“Crypto is here to stay.” People say with a tinge of dread, a kind of… defeatist inevitability.
Like, oh well, Thanos is here to stay I guess.
But it really isn’t and shouldn’t be so.
“It is here to stay!!” I mean, there has to be some reason why we ‘allow’ it to stay in the first place, right?
Crypto today is still like the Internet at the dawn of the century. I was just a toddler back then, clueless about the world, just as the world was clueless about the Internet. No one was talking about Google, Facebook or Amazon at the time. How could they? Of course we had our doubts then, just as we do about crypto now.
“Who would even use this?” “What we already have now is great. Why would we switch to this?”
I only started to take crypto seriously about a year ago, diving into the rabbit hole, and now, taking some time to organize and synthesize my thoughts on this topic/technology. For this blog entry, ‘crypto’ basically means blockchain technology; I don’t see much value in going into specific blockchain projects and their respective cryptocurrencies — most of the noise in crypto comes from people hyping up all these new coins as get-rich-quick schemes. Much less is said on the big picture, the fundamental forces that will shake things up for our society. So that’s where we are going instead.
Let’s jump right in.
Digital Abundance and Digital Scarcity
What the internet gave us before was digital abundance. You can make copies of everything. You can make a podcast, image, webpage, and send them to anybody and everybody. Instantly, at zero cost. That was a very big idea and created huge fortunes and huge disruptions.
What crypto gives us is digital scarcity. You can only have one copy of this thing. There can only be one owner of this thing at any one time. That’s a radically new idea in the digital space.
That ability to create scarcity and transmit value through the Internet is just as important as the ability to create abundance and transmit that through the Internet. Arguably, way more important.
And the way we transmit value through the Internet is going to be in cryptocurrencies. It’s not going to be any other way.
Look, if two computers are talking to each other at light speed, trading resources to complete tasks, how are they going to exchange money? You think they’re going to send US dollars through PayPal? Hell no, they’re going to use crypto. Crypto is the native currency of the Internet. Of course the Internet is going to have its own currency. Otherwise its like saying the Internet is going to use email through FedEx. When we build a new system, a new platform, everything built on it changes. You wouldn’t put horses on railway tracks, right?
How do we create digital scarcity? We wrap digital goods in military-grade encryption. And we put them on a decentralized network. Why decentralized? So that everybody has a stake in it, yet no single entity can have exclusive control over the scarcity. For things that are abundant, that are meant to be shared ad infinitum, its fine to have middlemen facilitate. But for things that are scarce, that are meant to be valuable because of their limited supply, then having middlemen just exposes us to unwanted risk.
We have used middlemen for scarce goods because having one guy set the rules was better than having no rules. But now, with cryptography, we have a solution that creates “rules without rulers”. We have the ability to collectively create and transmit scarcity without this one guy in the middle having the temptation to tamper with it.
Freedom and Tyranny
“Everybody is an investor now.” Now this statement, I say with dreadful inevitability.
It is increasingly common today to not only have your full-time job (which you may not even like), but also learn investing and the stock market and properties and whatnot (which probably even fewer people like).
Its good to pursue ways to grow wealth — to ‘make your money work for you’. But the way it is today, it seems like more and more people are pressured into doing it, because the costs of not doing it are getting higher. This is a major distraction and waste of energy. For the people who genuinely enjoy investing, that’s all good. But most of us really don’t want to spend our time doing so. Probably why TheWokeSalaryman, Chicken Genius or solutions like StashAway and Endowus are increasingly popular now.
“Since everything in the marketplace requires sacrifices of human time to produce, we can say that money is human time emblematized. In the same way a stock certificate is title to company capital, money is title to human time; people sacrifice time earning money which they can then spend on commensurate sacrifices from others.” — Robert Breedlove
Its so sad that all of us give our time and energy in a full-time job, earn a salary, but then are forced to find other places to put that salary into, because the purchasing power of that salary is decreasing by the year.
Central banks have an exclusive privilege to produce money at near-zero cost, enabling them to confiscate wealth from all users of dollars at will. “Expansionary monetary policy” that increases the money supply by, say, 5% per year basically means that 5% of your money is being stolen each year.
Scarcity is arguably the most important property of money, as without an assurance of supply limitation, someone always gives in to the temptation to inflate and steal the value stored therein (see: aggry beads, panos cloth money, or fiat currencies today).
TLDR: Inflation is theft on your wealth, and by extension, your time. But the cool trick to this ‘money heist’ (hehe) is that the institutions that do the stealing also shape the narrative: “it stimulates the economy” or “its a natural, inevitable part of life”.
