Industry: Crypto


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Posted 08/09/2020

Ethereum (ETH)





blockchain cryptocurrency

Expanding the forum to also discuss blockchain related ideas, in particular digital assets that are being built on the 'alternate' financial system today - many of which take the form of publicly traded cryptoassets (cryptocurrencies, tokens/coins, etc.).

The broader point of this is to help educate people on this huge opportunity in a new frontier (new financial system with new assets), rather than purely focusing on the legacy financial system, traditional assets (equities, bonds, etc.), and generally outdated 'corportate' structures. The goal - create a community to openly and actively discuss and share thoughts and ideas on this fast-growing, forward-thinking, new financial system (enabling tech: blockchain) and related assets (generalized: crypto-assets). The list of assets is long and getting longer; many aren't worth anything and will go away, while others are laying the foundation for the future and are trading at a fraction of what they're worth.

Useful resources to listen to in conjunction w/ this:
* Burniske on Bankless
* Chris Burniske: A Blank Slate of State

The 'idea' piece below is more of an overview and general framework for thinking about cryptoassets, and ETH in particular.

Ethereum: is a global, open-source platform for decentralized applications. On Ethereum, you can write code that controls digital value, runs exactly as programmed, and is accessible anywhere in the world.


Blockchain (in the form of Bitcoin - foundational piece here) was borne out of 'Great Financial Crisis' (2008/2009), essentially as a response to the elite's continued printing of fiat money (quantitative easing) and use of interest rate manipulation to inflate asset prices (which really only the wealthy own) and preserve the current financial system (which serves the currently wealthy). Rather than create new oppportunities and redistribute wealth, these financial crises (notably the GFC) simply served as an 'excuse' to make the rich, richer and further reinforce and centralize the power in an elite few. What likely started off as a well-intentioned system has since turned into an increasingly short-term focused wealth and power preservation/reinforcement mechanism (some may say corrupt). Think about their incentives - the average age of Congress is ~60, the President is 74, and the Chairman of the Federal Reserve is 67. Since 1971, the Fed (and it's unelected officials) has been the most powerful organization in the world and capital has taken complete control over labor - ~50 years later, we are coming closer to a tectonic shift (we've now seen the Fed + government merge and implement MMT).

In short, blockchain (enabling technology) was invented to help re-align incentives and solve many of the shortcomings of the previous system. Timing was not random (perhaps fortuitous) - the GFC response spurred it, and the COVID response accelerated it. In the next decade, on the margin (always look at 'incrementals'), Boomers will be retiring (power, purchasing power DOWN) and Millennials will be moving into leadership positions (power, purchasing power UP) - the demographics set up for a rapid adoption of this new system. No one laid this out better than Neil Howe in the '90s - he dubs this broader transition the Fourth Turning.

Quick recap of the backdrop:

Enabling technology: Blockchain
Catalyst (for change): GFC (2008), COVID-19 (2020)
Value proposition: Incentive alignment; tying capital + labor closely together
Demographics: Millennials up, Boomers down


The Crypto World is the Digital West

Past Frontiers
* Exploration is typically spurred by a distaste of the current system, driving people to look elsewhere to 'build a better life + society' and/or a better way of doing things
* Looking West - Columbus & European Explorers, sick of monarchies and in search of more efficient trading routes, head West and discover the 'New World'
* Looking West - Early Americans, sick of initially colonial rule and then concentrated power, head West and discover the now 'Western US' ... think of the pioneers and the 'gold rush'

New Frontier
* Younger generations, sick of the concentration of power/wealth with the elite and the system that reinforces it, begin to build a digital world
* Physical exploration has largely been exhausted in its current form - we need to look to Space for 'new' land
* Digital exploration and properly aligned societies are ripe with opportunity
* Digital assets, crypto-economic networks, and their native tokens are the new frontier - "infinite white space"
* Bitcoin, the first crypto-asset, has many similarities with gold (it's scarce, it's mined by miners, it's increasingly considered a store of value, etc.)
* We need to be very thoughtful in how we structure and govern this new digital frontier (Web 3.0)

Traditional Asset Classes

Below is a useful way to frame / think about different asset classes by functionality.

