All About Crypto
Today: Launching “Friday’s Digest”, and dedicating the first edition to crypto protocols and crypto tokens.
The Agenda 👇
The very first source I read about crypto
A breakthrough: listening to Fred Ehrsam
My first essay about bitcoin (January 2018)
Facebook’s Libra, which didn’t change the world after all
A real-world application: our portfolio company Fairmint
A reading list about crypto
Today I’m introducing the new series of the European Straits edition sent on Friday: a curated collection of past writings and interesting readings on a specific topic that has attracted attention during the week. And the very first topic to be covered in that series is… crypto.
I admit I don’t even know what word to use—whether it’s ‘cryptocurrencies’, ‘tokens’, ‘crypto protocols’, ‘blockchain’, ‘DeFi’, or any other word relating to what is happening in that space. What I see is mostly protocols on one hand and tokens designed as incentives to make these protocols more widely used on the other, but I’m open to other interpretations!
I didn’t know anything about bitcoin, blockchain, or crypto in general before we founded The Family in Paris in 2013 (five years after the publication of Nakamoto’s white paper). Once I was officially known as a cofounder of The Family, however, I started meeting people who had a lot to say about bitcoin and how it was bound to transform technology and financial services forever. It was inevitable that I became interested at some point, but I admit I didn’t understand much before I read this article published in The Next Web in 2014, Everything You Need to Know About the Bitcoin Protocol:
There is more to the story than the economists tell. Of course there is no denying that the latest incident is a reminder that bitcoin is still an experiment. The real story of bitcoin however, is more complex. In this research paper we hope to explain that the bitcoin currency itself is ‘just’ the next phase in the evolution of money – from dumb to smart money.
It’s the underlying platform, the Bitcoin protocol aka Bitcoin 2.0, that holds the real transformative power. That is where the revolution starts. According to our research there are several reasons why this new technology is going to disrupt our economy and society as we have never experienced before.
I basically slept on it for four years, watching my friends and colleagues trade bitcoins and other cryptocurrencies, before I listened to a very educational podcast with Coinbase cofounder Fred Ehrsam. At about the same time, my cofounder Oussama Ammar provided me with a key insight on what was really going on—this idea that you can’t separate the protocol from the tokens because the former wouldn’t scale without the latter. Then I wrote this piece Bitcoin: Innovation Hiding in Plain Sight:
To understand cryptocurrencies, we must look back to the origins of the Internet. A key component in its infrastructure are the network protocols, which are to the Internet what the highway code is to driving. HTTP (access to information), TCP/IP (routing of information), and SSL (encryption) bring together the rules that allow us to connect networks at a global scale.
All of these protocols are now old, and the Internet’s architecture still includes some glaring holes—almost as if we didn’t yet have a rule requiring cars to stop at red lights. Indeed there are some needs that open and shared protocols could address: preventing identity theft; solving the many problems with emails; securely and freely transferring money (as is permitted by the protocol underlying Bitcoin); giving users more visibility and control over the collection and use of their personal data.
If we don’t currently see much innovation in terms of protocols, it’s because there’s not a whole lot of people available to do it. The best developers work where the money is: in large tech companies working on proprietary platforms or applications. And these companies ignore protocols. Writing and promoting new rules for the Internet doesn’t really do anything for them. They prefer to work on their own private version of the rules of the road, which are enforced only within their proprietary ecosystem.
This is how we need to be looking at cryptocurrencies: an attempt to renew innovation in the realm of network protocols that are neglected by today’s Internet giants. The key function of a cryptocurrency is to get the early users of a new protocol interested in its large-scale deployment. The more individuals who own cryptocurrencies (like Bitcoin) linked to a certain protocol, the more they contribute to increasing its operating scale; in turn, the more a protocol is used, the higher the value of the cryptocurrency, which rewards the early users for the critical role they played during the launch phase.
Then, one year later, Oussama made the point that the launch of Libra by Facebook could be a day we would all remember forever. It turned out it wasn’t, but at the time I decided to dedicate an entire edition to it:
The fact that Bitcoin became the first crypto protocol to make it into mainstream media really didn’t help. We can understand why pioneers in the crypto world chose money as the first challenge to tackle—as opposed to, say, email or personal data, two fields riddled by problems that could be solved by new protocols. After all, it was right after the financial crisis, and the need to build a new financial system seemed obvious to many.
Unfortunately, money comes with two problems. First, it’s one of the most regulated areas in the global economy, and governments were swift in answering with hostility, constraints, mandates, and regulations (by the way, that's still going on). Second, money immediately attracts a particular crowd, namely . As a group, they were so used to knowing it all in the past century that they immediately seized the occasion to bounce back from the financial crisis that discredited their ideas and again start teaching lessons to everyone about central banks and monetary policy. In the end, it appeared as if the holy alliance of officials and economists was bound to triumph over the craziness and innovation brought about by crypto enthusiasts, and that things were now back to business as usual.