Crypto is sovereign-resistant, designed to be completely decentralized. You don’t need the violent power of the state to enforce the value of a cryptocurrency. And so it’s very liberating to disconnect wealth creation, wealth storage, and wealth protection from the state. The state shouldn’t be doing those jobs in the first place. They have much better things to do that they are more suited for anyway.
People worry that decentralization would spell anarchy. Chaos. That we would end up in some Lord of the Flies, Hobbesian State of Nature, where life would be “nasty, brutish and short”. These are genuine concerns; we trust governments, organizations and leaders to make decisions on behalf of the community because it is better to have centralized rules than no rules.
The key difference here is that crypto has rules. Rules that all participants in the network agree to, and can change if enough people come to a consensus. Decentralization does not mean no rules. It in fact means quite the opposite: rather than one central authority deciding the rules, now everyone gets a say.
Rules without Rulers. Money without Masters.
Important caveat here: not all crypto projects are as described above. Any project that is centrally controlled and does not have a cap on its supply will face similar problems.
At this point, maybe you are thinking: “okay inflation is bad, but it doesn’t seem that bad. At least its stable.” And you’d be totally right. For the ‘first-world’, the current system may not feel so painful. It seems like just first-world problems. Necessary evils.
We can’t say the same for the rest of the world. There are 1.3 billion people living in countries with double digit (and more) inflation. Want to see something really scary? Search ‘hyperinflation in Venezuela’. Crypto is significantly more important for these communities, where the extent of inflation theft is way more severe.
El Salvador recently passed a bill recognizing Bitcoin as legal tender. Maybe you think this is small news, coming from a small country. But think in their shoes. Why would they do this? One of the big reasons cited by President Bukele is remittances. 24% of El Salvador's GDP comes from remittances, and many other countries have similar numbers. Singapore’s number is 0%. Its the opposite for us. Foreign workers here send money back home. So perhaps its difficult for us to understand this part of the global economy.
Remittances are taxed at anywhere from 8% to 30%, meaning just sending money home to your family, you are robbed of up to 30% of your hard earned labor. That’s just nuts. Not to mention that it takes weeks for the money to reach your family members. Plus corruption.
As of today, crypto is already being adopted as the new way to send money back home, for a fraction of the cost, and the recipient family members can access the money within minutes.
We tend to see decentralization, getting rid of the middleman, as a bad thing. And we take for granted that we have these institutions set up in the first place. In many parts of the world, there aren’t any. And even if there are middlemen, odds are they really can’t be trusted.
With Crypto, we have the opportunity to help the bottom billion of the world.
We have a tool for liberation, and a chance to help those who need it most.
Money, Money, Money
So yes, Crypto as a technology gives us digital scarcity, and is philosophically and morally good for the world. But how will it become ‘money’?
How does anything become money?
As Yuval Noah Harari succinctly describes in Sapiens:
“We believe in a particular order not because it is objectively true but because believing in it enables us to cooperate effectively and forge a better society. Imagined orders are not evil conspiracies or useless mirages; rather, they are the only way large members of humans can cooperate effectively.” — Yuval Noah Harari
As long as there are believers, it is money. Cause at the end of the day, money is just the bubble that never pops.
It’s just, if we all agreed tomorrow, that it’s not the US dollar, it’s actually the Euro that is really money, then the world would switch to Euro. Heck, if we agreed that clamshells were money, the world would switch to clamshells. Now obviously there’re underlying characteristics that make euros and dollars better than clamshells and so therefore we converge upon those. But if the world were to decide that Bitcoin is better money than US dollars, the world would switch to Bitcoin. It’s a story. It’s a consensus belief.
It’s very difficult to imagine another currency taking over as the reserve currency of the world because for most of us, in our lifetime, the US dollar hasn’t lost its status.
But at the same time, the pound sterling used to be the reserve currency of the world and it lost its status at one point. Money used to be gold-backed and that went away. So it’s not inconceivable that it’ll happen.
That’s the tricky part. Because ultimately what we use as money comes down to a global consensus belief, its difficult to predict when it will happen and how exactly it would go. What I do know, is that crypto has many underlying characteristics that make it better than what we currently have.
Store of Value
If you wanted to leave something of value for your grandchildren, what would you get? What asset would retain its value 100 years from now? What is the best way to transfer value over time?
Getting your grandkids cash is a terrible idea, due to the inflation problem discussed earlier. At 3% inflation, in 100 years, they would be left with 1/16th of your original amount.
