The Promise of Crypto

It’s pretty easy to deride cryptocurrency.  It’s easy to pass it off as a fad that will flame out.  There is enough fraud in the initial cryptocurrency marketplace with charlatans selling bridges to nowhere that a sane person could dismiss it.

It’s not that simple.

In the WSJ Saturday interview George Gilder says, “we’re now in charge of our own information. For the first time in history, really, you don’t have to prove who you are, or what you are, before a transaction.” A blockchain allows users “to be anonymous if they wish, while also letting them keep a time-stamped record of all their previous transactions. It allows us to establish unimpeachable facts on the internet.”

That’s transformative in a lot of ways.

Civics, business, supply chains and almost any transaction will be revolutionized by the blockchain.

I don’t think existing advocates have thought deeply about how blockchain will affect our civic life.  Blockchain voting should eliminate voter fraud.  No need for fights over state ID.  No need to purge voter rolls or fight about who gets to vote when and where.  Property taxes, vehicle taxes, fishing licenses, drivers licenses, and property lines all will be managed on blockchain.  This will decrease the cost of government to taxpayers.

Yesterday, I ran into a person who has been in manufacturing his entire career.  We started talking about blockchain and I asked him, “I have a hypothesis that blockchain will revolutionize supply chains and get rid of WIP-decreasing the cost of managing them to firms.”  He said that eventually, that will happen.  There will be better just in time inventory and management of where materials and goods were in a supply chain will be accurate.  However, there always will be “just in case inventory” but that might be managed better.  One interesting point he made was that risk will continue to be pushed down from big players to the little guy.  Little guys are going to have to figure out how to manage that risk.  The ones that figure it out will be more profitable.

Today, blockchains are not fast enough to handle the tsunami of transactions that humans engage in every day. It’s totally improbably that a credit card agency or bank would replace existing technology with blockchain tech.  But, it’s coming. When CME first started trading emini S&P futures, they traded them at 27 trades per second.  Today it’s faster than you can blink your eye and millions of transactions happen.

Obviously, in transactions like payments the technical lift is higher than trade matching but it is coming.

The entire interview is a worthy read.  Gilder talks about student debt, college endowments, the state of the research university and the attitude of many in the tech industry.  There are similarities between their line of thinking and Karl Marx thinking about the steam engine and its effects on society.

Marx was magnificently wrong and the doomsayers of today are wrong too. He states,

Google makes him mad, as does Silicon Valley more broadly, and his ire is directed at the “new catastrophe theory” which holds “that artificial intelligence will make human minds obsolete, and that we’ll soon produce machine-learning tools and robotics that excel the capabilities of human brains.” He calls this attitude “Google Marxism”—a phrase he utters with a certain salivary distaste—“because Marx’s essential theme was that the Industrial Revolution of the 19th century had overcome all the challenges of production.” From that point on, Marx held, “human beings would focus on redistributing wealth among the classes rather than creating it.” 

Capitalism works and there are no world’s beyond capitalism.  Capitalism is ingrained and hard wired into the human soul.  Crytpocurrency will only increase its breadth across the world, and it will allow free markets to fill voids where they previously never had access making everyone’s lives more efficient and raising standards of living worldwide.