Audio Of The Week: Why Crypto Tokens Matter
This is a conversation between two friends of mine; Chris Dixon, partner at Andreessen Horowitz, and Fred Ehrsam, co-founder of Coinbase.
It is excellent. I highly recommend it, particularly for those that want to make sense of crypto and what is happening in this market.
Comments (Archived):
Thanks Fred. Shared broadly.I tire of ICO talk, I’m totally in on the how tokens can redesign the gestures of value in a rethought idea of how communities and marketplaces merge in unforeseen ways.
After the ICO, you still have to create a business. If the ICO is core to the business, the culture, it could work.One of the interesting things about What’s App is the ease of operating inside the app. China also has an advantage in that almost the entire country is Han Chinese-so culturally the same. Compare that to the US where we are a melting pot. Easier to drive adoption in China-but can also be a weakness as well.Will be interesting to see how it all plays out. We are only in the top half of the first inning.
I forced myself to read around 20 ico whitepapers recently.I saw correlation hypothetically between a token based economy and the business projected obviously but the ico is strictly a fund raising event in my opinion.Really a lot of crap out there that is putting money in people’s pockets.Reading the new steem whitepaper though and finding it thoughtful and interesting.
BAD ICO SELL NOTHING SO YOU CAN HAVE MONEY.GOOD ICO SELL GAS SO YOU CAN BUILD CARS.IT GUARANTEE PEOPLE WITH GAS GOING TO USE CARS LATER.
Disagree.The idea of market fit it still real no matter how much runway you have nor how good idea it is nor how well you execute on it.
DISAGREE WITH WHAT?PART WHERE GOOD ICO DESIGNED AS TOOL TO DISCOVER PRODUCT/MARKET FIT?
No, no, no: People won’t spend good money on bad nonsense. They stopped that with the tulips. This time it’s all different!
But how do those firms issuing good tokens distinguish themselves from those issuing worthless ones?
I KNOW my tokens are totally worthless, and I don’t have much confidence in yours! :-)The only thing worth less than my tokens would be the NYT that on paper can’t compete with Charmin and on the Internet is useless for wrapping dead fish heads! If the NYT would just omit all that greasy inky black stuff they put all over their paper, then it’d still not be as good as Charmin would be a lot better than now!
The ICO is also a very real way to overcome the catch-22 inherent in most network or marketplace startups.Many of them will eventually collapse. But we need to see it as a part of the creative destruction that might lead to a few disruptive companies. Caveat Emptor!
I never said that I didn’t find them coherent just a large number as unclear at best.Don’t understand the the catch 22 piece at all.
The theory is that both suppliers and customers in a marketplace can be incented to participate through tokens until the marketplace gets to liquidity. In the traditional model, this was the hardest problem to crack.I would love to see some examples where companies raising money through ICOs are actually proving that they can jumpstart a network through tokens. It is clearly an unproven hypothesis still.
“WE WANT CARS” -> BUILD CARS -> “JUST KIDDING” -> NO MARKET.”WE WANT CARS” -> ICO FOR GAS -> BUILD CARS -> GAS WORTHLESS EXCEPT FOR FUEL CARS -> BOOM, MARKET.THEORY EASY TO UNDERSTAND.MAKE HAPPEN LITTLE HARDER.
BETTER VERSION = DRIVE CAR AROUND INCREASE VALUE OF GAS IN CAR, CAN BE RESOLD TO OTHER PEOPLE WITH CARS.THAT EVEN HARDER.
Thanks for this thoughtful response. Now I understand what you are saying.I don’t think of it this way though.I see marketplaces like Steem.it not jumpstarting anything with tokens but an economy in its own right where Steem will be the measure of commerce.I’ll think this through but I don’t see this model as a jumpstart but as an economy in its own right.
I agree that being a private economy is the goal… But.. the ability to incentivize people through tokens makes it easier to kindle it. If there are no tokens, what mechanism can be used to build a network of participants in the initial days? Tokens (as proxy for financial value) are used to offset low utility until there is a large enough network where tokens have more utility value and at that time, tokens are used less of an incentive and more as a currency of the private economy.
I have never thought of tokens as a proxy for anything.I thought the point was is that they do define an economy in themselves not as a kickstart or proxy to anything else.
Are you saying tokens are not an equivalent (proxy) of financial value?In my view at least, the private economy is the goal but it comes into play only when there is liquidity. Getting to liquidity is a long slog and until now a fatal one for most networks. Tokens lubricate this journey with incentives to compensate for the lack of adequate utility before liquidity.
Good convo.We/I may be getting twisted around the worlds.Tokens are liquid from the getgo–no?If you do an ICO or use Steem for example as the currency of your marketplace (their new initiative) you have immediate liquidity. Sure it moves around but it is liquid.What am i not understanding?
