Are The Next So-Called ‘FAANG’s Hidden In The Crypto Collapse?
In the final entry of our Bitcoin: Believers & Sceptics breakfast series, CoinShares partnered with Financial News and MarketWatch to discuss where value can be found in the aftermath of the crypto collapse.
Here’s what you missed:
From left: panel moderator Francesco Guerrera, Head of International at Dow Jones Media Group; Meltem Demirors, Chief Strategy Officer of CoinShares; Xen Baynham-Herd, Head of Strategy and Lead Economist at Blockchain; and JP Rangaswami, former Chief Data Officer of Deutsche Bank.
For this final discussion, CoinShares CSO Meltem Demirors was joined by JP Rangaswami, former Chief Data Officer of Deutsche Bank, and Xen Baynham-Herd, Head of Strategy and Lead Economist at Blockchain. The panel was moderated by Francesco Guerrera, Head of International at Dow Jones Media Group.
Keep reading for a recap of their conversation.
Francesco kicked off the discussion with a simple question — have we actually seen examples of new business models in the crypto space?
Meltem responded first, noting the inherent tension between ideology and revenue generation that has gripped the industry:
“When we first started with crypto it was ‘down with the banks’… but what has happened since then is that the viable businesses are those which look like legacy ones. If I have an exchange and capital on my balance sheet, how can I use that to yield return to my investors? This looks a lot like traditional models.”
“We’re at an ideological impasse — these ideas are conflicting.”
Xen added to this notion, clarifying that while blockchains may represent a major innovation, the companies servicing this space have business models that more closely resemble those of traditional tech companies:
Blockchain more broadly is a series of networked databases… allowing us to see a shared voice of reality. Looking to acquire customers, assets, liquidity or trading flows [for exchanges], and looking to acquire data…
These [are the] scarce resources you build things on top of.”
Having witnessed many different technologies evolve and mature, JP observed how not all change is linear:
“Entrance points look a lot like what you’re trying to change, [but that] doesn’t mean that’s where they’ll end up.”
With this macro perspective in mind, JP also noted how blockchain technology may already be evolving and has begun to solve the age-old problem of entitlement models in the digital realm.
Referencing George Bernard Shaw:
“If I have an apple, and I give you an apple, now you have the apple. If I give you an idea, now we both have the idea.”
Solving for this was one of Bitcoin’s greatest breakthroughs — ensuring that digitally-coded information (in Bitcoin’s case, value) could not be easily copied or counterfeited, while also eliminating the need for a trusted third-party to maintain a record of ownership. He further explained:
“Extreme non-rival goods have traditionally needed state intervention, laws put in place, to uphold them.”
“The concept of something that is digital; programmable with an infinite amount of decimal places; [and has a] low cost for expansion — all these things are valuable because they are going to allow us to do things that we haven’t done before.”
“The concept of money, of business, is not going to change — but what we are able to do will change.”
Meltem returned the conversation to the present state of the blockchain industry, and the amount of work that must be done in order to realise the vision that industry participants hope to achieve:
“We’re educating our clients and regulators about how these technologies work and fit into existing rules, as well as how we might need to change the existing rules to create value for society and the economic system”.
What’s more, she added:
“As companies working in this space, we have a tremendous hurdle to overcome — we have to educate new users and educate them on how these assets work.”
“People don’t always immediately appreciate change because it’s difficult and requires time.”
Xen provided an example from blockchain.com of how consumer-centric software models may be slowly emerging:
“You download software and locally encrypt that asset, which means you have complete control — the service provider doesn’t touch that thing.This is very different from custodial services that we know well, such as as banks lending out maturity transformation.”
“If you think of self-sovereignty models of money, you can soon extend that to other things. It could move to other assets like bonds, and eventually to identity and [personal] data.”
Xen concluded that this change could put the individual in control of their own digital sovereignty:
“For the FAANGs, their value comes from us — but it could eventually go back to the user, where they can control [their own] data and reap the [corresponding economic] value.”
JP followed this sentiment with an anecdote:
“When I started working in computing, I was told that the paperless office is as likely as the paperless loo.”
Having worked through various tech epochs, he warned against hyperbole when it comes to a ‘down with the banks’ mentality:
“I’ve read about the ends of banks through every decade of my life — but that’s like asserting that banking is about money. I maintain that banking is about trust.”
“Business requires trust to operate — trust-less models are just replacing where and how you place the trust.”
He also likened this to the broader issue of agency:
“The agency issue of [believing that] everyone will want to do everything themselves — I go back to food…
I could grow it myself, prepare and cook it myself.
