Crypto Will Only Succeed If Most of Us Never See It Coming

The work ahead for this quirky and colorful industry will be enormously challenging, mostly tedious and almost all under the hood

Photo by Traxer via Unsplash

The U.S. government’s begrudging blessing of an exchange-traded Bitcoin fund last week underscores an impressive rebound for the crypto industry, which was licking its wounds last January following a collapse in most coin prices and the operatic implosion of its most celebrated exchange. 

Crypto is back, but it’s got a long way to go. The irony is that an industry still characterized by wild market swings, libertarian politics and plenty of drama will only succeed over the next decade through a long grind of incremental efforts to modernize the global financial system and the Internet.  

The great vision underpinning crypto assets and blockchain technology is a world in which things of value—even very small value--move cheaply, instantly and securely over the Internet. If you can somehow trust a buyer or seller you have never met before, then you no longer need the cumbersome and costly infrastructure of banks, escrow agents, custodians, lawyers, traders, accountants and intermediaries that currently gum up the system. 

Think of bank transfers without the delay; cashless transactions without credit card fees; home mortgages without the mountains of paperwork; affordable partial investments in juicy private equity assets a that are now reserved for the very rich.  

The benefits for greater efficiency and productivity are obvious, but there are also enticing possibilities for financial inclusion, enhanced privacy and for exciting new business models. 

So far, however, it’s safe to say that this young industry has delivered more entertainment for most of us–-or heartbreak for some unlucky investors--than lasting value.

There is the mysterious Satoshi Nakamoto, the pseudonymous author the 2008 white paper that laid out the Bitcoin vision without revealing their identity. There is the confounding Sam Bankman-Fried, whose crypto empire dissolved like a Greek tragedy set in a luxury condo furnished with beanbag chairs. There’s even last week’s fake announcement by U.S. Securities and Exchange Commission that it had approved the Bitcoin ETF and sent markets racing – a day before the real announcement came out. 

The best rule of thumb may be that the crazier the crypto headline, the less it matters for advancing toward the grand vision. Many have pointed out the irony, for example, that the ETF hoopla merely marks the appearance of a traditional financial vehicle that enriches the very intermediaries and institutions the crypto industry promises to disrupt.  

Indeed, Bitcoin usage seems to have shifted from its central promise as a “peer-to-peer electronic cash system” in the very title of that famous white paper. Ingenious as it is, Bitcoin still operates on a cumbersome algorithm that uses lots of electricity and fluctuates dramatically in price. 

Now its most popular use case seems to be as a kind of as “digital gold,” because of its strictly limited issuance. Many are drawn by an underlying economic argument that fiat currencies consistently depreciate when governments spend like drunken sailors. Many others undoubtedly simply find it attractive that the price (mostly!) keeps going up. 

The political agenda of the crypto diehards look slightly less quixotic amid the chilling visions of artificial intelligence controlled by governments or large corporations. New businesses built on blockchains and powered by AI will need to demonstrate they can protect privacy, that their results are not commercially or otherwise tendentious and compensate consumers for their data. Democratic governments, meanwhile, will need to build in checks and balances so these powerful tools reflect the values of free citizens. 

But the march of crypto and blockchain innovation continues behind the scenes. Other ‘coins’ are already more nimble and efficient than Bitcoin as a means of payment. There will be more efforts to win over skeptics to “non-fungible tokens” or NFTs as they evolve from Cryptokitties to the building blocks of new communities around everything from art and gaming to Manchester United and Taylor Swift. 

Easier to understand, perhaps, is the promise underpinning the possibility to tokenize what the industry calls “real world assets.” This makes it easier to buy and sell a car, a boat or a home, without the cost and hassle of signing over paper titles or securing home title insurance.  

This also makes it easier to standardize and sell fractional ownership in an office building, a hotel or a more sophisticated private investment. These are investments now only accessible to a select few but could, if tokenized on the blockchain, provide benefits to household investors at far more affordable levels. Token owners can also sell them quickly or post them as collateral when they need a loan themselves.  

Tokenization of almost anything is what also makes it possible to trade directly with another person without the legion of intermediaries that are normally involved with something even as simple as a banks transfer, let alone a home purchase.  

Getting to this vision requires a long and careful redesign of the current methods of transferring money and property. Current crypto business models need to be more scalable, interoperable and secure. Traditional financial intermediaries need to invest in systems that embrace the benefits of this new paradigm. Governments need to provide legal clarity and articulate a vision for banking the unbanked.

And all of this will have to evolve so the rest of us can enjoy the benefits of transferring money, property and securities reliably and simply, but without feeling like we must necessarily sign on to a revolutionary political agenda.

Just because the industry is so colorful, dramatic and apparently quixotic doesn’t mean there isn’t something important afoot that will completely reshape the global financial system. But most of the real benefits will only land if most of us never actually see them coming.