The Four Waves of Crypto Disruption

By boris, November 28, 2017

With both Bitcoin and Ether surging to record highs this week, everyone – entrepreneurs, investors, consumers, businesses and governments – have been caught up in the flurry surrounding cryptocurrencies. Many are trying to understand what’s happening now and where all this is headed.

It’s always hard to predict how a new computing platform will play out, but right now I see four opportunities that are at different stages of development. Here are my four crypto waves, ranked from furthest to least developed:

Wave one: Store of value

Bitcoin has found its place as “censorship-free store of value.” It’s like “digital gold,” but with some major advantages, including that it’s more fungible and easier to transfer. There are now enough people in the world that believe in this positioning and the Bitcoin mining community is also very protective of this position. So, there’s a high likelihood that Bitcoin will remain a store of value and the only open question is just how big the opportunity can be. How many people will believe and value such a store of value?

Wave two: Disruption of financial markets / tokenization of financial assets

This second wave has really taken off due to ETH-based ERC20 tokens and all the ICOs built around them. The first use case is live and has already created markets that have transacted billions of dollars (even if many ICOs are probably doomed to fail, given the quality, or lack thereof, of the underlying products).

My theory is that over time every single asset class will be tokenized, and perhaps new asset classes will be created in this process, bringing about new financial markets with global reach and frictionless access. The big question is how quickly regulators will let this happen, if at all.

Wave three: Disruption of every other information market

Disruption won’t just be limited to financial markets. I believe that every other information market will be changed by blockchain: storage, computing, access, firewalls, CDNs, Wi-Fi, etc. We’re just now seeing the first projects emerge in this space. The most prominent project so far is Filecoin, who has raised over $200M to disrupt storage. Of course, these products aren’t live yet and it will probably be a few years before we’ll be able to use any of these platforms.

Wave four: Disruption of what a firm means

Crypto’s last wave will actually disrupt how we define a firm. Through decentralized governance and decentralized incentive systems, we will see very large communities emerge to tackle projects that have been created by centralized organizations to date. Numerai, a decentralized hedge fund, is the first example for this opportunity. This stage is still early in development, but I expect it to become a much larger trend down the road. But, we’ll first have to figure out the optimal model for decentralized governance. And, that’s not a simple task.

Most predictions fail, I know. But it is still incredibly exciting to think about how crypto can play out over the coming years. Any thoughts and comments are welcome – let’s discuss!

  • Prem Kalevar

    How and to what extent are the roles of centralized organizations diminished in the presence of this growing decentralized movement? What is the expected outcome for the balance of power between centralized organizations and decentralized? Is it just if ever a centralized organization takes too big a cut of the value that opens the door for a decentralized version to come through? Are there certain types of businesses that for sure should be decentralized?

  • Prem Kalevar

    Do you believe that the government will permit tokenized securities to be freely tradable in a decentralized fashion?

  • bwertz

    At some stage, yes! Partly b/c it will b impossible to stop, partly b/c it makes sense. The question will just be how much regulation they will put around.

  • bwertz

    I see them very much more as complementary, addressing different use cases / customer groups. Take strange as an example: there will be many individuals that will prefer to store their data on Filecoin to make it censorship-free. But that doesn’t mean that enterprises will stop using AWS.

  • Prem Kalevar

    Thanks for taking the time to reply Boris! Very helpful & informative.

  • Christian Langen

    I agree, Boris. One of the most significant changes from centralized to decentralized is currently happening in the energy world. highly distributed generation (solar, wind) is winning tenders all over and crypto will become the operating system for decentralized power transactions.
    While The DAO failed (with a little of my money), other forms of possibly still somehow „managed“ decentralized organizations will emerge. Which sector would you think is most ripe to be decentralized by crypto? Where do new players emerge already?

  • Prem Kalevar

    In terms of market adoption, I see three general paths to market for decentralized technology:

    1. Pure decentralized route – “startups” building protocols & dapps from the ground up off of decentralized services.
    2. Slow adoption by established players – Banks etc. slowly testing new tech and then implementing what works
    3. Hybrid startups – building highly-functioning services off traditional centralized standards & methods, but positioning themselves to be early adopters of decentralized technology as the ecosystem develops.

    Have you thought much about this? What do you see being effective and tradeoffs of the various approaches? Do you consider #3 to be a strong go-to market strategy?

  • bwertz

    That’s probably a good way to think about it – I am not sure about how big the opportunity is for #3 but this might be the right strategy as the ecosystem still evolves.

  • bwertz

    Agree w/ your thesis on the opportunity in energy – what are the most interesting projects in that space? Re disruption: I think every single information market will be disrupted over time, juts a matter of when and how.

  • Interesting thoughts. Re disruption of all information markets, what do you think will be the main driver behind that? Will the disruption be limited to new services catering to certain groups of users, e.g. those who care particularly strongly about privacy? Or do you envisage a more wholesale disruption?

  • bwertz

    Probably too early to tell fully but my guess would be that privacy and price will be the two main drivers. Re price: imagine a world where a decentralized computer network can do low latency computing work for any computing job out there, a bit like AirBnB for compute.

  • Could you kindly clarify on your meaning of “information market”? Because from my view, such market includes FB/Google, as well as *product search” like Amazon/Ebay/Alibaba…

  • johnlyotier

    I think one of the other elements that all of the above also lead into is the ‘Rise of the Machines’ … not in the sense that AI bots will take over the world sort of way, but more in the sense that with those four waves of disruption, you will be able to have your bots do ‘work’ on your behalf (where work is simply ‘value’ creation). A bitcoin mining rig today is simply a server-shaped robot doing work of crunching/processing transactions and being paid for it. In our context, imagine it is a few friends who purchase a WiFi delivering drone and set it free to go deliver connectivity over a festival. Initial startup capital for the drone purchase is done via a redefined firm (wave 4), disrupting telecom monopolies for WiFi delivery (wave 3), sharing in the proceeds of the micro-transactional revenue it self-earns (wave 2), all while collecting data on where and when to deliver value and optimize its performance and revenue-earning potential (converting data into a store of value, wave 1). The same could be said about a car-sharing, self-driving, vehicle fleet that would use its proceeds and rules to determine that a new car should be purchased given the demand it is seeing.

  • bwertz

    Great point – the combination of AI / machines plus tokens will create some very interesting opportunities.

  • bwertz

    Information markets = any market where the products / service being traded is information. In theory, this could apply to Google / search but this is much more of an aggregation service than a marketplace.

  • Spot on

  • Erik Seiz

    Wave 4 opens the door to tax disruption. What if a municipality created an API that ride share firms needed to plug into, to operate inside regional borders? The API would provide an operational token that would give firms access rights to citizens in the same way the Queen gave HBC trapping rights to beavers. The tokens would give fair, controlled access to citizens, and perform real-time micro-taxation. They’d be a first step in creating a bottom-up tax revenue stream that embraces crypto currency and shared economy services. (While blocking the threat of tax erosion.) Realistically, a third party would create the “peltcoin” layer for all municipalities.

  • bwertz

    Interesting idea…

  • Erik Seiz

    I kina tripped aross it when considering how to bring my own shared economy service to market, with the intention of avoiding some of Uber’s (possible) missteps. (i.e. what if Uber had built that layer and gave it to the munis? …I’ll bet we’d have ride share all over BC!)

  • Tudor Andrei Stanciu

    I believe stage four might come sooner than we think, coupled with the future of work, the fact that freelancers are starting to account for more and more of the working population, and the advent of other technologies that are freeing up humans from current-day work-related tasks.

  • bwertz

    That might well be…

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