Hah. we are using liquidity in different contexts. I mean liquidity of a marketplace (there are enough buyers for sellers to sell their wares successfully and enough sellers for buyers to find what they want).Yes, the tokens are liquid from the start and that is why it can potentially attract buyers/sellers/contributors on to the network early.
Never used that term in that way.Makes sense but not within my framework of usage.So yes we are understanding each other.
“FREE MONEY BECAUSE PEOPLE DUMB” HARD PITCH TO RESIST.ESPECIALLY WHEN COME WITH NO REASON TO SPEND ON BUILD ANYTHING.
I read ‘somewhere’ that China has ~ 50 distinct ethic groups. One of them has Caucasian origins (DNA).
This is a very cool discussion of all the much more interesting stuff happening on the evenings and weekends of the “rag tag” militia world of developers. I loved being a fly on the wall for this discussion by two very smart guys. Like others, I’m even more curious now to see what ensues with these possibilities besides talk of a crypto boom or bust. Fingers crossed these two are right that there is a paradigm shift taking place that has some legs to it and creates much more innovative enterprises less dependent on old systems, governments and currencies. Is all of this really going to happen- or even some of it?
Tim Ferriss and Patrick O’Shaughnessy each have a top-notch podcast segment covering crypto. Thanks for the continued value, Fred!
I have said before IMO we know the system is a pure winner in every way what I cannot understand is how they can imagine the token networks can be allowed to threaten global nation state financial values. Just do not see that happening but interesting things move so quickly when they all have a treasure map ? Shifting paradigms institutional roles in a changing word [Bretton Woods 1944]
Vendors Auto:The following is Peter Smith (Coinbase) thoughts on crypto-currency. Very optimistic this one. Overly based upon what he expected and what is occurring now. Peter predicted a top twenty Nation would issue a token. ( We did say optimistic based upon when he said it and the time line now)Listen to E758: Blockchain Peter Smith on scaling cryptocurrency wallet to 16m+ users; Etherium, bitcoin, ICO by TWiStartups #np on #SoundCloudhttps://soundcloud.com/twis…
Thanks, I did listen to this one which was overall enlightening. In terms of regulatory and security issues It seems to me that one of the the interesting areas will be D-Wave’s warp speed ability to unlock complex institutional regulations angles that will be redefined ? “top twenty nation” I do not understand call it what you will yuan token dollar they are all nation state pegged currencies.The great upside [seemingly] will be that the new system/s will create closer international financial and IoT mesh cyber security [pale blue dot] agreements. Global finance is/will be under the umbrella of nation state institutions. IMO The valley weavers are promising a new suit of clothes
https://fee.org/articles/im… A blueprint for demonstrating quantum supremacy with superconducting qubitshttps://arxiv.org/abs/1709….
Vendita Auto:Peter said there would be major Nations (Top twenty in GDP) creating their own tokens. We haven’t seen this as of yet in the time frame he mentioned so still looking.
Early in the interview, they touched a bit on network effects via decentralization, implying that it’s better than otherwise, but that remains to be seen, IMO. We’re still not sure how and why. It’s an area of my ongoing research. We have theory, but not enough real cases yet.Re: Tezos’ self-amending protocol buzzword feature. They just want to be better than Ethereum, and so do another dozen platforms who totally under-estimate the realization of that claim.
It goes way back: Humans see A and B at nearly the same time; they both look rare; and humans guess that A causes B. So, black cats cause plague? That way we got a lot of superstition. E.g., blood sacrifices. E.g., the Mayans killed people to pour their blood on a rock to keep the sun moving across the sky.E.g., the big secret to making money on the Internet was the that Internet was distributed with no center. So, since BTC is distributed, it should be a big money making opportunity.Hmm. A few hundred years ago, some people got tired of such superstition and got serious about evidence, science, data gathering, hypothesis testing, and, in medicine, “First, do no harm.” E.g., no leach bleeding to remove “bad blood” and do that because can’t think of anything better and want to do something. And for a long time in medicine, first have a good diagnosis, even if for most of those have no cure.Another approach: Get some good evidence. Do some good engineering or applied math to know that at least part of the work is solid.
So, since BTC is distributed, it should be a big money making opportunity. Hmm.There is also the positive impact of a self-fulfilling prophecy going on as well. That is if enough people think something will happen or buy into the concept (because they are impacted by the noise of parties who stand to benefit) and act accordingly the science or the basis may not matter.Maybe an example of this is Musk and self driving cars. When he starts out it appears unlikely given the roadblocks and the drawbacks. Go forward a few years and now we have China essentially saying ‘only electric’. Ditto for banks and the blockchain. If there is enough activity in a way of thinking it no longer matters what the reality is the new way becomes the reality.Malcolm Gladwell’s tipping point in some respects.Unfortunately in many cases making money involves not being smart enough to see any of the risk or more importantly pay attention to them. In this case being smart and logical works against a person.
