the bitcoin effect

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The widely-held belief that for-profit investments can only maximize financial returns and social purpose can only be pursued through charity—is obsolete. For the next generation, value has to be …

The widely-held belief that for-profit investments can only maximize financial returns and social purpose can only be pursued through charity—is obsolete. For the next generation, value has to be created and shared across both sectors and by everyone. Creating shared value however, can not happen through silos of social responsibility or philanthropy, it has to be a values-based investment which is why crowdfunding, pay-for-success, venture philanthropy, impact investing and other social finance vehicles are becoming so powerful.

Digital Anarchy: The Bitcoin Effect examines the potential to democratize financial exchanges by providing digital access to capital. Though one-third of humanity remains unbanked, remarkably more than one billion of these people has access to a mobile phone and thus could use bitcoin (or a derivative thereof) to participate financially. Considering the framework of “humanitarian” capitalism, the fact that bitcoin does not require a central authority to qualify or limit the participation of another human being is an important differentiator to fiat and bank-controlled instruments. This presentation argues that the innovation of bitcoin and the blockchain not only has the capacity to build registries of multi-entity contracting, it also offers the potential to create self-enforcing “smart contracts” between free individuals. Ultimately, the transparency of the blockchain has the potential to end corruption and empower a free society.

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  • 1. SEPTEMBER 2014 THE RISE OF THE TRANSFORMERS DIGITAL ANARCHY: THE “BITCOIN” EFFECT social finance social entrepreneurship social good LEE FOX
  • 2. “The groundswell of peer-to- peer exchanges has empowered the people.” the rise of the transformers Evolutionary leaps in the history of human progress are directly linked to the adoption and adaptation of powerful tools both invented and discovered. The arch of humanity is shaped by these tools, as the norms of one ‘Great Age’ are chiseled away in favor of the next. Just as fire, language, agriculture and machinery moved us from ‘Stone’ to ‘Industry,’ new developments in digital, mobile and social technologies are shifting us from the age of ‘Information,’ into the age of ‘Transformation.’ Whereas the byproduct of both the first and second industrial revolution was the centralization of “power” — inclusive of communication technologies, energy resources, medical services and financial products — the byproduct of this new era is decentralization. The groundswell of peer-to-peer exchanges across mobile and social platforms is empowering people everywhere and anywhere to produce and share with as much authority as they are able to consume and buy. Today, 41% of households worldwide connect to the internet. “Peers” have an unprecedented opportunity to participate without barriers of time, distance, age or socio-economic status. In fact, worldwide mobile app users are expected to reach 4.4 billion in the next three years, more than half our global population. Already, SIM card penetration is at 90% worldwide.
  • 3. Age of INFORMATION Age of TRANSFORMATION Adopters Transformers Matures Boomers GenX GenY GenZ Alphas 1927 -1945 1946 -1964 1965 -1983 1984 -1996 1997 - 2009 2010 - now 1983 TCP/IP protocol 1972 1st video game 1989 . World Wide Web 1993 1st Browser for Personal Use 1973 1st mobile phone 1969 1st computer message 1998 Google launch 1947 Polaroid camera 1936 high-definition TV 2007 iPhone 2004 Facebook launch 2014 Bitcoin emerging 2010 Kickstarter launch
  • 4. Historically technology adoption has always been slower for aging generations, which explains the existing divide between the younger “Transformers” (Millennials, GenZ and Alphas) and the older “Adopters” (GenX, Boomers and Matures). Being raised with “cyber” as a crib to career identity has evolved the psyche of Transformers very differently than the generations before them. Beyond sharing personal resources and services, Transformers freely contribute knowledge assets — inclusive of software code, metadata, process documents, audio/video and image artifacts. This highly social and collaborative behavior has exploded so much so, that in the United States, 40% of the U.S. population actively engages in some kind of peer-to-peer exchange. Mirrored across the globe, hundreds of millions of people now give money (via crowdfunding), organize political activities (via micro-blogs), share major life events (via social networks), harness free education (via crowdsourced EDU), showcase themselves as entertainers (via video and music apps), produce and review information (via blogs and social commenting) and connect with unknown “peers” who similarly share the same passions (via social gaming and interest-driven communities). ! Nonetheless, the free-exchange and reuse of assets goes against the core-values of the aging Adopters. Thus, policy-makers and business executives (largely comprised of the older generations), are struggling to reconsider how economic innovation and growth can be supported in a decentralized, open-sourced, sharing economy where access is more important than ownership. “Adopters are the parents & grandparents who believe in centralized authority and regulation.”
  • 5. As it turns out, “humanitarian” capitalism — which also seeks a positive return for people and planet — has greater opportunity in the Age of Transformation as compared to “proprietary” capitalism which seeks pure profit above all else. Though social responsibility has long been intertwined with business innovation, Transformers are natural-born social entrepreneurs and measure success with a triple bottom line. Limitless access to the open web (in developed nations) has created a heightened awareness to global issues. Likewise, cause marketing, spoon-fed to Transformers since birth, has shaped an ideology that both people and businesses have a moral obligation to make the world a better place. According to the 2014 Millennial Impact Report, a whopping 94% of young people surveyed in America, are interested in using their skills to benefit a cause. Millennials want to have the ability to pursue their passions and “help” with “creative contributions” in both their personal and professional lives. ! It’s worth noting that GenZ Transformers are also mature thinkers and admirable subject-matter experts — in some cases, well before their teen years. According to cultural strategists, Sparks & Honey, 60% of GenZ want to have an impact on the world, compared to 39% of Millennials. ! Economic and social theorist, Jeremy Rifkin similarly remarks: “The Empathetic Civilization is emerging. A younger generation is fast extending its empathetic embrace beyond religious affiliation and national identification to include the whole of humanity and the vast project of life that envelops the earth.” “Humanitarian capitalism is more palatable than proprietary capitalism.”