  • Financial Assets: Equities, Bonds, etc.

    • Primarily a capital investment representing a level of ownership in a business (rights to X% and cash flows)

    • Valuation method - generally NPV (net present value) of cash flows; (cash flows & real interest rates important)

  • Consumables: Oil, Copper, etc.

    • Used typically as an input and/or something that is consumed

    • Valuation method - generally price * quantity; (supply & demand important)

  • Non-Consumables: Gold, etc.

    • Used primarily as a store of value

    • Valuation method - generally perception / scarcity; (supply & demand important)

Bitcoin & Ethereum

The two current, major crypto-assets are Bitcoin and Ethereum.

Bitcoin: primarily a store of value. There is a fixed supply (21 million cap). The coins are mined (using computing power rather than physical metals mining). Best analog to current system is "digital gold"

Ethereum: potentially a "triple point" asset - fitting all 3 of the above asset classes. It has cash flows that can be discounted, ETH itself can be used/consumed as 'gas' to power transactions, and there is increasingly an inherent value in the network/ecosystem.

Bitcoin’s blockchain was the first generation, which is mostly focused on currency, remittances, and payments. The second generation blockchain will be focused on smart contracts and distributed applications. As with the first generation of the Web, people have started to build tools and frameworks on top of the second generation blockchain.

Governance for these ecosystems is critical. You can’t expect humans to design a computer and have it be perfect forever. We need governance to drive decisions around how the blockchain is developed, to fix broken promises, to modify old rules and to protect participants from the inevitable bad and malicious actors.

Capital & Labor + Incentive Alignment

Since 1971, capital as a % of the economy has skyrocketed, while labor has languished. It's the simple way of understanding the wealth gap - wages in the US have hardly grown over decades (attributed to many things, including globalization) relative to the growth in capital (simplistic example: $100 invested in 1971 has grown to over $3000). Hence, wealth and power has accrued to capital (asset) owners, and the current system largely reinforces this dynamic.

In this new digital ecosystem (Web 3.0), we need to tie capital and labor more closely together. If we don’t tie capital to labor, the wealth gap will continue to get worse. If you need capital to partake in early Web 3.0, that defeats the purpose. People need to be able to earn capital in the digital economy by providing services/labor, and these designs and incentive programs must be intentionally created at the start. Crypto and the blockchain allows you to align incentives, which was much more difficult before. In the end, if you have the right incentives, the right things will happen - and positive externalities will result. This will create a new world, where all the participants are better off.

CrowdCent's Take

GPT-3 TL;DR: "People in the digital world are going to need to work to get the capital to participate. The point is “work” in the broadest sense. By definition, a digital asset that has cash flows tied to it is desirable, and it’s in everyone’s interest to improve the cash flows in the network. Crypto creates an opportunity to decentralize more elements of organizations. Many think of the corporation as centralized, rigid, and heavily hierarchical. We could imagine a blockchain-based organization with distributed, autonomous teams that have the ability to create their own rules and work agreements."

We're planning to build a digital asset (cryptocurrency) thesis model and analysis. Stay tuned for probability explanations of digital asset ideas.

Model Output

Probability of outperformance: - %

Percentile rank: %

The network value of ETH should be measured in the trillions if it succeeds in being a global financial settlement layer (same w/ BTC to be fair).

I'd just add a list of digital assets (maybe a more appetizing term for cryptocurrency) that I'm keeping an eye on apart from what I also see as the two main base-layer assets you mention here (ETH/BTC). The majority of these are tokens on Ethereum, but some are their own chain-assets. In no particular order:

  • NMR
  • LEND
  • BAL
  • LINK
  • SNX
  • BAL
  • YFI
  • COMP
  • MKR
  • CRV
  • DCR
  • DOT
  • ATOM

I'll likely do a deeper dive and write some of these up as their own ideas at some point. Think it will be interesting to track and this will be incredibly fast moving.

 +4  Reply

Great graphic above, and post below. Further elaborates on the multifaceted nature of ETH.

 +2  Reply

With the launch of Eth2 and ETH staking, there's a great case to be made that likens ETH to a bond, The Internet Bond.

 +2  Reply