The interesting thing that people forget about Tipping Points……they have three outcomes:- society changing ( internet )- new category of existing business ( tulips )- zeroThe Blockchain hype is ignoring outcomes 2&3.Pain on the horizon.
This comment is the best sign that this is not a society changing invention. It’s way too down in the weeds, technically.These debates are Geek on Geek Violence.The web or the iPad screamed broad adoption. Blockchain can’t answer the question that Steve Ballmer’s Mom used to ask in the old NASDAQ commercials:‘Why would a person ever need a computer / decentralized, near zero cost ledger?’
There was this assertion that some clean sheet of paper design for handling payments would have to be superior to any paste on software that a bank might do. This is nuts. BTC has its early adopters but in the space of a year, every major bank added web access to pay bills, move money around, do deposits, etc. online. Every person I know makes use of these automated banking services. These services have changed the lives of nearly everyone. Can you say that about BTC?
Perhaps my brain is still wired to the “old paradigm” but why can’t a project/business that issues a token have a “rent seeking” element?That notion may be somewhat inconsistent with the ethos of the crypto community but if the project/token offers a “fair” redistribution of the rents to users & contributors, isn’t that a movement in the right direction that has the ability to sustain itself?For example , a new social network offers crypto tokens as an incentive to users to contribute and help build the platform. Part of the value creation is held by the new social network equity holders and part by users/contributors via issued crypto tokens.Certainly an “all in” approach where the notion of the company can be replaced by a distributed network owned by its ecosystem, however, can both approaches exist?
a definition would help here;https://en.wikipedia.org/wi…
Ahh! Thank you Jason. I’d then substitute “benefit sharing” for “rent seeking”. The project/business IS seeking to create new value for all (including themselves), NOT take a share of share of existing value without creating new wealth as the definition suggests.
Self recommending.
great discussion, thank you for posting it. I have a slight disagreement about crypto and shares-but it’s sort of semantics. If you are a shareholder, you have the right to expect a return on your investment in the form of dividends or capital appreciation. In crypto, there are no dividends. But, if the network is creating a lot of utility on that blockchain, presumably the crypto I hold should increase in value. I don’t have a legal claim on the net income of any work done on the chain, but my crypto should increase in value the with more work happening on that particular chain
No real reason you should have confidence in BmyCoin because practically nobody has heard of it, let alone read our white paper, though it is worth a read, believe me.My question is really how a small company, without Silicon Valley resources, can get traction with an ICO, when so much else around is complete dross.
Another truely fantastic podcast with Fred Ersham is the latest episode of HASH power. Probably the best i have heard to date on Crypto.
1) An incorrect solution cannot solve an incorrect solution to a problem. The TCP-IP stack was an incorrect solution to the problem of monopoly.2) Network effects are natural and immutable. There are no decentralized networks found in nature. In fact there would be no existence, only chaos and disorder.3) Quantity = quality? Nope. The challenge is to clear marginal supply and demand. If everything is shared (or average) how are marginal differences accounted for? There are in fact NO (or very few) incentives beyond the initial hype.4) All that said, there is a path to Centralized-Decentralized Hierarchical Networks (CDHNs) that create and foster sustainable and generative digital networked ecosystems. These systems can be found in nature. It’s called Equilibrism.
2) – really? What is Darwinian evolution?
See 4). No system is fully distributed or centralized. Darwinian theory is misinterpreted as “survival of the fittest” to support winner takes all capitalist/neoliberalism doctrines. Instead it should be understood as survival of the most adaptable in a world of interconnected systems. It is about clearing of marginal supply and demand. An understanding of interconnectedness and the (price) signals providing incentives and disincentives are what are missing from the TCP-IP and blockchain stacks.We need to trace our paths back to 1913 when we took the wrong fork in the road on how to provide universal service in interconnected networks. Nicholas Economides foresaw this in his seminal 1995 WP on The Economics of Networks: “One interesting question that remains virtually unanswered is how to decentralize the welfare maximizing solution in the presence of network externalities.” http://bit.ly/2g1z69I
Really glad I took the time to listen to this.Was excited to hear them point out that decentralized networks are just as important (if not more important) a function of blockchain as crypto-currencies are. There’s going to be a limited number of people interested in currencies (as a project). There’s exponentially more people interested in the possibilities of decentralized networks.Favorite, keeper quote: “The history of this is very clear in that the side of the nights-and-weekends (innovators), for the last 30 years, that’s been the best predictor of the future. That’s where I bet. That’s how I make my investments. That’s where I spend my time.I have this blog post, ‘What the Smartest People Do On the Weekends, Everyone Else Will Do At Work In Ten Years,’ and I think it’s been one of the most predictive heuristics in technology.”