Properties are decent, since they tend to appreciate in value and can at least match inflation. Plus, you get the added benefit of staying there, and your grandkids can stay there too. Or you could rent it out for even more income. But the cons are the time and money spent maintaining the place, considering how it will get damaged or eroded over time. There’s property tax too, plus the chance that external factors like politics or natural disasters influence the value of your property. Overall, okay choice.
Gold is good because it appreciates, its a precious metal so its value comes from its scarcity. Its really durable, its not going to get damaged or eroded after 100 years. But because it is a physical thing, you need a physical space to store it. A secure space. A bank vault? How do you know if the bank will still be there in 100 years? Plus the fees you pay them to hold it for you. Otherwise, decent choice too. Less utility than properties, but mostly retains value minus the 100 years of fees.
If you say stocks of a company like Apple, note that the average lifespan of a S&P 500 company is at 18 years now, projected to reduce to 12 years by 2027. Any company’s shares you buy now would be worthless in 100 years.
What about retaining its value across space?
If you wanted to leave the country, how quickly can you transfer your wealth to your new destination? And once you’ve reached the destination, how much of your original amount would remain?
These may sound like hypothetical questions, but in our increasingly globalized society, the idea of staying put in one place for your whole life is going to seem so last-century. Cash is the best in this case. Properties suck, because they take a long time to get all the processes and paperwork settled.
Gold is not good either: as a physical thing, the processes around moving it and ensuring it stays secure the whole journey are insane. Plus paying for all the fees.
Crypto achieves both: with capped supply, it retains its value over time. With military-grade encryption, and immutable history, it will survive 100 years. Retaining its value across space is a no-brainer: its practically instant, effortless and the fees are a fraction of the alternatives. Recall the remittances thing.
“What about volatility?” “Why would I leave my grandchildren something that loses 50% of its value in 1 month?” Michael Saylor had a really good analogy on this: when emigrants left Europe and sailed across the Atlantic in the hopes of getting to America, they sacrificed everything to uproot themselves and get on those ships. The journey took 3 months and 30% of the people on the ships died before reaching the other side. But people still went on those ships! Why? Because if they stayed in Europe, they would be living a miserable, oppressed life. Its a stable, guaranteed life. Zero volatility. But would you choose it?
Now we are faced with a similar choice. We are in the land of Fiat, central-bank controlled money that gets inflated, and thereby slowly robbing you of your wealth, your time, your energy. You have the choice to get onboard a ship, that would bring you to a new land, a land of freedom, of prosperity. Getting on the boat means adopting crypto early. Yes, you may lose 50% of your portfolio overnight (paper loss), but how does that compare to 30% chance of losing your life? I say we have it really good. Do you want to stay in a zero volatility world with guaranteed 5% yearly loss, or get onboard the ship?
Risk is relative. Volatility is only natural. Change is nature.
My day job with the navy demands that I risk my life. Every time I go out to sea, there is a chance I die. Probably significantly less than 30% (I hope), but to me, that is risk. That is scary. Having a paper loss of 50% is nothing in comparison.
Also, remember that we are talking about 100 years, not 100 days. Short term fluctuations are bound to happen as the world makes the adjustment to crypto. If you wait until the price of crypto projects are stable, your entire life’s fortune probably won’t even be able to trade for a single Bitcoin then.
Would you buy a cup of bubble tea with crypto? Honestly, till this day, I still find it hard to imagine this. Of all the areas that crypto will disrupt, I feel like last-mile, small physical items would be one of the last. We don’t need military-grade encryption and a global tech ledger to track that I got *Taro milk tea 100% sugar* on Tuesday. Nor would I want to pay any fees in that transaction at all, or wait even 5 minutes for the boba aunty to receive it. Also, the current solutions (PayLah/Now, GrabPay etc.), at least in Singapore, are good enough that we won’t be so compelled to switch.
Although, with developments like the Lightning Network, or $NANO, using crypto as currency might happen sooner than you think. Take a look at Muun Wallets and see for yourself why the current payment solution providers should be shaking.
Even if you don’t buy groceries or boba or toiletries with crypto, as of today, there are already loads of other valuable things you can buy (and sell) with it. And you would want to use crypto precisely because of its security, and because it guarantees digital scarcity for whatever you are buying. Remember, crypto basically means wrapping anything in military-grade encryption, so nobody else in the world owns this unique thing except you. As you start to think about all the scarce and valuable things in this world that could get wrapped, you realize just how many applications crypto will have.
Netflix has amazing technology, great UI, but would you be using it if all it had were shitty movies? The strength of any platform comes from the quality of its applications. Same way that the App Store is a massive success for Apple because of all the apps that are built on top of it, so it will be for crypto as well.
