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Blockchain's AOL moment

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People run around claiming that the blockchain will solve everything.

I'm here to tell you that it won't.

That architecture has VERY few use cases, and it's currently be over-used, mis-used and completely misunderstood.

"Blockchain's" are on the verge of their own AOL moment.
Why?

Read on & you'll see.

Me presenting at the BlockConscious Summit:

https://youtu.be/bAG32xDVjVI

Published in: Technology
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Blockchain's AOL moment

  1. 1. BLOCKCHAIN’S MOMENT
  2. 2. BLOCKCHAIN’S MOMENT
  3. 3. WHAT? • A little history / anthropology lesson. • Why most “Blockchains” are Bullshit • Why most Tokens & ICOs are bad Investments • 3 Key fallacies • Where most of the value will accrue in this space • What types of business will capitalize the most
  4. 4. • Co Founder @ Amber Labs • Involved in: • Financial markets since 2006 • Tech since 2010 • Singularity University in 2011 • First bought Bitcoin in 2012 • Left the space for “other” things in 201 • Returned in 2016 @AleksSvetski BACKGROUND
  5. 5. FUNDAMENTALS • Back to Basics • Primitives • First Principles • Foundations • History & Anthropology
  6. 6. HOMO SAPIENS
  7. 7. COMMUNICATION Top of the Food Chain, via: 1. Complex Language 2. Shared Fictions: • Coordination / Cooperation • Complex Social Constructs • Trust
  8. 8. Caste’s Laws Nations Gods Corporatio ns Kings Religion s Races SHARED FICTIONS
  9. 9. MONEY
  10. 10. MONEY • The ultimate shared fiction & Social construct • Earliest recorded language • Money is the “ultimate” convergent network • Inherently has no value • Broadly accepted, objective representation of Value • Requires Trust.
  11. 11. A NEW FORM OF MONEY In 2009, a very effective “new” form of Money was born: • It is the first system to achieve maximum abstraction for all money attributes, including trust. • The chain of events over the last 10yrs were a fluke. • Network effect + momentum = grass roots • Built like the internet (not like AOL)
  12. 12. THE NEW FORMULA Networks Game Theory & Mechanism Design Cryptography Proof of Work / Byzantine Fault Tolerance Social Engineering / Psychology Computer Science Decentralization Economics Incentive & Disincentives Data Structure (Blocks of data, cryptographically linked - like a chain)
  13. 13. ATTRIBUTES • Technically & Socially Secure • Decentralized • Censorship Resistant • Unstoppable (cost / benefit) • Slow • Expensive • Cumbersome
  14. 14. A technological solution, to a societal problem, with far reaching political implications
  15. 15. FEW USE-CASES • Digital Reserve-Type Assets • Scarce Digital Collectibles • Digital Store of Value (SoV) • Digital Medium of Exchange (MoE) • Identity • Governance • Unstoppable / Uncensorable Programs & Networks
  16. 16. THE NEW FORMULA Networks Game Theory & Mechanism Design Cryptography Proof of Work / Byzantine Fault Tolerance Social Engineering / Psychology Computer Science Decentralization Economics Incentive & Disincentives Data Structure (Block-chain)
  17. 17. “BLOCKCHAIN” • Not even mentioned in the original white paper • Popularized in 2015 • Basically a sequential database • Completely useless without the economics, game theory, decentralized consensus and proof of work. • Complete overkill for 99% of applications in the real world
  18. 18. BLOCKCHAIN FULL PARTIA L USELE SS RUBE- GOLDBERG MACHINE
  19. 19. “SELF OPERATING NAPKIN”
  20. 20. BITCOIN IS A RECIPE • Proof of Work • Decentralization of data • Trustless consensus • Blocks of data, cryptographically hashed & chained together following the consensus of a network of nodes, on that “block" of data. • Game Theory • Economics (Incentive / Disincentive) • Cryptography
  21. 21. BLOCKCHAINS ARE AN INGREDIENT • You take the other ingredients out, what remains is meaningless • The security and “trust” as a primitive ONLY happens because of the unique mix of factors in the system, and has only succeeded because of the environment it was allowed to grow & develop in.
  22. 22. SO…. WHERE ARE BLOCKCHAINS USEFUL?
  23. 23. 1. MARKETING Nirvana Theorem. • Sprinkle on some “Blockchain”, and we’ll make everything better.
  24. 24. 2. CAPITAL RAISING TOKENS & ICO’S (this is where things get ugly)
  25. 25. “IN THE GOOD OL’ DAYS” • Start ups would raise capital via the sale of equity • Company would share value capture with Investors • Investors would share risk with Company
  26. 26. “IN THE NEW WILD WILD WEST” • Start ups raise capital via the sale of a token • Company shares NO value capture with Investors • Investors carry ALL the risk of the investment • Tokens behave like Money, detached from the equity in the underlying operational entity.
  27. 27. MONEY != EQUITY Money & Tokens Equity NO inherent value NOT a productive asset. Inherent value Ownership of a productive asset. • Velocity • Supply & Demand • Inflation / Deflation • MV = PQ • PE Ratios • EBITDA • Revenue Multiples • CAC & CPA • ARR • Users
  28. 28. The value of the token has VERY LITTLE to do with the user metrics, adoption or revenue of the business
  29. 29. VALUE CAPTURE WHERE WILL THE MONEY BE MADE?
  30. 30. WHERE WILL VALUE ACCRUE? ENABLERS ON-RAMPS UTILITIES ACCESS POINTS WALLETS & STORAGE COLLECTIBLES DIGITAL ASSETS EXCHANGES
  31. 31. KEY TAKE-AWAYS Time to take some notes
  32. 32. Money != Equity treating cryptocurrencies & tokens like equity, when in reality they are like money. FUNDAMENTAL FALLACY #1
  33. 33. Nirvana Fallacy. “Blockchains” or “Dot Com” or “The Uber For” will make everything better. FUNDAMENTAL FALLACY #2
  34. 34. Precision Fallacy. Applying “mathematical” primitives & mental models to things we don’t understand give us illusions of certainty but will only lead us to catastrophic errors in judgement FUNDAMENTAL FALLACY #3
  35. 35. DO I NEED A TOKEN? NO
  36. 36. DO I NEED A BLOCKCHAIN? NO
  37. 37. • Most Blockchains are Bullshit • Businesses and Tokens do NOT mix well • You should RUN from a company that says we’re doing an ICO, or we have a Blockchain solution for ‘x’. • Value will be captured by businesses that enable the USE of digital assets, digital currencies & the like • Blockchains will go down in history with “Information Superhighway” and AOL • ICO’s will go down in history as the Dot Com stupidities of the late 90s
  38. 38. FOLLOW - CONNECT @AleksSvetski @AleksandarSvetski @AleksSvetski

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