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In today's edition, I apply the Benefit Probability Model to cryptocurrencies!
Bullish or bearish on Bitcoin?
In yesterdayâs Quration, I took lessons from the history of writing and formulated an assessment framework that identifies which societies are best positioned to benefit from technological disruption.
The Benefit Probability Model asks four questions:
Will this new technology unleash a transformative capability?
What will be the next force multiplier?
What base elements put a culture at a distinct advantage?
What is the best "first use" to capture interest and ubiquitous roll out?
I then applied that model to GPT-3, one of the worldâs most innovative AI systems. Perhaps I didnât spell it out clearly enough in the essay, but the model points to the US and/or its allies as being best positioned to benefit from the revolution in AI systems.
(Note: In the specific test case I referenced, health, it is most likely an allied country that will benefit most, given that the US is distinctly disadvantaged by a dysfunctional health system.)
Since that last post, Iâve been asked how the Benefit Probability Model would apply to cryptocurrencies, so I thought I would trot the model out once again.
What are we talking about here?
Cryptocurrencies, also known as virtual currencies or digital currencies, are a form of electronic money. They do not physically exist as coins or notes. A cryptocurrency unit, such as a bitcoin or ether, is a digital token. These digital tokens are created from code using an encrypted string of data blocks, known as a blockchain.
Cryptocurrencies, and the block-chains that enable them, are transforming finance.
The original, and most famous of these, is Bitcoin. Since its 2013 debut, the price of a single bitcoin has continued its upward march, recently passing USD18,000. There will never be more than 21M bitcoins in circulation, so their value will continue to climb as the frequency of use increases. Currently, the total market capitalisation, of all bitcoins, sits at $342B.
If your eyes have begun to glaze over, I get it. The relentless buzz about Bitcoin is exhausting. And, unless you have a few tucked away for a rainy day, they seem irrelevant. But the everyday use cases for cryptocurrencies are gaining momentum.
The original purpose for bitcoin was to be able to send a stored value that could be exchanged for cash, to any person, anywhere in the world. Simple, but transformational.
Bitcoin has what it takes to become the preferred form of stored value. What characteristics do stores of value share? They are scarce, durable, divisible, verifiable, portable, and fungible (interchangeable).
Gold has been the standard bearer of stored value for centuries. The total market cap for gold is $7.5T. Do you know (or remember) that gold lost 1/3 of its value in the 1970s? Also, itâs not easily divided, moved or stored.
Bitcoin is scarce (maximum circulation of 21 million bitcoins), durable, divisible, verifiable through the blockchain, portable (digital), and fungible. When will its market cap push up into the trillions?
Applying the Benefit Probability Model
Will this new technology unleash a transformative capability?
Did you know that middlemen charge an average of 7.5% on cross-border transactions? In southern Africa, that extortion jumps to 30%! The costs are highest where people, who can ill-afford it, are sending money back home to dislocated family. Cryptocurrency will remove those middleman.
Did you know that over 2 billion people are unbanked? Cryptocurrencies provide open access for the most vulnerable communities to receive payments and maintain secure deposits.
Weâre still in the early stages of cryptocurrencies. Using internet parlance, youâd say that we are in the dial-up stage, and still learning how to send out emails. Back then, we had no idea what a connected mobile world would look like, with on-demand content, free global communications, google maps, zoom calls, online shoppingâŚ!
The point is, we canât fathom the transformation thatâs coming.
What will be the next force multiplier?
Cryptocurrencyâs fundamental enabler is also the force multiplier. The blockchain. Hereâs how A16Zâs Crypto General Partner, Katie Haun, explains it:
âItâs a shared, permanent, immutable database. Cryptography protects its content, so it's really hard to alter or damage. And it creates a single automated record that everyone in the world can use.â
The concept of the blockchain has implications for every industry. Experts predict that 10% of global GDP will operate on a blockchain by 2030. Probably the most important application of the blockchain will be to secure the internet and our digital data.
An internet that sits on the blockchain will enable every user to engage companies, services and other people, using a pseudonym. They wonât be completely anonymous - they can be traced and held accountable - but neither will they be identifiable by the corporations that control our media, finances, and medical profiles. Because of the distributed nature of the blockchain, our information doesnât need to be stored in central repositories and owned by others.
Imagine not having to sign up for every online service or product ever again. Not getting pushed relentless ads because you happen to fit a demographic profile. Never worrying about your personal data being shared on the dark web because one of the hundreds of businesses you regularly use just got hacked.
Once that level of trust and convenience is established, using blockchain-enabled financial services will be a no brainer.
What base elements put a culture at a distinct advantage?
Communities that donât already have access to cheap, convenient finance, are most likely to be the early beneficiaries. Companies with access to AI, quantum computing, and engineering talent are most likely to lead the revolution.
Think US tech companies deploying cryptocurrency networks throughout Africa.
What is the best "first use" to capture interest and ubiquitous roll out?
Decentralized finance, or DeFi, is super interesting. Itâs a niche part of the cryptocurrency market thatâs attracting a lot of attention because users boast of earnings of up to 8% interest on their deposits.
But that type of service is too complex for an average Joe like me. My bet is that the breakthrough proposition will be a product that provides a fall-off-the-log simple combination of wallet and stablecoins.
Crypto wallets store your digital currency and validate your transactions when you're using cryptocurrency.
Stablecoins are cryptocurrencies designed to minimize price volatility. Many companies are working on versions of these, but no-one has yet taken the lead with a proven product.
When the everyman user has easy access to a crypto wallet on their phone that handles any transaction using reliable stablecoins, thatâs when the revolution begins.
If you'd like to see more of what I'm exploring, you can follow me on twitter. If you've come across something you think I'd like, hit reply and let me know why it's worth checking out (articles, lectures, podcasts, books, exhibitions⌠whatever).