Rahul GaitondeSmoking takes years off one’s life towards the end. Social & streaming media take years off right away.
The time spent down an algorithmically guided rabbit hole is time spent in a near-unconscious state.
Repeated habitually, those become years, shaved off one’s life, hour by hour.
[Cross-published to LinkedIn]
“Isn’t crypto a commodity like oil and gold? Why use terms from equity like market cap?” This is a question a friend asked last week. Here’s what I wrote to them – this is my take on the value model of crypto/blockchain.
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While there are tokens that more closely resemble commodities. this is not universal or even common in the crypto space.
Bitcoin’s whole point is speculation. As Money, it is meant to be a store of value, medium of exchange and unit of account. Until it achieves the last one and goods are denominated in BTC, it will see speculation like every currency and commodity does – they are all Money in a sense. In that sense Bitcoin and memecoins and privacy coins could be commodities.
But there are also several projects building actual products, whether their customers are ‘real world’ companies or other crypto projects. These have real products, real revenue either in fiat or crypto itself, and most importantly a model for sharing that value created with their token holders.
Today they are a small fraction of the overall landscape, and in this they are not that different from tech startups in general.
There is so much that is new with blockchain tech (or “crypto”):
– the concept of trustlessness, the technology that makes this possible
– the idea of value & wealth now being mediated by the same thing ie the token
This is also why opportunity abounds for those without scruples to present themselves as the arbiter of either convenience or quality or both.
This is how we get tokens with no business model, tokens of product that are never intended to be built, poorly-designed tokens that implode (Terra) and black-box companies that collapse through malfeasance (FTX).
However this also leaves a corresponding opportunity to locate signal among noise by identifying projects with solid fundamentals – in fact to build a model for fundamental analysis of this new paradigm of value creation.
Those that succeed at this will likely create great wealth for themselves.
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From a post in my RSS feed talking about the explosion in application size:
Users are disrespected by increasing and surprising bloat in applications. For work, I need to run the Microsoft OneDrive client on one of my Macs, and I was surprised to see that it recently crossed the 1 GB threshold. This is a file syncing utility. For comparison — and you can check this for yourself — it was 70 MB just four years ago.
I verified this on my own machine:
Again, from the article:
I am not being dramatic when I call this sort of behaviour disrespectful; it shows contempt for users to eat up a full gigabyte of disk space for a background application that uploads and downloads files. OneDrive is obviously not the only offender — all Electron apps are needlessly bloated by bundling a discrete copy of Chromium, of course, and Adobe’s creative applications are several gigabytes each. But OneDrive is a grotesque example of needless bytes.
So – software installation footprints have dramatically grown in size and our own personal data, particularly photos, has now been accumulating in cloud storage for over a decade.
I think we’ve reset our own expectations of what the minimum storage on our machines should be. I upgraded my 2012 unibody Macbook Pro storage to 1TB a few years ago and it seemed lavishly excessive. When I (finally) bought a new machine, 1TB seemed to be the minimum storage I felt comfortable configuring.
This has real costs – we’re now paying more for storage on our phones, our laptops and on cloud storage. This growth in storage requirements isn’t sustainable. Will we end up with 10TB Macbooks and 5TB iPhones in a few years? Will we pay month on month for 10TB of iCloud storage?
Perhaps what we will end up with is a tiered structure for storage, with different costs based on how frequently and quickly we need data. Something on the lines of Amazon Web Services’ storage options for app developers:
Distributed storage, perhaps with cryptocurrency payment and incentives like Filecoin or Arweave, are a wild card here, especially for long-term, slow-access storage.
I think these will soon become questions that most of us will have to deal with once we each reach a certain tipping point for personal storage, and that it’ll become a public conversation spanning cloud storage and application bloat. My guess is it’ll happen at about 5TB. How long will that take?
To the news of the note taking app Evernote being acquired:
The tug of Evernote the brand remains powerful.
The most common reaction I’ve seen on Twitter is on the lines of ‘I’d long moved on to something else, but I’m sorry to see it finally go’
They’re not talking about the product, which they couldn’t stand any more, but what using it meant to them – and that’s the brand.
This isn’t a good time for the crypto world. Not only have millions of people lost billions of dollars to yet another scam, but individuals hailed in the press as prodigies have shown themselves to be the very opposite.
