In June, the SEC gave some of its most concrete guidance to date that cryptoassets can start out as centralized projects, possibly initially sold under securities laws, and eventually become "decentralized" and thus no longer sponsor-controlled, and no longer sold or transferred under securities laws. It makes sense that a decentralized protocol does not fit the definition of a security. There's not a clear single issue or promoter (for purposes of reporting, etc); tokens are often generated on an ongoing basis (which would constitute a "continuous offering" and related registration requirements); tokens are generated on a fully peer-to-peer basis in the protocol (potentially implicating independent nodes as transfer agents or broker dealers, or requiring those as middlemen); not to mention how all of the above are complicated by new issues like forking. Of course, all of this leaves some open questions on what exactly constitutes decentralization, but I am confident we will work through those to come to a usable definition. For example, "is the network forkable" is one simple (but incomplete) heuristic. Another is: "would the network continue operating if the initial sponsor went out of business". This second one is perhaps the most concrete, and I believe the the net effect of the SEC guidance is that we will begin to see protocol development companies (the initial "sponsors" of cryptonetworks) set a course to intentionally self-destruct. How this is done, exactly, will remain to be seen. Already we have seen a company / foundation split as one way of setting the protocol in the hands of a long-term custodian that is not the initial sponsor. Some projects may bake self-destruction into their initial charter (and any associated coin offerings or distributions); others may make self-destruction part of the protocol software development roadmap. But regardless of mechanism, I believe many projects will begin to contemplate their "path to decentralization" -- that is the takeaway from the SEC guidance, and a self-destructing company (leaving behind only an autonomous, decentralized protocol) is the logical result. This is going to be a messy process. For example, the recent launch of the EOS network demonstrated some of the challenges of handing off a protocol and network to the community. But luckily we will get to see many more real-world experiments as projects move out of the fundraising phase and into the build->ship->decentralize phase.
I was at an event last night, where the moderator, Preeti Varathan from QZ observed that there seemed to be a lot of cynicism in the blockchain / crypto space -- in other words, that the whole thing was essentially premised on a distrust of existing systems (fiat currencies, large internet companies, etc). It's an interesting and I would say correct observation, but it's also not the whole story. In addition to the distrust angle, there is also an innovation angle (though it is related to the distrust angle), which I'll get to at the end. But to focus on this question of distrust: a few weeks ago, I was in Amsterdam for the TNW conference, doing a number of things on their "hard fork" track for crypto/blockchain projects. Two conversations stood out: First was David Schwartz from Ripple, who gave what I thought was a fantastic and clear introduction to cryptosystems -- David's main point was that cryptonetworks are about fairness. You set the rules (in code) and once they are set, everyone plays by them on even footing. No one has the ability to rig the system once it is up and running. If this sounds a lot like a description of democracy and the rule of law, I think that's intentional. The framers of the United States had very similar goals -- escaping a system that felt "rigged" and set up a rules-based system that had decentralization (3 branches of government, federal vs states, house vs senate, etc) and checks and balances built in. So why is there a pressing need for fairness (in money, in tech platforms) today? The original bitcoiners were escaping what they saw as unfair depreciation of fiat currency due to inflation -- they were digital gold bugs who wanted a real store of value. Beyond that, there is a generation of application developers who don't trust the platforms they are building on -- developers have a keen appreciation of power dynamics and know when they are getting screwed. And beyond that, there is an even larger macro distrust and erosion of institutions brewing -- for example I hope that the US can hold on to its own (relatively) fair, rules-based system of governance, but that seems as threatened as ever. So there are plenty of reasons to be cynical and distrusting, both of traditional finance, technology and government. On to the second conversation was that same day, at dinner with a number of Dutch citizens. One gentleman made the point that "life is pretty good here, and we like our centralized institutions". Anyone who's been to Amsterdam can probably relate. Here is a picture from near where we were staying:
I have been thinking about this a lot lately -- in the context of work, health, family, finances etc. And more specifically, how compound interest is not just something that works for you, but it's also something that can (and more than often, does, speaking globally) work against you. I think of it like this:
Ways that compound interest can work for you:
You eat well and exercise every day - each month you are x% stronger and healthier
In June, the SEC gave some of its most concrete guidance to date that cryptoassets can start out as centralized projects, possibly initially sold under securities laws, and eventually become "decentralized" and thus no longer sponsor-controlled, and no longer sold or transferred under securities laws. It makes sense that a decentralized protocol does not fit the definition of a security. There's not a clear single issue or promoter (for purposes of reporting, etc); tokens are often generated on an ongoing basis (which would constitute a "continuous offering" and related registration requirements); tokens are generated on a fully peer-to-peer basis in the protocol (potentially implicating independent nodes as transfer agents or broker dealers, or requiring those as middlemen); not to mention how all of the above are complicated by new issues like forking. Of course, all of this leaves some open questions on what exactly constitutes decentralization, but I am confident we will work through those to come to a usable definition. For example, "is the network forkable" is one simple (but incomplete) heuristic. Another is: "would the network continue operating if the initial sponsor went out of business". This second one is perhaps the most concrete, and I believe the the net effect of the SEC guidance is that we will begin to see protocol development companies (the initial "sponsors" of cryptonetworks) set a course to intentionally self-destruct. How this is done, exactly, will remain to be seen. Already we have seen a company / foundation split as one way of setting the protocol in the hands of a long-term custodian that is not the initial sponsor. Some projects may bake self-destruction into their initial charter (and any associated coin offerings or distributions); others may make self-destruction part of the protocol software development roadmap. But regardless of mechanism, I believe many projects will begin to contemplate their "path to decentralization" -- that is the takeaway from the SEC guidance, and a self-destructing company (leaving behind only an autonomous, decentralized protocol) is the logical result. This is going to be a messy process. For example, the recent launch of the EOS network demonstrated some of the challenges of handing off a protocol and network to the community. But luckily we will get to see many more real-world experiments as projects move out of the fundraising phase and into the build->ship->decentralize phase.
