How Cryptocurrencies And Blockchain Could Transform The Internet
For the past two weeks, we have been talking about money: not just the Internet of Money (IoM), but also the Money of the Internet (MoI). This week, I’d like to take a step back and talk about a more important idea - one that animates this entire revolution of the IoM/MoI, blockchain1, and cryptocurrencies2.
That core, animating idea is: “value.”
Going back to the concept of Andreas Antonopolous - i.e., money is a language we use to communicate value - ask yourself the following: What’s the most valuable thing on the internet? Answer: data. The value of this data is so large, in fact, that it has spawned its own meme: “Big Data.” The term is shorthand for the incalculable value of all the mountains of data stored and accessible across the World Wide Web. So much data that it takes an almost incomprehensible amount of computing power to manage and analyze it.
Now imagine that every single piece of data on the internet was its own unit of value: own-able, trade-able, buy-able and sell-able - owned and controlled not by centralized data hubs (e.g., Google (NASDAQ:GOOG) (GOOGL), Facebook (FB)), but by individual users. I believe that’s where we are headed with blockchain and cryptocurrency technology.
In my view, all the data pouring into this giant database we call the internet, will one day be part of a single giant data “bank,” where every single bit of data could be held securely and monetized by its creator. It will be built upon the “embryonic” blockchain and cryptocurrency technologies of today.
This quote is from the well-respected firm RBC Capital Markets (RY), from a report issued after the recent TechCrunch conference:
"We continue to believe that the Internet is at the embryonic stages of a potential massive paradigm shift powered by decentralized computing on public Blockchains... We increasingly believe it is a question of when this shift happens and not if... We believe that smart contract platforms backed by Crypto & Blockchain promise to create a layer of trust across all digital participants, while greatly improving the efficiency of transactions and the security of data in our increasingly digital world."
Web 1.0 to 2.0: A Simple Data Archive Evolves Into A Global Data “Bank”
First, we had what you could call an Internet Data Archive, or Web 1.0. Between the early 1970s and late 1980s, inventors and developers built most of the basic functionality and infrastructure we now know as the internet - i.e., hardware, software, network architectures and protocols, etc. That radical invention made raw data available everywhere, shareable all over the world, and searchable in a giant open archive. Web 1.0 was a global library where you could find a news article or a scientific paper, share a song or a photo, or send a written message (email) to anyone, anywhere.
Second, during the 1990s and 2000s (leading up to the tech bubble and beyond), people figured out how to organize and manipulate all this data - and the race was on among companies aiming to monetize it. You could call this stage the Internet of Information, or Web 2.0. (“Data” being raw unorganized facts, while “information” is data that has been processed, organized and structured.)
Users could buy goods and services, and trade things of value. Pretty soon value was flying around the internet literally at the speed of light, with few toll booths and no brakes, spelling disaster for some (e.g., music, book, and newspaper publishers), but untold riches for others (e.g., social networking companies, data aggregators).
Two things happened here that changed the world forever: Anyone could create and publish content, and data aggregators figured out how to package and sell access to this growing database of user content. In a few short years, we saw rapid centralization of data on networks owned by the Goliaths of the internet. These companies made, and still make, billions of dollars annually from an advertising-based revenue model that sells your data to their customers: You publish. They profit.
And by “publish” I’m referring to all the data you create on the internet: from Facebook posts, to your driving routes captured by Google maps, to your purchase history on Amazon (AMZN).
The Data “Bank”: You Publish. You Profit. Aggregators Become Utilities.
So where are we headed now? Web 1.0 was a kind of a Global Library - it took a world of existing information and put it into one big open archive. Web 2.0 was akin to a Global Publishing Machine - anyone could produce content and store it in centralized databases, with all that information monetized by database owners.
Web 3.0 turns the Global Database into what I call a Global DataBank, as depicted in this graphic.
No longer is the internet a bucket full of raw data. No longer will it be a centralized database to be managed and monetized by aggregators. With blockchain and cryptocurrency technologies, it is fast becoming a decentralized bank of data, where content can be securely stored by its creators. And those creators can exchange data with billions of other creators over open, public networks.
Imagine that. In this new world, individuals would have a choice about how, when, and where, to monetize their data - and for how much.
Your Twitter feed is currently monetized by Twitter (TWTR). You Tweet, and they get paid. You use Google maps to find the best route to your favorite restaurants. Google gets paid. But what if you got paid? What if your Twitter feed, or your Facebook feed, or even the image of your face, or your list of favorite local eateries, or the power generated by your solar panels, was monetizable by you!
You might be able to monetize it in a cryptocurrency format (e.g., bitcoin, ether, ripple). But you might also be able to monetize in other forms: imagine 25 Facebook posts being worth 100 Tweets, or 0.005 airline reward points, or .025 Starbucks lattes, or 3 minutes of electricity from your neighbor’s solar array.
The big takeaway: With blockchain and cryptocurrency technology, it’s value that matters.
When each piece of data on the internet is its own unit of value, there is no limit to how many different ways that value can be exchanged or redeemed. I believe this is the world we’re headed for. And in such a system, cryptocurrencies would be the most appropriate vehicle for translating value among billions of creators all over the world. Which makes advances in cryptocurrency technology good news for creators - basically all of us who use the internet.
On the other hand, it’s not such great news for aggregators and businesses profiting from “Big Data.” The upshot being that their data hegemony may be coming to an end, as decentralized networks blossom and the era of peak centralization begins to fade. It’s far too soon to predict the death of companies like Google. Although Wall Street Journal columnist Andy Kessler considered just such a possibility in his recent article: Will Bitcoin Save Us From Google? But in a world where I own and control all my own data, companies like Google would become just pipes and wires, almost like utilities. Or a glorified library card catalogue.
Now, that radical future may seem unbelievable to you. And such a future would be still many decades away. But some of the brightest minds in the world are working furiously to make this vision a reality. Yes, there have been, and will likely continue to be, some spectacular failures on the path to success. But every day leading innovators are reporting success after success in building out every aspect of this new digital monetary world - in hardware design, software design, payments technologies, custody technologies, networking technologies, speed, reliability, security, transparency, efficiency, etc.
As an investor, I would be very wary of betting against them, which is essentially the position skeptics are arguing for. It’s something to consider until next week.
Consider it my 2 cents, for now.
Source that inspired this entry:
Andy Kessler, WSJ.com. Will Bitcoin Save Us From Google? July 15, 2018
Disclosure: I am/we are long BKC.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This blog is intended for information purposes only and does not constitute investment advice. This blog contains the opinions of Brian Kelly. Blockchain technology and cryptocurrencies are subject to several risks which should be considered when evaluating an investment that provides exposure to this sector. The Rex BKCM ETF is not suitable for all investors. The Fund should only be utilized by investors who are willing to assume a high degree of risk and intend to actively monitor and manage their investments in the Fund. Please see important risk disclosures at the bottom of the page.
1 Blockchain is a decentralized, digitally disseminated ledger of data. The basis of a successful blockchain system is once a new group of information, or “block”, is added, the information automatically disseminates and is downloaded to each computer on the network. This assures that a single computer could not change information on a block: it would be overruled by a consensus of all the other computers on the network. This process renders all information on a completed block decentralized and theoretically permanent.
2 A cryptocurrency (crypto) is a digital currency typically utilizing a Blockchain system for transaction records and cryptography for security. The major differentiator from physical currency is it isn’t issued by a central authority and thus theoretically acts independently of traditional banking and government influence. A crypto-asset would be holding a certain amount of cryptocurrency, or a derivative for which value is driven by the price of an underlying cryptocurrency.
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