It’s no surprise people now ask whether crypto itself has a future at all. How many more such collapses and scams before crypto finally dies. Whether FTX and Alameda is the final nail in its coffin.
I’ve been involved with blockchain projects since 2017, seen projects succeed and fail, experienced greed and fear at play repeatedly, and I now run an asset management firm in the space. With this background, here is what I think.
The conversation on web, TV and social media is about the collapse of ‘crypto companies’. This itself is a pretty big misconception.
FTX, Alameda Research, Three Arrows Capital, Celsius, Vauld, Genesis, BlockFi, Crypto.com and so many other entities in the news aren’t crypto projects in any sense.
They’re traditional, “web2” companies that happen to deal with crypto tokens: holding, buying, selling, lending, levering them. They don’t themselves run on a blockchain, and their ‘native token’, if any, is not central to their functioning.
These companies attracted the majority of capital that flowed into the crypto space because they were easy to understand. They abstracted away the complexities of the blockchain and the inconveniences of self-ownership. They presented tokens of crypto projects as casino chips that could be bet on, with elaborately gamified trading experiences.
As it turns out, a combination of lack of regulatory oversight, poor internal processes, insufficient governance, the inherent volatility of crypto tokens and the many complex, invisible interdependencies between such companies has created houses of cards that, every few weeks, seem to collapse, taking billions of dollars with them.
When this does happen, the response is predictable. These companies suspend withdrawals or outright block access to their service. This causes panic selling on other exchanges. Prices plummet, causing other companies to fail – for instance via margin calls, and contagion spreads. There are calls for the heads of CEOs, protection of investor funds and greater regulatory oversight.
This sounds pretty much like the 2008 financial crisis. That’s because it is like it in many ways – nothing has changed in fourteen years other than what’s being traded: crypto tokens instead of mortgages. The only difference here is there are no central banks to bail out either exchanges or ordinary people.
In the specific case of FTX and Alameda Research, a closer comparison here is to Bernie Madoff, who – also in 2008 – was arrested in charges of running a Ponzi scheme. This Twitter thread describes the outright fraud at the exchange and the fund.
THE FTX FIRST DAY DECLARATION
— kadhim (＾ｰ^)ノ (@kadhim) November 17, 2022
New CEO John Ray is scathing about Sam Bankman-Fried's management.
"Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information."https://t.co/iTGlCA9olr pic.twitter.com/Bd3Pjg4s7L
So. How have people like you and me not learnt? How have VCs and other funds not learnt? How has the mainstream media not learnt?
The media’s failure to identify these parallels and call them out as such has real consequences. By terming these centralised entities crypto projects, by promoting their founders as the representatives of the blockchain and crypto space, it sent capital their way instead of to truly decentralised, innovative on-chain projects. And when such centralised entities collapsed, all crypto projects were painted with the same brush.
Ultimately, I do think each of these collapses should be publicised, and prosecuted. But they shouldn’t be called crypto projects. Nor should their perpetrators be called crypto founders. They are simply what they are – stories of unfettered greed, deception and fraud operating behind the closed doors of ordinary unregulated companies. Neither the 2008 financial crisis nor the Madoff scandal brought an end to the concept of capital markets. Nor should these.
So where do we – people and institutions – where do we go from here? Personally, I remain as sanguine and excited about a decentralised, permissionless, global blockchain future as I was five years ago. I would rather we go through the phase we are in earlier than later in the journey.
The first step towards the future is to in fact look at the past and acknowledge a fundamental disconnect between the whole point of blockchain/crypto/web3, and the closed systems that we’ve so far associated ourselves with.
The Bitcoin Whitepaper, written in the wake of the 2008 financial crisis, opens with the weaknesses of the “trust-based model”. It then elegantly brings together cryptography, compute power, networks, incentives and a new rationale for intermediary-less value exchange into the idea of a blockchain.
Blockchains have made it possible for the first time in human history for people to
Without the need for a trusted intermediary for any of these.
This is significant because the story of the world economy is the story of such intermediaries
These are our brands. These are our icons. These are our trillion dollar market caps.
