Birth of a New Era

How cryptocurrencies are a gateway to an entire virtual world

Thank you all for subscribing to this newsletter.

I hope to make this a space to not only learn about the future of money but also try out the entirety of what will become finance 2.0 and web 3.0.

I plan to release one letter per week summarizing the latest in the space and periodically post a challenge to implement what you learn in real time.

To kick things off, I want to take a step back and discover how the world looks today and why the entire crypto space is a zero to one invention.

TLDR;

What if I told you the crypto space was more than just watching a speculative asset go up in price and flashing green arrows on CNBC.

What if I told you they are building a parallel universe that is digitally native with its own set of currencies for different universes.

What if I told you you could own your money in your pocket, send it worldwide instantly without any bank or government telling you no.

Some of this is obvious to you but I think you’ll be shocked how much has been built since the great boom and bust of crypto in 2017.

Today you can drop into a virtual world and buy and sell digital assets and land, you can collateralize your crypto and take out a loan in the equivalent of dollars, you can share your bandwidth or hard drive space to earn crypto, you can get paid for surfing the web, you can buy a portion of real estate in Detroit and earn rental income and much much more.

You can do this without logging into a website but all with a single wallet that controls all your money and that can sit in your pocket.

Or even a set of words in your mind. 🤯

A digital bank and access point for an entire virtual world.

What is Money?

What should be the most valuable thing to humans in the world?

Air

Air is the most valuable thing to humans. Every single human needs a constant supply 365 days per year, 24 hours per day yet it is free.

So why is it free?

We’ll you’d say because there is an infinite supply. This seems obvious to us but then why do we not have the same thought about fiat currency?

It’s actually because scarcity creates perceived value. This value is worth trading for and the most liquid medium of scarcity accrues the most value.

For a long time, we humans knew this. We traded gold which had a constant inflation of about 1-2% per year.

It was a natural form of scarcity. No matter how much the price went up - you could only add 1-2% to the stock every year as it was hard to find.

As a result, we had a gold standard and everything was pegged to gold. It was how countries kept a balance of accounts between each other.

If you got out of line and started racking up debt from wars, etc - other countries could recall their gold and your limited supply goes down.

All this changed in 1971.

In 1971, Nixon took the American dollar, the reserve currency of the world, off the gold standard and everything changed overnight.

Suddenly governments could print as much as they wanted with no chain of the gold standard to hold them down.

What’s worse, is that every government had to do the same thing to devalue their currency in order to stimulate domestic demand.

These are called currency wars.

And it has been the greatest theft in history from savers and future generations to those with capital assets who want to live for today.

When a dollar is printed it isn’t evenly distributed to everyone in the economy…no no no - it goes first to the people closest to the money.

Home owners. Bankers. Big Corporations. They have first access to the spigot of money from the central banks.

This is known as the Cantillon Effect.

Quantitative Easing as it’s become to be known was the solution implemented in 2008 during the Great Financial Crisis.

It was also the year Bitcoin was born.

Why Bitcoin Matters

Bitcoin was the first true form of digital scarcity. It solved a long standing problem in computer science - the Byzantine General’s Problem.

The problem goes like this - you have a set of generals commanding multiple armies camped outside an enemy compound and the only way to win the battle is a coordinated attack.

The challenge is that you must only communicate with each other using messengers while at the same time certain generals are traitors and will change the message.

Without getting too into the details, Bitcoin’s expensive computational process solves this problem by ensuring social consensus within an adversarial environment like this.

It’s the first implementation of true digital trust.

This barrier was broken in 2008 - it was a zero to one invention similar to the printing press or more aptly double entry accounting.

If you don’t understand why trust is important - let me explain.

Why do we store our money at the bank and not under Susan’s mattress down the street? Stick with me here - it’s obvious but let’s move through it.

It’s because we don’t know if we can trust Susan not to lose our money or worse steal it - we trust the bank because they’re FDIC insured, etc.

If I want to store money, the bank holds my balance on their computer system and when I want to send it anywhere I can trust they’ll get it there.

With Bitcoin, I can now trust code, that anyone can audit, to store my wealth and when I want to send it, the expensive social consensus process behind it ensures my transaction gets to its intended destination.

This is why people are confident sending $1.1 Billion transactions around the world and paying $0.68 - this actually happened on April 10th.

No middlemen. Basically zero fees. Near instant.

Power of exponential returns

There’s a story of an inventor who presented his king with the game of chess. In return the king, offered the inventor any prize he wanted.

The inventor thought about it and then asked for 1 grain of rice on square one and doubling for each successive square. 1 then 2 then 4, etc.

The king immediately laughed and responded “sure” as this seemed like a cheap gift for such a wonderful game.

A week later the inventor came back to collect his reward and asked why he hadn’t received it. The king was outraged and demanded the treasurer explain why the inventor had not been paid.

The treasurer explained that the sum could not be paid as by the time you got to half way through the chessboard, the amount of grain required was more than the entire kingdom possessed.

To give you an idea…by square 33, the amount of grains would fill up the entire planet in volume.

This is the power of exponential returns.

This is the world that has been enabled by Moore’s Law, technology and network effects. And this is what governments have been fighting.

This is why the price of everything online tends towards zero - free maps, free apps, free video and content. It’s the relentless march of deflation.

No scarcity. Zero price.

The FED and governments have been trying to fill this gap with monetary inflation but they just can’t fill the gap. That’s why things in the meatspace like real estate, healthcare and things technology hasn’t touched yet (or hasn’t been allowed to) keep inflating in price.

They are scarce.

Now throw the first digital form of scarcity into the mix. The first time we can truly say you have only 1 of 21 million coins that will ever exist.

It’s like lighting a fuse on the biggest powder keg in history.

Our world tomorrow

You may not agree with what I have to say. That’s fine but here are my thoughts on where I think we are headed given this trajectory.

I believe the millennials have no assets and no money but they have a sense of technology and they’re jumping head first into crypto.

They don’t have money to buy houses. They don’t have money to buy stocks. And they have a deep mistrust of governments and banks.

These are all facts.

Over the next decade, you’re going to see a mass exodus from finance 1.0 into a decentralized finance 2.0 where everyone controls their own wealth.

Along with that, you’ll see a rise in mobility as the younger generation exit expensive jurisdictions hamstrung by debt and obligations.

Wealth will increasingly be stored in crypto that cannot be confiscated at the same time that bankrupt governments struggle to collect taxes from their captured citizens (workers + home owners).

Their actions will only accelerate the process.

In this newsletter, I hope to provide some guidance on this transition because while it will be challenging, it will also open up a world of new opportunities.

Until next week…