Of late, there has been much ado made about crypto currency, not so much about DLT. This post briefly explains what the fans and naysayers are saying and why blockchain technology, a.k.a. DLT, may be the one to watch. Business leaders, take note.
Unless you’ve been living in a media-free zone since 2009, you’ve likely heard or read some news reports, or promotional material disguised as such, about an alternative currency known as cryptos which is short for cryptocurrency. If so, you’ve probably heard a lot about the most popular crypto called bitcoin. Perhaps, unlike yours truly, you took a tip from an early adopter and bought some bitcoin and enjoyed multi-thousand percent returns since then. Perhaps not.
Nevertheless, the alt currency creators use a technology commonly referred to as blockchain or digital ledger technology (DLT). They tout its security, portability, and transparency, They also appreciate the freedom from fiat currency it affords. It’s the technology behind crypto currency that excites the entrepreneur and liberty lover in me. But alas, it has yet to receive the attention it deserves.
Of late, the detractors of crypto currency, of which there are many, seem to grab most of the attention. On the other hand, the visionaries helping to legitimize cryptos are a colorful but noteworthy lot. I discuss them both below.
But first, I’ll confront the elephant in the room: the headlines about crypto currency hacking. As a former risk manager, the high-profile hacking of some exchanges got my attention and yet I noted that these were exchanges, not the crypto currency itself. This is akin to your neighbor’s house being broken into and thieves getting away with the loot including a TV, computer, and some pieces of fine art. Would this stop you from buying those items? Instead, would it prompt you to ensure that your home security system was adequate? This is essentially what one has to do with currency of any kind: take reasonable measures to protect it.
As an entrepreneur, investor, and writer, I’m more interested in the disruptive potential of DLT than the alt currency. The acronym stands for distributive ledger technology. Some visionaries suggest that it’s about to rock your world much like email and digital cameras did.
So when talking about cryptocurrency, the first takeaway is to make sure you draw a distinction between the currency and the underlying technology. For my money, pardon the pun, the most interesting and perhaps more promising part of the crypto phenomenon is DLT.
What Would Steve Jobs Say?
We don’t know what the late Steve Jobs would say about cryptocurrency or DLT, but that doesn’t stop us from speculating about it, now does it? Before his death in 2011, it appears that he made no public comments about the currency or technology. Some commentators suggest he would love the freedom it brings the owner while at the same time he would likely denounce the crude user experience. We do know what the other founder of Apple and other notables think about it.
Earlier this year, the Woz ( Steve Wozniak), co-founder of Apple and a highly acclaimed electronics programmer and inventor, said he bought bitcoin when it was at $700 “just for fun.” This week, it has been trading arround the $7,500 mark.
More recently, Woz pointed out, “There is a certain finite amount of bitcoin that can ever exist.” He went further by explaining that the U.S. government could wind up printing more dollars for political reasons but more bitcoin cannot be created. He described the U.S. dollar as “kind of phony” in that sense, while describing Bitcoin as more “genuine and real.”
Another tech superstar, Bill Gates, co-founder of Microsoft, was also upbeat about bitcoin and DLT during a recent interview (starts at 45 second mark) and went a long way toward legitimizing both. “Bitcoin is exciting because it shows how cheap it can be. Bitcoin is better than [other] currency in that you don’t have to be physically in the same place [with the other person in the transaction] and for large transactions [using other forms of currency] this can get pretty inconvenient,” he said.
The “Dean of Wall Street” also weighed in on crypto currency and DLT here, here, and here in posts on his blog. Aswath Damodaran is Professor of Finance at the Stern School of Business at NYU who picked up the nickname after becoming one of the go-to academics on financial matters. While I wouldn’t consider him bullish on crypto currencies, he disagrees with those who consider it a fraud, such as CEO Jamie Dimon of JP Morgan Chase. He also said he has a different standard for what constitutes a currency than Warren Buffet.
Some financial companies like Citigroup are not ignoring the potential of crypto currency and DLT. Although CEO Michael Corbat prefers the name digital currency reportedly the company is considering releasing its own version. He also believes that state-sponsored alt currencies are a likely response by governments concerned about “the disruption of their capabilities around data, tax collection, money laundering and know-your-customer (KYC).”
Adding even more cred to the alt currency and DLT movements, representatives of CME and CBOE, two large derivative exchanges, expressed confidence in them recently while Deloitte announced that they have identified over 26,000 blockchain oriented projects underway around the world with some of the biggest companies involved in some of them. To paraphrase their comments, while they observed that as many as 90% or more of those seem to be dead in the water, the remainder still represents tremendous momentum.
All Opposed Say, “Circle the Wagons!”
Is it just me or are the loudest crypto naysayers people who have the most to lose if cryptocurrencies and DLT realize their full potential?
For instance, Ray Dalio, brilliant founder of Bridgewater Associates hedge fund, arguably one of the most successful of all time, and one of the largest currency trading firms, couldn’t have been more blunt or short-sighted in his assessment. Mr. Dalio called bitcoin a bubble and also said that unlike gold there is volatility to it. Memo to Mr. Dalio: all stocks, bonds, currencies, and commodities can be measured by their volatility and gold is certainly no exception. Obviously this highly intelligent and successful man was not at the top of his game during that interview.
As previously mentioned, Jamie Dimon, CEO of JP Morgan Chase, is no fan of bitcoin, although it appears he does respect DLT. “Blockchain (DLT) is a technology that can be used for multiple things, including cryptocurrency,” he said. But regarding the currency, “It’s just not a real thing, eventually it will be closed,” he said during a recent interview. Wishful thinking, perhaps?
Of course, both Mr. Dimon and a host of others in the financial sector have a lot to lose if crypto currencies go mainstream. On that point, a few days later during another interview he doubled down on his bearish outlook on cryptocurrencies. “People think they’re kind of neat. But the bigger they get, the more governments are going to close them down,” he said. Perhaps Mr. Dimon knows something we don’t. Or perhaps his and other financial institutions will directly or indirectly pressure regulators and legislators to do just that.
On a lighter note, in one of his recent interviews, Mr. Dimon had to make an admission. “My daughter bought bitcoin, it went up and now she thinks she’s a genius,” he said. It may be interesting to have the two of them compare the ROI on their investment portfolios at the end of the year. It’s also interesting to note that despite Mr. Dimon’s bearish view on cryptos, his company’s customers are reportedly still buying crypto currency.
As for Warren Buffet’s take on it, one needs to keep in mind that for a long time he did not invest in technology companies ostensibly because he did not understand and appreciate them as much as other businesses. That changed over the last few years when he apparently saw the price of Apple shares at a delectable valuation point. Regarding the likes of bitcoin, “Stay away from it. It’s a mirage, basically,” he said during a 2014 interview. I wonder if he’ll change his mind some day? I also wonder if his comment could be influenced by his company’s large stake in Wells Fargo?
Some of the old guard and brick and mortar bankers protests too much, me thinks.
I get that some people are confused and concerned about this fledgling competitive threat of crypto currencies and DLT. Heck, even Woz said he put off buying bitcoin because the original requirements were even clunkier than they are now. But why the naysayer posture? The public good will not be served if those responsible for the country’s economic and financial well-being approach cryptocurrencies and DLT in an alarmist, defensive, and close-minded way. Indeed, this may be a test of whether or not the big-bank, big-government complex is too big to break.
Disclosure: I own crypto currencies as well as shares in DLT-oriented companies. Call me a G2 investor in them (as in second generation). Some would call me a laggard, and that would be somewhat accurate given bitcoin’s stratospheric rise before I made these investments. Note that I am not a broker-dealer, stock market or investment advisor, nor your financial nanny.
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