Such intermediaries enabled today’s global economy and the dramatic rise in standards of living across the world. In doing so, they captured billions of dollars in value facilitating transactions by ensuring trust, taking on risk, providing credit, executing contracts, and so on.
For the first time, it’s become possible to disintermediate many of them. The value unlocked by the disintermediation of these entities, in the trillions of dollars, is now captured by the tokens of the blockchain projects that replace them.
This change has immense consequences for wealth creation:
So far, only selected investors with access were able to share in the value created by and captured by these giant intermediary companies. Even when they went public, usually only people in the country where the company was listed were able to buy shares in that company.
In contrast, anyone anywhere can hold crypto tokens of any project from the very beginning. They do not need permission, and they cannot be locked out of their holdings, and they cannot be blocked from transferring these tokens to/from other people.
This democratisation of value is unprecedented. This is why the genie is out of the bottle and cannot be put back in.
But what we did instead is to replicate the traditional world. To buy, sell, hold our tokens not directly, but through companies like FTX that replicate brokerages like Schwab or Fidelity. We no longer held tokens, we only held a claim on those tokens, a claim recognised only by that black-box entity and enforced by no regulator, unlike with real-world brokerages. We gave up the fundamentals of the blockchain – universality, permissionless and openness – for convenience. Now we ask for greater regulation, but miss the fact that regulation addresses only the symptom, not the cause – after all, “not your keys, not your crypto”.
Once in the closed universe of such centralised exchanges, we began to view tokens of crypto projects merely as items to be traded. The tokens that were most attractive were those that offered the greatest rewards for ‘staking’. That promised the most airdrops for locking-in. The highest returns for lending out (to whom?). That had attracted the most VC funding.
Speculation is an important part of any market, but most of us had lost sight of the fundamentals of these tokens – that there were actual people, products, communities and businesses underlying them.
Over the past years I’ve heard innumerable times people contrasting stocks, which “at least have a real company and business behind them” with crypto tokens, which have “nothing”. This is disappointing, not just because it’s inaccurate but because it means capital flows to tokens that optimise for visibility, while projects building real, blockchain-native products are starved of attention, talent and liquidity.
We’ve acknowledged the past. Now let’s close by looking towards the future. What should we look for in crypto?
From my earliest days in the blockchain space, I have operated on one axiom:
A blockchain-native project cannot both be successful and have its token price driven entirely by speculation. Only one of them can be true.
In other words, for a blockchain-native project that has real usage, if the value it creates accrues primarily to its token instead of to its cap table, its price will inevitably be driven by fundamentals. Signal will emerge from the noise of speculation.
What are these fundamentals? At a high level,
This requires us to do our own due diligence – not easy in a fast-moving, rapidly evolving space with tens of thousands of crypto tokens already. But it is necessary if we are to avoid repeating our history of speculation. Since on-chain projects are exactly that – on-chain – their contracts, their usage, the holders can all be viewed publicly and audited. This transparency is unprecedented, and we must make use of it.
The alternative is to have someone else perform this due diligence. This is the point of FNDX.
The FNDX Framework identifies which crypto projects have sound fundamentals and whose tokens are well placed to capture the value that is created or captured by the project. Like the crypto space itself, the Framework evolves continuously.
With FNDX’s passive and active strategies based on this framework, individuals and institutions can build portfolio exposure to crypto in a clear, understandable manner. The FNDX 100 is a broadly diversified, passive index strategy that provides exposure to a large majority of the crypto landscape by market cap.
We stand at the end of an era. An era we should be glad to see end. One that saw enormous amounts of capital flow to closed, centralised systems with little to no oversight, with shocking yet inevitable consequences. We now look at the blockchain/crypto/web3 world with hard-earned wisdom.
FNDX has remained focused on the fundamentals. Its bet is that large parts of the global economy will move to decentralised trustless systems that run atop blockchains. Now that the technology exists, it is inevitable.
However, only sound blockchain-native projects will succeed in this new economy. The value they will create and capture will be tremendous, yielding massive potential upside for the token holders of these projects.
Those that are able to identify such projects and hold their tokens in actuality, not by proxy, will create great wealth.
The democratisation of value capture though tokens means this wealth creation opportunity is available to each of us. Having been through what we have, we owe it to ourselves to give it our best shot.