I could go to a supermarket to cook it myself, and use a third party recipe.
Or I could go to a restaurant and have it all done by someone else.”
“A spectrum of agency exists. Simplicity becomes part of it.”
Adding to this idea, Meltem referenced Tim Wu’s The Master Switch and the cyclical nature of tech diffusion:
“Every time there’s new technology, there’s decentralisation as many companies emerge… but after time and after downturns, margins start to compress and you see consolidation and re-centralisation.
There’s a massive amount of distrust and dissatisfaction [across many sectors today], so there is more of an appetite and willingness to try new platforms which opens up opportunities for new businesses.”
“I firmly believe that over [the next] five years we’ll see giants in the crypto space emerge, which will be able to compete with traditional financial institutions — especially in areas where the financial system is less robust such as South America.”
Francesco followed up with a pointed question: “But why should consumers trust you guys? What is it new that you bring to the table?”
As the lead strategist for a prominent blockchain wallet software provider, Xen responded:
“We bring software — [users] are not trusting our liquidity or balance sheet.”
“So far in human history, the only way people could have a dollar in their account [was by] being [physically-located] in the US, or going through tedious processes to get a dollar-based account. We are about to have fully regulated, dollar-backed tokens.”
“Anyone in the world can now hold a dollar where they couldn’t before — Argentina, Venezuela…anywhere with huge inflation problems.”
FG: Why would banks cooperate with the people who are trying to steal their lunch?
Playing on Google’s famous [former] slogan, JP commented how any company that achieves a sense of monopoly will ultimately be labelled ‘evil’:
“It took 40 years for IBM to become evil; 20 for Microsoft; five for Facebook, and just two for Twitter. We may classify banks and legacy institutions as dinosaurs, but it seems we have invented wooly mammoths… and they are small furry mammals about now.”
He then questioned if the tech titans that emerged following the dot-com crash are really any better than the legacy banking giants:
“If I went to continental Europe and said do you trust Facebook more than your bank — I do not think the answer would be ‘yes.’ Distrust of the digital giants is quite high.”
“In the end when you see partnerships emerge between traditional finance and FinTech [companies], it is not about replacing yesterday, but about building tomorrow.
Anyone who doesn’t adapt will die — but those who take the lead in this [new arena] will thrive.”
After Meltem expanded on this idea of whether software companies can really be ‘evil,’ Francesco pondered: “Is data your greatest weapon? Will [control over your data] remove the ability [for tech companies] to ‘be evil’?”
Xen argued that the current tech giants maintain a central role in people’s lives because of the high social costs associated with leaving their platforms:
“A big part of why people use Facebook is because all their friends use it too. You would be left out [and] they have that pull on you.”
“If your identity was more self-sovereign, if you could leave Facebook and still ‘have‘ your friends because it’s peer-to-peer — that takes away that moat from Facebook and Twitter.”
“[Eventually], companies won’t be able to hold people and their identities at ransom like they do today.”
Meltem noted, however, that technology is inherently objective:
“What I always come back to is that technology is not inherently good or bad — it is how people use it.”
“We are finding that consumers are finding their voice…They’re pushing back at these and abuses from big companies.”
FG: “I understand the point, but how do these companies make money?”
JP pushed back on the idea that FAANGs make money because of data:
“We’ve had data for a long time. Banks were always one of the biggest ‘custodians’ of data…Companies have made money because of the proprietary infrastructure that they’ve built around these things. Banks made money because they built proprietary infrastructure around money; the FAANGs because they did the same around personal data.”
“We are going to see peer-based infrastructures [become] more common, and interoperability being demanded — a pressure against these monopoly rents.”
This was a fitting end to the conversation, as we have anecdotally observed many talented people in the blockchain and crypto industry who were initially drawn to the space by the opportunity to push back against these ‘monopoly rents’ and help facilitate a transition of power back to the individual.
The Bitcoin: Believers & Sceptics breakfast series was designed to encourage debate and educate financial industry participants around progress within the digital asset and blockchain ecosystems.
By partnering with Financial News and the Dow Jones Media Group, our goal is to assemble trusted voices from both the crypto-asset and legacy finance sectors in order to challenge deeply-held beliefs around money and the current financial system that is, in our opinion, largely built on trust.
Due to popular demand, we plan to host another breakfast series later in the year. If you are interested in attending, follow @CoinSharesCo and @xbtprovider on Twitter for the most up-to-date information.
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