Back in May very interesting verbal battle took place in Milken Institute between the CEO of Celsius and serial entrepreneur Alex Mashinsky and famous economist Nouriel Roubini known as Dr. Doom. Nouriel Roubini is famous for predicting the crisis of 2008 and Alex Mashinsky is a very successful venture capitalist that was able to raise over 1 billion dollars in venture capital and did over 3 billion in exits. Just recently the battle continued at Block Show Americas. During the first round Nouriel Roubini at some point exclaimed “All This Decentralization Talk Is Bullshit!”. I find this topic extremely interesting because its about the future in which we are all going to live. Both Alex and Nouriel have made some important and valid points and the truth lies somewhere in the middle. In this article I would like to explore the subjects touched deeper in order to discover what really could be decentralized, to what extent and what impact its going to have for all of us. So lets go over all the potential suspects for decentralization one by one. But before we do lets talk about something which I find to be fundamental to all these discussions. The history of humankind has shown to us many examples of how it works. That something is human nature.
Throughout the history of mankind many attempts were made to fix all kinds of inequalities in various societies. All the people in blockchain and crypto space calling for decentralizing the world and fixing the current unfair state of things are just a modern version of revolutionists of the past. In the past there was slavery, there was racism and there was capitalism to begin with that was making many people unhappy. History always moves in cycles. What typically happens is that a group of people identifies the problem engages the masses and in many cases manages to change the existing situation to what they think is better. But lets see what happens next. The greatest example was revolution in Russia in 1917 that led to almost half of the world becoming socialist. Since I was born in USSR I was able to see all the ugly beauty of the system that we had. The reality of that system was that the party elite, the selected few were living like kings where they had everything that they wanted or could dream of while the rest of people were forced to work for pennies without any chance whatsoever to change their lives. They couldn’t even leave the country. So effectively the entire country was living in the jail. All the calls for equality lay open for those able to see the truth about human nature. This truth is that we are not equal. We are not born equal, we all have ego, we are competitive and most of us want to have more than others. And even when we get more than others our ego is still not satisfied it wants to either continue accumulating more wealth, power of whatever or to do something “great” for humanity, to save or change the world. All of it unfortunately has roots in our ego. There is always the same cycle. Unfair system develops to certain extent, then attempts are made to modify it sometimes successful to some degree, but it eventually naturally mutates into new unfair system. What we are observing in crypto space is not different and most of us will live long enough to see it. Remember human nature always wins. However for the sake of fairness I need to say that human nature itself is also evolving for the better.
Decentralization Of Money
When the dollar was declared world’s reserve currency US share of world economy was something like 52%. Today its less than 25% and keeps decreasing while US still directly or indirectly controls 75% of the world’s money. Even according to the main ideologist of US worldwide expansion and domination Zbigniew Brzezinski revolutionist
USA will be the last empire to collapse. When the system is unsustainable it will most definitely collapse, but we could never know when and under what scenario. It may be the cryptocurrencies or some other black swan. May be the Chinese will become impatient and sell all their US treasures. It could be very expensive and completely irrational move but in theory they could do it and end the global dollar domination tomorrow. Or may be Putin will do something so insane and unthinkable when pressed against the wall. I have to admit that last year in October when speaking at Santa Clara conference I voiced the possibility that if cryptocurrencies total market cap will surpass 1 trillion dollar mark it could be the point of no return. However let’s be realistic, current elites will fight back for as long as they can. And let’s to be honest disorderly change of the current system overnight is not in our interest. US regulators just like many regulators around the world feel like they are between the hammer and the anvil with cryptocurrencies. Disallowing massive proliferation of crypto worldwide is not really in their power while allowing it is not really their desire or their interest. And of course since all of us still live in dollar dominated world we all get scared and sell our crypto following bad news from regulators. So the market could go very quickly from 800 billion to 200 billion and back. Competition and economic imbalance between various jurisdictions just make it more interesting. However be certain if cryptocurrencies do make another significant jump to over trillion the regulators around the world or at least the majority of them will unite and come up with some legislation that will make it extremely difficult for non state controlled cryptocurrencies to dominate. Nouriel Roubini is right it will also be quite difficult to live in the world where we are back to barter and there are much more units of account that the current number of existing regular world currencies. Such economy would be indeed leading us back to chaos. So to summarize I believe that:
- Dollar domination will end sooner or later
- The entire banking system can move to different technology
- State backed crypto or non crypto currencies of developing countries could gain much larger share of the world money supply.
- Non state backes cryptos could reach a significant market cap while still staying in grey zone in various countries
- Worldwide money emission will always be globally coordinated and centrally controlled.