The common gripe people have (even famously Charlie Munger and Warren Buffet) with crypto is: “Where is the utility?” “Is it just money?” “I only invest in businesses because they create stuff.”
Well, first of all, money IS utility. It is the ultimate utility there is. It is the utility that underpins the utility of everything else. Being universally transferable for anything else in the marketplace is the most useful thing to have. All other useful things are second to money. Of course, there are valuable things that money can’t buy but we will talk about those things in another blog entry. Today, my inner utilitarian takes over…
I understand that their gripe isn’t that money is useless. The issue they have is that it is simply a token. It isn’t a business that can keep growing and churning out new products.
Hold your beer.
Let’s take the most valuable company in the world today: Apple. What does apple make? Hardware devices and software. Why are they the most valuable company in the world? Because tons of people use their products, and tons of businesses develop apps and build complementary products around the Apple ecosystem.
So basically, Apple is a platform company: they make platforms. Customers use their products because there are so many applications on it, and developers develop applications because there are so many customers.
Same deal with Microsoft, Google, Amazon, Facebook, Netflix, and soon to be, Tesla. The most valuable companies are all platforms. It may seem like Apple or Tesla are merely making individual products, but with a big enough user base and a way to connect them, you have a platform.
Well, money is a platform too. Its arguably the biggest platform ever, the platform that all other platforms are built on. Without a money system, all these companies can’t function.
So, to see if crypto will be successful, or perhaps, which crypto project will be successful, look at their applications. What has been developed already? What is being developed in the future? How many people are using it? How much activity is happening in these spaces? NFTs and DeFi (decentralized finance) are two applications that have taken off over the past year and are already massive, and still growing rapidly.
They are just the beginning.
Remember: Digital Scarcity. We can wrap anything valuable in crypto.
As a creator, NFTs are of particular interest to me, and I am presently putting some skin in the game to immerse myself in the space. Stay tuned :)
A cool project in Singapore is OpenCerts, a way to wrap and verify the authenticity of your graduation certs from educational institutions. Pretty legit stuff.
Another area that I am really excited for is crypto social media: social media that is truly decentralized, so you actually own all your data instead of Facebook or YouTube; truly pseudonymous, so we remove the problem of discrimination and bias based on gender, race, religion, culture, etc. entirely; and most importantly, where creators are fairly compensated for their work, rather than middlemen swiping the profits.
The Internet of today is a double-edged sword for creators: on one hand giving them limitless, instant distribution, but on the other hand also making their creations infinitely replicable and therefore, value-less. Crypto corrects this through ensuring digital scarcity, so that no one other than the creators themselves receive the proceeds from their creations. Okay, so, why would we switch to crypto:
As a store of value, it can be stored digitally, so it’s hard to seize. It’s easy to send across national boundaries and electronically over the Internet. It’s authenticity is easily verifiable, whereas gold is hard to do. It can be divided down to millions and trillions of a unit. And it is programmable, so you can put it inside smart contracts and create applications with it.
Today, if we look back on the Internet, we would say undeniably that it has taken over the world and changed our lives significantly. But 20 years ago, you would have looked at the Internet with the same skepticism and doubts that you look at crypto now.
“What’s its use case?” “Why would I even need Internet?” “Why would I trust anything that is virtual?”
10–20 years from now, we would look back on Crypto and say undeniably that it, too, has taken over the world and changed our lives significantly. That’s how technology and innovation works. S-curve, early adopters, creative destruction, all that jazz.
There is a lot of noise out there, a lot of projects that sound good now but won’t be around in 10 years. How was anybody supposed to tell apart Google, Amazon, etc. from the multitude of ‘dot com’ projects back then?
So you’d want to understand this space from a macro perspective, from wise people who really know their stuff. You need to be intellectually honest and intellectually curious. So far, the best people I’ve found to cut through the noise and have helped me understand crypto better are: Naval Ravikant, Balaji S. Srinivasan and Robert Breedlove. Click their names to read the articles that I've found useful as a starting off point. I also love podcasts, so if you want some recommendations, feel free to ask me!
Crypto is the new Wild West. The Infinite Frontier.
And just like how the Internet was at the turn of the century, the initial phase is messy for sure. With crypto, even more so because now we are dealing with things that are scarce, that are valuable. Its still early days, and its normal to be uncertain about the space. But each year, each crisis that crypto survives and emerges stronger, it gets more valuable, as people trust it more and we move closer to mainstream adoption.
When will it go mainstream? I don’t know. It will go mainstream when it goes mainstream. Crypto requires its “lightning in a bottle” moment (or genie in a bottle, if you’d like) before we hit critical mass and it really takes off.
But when it does, my hope is that you will be on the right side of change.