  • 6. In a world of finite resources, massive wealth disparities and wasteful consumption, Transformers see the socially-good peer economy as inevitable, because “humans can not survive unless we significantly increase what we share as equals.” ! The widely-held belief that for-profit investments can only maximize financial returns and social purpose can only be pursued through charity —is obsolete. Value has to be created and shared across both sectors and by everyone. Creating shared value however, can not happen through silos of social responsibility or philanthropy, it has to be a values-based investment which is why crowdfunding, pay-for-success, venture philanthropy, impact investing and other social finance vehicles are becoming so powerful. ! Historically, the biggest obstacle to shared value was the gap between the need for funds and the philanthropic and business resources available to spend on social purpose initiatives. On the other hand, with values-based investing, the intention to generate a measurable, beneficial social and/or environmental impact alongside a financial one, means investments can target a range of returns from below-market to above-market rates, and can be made in both emerging and developed markets. ! The growth of values-based investment models are largely fueled by US foundations whose assets currently boast $700 billion. Family foundations, have blossomed — from 3,200 in 2001, doling out just $6.8 billion — to 40,000 in 2014 making grants totaling more than $21.3 billion a year! ! With innovations in technology and finance creating a wave of young disruptive mega-millionaires and billionaires, more and more Transformers are at the helm of values-based investing and are looking to see how they could employ mission and program related investments as opposed to conventional grants. While just over 100 U.S. foundations do so, in terms of market size, JP Morgan forecasts a dramatic increase in values-based investing from about $9-billion today to $1-trillion by 2020. “The peer economy is inevitable, because humans cannot survive unless we significantly increase what we share as equals.”
  • 7. “The appeal of bitcoin is that it functions as a co-operative in a peer-to- peer network.” Though Transformers inherited a world where the 85 richest people have as much wealth as the 3.5 billion poorest, it’s worth noting that Tranformers are also the recipients of the largest generation-to-generation wealth transfer. In America alone, some $30 trillion dollars are changing hands from Adopters to Transformers over the span of just a few decades. ! Currently, nine out of 10 wealthy Americans want to foster “greater income and opportunity” through philanthropic and policy measures, according to the 2014 U.S. Trust Insights on Wealth and Worth® survey. Thus, against the backdrop of a global recession, Transformers are looking beyond government funding, international aid and philanthropic donations to create sustainability and shared value. They believe all problems can be solved peer-to-peer. Indeed, annual surveys like the Edelman Trust Barometer suggest that Transformers are putting greater faith in peers and corporations than governments and central banks. As a result of this sentiment, radical new forms of currency are emerging outside the parameters of conventional money. ! Advertising executive, Paul Kemp-Robertson, well known for his TED Talk: “Bitcoin. Sweat. Tide. Meet the future of branded currency” spoke about synthetic shadow economies that are created when a private entity or brand issues its own “currency.” These range from having monetary value (such as Amazon Coins and Starbucks credits), promotional value (such as airline and hotel reward points) to reputation value (such as Justice Points in World of Warcraft). The idea of corporations minting their own currencies is appealing to 45% of 24 to 35-year-olds in the United States who participated in the 2012 Contagious survey, as a point of reference. ! If “currency” is just a store of value and a medium of exchange, then what’s the difference between gaming, social or mobile credits and reputation points as compared to the digital “scorecard” on a bank account? Arguably, for Transformers there may be little to no difference, especially if the currency itself is capable of building shared value and personal equity. ! If centralized branded currencies appeal to Transformers, consider how much more a decentralized digital currency, such as Bitcoin, has the capacity to be. The appeal of Bitcoin is that it functions as a cooperative in a peer-to-peer network.
  • 8. Bitcoin offers the potential to democratize financial exchanges by providing digital access to capital. While one-third of humanity remains unbanked, remarkably more than one billion of these people has access to a mobile phone and thus could use bitcoin (or a derivative thereof) to participate financially. ! Fred Wilson, a respected venture capitalist and philanthropist believes what the internet did for media, commerce and communication, bitcoin will do for money. ! Considering the framework of “humanitarian” capitalism, the fact that bitcoin does not require a central authority to qualify or limit the participation of another human being is an important differentiator to fiat and bank-controlled instruments. ! One misconception about bitcoin is that it is anonymous. Technically it’s pseudonymous. All bitcoin transactions are recorded in a public ledger called the “blockchain,” which contains every transaction ever executed from the beginning, until the latest transaction. ! This innovation not only has the capacity to build registries of multi-entity contracting, it also offers the potential to create self-enforcing “smart contracts” between free individuals. Ultimately, the transparency of the blockchain has the potential to end corruption and empower a free society. ! If the public ledger of the blockchain were managing fiat money, for example, the billions that were stolen by a Ukrainian government official could be tracked. Votes of the people could be viewed and verified. Property rights could be protected. Environmental, social and governance factors could be integrated. Even charities, which have long struggled to convince donors about the use of money, could ensure complete transparency of expenditures to boost donor confidence. The genius of the blockchain is that it is a safeguard for unwanted fluctuations of power and control. ! The Age of Transformation demands that we reconsider the role of capital markets in creating equity and shared value for society. The challenge will be for Adopters to think like a Transformer. “The transparency of the blockchain has the ! ! ! ! potential to end corruption and empower a free society.”
  • 9. THIS PIECE WAS ORIGINALLY DEVELOPED TO EXPLAIN A PANEL PROPOSED FOR SXSW2015 DIGITAL ANARCHY: THE “BITCOIN” EFFECT LEE FOX