The fundamental value of cryptocurrency is to pressure government fiat’s monopoly on money

I’m speaking about Cryptocurrencies at the Family Office Investment Summit in Miami, a body that represents about $1 Trillion USD in Assets Under Management (AUM).

Tulip Mania

One popular metaphor for Bitcoin is “Tulip Mania” which swept the Netherlands in late 1636 where for about 4.5 months the price of tulips went up very high, then crashed back down. This is a metaphor that many people use to denigrate Bitcoin, which presupposes that Bitcoin has no intrinsic value.

tulips prices between Nov 1636 and May 1637 — a period of only 4.5 months

Cryptobanking and Investing

I’m here in Miami representing Pundi X and The NAGA ICO who have been providing sponsorship for me to attend.

Pundi X is a complete end-to-end crypto consumer retail point-of-sale solution including mobile wallet and payment card that completely bypasses traditional banking including VISA and Mastercard.

The NAGA ICO is a $300M publicly traded company that is doing an ICO to unify virtual goods, public stocks and cryptocurrencies in a single mobile trading platform. Think about an ETrade or a Charles Schwab for the millennial generation.

Why Bitcoin isn’t Tulips

Those who compare bitcoin to Tulips generally haven’t studied cryptocurrencies very deeply. There are some exceptions to this rule, but broadly speaking most people who hold this position haven’t studied the topic very deeply.

“Blockchain is Here to Stay”

One common battle cry is “Blockchain technology is here to stay”. This is a reasonable, if lackluster defense. While this is a true statement, what it fails to recognize is that having a consensus-based decentralized trusted ledger is valuable, but the killer app of such a ledger is to account for a currency. Without having a currency, it’s hard to incentivize decentralized stakeholders, which is what provides the huge network effects associated with cryptocurrency ecosystems.

People in Crypto don’t explain it well

Bitcoin founder Satoshi Nakamoto in an email famously said “If you don’t understand it, I don’t have time to explain it.” This is very sensible, given that Satoshi was probably a very busy person and anyone who has engaged in a debate with a “Fiat Fundamentalist” has generally found it pretty fruitless. One gentleman told me if you can’t pay taxes with it and it’s not backed by guns and prisons, it isn’t money.

However, when this same doubter asked one of the crypto speakers if Bitcoin wasn’t just tulip mania, the explanation was not very strong either.

Arming the believers

My goal in posting this is not to convince the fiat fundamentalists, it’s to arm believers with an argument that at least makes sense.

“Bitcoin is open source money”

My rubric is this. I’ve been in silicon valley for 25 years and deeply involved in open source software for the entire time. I’ve watched what open source software has done to the software industry — no open source has not eliminated proprietary software, but it’s continued to push proprietary software to compete and advance faster and it has provided a commoditized platform on top which most proprietary software sits. These days, most software companies don’t choose to build their own operating systems in order to deliver an application — generally they build on top of open source.

What to Expect from Open Source Money

As a caveat, I am using the term “Bitcoin” to mean the Bitcoin revolution. This revolution includes everything called Bitcoin, but also the family of cryptocurrencies that also leverage decentralization, consensus-based blockchains and open source.

ICO — a $3.5B Cryptocurrency Talent Grab

Given this, what we are witnessing is a mass of evolving code. One way to look at the recent $3.5B ICO phenomenon is as a talent grab. For the first time, open source software developers can get huge rewards for developing protocols that include a cryptographic token. So recently, lots of extremely bright developers and entrepreneurs are now working on cryptocurrencies. So the huge talent pool being formed around crypto is formidable.

Race to the Top

One of the amazing things we saw in open source is rather than experiencing the “tragedy of the commons” and a “race to the bottom”, open source software is largely a meritocracy which creates a “race to the top” phenomenon. What survives in open source are the best software libraries, packages and applications.

Because of this phenomenon, if anyone is dissatisfied with Bitcoin, it’s possible to fork it and add value. If a developer made Bitcoin 100x faster and just as secure, you can be sure that everyone would use the faster one. If someone cut the transaction fees in half while still rewarding miners you can be sure all the users would migrate to that one. The point is that Bitcoin is designed to evolve towards more ease of use, inclusion, more open, more performance, less fees, more trust, more benefit for stakeholders. And if Bitcoin can’t deliver those things, another cryptocurrency will do that.

Open Source Money Endgame

So all cryptocurrencies compete with one another to be the most easy to use, the most inclusive, the most open, the most performant, the least fees, the most trust and the most benefit for all value-adding stakeholders. But they do more than that. They compete with fiat currencies on the same basis. Bitcoin is already more valuable that most (56%) of the fiat currencies in the world

It’s Not About Convincing Unbelievers

Next time you’re in this debate, just say “it’s Open Source Money”. The point is not to convince the unbelievers, it’s to educate bystanders and to embolden the believers.

So What’s Going to Happen?

So earlier, I said that open source software

“continued to push proprietary software to compete and advance faster and it has provided a commoditized platform on top which most proprietary software sits”

What does that mean for fiat money?

It means that open source money is going to commoditize almost all of the meaningful platform features, and become the base platform or “operating system” of money atop which all proprietary money will sit.

To me, this means that Bitcoin or similar open source money will be a reserve currency platform. This means that it will be worth tens of trillions of USD which is 100x larger than it is today.

About Investing in Crypto

If there’s even a 1% chance that this thesis is true, then logic dictates that people should move 1% of their investable net worth into cryptocurrency assets as a hedge. We are looking at crypto assets as a decorrelated asset class. As such the risk is not associated with volatility, the risk is in NOT being exposed to that asset class. US public equities are “safe” until they are not safe. So if you find an asset class that doesn’t correlate with other assets, you should balance your portfolio appropriately.

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