DOWN THE RABBIT HOLE
The Rise of Crypto Networks and Digital Assets and How They Will Transform the Internet
(A Primer for Normies)
AUGUST 2021
... a note before
you dive in...
In the late 1980s finance descended upon us, invading all aspects of life and culture. New York City became the center of the universe. Gordon Gekko graced our screens as greed became good, inspiring a generation of investment bankers, financial engineers and MBA applicants. For nearly two decades, to feel the visceral energy of finance, you only needed to walk the bustling streets of Manhattan.
Around the turn of the century, that nucleus began to shift West. Finance gave way to technology. Mark replaced Gordon as college dropouts aspired to move fast and break things, hoping to create the next Facebook. Suddenly there was an app for everything. To get a sense of the disruption to come, investors just needed to traverse Highway 101, dropping in on t-shirt clad entrepreneurs and their venture capitalists between downtown San Francisco and Menlo Park. By the time Steve Jobs released the iPhone, putting the Internet in our pockets, the Web had catapulted far beyond Silicon Valley. Software was eating the world.
Digital assets will soon have a similar impact.
The signs are already here.
Although hard for some to imagine at present, over the next 20 years crypto and digital assets will invade all aspects of life, culture, art and economy. Blockchain will usher in the third era of the Internet and turbocharge virtual worlds. As the back end of the Internet is re-architected with blockchain technology, entire industries will be disrupted while new ones are created.
But as the summer of 2021 comes to a close, crypto is oddly everywhere and nowhere. To sense its coming impact, you can visit a few physical locations in the U.S., such as New York, Los Angeles, Austin and San Francisco. But you must also enter the digital realm – the world of anons and avatars, of podcasts and blogs. Rather than Wall Street or Sand Hill Road, crypto lives on Reddit and Twitter. It breathes on messaging apps like Telegram and Discord. The crypto ecosystem lacks a centralized presence. Fittingly, it is decentralized. To find it, you must go “down the rabbit hole.”
It is hard to predict where new technology will lead, how fast change will come, or what precisely triggers its mainstream adoption. In The New New Thing: A Silicon Valley Story, while chronicling the rise of Netscape, author Michael Lewis offers a prophetic comment:
"The new new thing is a notion that is poised to be taken seriously in the marketplace. It’s the idea that is a tiny push away from general acceptance and, when it gets that push, will change the world".
The new thing at the time was the Internet. In the year Lewis’ book was published, the Internet was indeed only a tiny push from general acceptance. Initially treated as a trivial development, few understood the protocols of the Internet represented new infrastructure. They provided the means to move information digitally. And as the Web became more programmable, it led to all sorts of things we couldn’t previously imagine.
More than 20 years later, we are once again presented with new infrastructure: blockchain technology. Introduced by Bitcoin, a novel way to move and store value digitally, developers have since commandeered the technology for other means. These protocols, otherwise referred to as smart contract platforms, are more programmable and will soon begin solving real world problems.
They represent a new new thing that is poised to be taken very seriously. And sitting here today, there is the feeling that we are only the tiniest push away from general acceptance. And when the inevitable push comes, crypto and digital assets will indeed change the world.
All the best,
Cullen Thompson
BIENVILLE CIO
The new new thing is a notion that is poised to be taken seriously in the marketplace. It’s the idea that is a tiny push away from general acceptance and, when it gets that push, will change the world
Michael Lewis — The New New Thing: A Silicon Valley Story
I
FROM WEB1 TO WEB2
When launched, the World Wide Web was underestimated and often dismissed, even ridiculed. Uncertain regulation also clouded its potential. Few recall, but until 1993, commercial transactions over the Internet were prohibited. And with dial-up modems and clunky user interfaces, the Internet was hard to use.
But years after its emergence, the Web became more programmable and applications more functional. Adoption exploded. The world was forever changed. By the mid 2000s, however, the Internet took an inadvertent turn. The open Web became highly centralized with the largest platforms focused on collecting user data while simultaneously stifling innovation.
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II
BITCOIN & THE ADVENT OF BLOCKCHAIN TECHNOLOGY
With the Bitcoin network, Satoshi Nakamoto, its pseudonymous founder, solved a seemingly unsolvable problem in computer science, resulting in the creation of distributed ledger technology.
Although bitcoin, the asset, remains controversial with most referring to it as “digital gold”, the technology underpinning the Bitcoin, the network, represents new infrastructure, giving rise to the property of “trust” across the internet.
The implications are vast.
III
THE SMART CONTRACT PLATFORMS
If Bitcoin represents an aspiration for digital money, its more programmable offspring Ethereum, and other smart contract blockchains, are an important means to re-architect the current centralized Internet.
Scaling the new infrastructure has taken time, but is now reaching an inflection point. And applications to solve real world problems, while removing costly and inefficient middlemen, are evolving faster than most realize.
As they gain adoption, the smart contract platforms will once again reshape business and society in profound ways.
IV
WEB3
The Internet is entering its next era. Rather than a centralized intermediary, Web3 represents a set of protocols with distributed ledgers and smart contracts as their backbone.
Web3 will combine the best features of the first two eras: community governed, decentralized networks similar to Web1, but with user experiences similar to those created by the centralized Web2 incumbents.
Already, Web3 has given rise to a number of important decentralized applications, such as DeFi and NFTs. It will soon disrupt existing social networks, and will turbo charge the metaverse and play-to-earn gaming.
V
INVESTING IN DIGITAL ASSETS
The first modern stock market was created in 1611. Bonds, real estate and commodities have of course existed far longer. Financial derivatives, created in the 1970s, are more modern instruments, but they derive their value from these same traditional assets. Hedge funds, private equity and venture capital, which have gained popularity since in the early 2000s, simply repackage these core assets into different trading and investing strategies.
Digital assets, by contrast, are a new phenomenon. They introduce new concepts and new nomenclature. Understanding their models requires a different type of thinking.
As Web3 kicks into gear, investors devoted to understanding crypto networks should be well positioned to participate in what will be extraordinary value creation.
VI
SUMMARY
VII
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