I was at an event last night, where the moderator, Preeti Varathan from QZ observed that there seemed to be a lot of cynicism in the blockchain / crypto space -- in other words, that the whole thing was essentially premised on a distrust of existing systems (fiat currencies, large internet companies, etc). It's an interesting and I would say correct observation, but it's also not the whole story. In addition to the distrust angle, there is also an innovation angle (though it is related to the distrust angle), which I'll get to at the end. But to focus on this question of distrust: a few weeks ago, I was in Amsterdam for the TNW conference, doing a number of things on their "hard fork" track for crypto/blockchain projects. Two conversations stood out: First was David Schwartz from Ripple, who gave what I thought was a fantastic and clear introduction to cryptosystems -- David's main point was that cryptonetworks are about fairness. You set the rules (in code) and once they are set, everyone plays by them on even footing. No one has the ability to rig the system once it is up and running. If this sounds a lot like a description of democracy and the rule of law, I think that's intentional. The framers of the United States had very similar goals -- escaping a system that felt "rigged" and set up a rules-based system that had decentralization (3 branches of government, federal vs states, house vs senate, etc) and checks and balances built in. So why is there a pressing need for fairness (in money, in tech platforms) today? The original bitcoiners were escaping what they saw as unfair depreciation of fiat currency due to inflation -- they were digital gold bugs who wanted a real store of value. Beyond that, there is a generation of application developers who don't trust the platforms they are building on -- developers have a keen appreciation of power dynamics and know when they are getting screwed. And beyond that, there is an even larger macro distrust and erosion of institutions brewing -- for example I hope that the US can hold on to its own (relatively) fair, rules-based system of governance, but that seems as threatened as ever. So there are plenty of reasons to be cynical and distrusting, both of traditional finance, technology and government. On to the second conversation was that same day, at dinner with a number of Dutch citizens. One gentleman made the point that "life is pretty good here, and we like our centralized institutions". Anyone who's been to Amsterdam can probably relate. Here is a picture from near where we were staying:
I have been thinking about this a lot lately -- in the context of work, health, family, finances etc. And more specifically, how compound interest is not just something that works for you, but it's also something that can (and more than often, does, speaking globally) work against you. I think of it like this:
Ways that compound interest can work for you:
You eat well and exercise every day - each month you are x% stronger and healthier
The Slow Hunch by Nick Grossman
Investing @ USV. Student of cities and the internet.
The Slow Hunch by Nick Grossman
Investing @ USV. Student of cities and the internet.
It's ridiculously beautiful and every time I'm there I am struck by how happy the Dutch seem to be -- cruising canals by boat, riding bikes everywhere, healthy chubby babies in tow. Even their teenagers are happy. I am obviously being flip here, but the point is -- when things are good, or seem to be good, there's little perceived need to change the system. To the last point about innovation: the thing that I am most excited about here (and I think I speak for most of us at USV) is what a decentralized asset/contract/data layer means for innovation. Because cryptosystems are open source, extensible and forkable by default, and because they operate on rules-based systems without arbitrary centralized control, we now have a wide open environment for innovation, both at the infrastructure and the application layers. We are still so early in seeing what that will actually mean in terms of services that business and consumers can actually use, but we are building a very exciting foundation.
You're able to save - each month you're x% wealthier
You invest in friendships - each month they get x% stronger
You work hard, help your teammates, and contribute to your team's success - each month you become x% more valuable
etc.
Ways that compound interest can work against you:
You get stuck in a debt spiral and every month are x% farther in the hole
You feel overwhelmed at work and each month get x% farther behind on your inbox and your projects
You ignore your friends and each month get x% more distant
You're around bad people and bad things happen - you go to jail and meet more bad people, and more bad things happen
etc.
