Crypto = {Inevitable, Fad}
Crypto is not a tech or investment play. its a changing paradigm of how we imagine things to work.
“We all think we know how the world works. But we’ve all only experienced a tiny sliver of it.” -@morganhousel
The world is being divided between folks calling crypto the ultimate saviour of society and the other end calling it bubble.
Black and White!!
But hell, the newsletter itself has the name Grey, so we've got to look at it from both lenses.
Let's look at it from the lens of why crypto is inevitable. We start from this side cause as this is the sharper end of the argument. The end jolts us from the reality in which we live. But before that, a quick note on the evolution of the digital world.
Web information, social and now community.
Web 1.0 (proto-web, the "internet that isn't on the web") connected us to information, Web 2.0 connected us to social media, cloud computing and mobile devices, and Web 3.0 connects engaged community members in engaged communities across all devices.
In the Web 2.0 world, you are the product. The user pays with personal information - search queries, likes, shares, locations, purchases - which companies use to target advertisements. In the Web 3.0 world, the product is created by You or Your community.
The technological changes of the 2000s have shown that they come at speed, which is hard for us to digest. Also, the biggest beneficiaries of these changes are not the present mature generation that sees the change but the ones coming behind.
Looking back, iPhone was a radical idea by a radical company that affected millions of people's lives. On January 9, 2007, when Steve Jobs introduced the iPhone, he said it was going to change the world. But the world didn't pay much attention. But the change was fast, swift and eventually swept everything. Its biggest beneficiaries were not those who used it for communication but those who made their careers using Instagram, Youtube Tik-Tok et al. So, with this living example we can say that "a single innovation can transform the whole world we live in".
Metcalfe's law and Network economics
To understand the long term potential of Crypto, let's turn to Metcalfe's Law. In the tech world, we have “Metcalfe's Law.” This principle, originated by Ethernet inventor Bob Metcalfe in the 1970s, has proven astonishingly resilient. Many technology industries conform to the principle. The Law says the value of a network is proportional to the square of its nodes. The more people on a network, the more valuable it is. The internet is a super-network that affects us whether we know it or not, and today it has ~4.8 billion, connected people. That's more than any single society has ever had before.
Now. Let's do another quick work, answer the following questions from the view of future generations. The ones between the age of 9-17 years old.
Is it going to be more digital, or are we going to be more physical?
Will it have more seamless access to information than now
The answer to both of them is an inevitable YES.
This implies that our social structure, which is physically driven and to which we are accustomed, is being challenged. While our society has become digital, it is only with crypto is realising the full potential of digital and question the way we think of status, trust, work.
Let's try to look at a few of them one by one.
Status
Status or signalling is the most primal human nature. And signalling was done by wearing good clothes, driving great cars, having high profile jobs etc. However, there was a constraint in this signalling that its impact is limited.
If you wear a Rolex, your status is say known to 1000 people you know. But if you buy a BAYC NFT, then your status is known to millions of people.
If you get a blue tick on Twitter, you are the elite of elite now!
What does the blue tick represent in the physical world? Nothing
What does that JPEG mean in the physical world nothing? Nothing
But in the digital world, it is massively valued.
Trust
When two unknown people would interact in a physical world since they don't trust each other, they need an intermediary to do that job. That intermediary could be a bank, government, auction house, or anyone whom both parties trust.
While in the previous versions of digital society, when information was digital, you couldn't see what was happening behind it.
That is getting changed. The information is now digital but is also available for everyone to see. With cryptography, we can use math and programming and prove ‘we are who we say we are’.
Suppose you want to borrow money from a bank. The bank's treasury determines the interest rate you borrow. That rate is shown digitally, but there is no way to know if you are being screwed or not. However, when borrowing from a crypto protocol, the rate is not determined by a treasury. It is rather determined by a code that runs the treasury. You are free to see if the code is doing the right thing or is trying to screw you over. Trust via crypto is where the intermediary needs to be trusted less and less.
Work
In our present society, the way it's designed is that it's tough to access someone else's work. That is cause if anyone else can access and use someone else's work, then the original creator has no benefit.
That changes in a crypto first society. You do your work put in on-chain, and it's free for everyone to use. And whenever someone uses it, the credit automatically comes to you.
For example, a coder solves a complex problem and puts it out on a chain instead of hiding it. Anyone can now use it, but it's known to everyone who initially solved the problem. Or say a YouTuber picks up a song from someone on the chain and uses it, but everyone knows who the original creator for it is, and the creator gets paid for usage.
What that implies is that suddenly you can use the works of others to do your job. It means you can be far more efficient. It also means that people suddenly have time to work on multiple things at the same time.
Our social fabric is changing. And as society itself changes, what is inevitable is that we are seeing the emergence of a new kind of economy—something which is pure Adam Smithian ( everyone has access to information) and yet socialist as the profit goes to everyone and not in society. Crypto, unfortunately, is looked at only in terms of investments, but the bigger picture is that it represents the social fabric that is changing. Blockchain creates a social structure that is not bound by geography or rules. Voluntary societies are built on commerce, not the government. These societies are defined in cyberspace in digital space, in the cloud.
Now jumping to other side.
Any society spends its resource on two broad things—sustenance of itself and status it can enjoy. Sustenance is its food and water and housing and clothing and healthcare and schooling. Status is all the other good things it can spend money on—houses, cars, vacations, furniture, art, entertainment, gadgets etc.
While things related to status are being clearly challenged, as outlined above, the sustenance part remains as long as we are physical human beings; that is inevitable.
It is the part where we think crypto maximalists get it wrong. A digital/Crypto first society will still need food, shelter, transport, healthcare, clothes etc. Digital can help it get better, but it will still require governments, societies, large physical human organisations to work together. Society will still need Factories; it will still need hospitals, it will still need roads, above all, it will still need FOOD. All societies—from the most primitive tribe to the most technological, consumerist ones—sustain themselves by producing food for their members. The only difference is in the type of food.
All that would mean that the sustenance part of our society will continue to have a semblance of what we see now. It will be more natural, more in the norm, more in white. But the status part of our society, however, has no resemblance to what we see now. And it is the status part that dictates everything in life.
Actionable Insights
To conclude, crypto is probably the Schelling point of the internet, economics, and creativity. The 'Schelling point' is the solution that emerges from a group because it seems natural to everyone. Like money or barter -- which get their jobs done well enough -- crypto represents an alternative option for doing things. One where you don't need to trust anyone.
If you are working on anything related to the status, this is the time to change your paradigm. For you, Crypto can't be an investment play. The ROI for your time and money that way is far lower. For you, the play is being part of the change and building this new society. The reason is that, in any old system, when you add a new part, it grows in proportion to the whole. So, in a society-changing system, when you add a new part, it changes the whole. Crypto is the change itself, it's not just about investment values.
On the other hand, if you work on the sustenance part of society, society will always value your work-As long as we remain physical human beings. For you, crypto can be treated as an investment play. Yes, Crypto's value proposition is mostly intangible because it isn't backed by 'real' assets, like gold. But you can't eat the stock market, either.
Predictions are Hard, Especially About the Future
One of the most hilariously terrible predictions of all time on the internet was from Paul Krugman. He told us " the growth of the Internet will slow drastically, as the flaw in 'Metcalfe's law' becomes evident: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."
Nicely written! check out my story on metaverse too, its a bit abstract but hints at similar lines.
Interesting read folks ! Keep it coming !