I then immersed myself a bit more in the world of crypto. I’ve long been a follower of Balaji S. Srinivasan (see his website NAKAMOTO), I’ve been reading Anthony Pompliano’s newsletter, and I’m sensitive to professionals in the financial services industry who explain that cryptocurrencies and blockchain should be taken into account in asset allocation—see, for instance, Cathie Wood of ARK Invest as interviewed by Patrick O’Shaughnessy:
Today we have five innovation platforms evolving at the same time, so we've never been in a more fertile environment for innovation. The first is DNA or genomic sequencing. The second is automation, which includes robotics and 3D printing. The third is energy storage, so the wholesale shift we believe, of transportation from the internal combustion engine onto the grid effectively. Then Next Generation Internet, which features heavily now artificial intelligence, particularly deep learning, which we think now is software 2.0. Then finally, blockchain technology. Now blockchain is built on top of the internet, but we think it's such a big platform evolution here that we wanted to separate it out and focus on it exclusively analyst by analyst.
All of these things make the most sense when applied to solving real-world problems, such as making it easier for anyone to own a stake in a given company—as our portfolio company Fairmint does. See my Capitalism Today: Customers as Shareholders (January 2020):
Fairmint, one of our portfolio companies, has been working on how to share a larger slice of the surplus with customers—tackling the problem on both legal and technological fronts. What they’ve designed is a new kind of security that facilitates capital formation while protecting the interests of individual investors. Fairmint calls these CSOs, for “continuous securities offering”: a new fundraising approach that makes it possible for growth-oriented companies to raise capital on a continuous basis from anyone who supports their product and mission.
I’m particularly involved because Thibauld Favre, a cofounder of Fairmint, was previously a director at The Family and spotted that particular problem while working with venture capitalists and entrepreneurs. He moved forward by relying on the notion of the multitude as introduced back in 2012, and then on the further developments included in my book Hedge—all to answer this lingering question: Can we design financial instruments to further strengthen a corporation’s alliance with its customers in the Entrepreneurial Age? Well, Fairmint’s answer is positive, and it’s here 👉 Introducing The Continuous Securities Offering Handbook. (Also have a look at this thread.)
And, more recently, Why Don't Uber Drivers Own Shares? Now They Could (November 2020):
Hear that? It’s the sound of crypto finally making its way into the mainstream. Here are a few signals, among many others:
Bitcoin has seen its price rise by nearly 400% since March, having even flirted with one bitcoin being worth $20,000. And it’s more than a bubble, as explained by Fortune’s Jeff John Roberts.
The US just elected its first member of Congress with some crypto holdings: Senator Cynthia Lummis of Wyoming (a Republican, holding bitcoins).
Crypto is officially huge on Ant Financial’s roadmap, as recently explained by Lillian Li of the excellent Chinese Characteristics—all the more so since the IPO has been squashed.
Andreessen Horowitz is doubling down: they closed another crypto-fund, of $300 million, earlier this year and hired a prominent compliance expert as operating partner.
Bruno Maçães, a Portuguese political scientist and former politician, writes about crypto-driven new systems of governance. Check out his World Game newsletter on Substack.
Finally, Fairmint, one of a few companies in our portfolio that relies on crypto, is having a big moment following an in-depth analysis by Check Your Pulse’s Sari Azout and Not Boring’s Packy McCormick: Fairmint & the Democratization of Upside.
Below is a list of interesting sources about crypto in general. Let me know about essays, white papers or podcasts you find especially enlightening on that cutting-edge topic!
Here’s a list of sources to go further on crypto:
Everything You Need to Know About the Bitcoin Protocol (Sander Duivestein & Patrick Savalle, The Next Web, February 2014)
Thoughts on Tokens (Balaji S. Srinivasan, Earn.com, May 2017)
The Network State (video—Balaji S. Srinivasan, September 2017)
Why Crypto Tokens Matter (a podcast with Chris Dixon & Fred Ehrsam, Andreessen Horowitz, September 2017)
A Letter to Jamie Dimon (Adam Ludwin, Medium, October 2017)
Beyond the Bitcoin Bubble (Steven Johnson, The New York Times, January 2018)
Bitcoin: Innovation Hiding in Plain Sight (me, European Straits, January 2018)
Facebook announces Libra cryptocurrency: All you need to know (Josh Constine, TechCrunch, June 2019)
Facebook's Libra ≋ (me, European Straits, June 2019)
Bitcoin becomes the Flag of Technology (Balaji S. Srinivasan, NAKAMOTO, January 2020)
The Crypto State? (Bruno Maçães, City Journal, Autumn 2020)
Fairmint & the Democratization of Upside (Sari Azout & Packy McKormick, Check Your Pulse, November 2020)
Bitcoin at $20,000: What's different this time around (Jeff John Roberts & David Z. Morris, Fortune, November 2020)
If you’ve been forwarded this paid edition of European Straits, you should subscribe so as not to miss the next ones.
From Munich, Germany 🇩🇪
Nicolas