In other words, when things are good, they tend to get better. And when things get bad, they tend to get worse. This is a horrible paradox. (Reminds me a bit of The Pursuit of Happyness which illustrated this beautifully and painfully). I would argue that "health", defined broadly, is about getting to the right side of the curve, where your efforts are not only making you net better, but they are contributing to potential exponential improvement thanks to compounding interest. And getting away from the left side of the graph, where every day, every moment, has the potentially of compounding the badness. Last week, I was talking about this with Darsh, focusing on the importance of helping people (ourselves and others) get to the right side of the curve. Given the dynamics here, it is often a generational issue. For example: my great grandfather was murdered in Russia for being a Jew. That's about as bad as things can get - getting murdered for being who you are. My grandfather immigrated to the US, penniless, and died of cancer at a very young age. My father grew up on welfare, in a difficult home, but managed to graduate high school, learn to program, and then ultimately start his own business. I went to college (first one on that side to graduate) and now work at an amazing place in an amazing industry. The climb from absolute terror, to extreme poverty and difficulty, to relative comfort has taken at least 4 generations. And even so, I didn't learn about the compounding nature of money and other wealth as a kid, and am just working on teaching it to my kids now. A question, then, is how to short-circuit the cycle of negative compounding interest -- getting at least "to zero", so that the riptide is no longer pulling you under. Because if you can't do that, it's very hard to start to benefit from positive compounding. It is for this reason that I am a fan of universal basic income and other systems that give people a boost. One thought on that is, to work on positive compounding interest wherever you can -- that might be work, health, savings, relationships or something else. That's why I am so excited about our investment in Stash - they are singularly focused on helping individuals achieve compounding financial interest through saving and investing - even just with $5. With that, I will hit publish and hope for some initial returns on intellectual capital in the form of this blog post....
It's ridiculously beautiful and every time I'm there I am struck by how happy the Dutch seem to be -- cruising canals by boat, riding bikes everywhere, healthy chubby babies in tow. Even their teenagers are happy. I am obviously being flip here, but the point is -- when things are good, or seem to be good, there's little perceived need to change the system. To the last point about innovation: the thing that I am most excited about here (and I think I speak for most of us at USV) is what a decentralized asset/contract/data layer means for innovation. Because cryptosystems are open source, extensible and forkable by default, and because they operate on rules-based systems without arbitrary centralized control, we now have a wide open environment for innovation, both at the infrastructure and the application layers. We are still so early in seeing what that will actually mean in terms of services that business and consumers can actually use, but we are building a very exciting foundation.
You're able to save - each month you're x% wealthier
You invest in friendships - each month they get x% stronger
You work hard, help your teammates, and contribute to your team's success - each month you become x% more valuable
etc.
Ways that compound interest can work against you:
You get stuck in a debt spiral and every month are x% farther in the hole
You feel overwhelmed at work and each month get x% farther behind on your inbox and your projects
You ignore your friends and each month get x% more distant
You're around bad people and bad things happen - you go to jail and meet more bad people, and more bad things happen
etc.
In other words, when things are good, they tend to get better. And when things get bad, they tend to get worse. This is a horrible paradox. (Reminds me a bit of The Pursuit of Happyness which illustrated this beautifully and painfully). I would argue that "health", defined broadly, is about getting to the right side of the curve, where your efforts are not only making you net better, but they are contributing to potential exponential improvement thanks to compounding interest. And getting away from the left side of the graph, where every day, every moment, has the potentially of compounding the badness. Last week, I was talking about this with Darsh, focusing on the importance of helping people (ourselves and others) get to the right side of the curve. Given the dynamics here, it is often a generational issue. For example: my great grandfather was murdered in Russia for being a Jew. That's about as bad as things can get - getting murdered for being who you are. My grandfather immigrated to the US, penniless, and died of cancer at a very young age. My father grew up on welfare, in a difficult home, but managed to graduate high school, learn to program, and then ultimately start his own business. I went to college (first one on that side to graduate) and now work at an amazing place in an amazing industry. The climb from absolute terror, to extreme poverty and difficulty, to relative comfort has taken at least 4 generations. And even so, I didn't learn about the compounding nature of money and other wealth as a kid, and am just working on teaching it to my kids now. A question, then, is how to short-circuit the cycle of negative compounding interest -- getting at least "to zero", so that the riptide is no longer pulling you under. Because if you can't do that, it's very hard to start to benefit from positive compounding. It is for this reason that I am a fan of universal basic income and other systems that give people a boost. One thought on that is, to work on positive compounding interest wherever you can -- that might be work, health, savings, relationships or something else. That's why I am so excited about our investment in Stash - they are singularly focused on helping individuals achieve compounding financial interest through saving and investing - even just with $5. With that, I will hit publish and hope for some initial returns on intellectual capital in the form of this blog post....
