
Old models of valuing traditional assets don’t apply in crypto-land. While new models are being developed, the reality is that its price is driven largely by speculation. It’s sellers versus buyers, for the time being.
What I can be certain of is that this market’s capitalization won’t be going to zero. Protocols like Bitcoin and Ethereum are solving a dramatic and systemic problem. That problem is the requisite of trust in our society. And it’s accomplishing this at a time when trust is at an all-time low.
Focusing on the short-term price action can serve to distract. It is important to recognize where the demand for this technology stems from and why. The sentiment around a decentralized utopia advocated by ‘crypto-radicals’ is not as fringe as it may seem, nor as far fetched.
The projects that will succeed in the long-run will be the ones that provide solutions to the problem of trust. That’s where attention is deserved.
Faith was never a good strategy.
The Edelman Trust Barometer is an annual global survey that aims to identify the state of our trust in key social institutions.
Last year, trust in governments, corporations, NGOs, and the media continued its decline, with a massive collapse in the United States. The year before, fifty-three percent of the global public believed the system was not working for them and their primary concerns and fears were centered around corruption.
That makes a lot of sense. Why should we trust our institutions?
The US government bailed out the banks after they produced a fraudulent bubble that brought down the world’s economy; The European Central Bank leveraged its financial powers to stop Grexit with no regard for the people’s democratic election and referendum; HSBC was caught red handed laundering close to a billion dollars in cartel drug money just to be slapped with a pathetic fine; Volkswagen knowingly sold us ‘clean’ cars that in fact produced 40x the legal limit of cancer-causing pollutants; Snowden proved to the world how our governments indiscriminately conducted mass surveillance on its own citizens; The Panama Papers have shown how the rich pay offshore accounting and law firms to hide their wealth; Yahoo, Equifax, and Facebook carelessly mismanaged the sensitive data we gave them; Wells Fargo defrauded their customers, Russia manipulated the elections, Trump is president, and all while the traditional capital markets have been in a mad bull run as economic disparity and inequality seemingly worsen.
These are all of course complex events and issues that can be debated at great lengths but the point is is that they happened, in one form or another. They exist in the public’s psyche and they have not inspired confidence in our institutions nor the systems that govern them. Now, the effects of these deceptions are beginning to materialize.
The persistent problem of trust.
Mark Andreasen famously proclaimed that software is eating the world. The computer, the internet, and scaled software have completely changed the rules of the game. The stories taught in MBA programs are no longer relevant and have to be reworked.
What hasn’t changed is the prerequisite of trust. Software still necessitates blind faith in the centralized organizations who own and operate these platforms.
In fact, it has increased the concentration of power by exacerbating winner-take-all effects. Now, we only have to trust but a few entities, how convenient!
Trust in institutions has remained mandatory despite the digital revolution.
I don’t get it, but I know I don’t like it.
Even if one can’t articulate the finer points of why or who they don’t trust, we are seeing the ramifications of this outlook.
Brexit was scoffed at by the intellectual-yet-idiot as they dismissed it as a populist movement. Then the country voted.
Yet again, career politicians, journalists, and the Jon Stewarts of the world laughed and mocked Trump and his supporters. Now we have President Trump.
One of the few individuals who did predict Trump’s victory was Michael Moore. As he spent time with the people who would ultimately decide the election, those in fly over country and the rust belt, Moore saw the disintegration of trust, the fading faith in the story of globalization and in its advocates.
They felt abandoned and cheated. Something was really wrong and they were looking for an outlet to express their anger. They found it in Trump.
They may not have known exactly what the problem was let alone what the solution could be, but they knew the status quo that they’ve been sold on wasn’t working. It was fake news.
To be clear, I think Trump is an abhorrent and hateful man. But Trump is also an opportunist. Whether he intended to or not, he successfully tapped into a momentous shift in the public’s confidence.
I believe protocols like Ethereum can offer a genuine solution to the problem of trust. I think this is why people started buying Bitcoin, and why others will follow. It’s that same “f*** you” vote that has left us with Brexit and Trump. Except this time, it might just deliver on its promise.
In math we trust.
“using cryptography and economic incentives to achieve information security goals.”
In this system, trust isn’t removed, it’s shifted. No longer are we expected to place our faith in a select few who we’ve entrusted to carry out a fiduciary duty. It instead asks us to place trust in math and in individual self-interest.
While doing a presentation on cryptoeconomics in Toronto, where I was in attendance, Buterin asked the audience “Do you trust Google?” to which few raised their hands.
He asked, “Do you trust Baidu?”. Again, few hands went up.
He then asked, “Do you trust that people like money?”. A majority of the crowd voted with little hesitation, that yes, they do.
“That is cryptoeconomics.” Buterin concluded.
As Buterin went on to explain, cryptoeconomics isn’t necessarily a breakthrough in technology but a change in paradigm. This change has come at a time when trust is fleeting.
Bitcoin was born out of the cypherpunk movement. A fringe ideology reserved for techie weirdos and radicals. This sentiment is no longer fringe but has grown each time societies’ key institutions have discredited themselves.
Ethereum won’t solve all of our world’s problems. Bitcoin is not a panacea. There will be more scams, the prices will go up and down, but these protocols have introduced a socially scalable alternative.
It has offered us an insurance policy. A hedge. Something that is not the status quo and doesn’t ask us to blindly trust it.
The projects that will create long-term value will be the ones that solve the problem of trust and help further this new paradigm.