- Chances are that we will not see larger number of official crypto or non crypto currencies most commonly used for payments in the global economy because its against the best interest of the economy itself
Decentralization Of Financial Institutions
There are many very large banks around the world controlling very significant shares of local and global banking system. For example in Canada the big 5 banks basically own the market. With the invention of blockchain banks the way they exist today become really unnecessary. Banks do nothing except increasing worldwide debt that will never be paid back and make extra profits for themselves. Typically banks have capital ratios of 1 to 10 which means for every 1 dollar of capital they can extend 10 dollars worth of debt. Whether we like it or not at the same time banks play very significant role in today’s economy and reforming this system overnight makes little sense. But significantly decreasing big banks market share by removing them as intermediaries and giving the opportunity to profit from lending their own money to the people is very good and noble task. So I fully support what Alex is doing with Celsius. However don’t forget that here we are also dealing with legislation which is quite different from country to country. Again whether we like it or not to do something significant in the financial world requires getting a license of one type of the other. I used to run international business of Golden Crown which at some point was third largest money transfer system in the world after MoneyGram and Western Union with 20 billion dollars worth of turnover. So I had the opportunity to become familiar with various legislations around the world. If you just want to transfer money in US you would need to get a money transfer license in every single state, which will cost you millions of dollars. Even after you do it most banks will refuse to open an account for money transfer business. In Canada on the contrary all you need to do is to register and money service business which quite simple and easy. Opening an account however is as difficult as in US. So it is technologically possible to completely change banking system around the world but without the regulators support its not going to happen. Technically though distributed ledger technology allows anyone to keep your money on a blokchain inthe most secure way possible. Properly stored your crypto will never be stolen. So if you could store it yourself, you could also lend it yourself with the help of companies like Celsius and keep most of the profits. Again while its possible to do it legally today with crypto, I personally don’t believe the regulator will allow doing in on a truly global scale once crypto will indeed have mass adoption.
Decentralization of Capital Markets
In addition to banks capital markets are also cornerstones of the economy. Here we have exchanges, investment banks, various brokers, custodians, depositories. All of these are served by an army of lawyers, accountants, auditors etc. While I don’t believe that accountants and auditors are going anywhere, I think the role of lawyers could be significantly reduced. This by the way is not my opinion its an option of lawyers actively working in the blockchain and crypto space. Security tokens are going to become the next big trend and I actually believe that we will soon see trillions of dollars in these markets. I recently wrote an article discussing this upcoming revolution. For security tokens issuance it is possible to automate a lot of the legal work therefore decreasing the cost of issuance of privately traded securities. For publicly traded securities its much more complex but I believe it eventually could be done. Already today you could issue your digital assets in minutes using various platforms, you no longer need many expensive intermediaries and service providers, but getting a good adviser is still recommended. When it comes to decentralized exchanges a lot of work is still in progress. For example CZ the CEO of Binance promised that as soon as the technology will allow it he will create decentralized exchange. Those that consider security more important than getting the best price on very fast centralized exchange could use decentralized exchanges already today. And there are many that are currently being built. I believe that the business of exchanges could be and will be decentralized, investment banks could face very serious competition (by the way its the goal of my company Tetha Crypto to compete with much bigger players) from platforms automating most of the tasks and global advisors charging smaller fee, the business of custodians and depositories could be automated on the blockchain. All of this is coming very soon. In less than a year we will see big changes already.
Decentralization of Centralized Computing Power
Today the largest owners of data centers around the world are search engine companies like Baidoo, Google, Yandex and others. The same companies are also cloud computing service providers. In cloud computing though we also have Amazon and thousands of smaller companies of various sizes. Blockchain made it possible for the first time to completely decentralize something like Google and there are various projects attacking this space. Everything that is related to computations, machine learning, AI, storage, video rendering and literally any tasks requiring massive computing power could be decentralized allowing any owner of a laptop, PC or even a smartphone to make money on renting it to whoever needs it. SONM, Golem, iXec, Sia, Storj and many other projects are good examples. As an advisor to SONM I had the opportunity to dive deeply into the space and to fully grasp the size of the opportunity. In this particular case the answer to possible decentralization is loud and clear yes.
Decentralization Of Business Management
When DAO project came out, I didn’t even bother to read the entire white paper because to me the concept of decentralized autonomous organization sounded like a utopia. I do believe that you could in theory govern non profit organization in decentralized way. But effectively managing a business in such a way is extremely challenging. Here I have to repeat that I don’t believe that people are essentially equal and in my view the core management team defines the any business success or failure. The masses could easily make very bad business decision that could potentially destroy the company. Random people sometimes do become CEOs and yes some CEO don’t deserve the salaries they get, but for the most part I don’t believe that the current system is about to change. I believe most commercial projects managed in decentralized way will fail and run out of money.
So who was right Alex Mashinsky or Nouriel Roubini ? In these two debates Alex is representing the force that is trying to change the world while Nouriel is reminding us about the rational behing the current system. I think that a lot could be decentralized but the system will make every attempt to centralize itself back. For as long as we have governments central control will be enforced with fury and using all the vast resources at disposal especially if alternative becomes really dangerous. In Decentralization like in every game there will be winners and the winners will be getting bigger and bigger. The real opportunity is to participate in this process while we can. Many years into the future the new system will be both very different from what we have today but in many ways still resemble the todays system with governments controlling its most critical parts. Unfortunately there is no in between, total decentralization of everything is simply impossible as it would create chaos and anarchy. Having said that I do believe that blockchain technology and the raise of crypto could help to remove many asymmetries and make the world a little bit more fair place to live in. In very deep philosophical sense the world is completely fair and unfair at the same time. It may be not very easy to understand, but I would need to go into completely different subjects in order to explain it, which is definitely beyond the scope of this article.
By Ilia Frankstein