How Can Cryptocurrency Help the Economy?
Dealing With the Hype
There's a lot of concern about hype when it comes to cryptocurrencies and blockchains.
Is it excessive? Is it too much? Are we throwing good money after bad?
There's a fear that it could be like the 90's internet boom, which spent millions on ideas like last mile pet food delivery that went to zero. Some projects are valued so that they'd have to return billions to justify their valuation.
I think it's fair to be skeptical, to ask the market to reflect reality.
Because there can be too much hype - and there can also be good parts, after you move past the hype.
Crypto is Stronger Than Any Individual Cryptocurrency
Take Bitcoin. Is it using too many fossil fuel resources?
In the case of Bitcoin - sacrilege warning - I would say that you can detach it from cryptocurrency if you want.
If blockchain is a real industry, it isn't beholden to any one company or project. That means Bitcoin is not, and should not be, synonymous with cryptocurrency.
If any single cryptocurrency goes away, the cryptocurrency industry will continue on.
Bitcoin was the first. I don't expect the first of anything - the first car, the first computer, the first airplane - to also be the fastest, and also the most advanced, and also to last 100 years.
If you think the environmental impact of Bitcoin is too large, if you think the environmental impact of Ethereum is too large, you can argue for the end of those things. There are other blockchains which have a smaller footprint.
Choose the best. Advocate for progress. If the industry is truly revolutionary, the greatest advances will come later.
Looking At Crypto As A Form of Open Source
I come from a background in open source software, and I see blockchains and cryptocurrencies as an extension of that. They share a lot of the same DNA. In significant ways, they are the same.
You could look at open source computer languages, or open source operating systems, and say: why don't we extend this to finance, to money?
If you believe Linux added value, it's easy to see how cryptocurrencies and blockchains do too.
It doesn't have to be any more complicated than that.
How Cryptocurrencies Are Like APIs
An API is a defined as a application program interface. Here's an easy way to think about them.
Say that you open Facebook. You see text-based status updates, photos, videos. If you know Facebook, you know it always has that blue color scheme, and small text.
You could say: I don't think this UI or this design works for me. Could I throw away this color scheme with ugly text and make my own Facebook design? All the data would be the same, the text, the pictures, the videos - but I want to change the layout, how it looks.
You can think of the front end as being the design, and the back end as being the API. The API would be the data and information without any design or styling.
I'm oversimplifying here, but for our purposes, you can think of the API as being all of the data and nothing else.
I think of blockchains as a kind of API, another step in the commercialization of APIs.
They don't have a pretty design by themselves. They don't come with a pre-built front end. They give you the back end, the data, and the transactions, which you have to assemble into something that looks good.
If I could make my own Facebook front end using an API and get a cut of the Facebook income stream, that could be a better solution than the system we have today.
That's the cryptocurrency pitch, but for money.
What Cryptocurrencies Are Trying To Do
The basic goal is to have fast transactions, low fees, and an immutable ledger - a permanent record of everything that's spent. I'm not sure we have that now in a consumer friendly form.
But we can work towards that goal. The closer we get to it, the more we improve our financial system.
I use a bank but I know this system could be improved. I don't have visibility into my transactions. I'm often charged fees which I just pay. I often feel like I'm struggling against oppressive rules.
It would be nice if I could send microamounts of money to friends. It would be nice if we could pool money in small commercial ventures, without needing to involve a venture capitalist who's probably going to ignore me, or a conservative bank.
It would be great if there could be more of a sense of play and fun when it comes to money, which generally feels like bills and chores. I'd like more opportunities to make money. There should be something in between 'gambling' and 'asking an unreachable rich person if they would put money into my business.'
Those are all situations that software could improve.
How Cryptocurrency Can Make the Economy Stronger
Let's say that I open a currency exchange. People can deposit dollars and get euros or people can deposit euros and get dollars. Every time someone makes that trade, from one currency to another, I, as the middleman, charge two percent.
Now, you could ask: why does the middleman need 2% of a predictable, easy transaction? It's a lot. Couldn't we just set up a computer that matches one person who has 100 euros with one person who has $100, make the trade, and let the profit be distributed among the people making those trades?
That's what decentralized finance is enabling. Use a token and you can.
That's a real improvement that cryptocurrency has made. There will be others. Doing away with middlemen is a net positive software can do.
At this point, it feels like the talent and capital being deployed will have to have an impact. Many companies could go bankrupt, and there would still be a lot of useful new infrastructure.
When people work on a thing, they can make it better. I'm one of those people who is trying to make money and finance better. I hope everyone trying for this succeeds, and that society benefits.
That's why I'm hopeful about the cryptocurrency industry. That's why I work in it.
And I hope everyone who can understand this mindset will come around to seeing that too.