Blockchain Skepticism: Volatility, Trust, and Tangibility
Talking to various investors, professors, and technology enthusiasts (many of whom are hesitant about cryptocurrency and blockchain) has led me to many intriguing conversations. Spectator investors who have long been entrenched in traditional investments are consistently reluctant about cryptocurrency. I have been able to narrow these down to what I like to call the “Skepticism Factors,” of which there are three: Volatility, Trust, and Tangibility.
Investments that are built on products in flux — without a firm place in society — are volatile. Cars are a stable part of society; we will always need to get from point A to point B in some capacity. A car’s valuation typically doesn’t change from $100,000 to $5,000 in a couple of days. The value of any given car is, for the most part, relatively mapped out. Housing and shelter will always play a part in human existence, and probably McDonald’s too. Let’s be honest, cheap and quick food isn’t disappearing anytime soon. These examples are all mapped out, “stable” investments. The revenue streams are fairly easy for investors to track.
Blockchain technology, which enables cryptocurrency, is not so. We are in the stage of unknown unknowns when it comes to adoption and integration. The cryptocurrency market also lacks liquidity. This makes cryptocurrency as an investment speculative, risky, and volatile. But just because an emerging technology and asset class justifiably contains volatility within price discovery does not detract from the legitimacy of the innovation in progress. It merely adjusts the expected return of the investment.
The irony of the second problem — trust — is blockchain exists to solve this exact problem. For as long as humanity has been around, third parties have existed to facilitate transactions and the execution of contracts. Real estate escrows, debt collection agencies, attorneys, landscaping companies, and marketing agencies — all of these require trust. Often, this trust is quietly misplaced and exploited. What if there were an alternative to trusting people? A perfectly neutral party that could always be trusted?
This is what blockchain enables — mathematics running monetary policies, programs executing transactions, and contracts being enforced digitally. All operate without needing to trust a human party — trustless trust. Thus, I was left to grapple with “tangibility” as the indescribable problem many high-caliber investors — potentially including you, the reader — have with cryptocurrency. When I asked a retired finance professor why he was so pessimistic about the future of cryptocurrency as an asset class and product, he immediately looked uneasy. Perhaps his voice even contained a trace of disgust: “You can’t touch it. There seems to be a lot of hand-waving. This whole cryptocurrency thing . . and blockchain is just not tangible.” Lack of tangibility came up interview after interview until it could be ignored no longer. Some of these people were modern individuals, children of the digital era. How could they be so obtuse about wanting the product to be tangible?
In the middle of the summer of 2018, I set out for a ten-mile run with my mind set to this question. Running often produces a meditative state in which everything seems to quiet down. It’s my favorite pastime and problem-solving tool, and a painful one at that. As I passed by a small pond, I spotted a swan standing perfectly still. I kept running. I’m not one to slow down for anything. An oncoming car drove by me and grabbed my attention for a couple of seconds. I glanced back at the pond.
The swan was gone.
The moment felt magical. I knew that swan was real. It had to have been. I trusted my eyes. I trusted what I saw. Trust. Trust is what made that mysterious swan feel tangible.
In many ways, I would argue trust itself is an attribute of tangibility. If we see something in front of our eyes, we move through space trusting that the information we receive is true. Anyone who has used virtual reality before can relate to the confusion of this fact suddenly not being true. The verification of reality no longer matching the information from your own eyes is chaotic and disorienting. Thus, trust seems to be the step between tangibility and verification.
If you’ve ever made an online order before, when you put your card number in and commit a transaction, you trust the product will eventually end up on your doorstep. I would imagine that the first time individuals made online orders, they did not trust the product would arrive. Thus, the original people who made online orders took a risk and were eventually rewarded by a product conveniently arriving on their doorstep (verification). The more a user purchases online, the more we take the transaction itself as something tangible. If you make an Amazon order and you click on the “Add to Cart” and “Purchase,” a twenty-first century user would say the entire exchange feels “tangible.” Perhaps this is because there is a series of mouse clicks. Regardless, the outcome builds trust, which eventually converts into a feeling of tangibility.
Digital banking is not tangible. You cannot touch a transaction because “transacting” is a verb. Yet we take leaps of faith every day when we swipe our cards here and there. The result of the swipe is tangible, and the transaction is therefore tangible. The twenty-first century economy of transactions will be invisible and pervasive. If you do not deny digital banking as being tangible, then don’t be contradictory and claim decentralized ledger technology (blockchain) and cryptocurrency are “not tangible.” You simply trust one and not the other.
Thus, to anyone who felt cryptocurrency is not tangible, such as our retired finance professor mentioned earlier, I posed the following question: “Have you transacted on any blockchain before using cryptocurrency?”
The inevitable answer was “no.” As someone who has transacted over six hundred times on a variety of blockchains, one of my goals for this book is to get you to experiment and use cryptocurrency. It is one of the quickest ways to understand the breadth, magic, and possibility this emerging technology is capable of achieving.
In this article series, I share excerpts and stories from my book, Building Confidence In Blockchain — Investing in Cryptocurrency and a Decentralized Future. I hope you enjoyed this post — if you enjoyed it and want to connect you can reach me here via email caw34769@bethel.edu or connect with me on social: (twitter) https://twitter.com/l_woetzel or (LinkedIn) https://www.linkedin.com/in/carter-woetzel-16936b136/ .
Also, you can also find my book on Amazon — here is the link to buy it: [Amazon Link — Building Confidence in Blockchain]
