It’s not about how much money is in crypto it’s about who is in

2017 was for technology the year of cryptocurrency. 2018 will be about cryptocurrency disruption.

2018 is more than just the basic establishment of Bitcoin and open source money, it’s the permeation of cryptocurrency across all sectors of the economy through Open Source based technological disruption, but powered by cryptocurrency incentives. This wave will be larger and faster than the consumerization of the Internet.

Macroeconomic trends

Macroeconomics and geopolitics played into cryptocurrency growth including factors likes:

Populism

Slowing of the yield curve

Repercussions of Quantitative Easing

Decrease in US world leadership

Deregulatory mood in Washington

Petrostate transformation

and many others…

This created a perfect storm environment for the birth of a cryptocurrency movement.

Economic Decentralization

I wrote a piece called “Bitcoin is our Brexit” highlighting the populist undercurrent to the Bitcoin phenomenon. Balaji S. Srinivasan’s tweet summarized the phenomenon well citing Nobel prize winning economist Thomas Schelling.:

The flow of capital

Here is a pie chart as of January 4th 2018 showing the relative market caps of the top 100 cryptocurrencies… including one notable item which is the total amount raised in ICOs which is estimated at around 5.8B.

One noteworthy thing is that as hyped, overheated, unregulated and generally overblown ICOs are, they dont represent a huge fraction of the total value of cryptocurrency. By size, they are just the purplish sliver at the top.

Market Cap of various coins with ICOs added in (purple sliver at the top, 5.8B)

Talent Grab

One way to look at the ICO market is as a “talent grab”.

With $5.8B flowing in (and the 1B Telegram ICO coming as well as an ICO from Chinese Social Media giant RenRen) we can see that major talent is coming into the space.

I was having a conversation with a partner at a traditional Silicon Valley Venture Capital firm. He told me they were raising a cryptocurrency fund, because “all of the smartest entrepreneurs they knew” were bringing them cryptocurrency investments.

An example of this is the Bee Token (full disclosure, I am an advisor) which includes engineers from Uber, Google and Facebook among other places.

article at https://www.huffingtonpost.com/entry/brain-drain-uber-google-facebook-engineers-create_us_5a4d4965e4b0df0de8b06f18

Silicon Valley Knows Disruption

Silicon valley knows disruption when it sees it, and is moving into the space. Traditional Venture Capital is moving quickly to invest in this growing area.

Part of Open Source Money

I wrote a piece called “Bitcoin is Open Source Money”.

I have spent my career in silicon valley in the past 25 years working on open source software startups and seeing how Open Source can drive margins to zero and effectively “scorch the earth” for any and all competitors, driving proprietary software to the edges of value creation while commoditizing the core functions.

The ICO phenomenon is about this kind of disruption. There are many folks in ICO who simply dont get it, and yes there are a lot of foolish investments and investors. But things like Bee Token that decentralize AirBnB and reduce hosting and user fees to (very close to) zero are using the same kind of “scorched earth” mechanic that exists in Open Source. Only in this mechanic, the function of seignorage allows for the originator of this platform and protocol to profit hugely from creating this network.

The First and Last Mover Advantages

In such a system, the first mover advantage has a huge benefit of network effect, and will be hard to compete with. But in some cases, the first mover can also become the last mover.

The economy loves competition, so depending on the behavior of the network designers, there may be opportunity for full decentralization of a market to occur as a function of multiple competing providers. But in the case of someone applying open source principles to a market, the most inclusive, beneficial, and non taxing network should dominate all others.

If you follow open source, software like “Web Servers” or “PC Operating Systems” rapidly become open source and the best open source solutions win. This often ends up in a lopsided 80/20 dominance of a single open source solution. Yes there are always forks and fragmentation, but the progenitor code base will do well regardless.

The New Rules

One entrepreneur asked me “should I do an ICO?”

I told him that the question was based in the wrong mindset. It doesn’t matter if you do an ICO or not, what matters is that you consider becoming a decentralized network.

The reason for doing that is because if you don’t, your competition will do it. And the new rules dictate that the winners will be the ones that scorch the earth on behalf of their users, taking as close to zero profits as possible while gaining the economic benefit of seignorage. In fact, some networks may even choose to divert some of their token expansion into customer rewards, producing a “giveaway” effect that can further precipitate growth of their networks.

http://getwala.com Wala is a cryptobank based in Africa that uses such principles to gain users — by rewarding them. Disclosure, I am an advisor to Wala.

Zuck is Looking at Cryptocurrency for Facebook

In Mark Zuckerberg’s annual challenge, he cites decentralization and cryptocurrency as topics of study and is looking for “how best to use them in our services”. He seems to understand what Kik Messenger, Signal, Telegram, RenRen and others do about social network effects coupled with seignorage network effects to produce a two sided metcalfe’s law across users and investors.

Full post here https://www.facebook.com/zuck/posts/10104380170714571

Facebook Messenger + Coinbase = ?

And the plot thickens… a VP from Facebook Messenger has joined the Board at Coinbase.

So it’s already on at some level. This could be like Eric Schmidt joining the board of Apple, only to come out with the Android competitor to the iPhone. Only this time I don’t see Facebook competing with Coinbase, rather a partnership makes sense. And it’s interesting that it’s Messenger of all things. This makes Kin, RenRen, Signal and Telegram ICOs all make more sense. But it also means that the big centralizers are taking the threat seriously and are not asleep at the wheel.

But it’s Bigger than Zuck

But it’s not about Zuck. This is a lot bigger than any one person.

I wrote a piece called “Is Bitcoin the new Smart Money”? In it I propose some guiding principles for reasoning about investment in this new age, as well as playing with the double meaning — that the money itself has acquired a form of intelligence — by the decentralized networks themselves having mechanics that reward participation.

I realize that there are huge numbers of retail investors coming in on Coinbase. This decentralization is not without populism. But the salient thing is not the total size of Cryptocurrency, it’s the specific minds that are captured by it who are bent on disrupting the existing models.

Join In

As one of my crypto mentors, Sean Ironstag says, “Get in where you fit in”. One of my own sayings is “it’s a fool who has 100% of his or her money in cryptocurrency, but it’s another kind of fool who has none.” If you want, head on over to http://coinbase.com and get some basic currencies and if you want more, head over to http://evercoin.com (disclosure I am a cofounder at Evercoin).

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