We have already crossed that murky threshold in blockchain where its early use cases attracted conmen and people circumventing the law. Now it’s attracting the best and the brightest of the legacy markets - mavericks with unique perspectives and ‘veteran’ credentials.
In his October testimony to a U.S. Senate hearing on digital currencies, economist Nouriel Roubini voiced some valid concerns about the cryptocurrency sector but the premise for many of his arguments was years outdated.
While labelling industry players as "scammers, swindlers and criminals" he failed to mention all those people involved with financial and technological pedigrees far beyond his own — and seemingly did not understand the breakthrough technology that underscores the industry — describing blockchain as "no better than a spreadsheet database".
Before 2009 and the advent of bitcoin, computer scientists deemed it impossible to have a database/ledger that was simultaneously distributed, immutable and created digital scarcity. Blockchain solved those monumental tasks and a dilemma that has persisted since the dawn of civilization: the removal of central ownership from stored information.
The outlaw phase has passed – enter the mavericks
We have already crossed that murky threshold in blockchain where its early use cases attracted conmen and people circumventing the law. Now it’s attracting the best and the brightest of the legacy markets — mavericks with unique perspectives and ‘veteran’ credentials.
Some are big Wall St names like Mike Novogratz and Tim Draper, but more exciting is the involvement of internet entrepreneurs and innovators like Patrick Byrne, CEO of Nasdaq-listed Overstock.com; Jeff Pulver, pioneer of the voice-over internet protocol (VOIP) and even the creator of the web himself, Tim Berners-Lee. These are the alchemists of technology — people who can take a base technology and refine it into a wildly successful product.
As cryptocurrency moves closer to the new paradigm of tokenized securities it will squeeze out the last of the ICO swindlers. Certainly the smart money is already flooding into this new asset class, from the Nasdaq and NYSE forays into tokenizing securities to Nasdaq-listed Overstock.com establishing its own tokenized security exchange tZERO.
I agree with Roubini’s statement that blockchain is "the most overhyped technology" today, but until a technology delivers a killer app we don’t know how useful it can really be.
Speaking at this year’s Blockchain South conference, Jeff Pulver highlighted the parallels between today’s blockchain hype and an earlier technology wave:
In 1995, Voice-over IP was the most overhyped and misunderstood technology, and in 2018 blockchain and bitcoin are the most overhyped and misunderstood technologies. But the opportunities have never been bigger. For those who are creative and innovative we’re in a time even more glorious than the Dotcom days." – Jeff Pulver, Blockchain South
Disrupting the status quo
In stark contrast to the ICO swindler headlines that crypto has been associated with, the industry is actually attracting people who led crusades against corruption in legacy financial markets.
During their pioneering careers, Patrick Byrne and Jeff Pulver both came under federal scrutiny for fighting the status quo. Pulver, for example, was pursued by the Federal Communications Commission (FCC) to give up his VOIP innovations, which the government believed was being used by Al Qaeda. He cooperated and forfeited his ‘keys’ to the technology to prove, if it was the case, that it wasn’t the intended use — but instead an example of an early technology being taken advantage of by unsavoury characters.
He has also fought successfully to keep voice over internet independent from the telcos to allow it to innovate. In 2004, the FCC adopted the Pulver Order, which ruled that computer-to-computer VOIP is not a telecommunication service. In turn this allowed Facebook and Google to do what they have without being considered telecommunications companies.
Overstock founder Patrick Byrne is a maverick in the truest sense: Warren Buffett-like business acumen with the mind of a philosopher — he once ran Berkshire Hathaway companies and also holds a PhD in philosophy from Stanford University.
Not long after taking Overstock.com public in 2002, Byrne was being courted by Wall St bankers and was invited to join them in insider trading schemes. He learned of the practice of naked short selling – creating fake shares to sell and dump prices. He went to the regulators – the SEC, DOJ and the Senate – the first CEO to volunteer under oath, but none of them were interested in what he had to say.
He could have profited handsomely from the insider culture but instead took an unprecedented step and accused the regulators of being in bed with Wall St. This led to many years and tens of millions spent pursuing his own investigation, which led to the biggest FBI investigation of Wall St and almost 100 arrests.
Foreshadowing a new industry
Insider trading and naked short selling took advantage of a settlement system that has barely changed since the 1960s. A system that empowers a closed coterie of corporate interests in capital markets: the company executives; the broker/dealers who trade their equity; the exchanges that facilitate the trades; and the regulators & financial media who are meant to be the independent watchdogs.
The beauty of blockchain-based capital markets and its innate transparency is that all that mischief becomes impossible. Regulators will have a consolidated audit trail to follow that everyone can see, which will also prevent what Byrne describes as ‘regulatory capture’ – when regulators advance the commercial interests they are meant to monitor. Byrne’s latest venture tZERO, a blockchain-based security exchange, is a first foray to create this new world.
Both Pulver and Byrne were at the coal face of technology companies during the Dotcom bubble. They’ve seen the lifecycle of manias before, seen the making and breaking of the first tech millionaires and come out the other end. Soon people will not be talking about blockchain, in the same sense that nobody talks about TCP/IP anymore. Instead, as it was with the internet, it will be the ‘killer apps’ that will capture the world’s attention and imagination.
Blockchain’s benefits will eventually extend far beyond the realms of money. But in the world of financial settlements, Pulver believes "it is going to be 1966 meets 2019 very soon."