(ends)
Featured image: Philip Myrtorp on Unsplash
As best I can tell, different people are wired for different ambition types…
Type 1… craves activity and feasts at the buffet of appealing opportunities that success creates. The other model, Type 2… craves simplicity and autonomy, and sees success as a source of leverage to reduce stressful obligations.
Rather insightful observations by the writer Cal Newport, best known for his book Deep Work.
It’s also an engaging post because it humanises both these Types using well-known people: writers Michael Crichton and John Grisham.
And it’s an example of how the human mind, in this case Cal Newport’s, connects observations and concepts into a new model, in this case of ambition. I think readers sense this.
These are what makes the short post such a good read.
PS: While the writer admits he’s more a Type 2, focusing on one thing in order to minimise stress, it struck me I’m the other Type, revelling in multiple simultaneous opportunities.
While reading an article about why people still use paper, even prefer it, in 2022, this sentence jumped out at me:
The task of reading a page, paper or book can be completed, unlike the bottomless, shape-shifting black hole of the internet.
– “The stubborn persistence of paper in a digital world“, The Financial Times
I suddenly realised why I prefer reading through my RSS feeds over Twitter or any online website: it is finite.
Especially if you’ve chosen your RSS feeds well, you know you’re caught up on everything that matters to you.
In theory, email is also similarly limited. In practice it rarely feels like it – you’re never in control of who sends you email.
Even leaving aside spam, unread mail almost always piles up. We rarely delete all email or mark it as read en masse, for fear we may miss something important.
On the other hand RSS is just… stuff other people have written to everyone in general and no one in particular. You can declare RSS bankruptcy with abandon however often you like.
I wonder if one’s personal RSS feed is the last truly personal – as opposed to personalised – window to the world.
For me, one of the signs of health in emotional margin is how much I’m writing in my notebook each week. If pages begin to stack up without any notes, ideation, or doodling, it’s a sign that I’m not slowing down enough to think on paper.
– A Return to Analog, The Focus Course.
It’s also a sign that one is deliberately avoiding being alone with their thoughts. One gentle way to prod at this is to start making your todo list on paper instead of in your reminder/other todo app. Notes can follow later, and fresh ideation after – at their own pace.
I have had a long arc view of crypto that I have kept mostly to myself.
With the froth of the past two years, precipitating the slump and gloom of today, I feel I should share what I think:
The blockchain and bitcoin models are vastly more disruptive than even the most ardent HODLer thinks. It is truly a genie that is out of the lamp.
It breaks down national, regional, legal, institutional barriers. No permission, no mediation.
All it requires is that people keep their computers on and run a piece of software.
Unbelievable.
That is why it will do for value what the Internet did to information – make it vanish into the ether. Everywhere and nowhere.
But that means it is going to take a lot longer for this to percolate through the world. The tsunami is much, much more massive than people think it is, but it is also farther away from the coast. It is the sun, not the moon. They may look the same size, but one is unimaginably larger and farther away from the other.
When we draw parallels of the blockchain with the Internet we start the clock in the late 80s, early 90s. And debate whether we are in 1995 or 1998.
But the Internet began as ARPAnet in the late 60s. We are still in the late 60s, maybe. And although the blockchain may not take another fifty years to ubiquity, it is certainly a much longer way than we think from its most powerful form.
The problem is money.
Not only is the blockchain about the dematerialisation of value, it has also been born into an era when value – in the form of fiat money – was created in unlimited amounts for a decade plus.
There is too much money chasing too little innovation. The money needs to be made back too quickly, unlike the military and academic funding for ARPAnet. The innovation is taking place in too constrained an environment, regulatorily, socially, technologically, environmentally.
Now, like with renewable energy, we can recognise and incentivise what the blockchain makes inevitable. But we also must recognise and acknowledge the tradeoffs – free, fair, limitless, unfettered exchange of value will only take place in a world free of the constraints of geography, identity, energy.
We are far, far from there.
Every website now:
Switch to the app! (no)
Accept all cookies! (no)
Sign up or login! (no)
Turn off ad blocker? (no)
Just the hours lost weekly. The constant break in attention. The subliminal annoyance.
This is our web.
It’s testament to how there is no economically sustainable way to run a website without being hostile to its visitors, even thirty years after public access to the web.