Economic flaws - from inequity to vendor lock in - cause loss of value. But changing these flaws requires new investments, new capabilities inspired by careful influence and communication.
📉 Macro: new investments and directions
The Inflation Reduction Act was signed into law this week, bringing significant new levels of investment for healthcare and climate restoration (but see the good and bad here). Layoffs continue at big tech companies while other industries face persistent labor shortages.
Bitcoin not just store of value?
Strike has partnered with Visa to offer a card that works with the Strike payments app and allows card holders to buy Bitcoin, get paid in Bitcoin, do direct deposits, send and receive money and earn rewards. The Strike app is one of the leading payments app that runs on the Bitcoin based Lightning Network. (see link below for summary of Lightning's potential).
This premise - using Bitcoin as a currency not only a commodity - has been in development for some time with some notable investments and developments occasionally happening. The architectural view goes like this:
- The Bitcoin base layer network is a high value utility because of its non-inflationary nature (limited to 21m bitcoins), its immutability and true decentralization.
- These are the fundamental prerequisites upon which store of value and currencies must be built.
- Once these fundamentals are guaranteed by a foundational layer, then other layers can be built on top of it to enable speed and convenience.
- The Lighting Network represents this other layer (aka "layer 2) for speed and convenience.
This architectural view is also backed by Block (formerly Square). Jack Dorsey, CEO of Block along with the company and its partners see Bitcoin as a disruptor for payment networks and also support / integrate with the Lightning Network.
What to know about the Lightning Network and Strike:
- Bitcoin's slow transaction capability (7 transactions per second) prohibits it from serving as a consumer payments network.
- The Lightning Network is a Layer 2 protocol built on top of Bitcoin that promises to increase this speed to consumer scale.
- Strike is one of the leading payment solutions built on the Lightning Network.
Now, obviously this is not the only payment network play in the network space. So why would one prefer this play over others?
The arguments for this payment network vs other payment networks goes like this: Since its based on Bitcoin, this payment network is non-inflationary, truly decentralized and censorship resistant. These 3 characteristics matter to specific groups:
- Non-inflationary appeals to consumers in Western world countries run on (very inflationary) fiat. Consumers are increasingly aware of inflation, and sense that printing money to stave off financial crisis after crisis isn't sustainable.
- Censorship resistant is critically important to people living under authoritarian regimes, or regimes with inadequate human rights protections, which sadly is a pretty large percentage of the world's population.
- Decentralized matters to early and more recent adoptors of crypto, NFTs, and web3. For them decentralization promises better equality via a new personal ownership model (self-custody) where individuals are empowered to own and hold their own assets, credentials and data vs. allowing a big tech/big finance platforms to own or hold them and accrue one sided benefits for themselves at the expense of individuals. These advocates also see decentralization as a solution to platform lock-in (see End of Lock-In segment further below) and anticipate the obsoletion of today's social media platforms.
What to watch: adoption momentum
- Watch the adoption momentum of Strike (and similar plays) especially now with the partnership with Visa noted above, and similar plays that explore building payment networks on top of Bitcoin.
- Currently Bitcoin is mostly recognized by mainstream institutional investors as a store of value and a volatile investment asset. The CFDC has followed this line of thinking in their regulatory approach of Bitcoin as a commodity (PDF).
- Watch for evidence that Bitcoin is starting to be recognized as not only a commodity but as a currency, or an enabler of currency.
For context, the Lightning Network and apps like Strike are very very early in any presumed adoption curve that might play out. One indicator (not the only one) is shown above - comparing the number of reviews on the Apple app store. The Strike mobile app has 11k reviews, while Coinbase Wallet has 115k and Venmo has 14m. So the user base appears to be tiny at this point. If it grows to even mid-tier levels of adoption, there could be interesting implications for Bitcoin as well as other payments contenders.
Why it matters: Bitcoin price
If Bitcoin gains adoption as a currency or enabler of transactions, this could represent the resurgence of the o.g. "Maverick" view of Bitcoin as an alternative to inflationary fiat based cash - not simply a "better casino" for well heeled investors. For more context on this, see the Mavericks vs Mainstreamers discussion in the Aug 8 2021 edition of S3T).
A shift of this nature could have impact on Bitcoin price levels.
🔎 Closer Examination: the end of lock in?
Decentralization to date has been defined as "you own it" - giving you control and ownership of your content, credentials, assets in stark contrast to the centralized platform approach favored by Web 2.0 big tech firms.
Web3 Developers are seeing a new benefit and use case for decentralization: making it easy for customers to switch between different platforms - a dramatic shift away from the kind of lock-in that Web2 companies rely on to keep eyeballs. If all of your photos, connections or content are locked into a given social platform, you hesitate to move off of it. Lock-in, often referred to as Vendor Lock-in in enterprise IT, was adopted by Web2 big tech companies as a way to force customer retention.
BTW: Near is a decentralized application platform (and competitor to Ethereum) that focuses on being the best easiest development platform for Web3 developers.
The value to users is clear: when the individual user owns and holds their own assets, credentials, content and data, they have control over what platforms they choose to patronize and what entities they choose to share these things with. They are not locked in to a single "container" platform whose owners can choose to make it onerous to export one's assets. In the decentralized vision, users can have multiple wallets, memberships etc and can switch easily between them. This forces more customer-centric competition and should in theory provide better benefits to end users.
🌏 Change Leadership
The Economic Cost of Inequity and Inequality
Some may object and question whether its practical to enable equity, or whether it will cause economic side effects worse that the solution. But the data tells a different story. As noted in this ecomomic letter from the Federal Reserve Bank of San Francisco, multiple evaluations using multiple methods all point to the same reality:
Our hesitance to embrace and implement financial equity is costing us T R I L L I O N S.
- Closing racial gaps in income in 2012 would have increased GDP by $2.1 trillion that year (Truehaft, Scoggins, and Tran 2014).
- Closing gaps in employment, hours, education, and education, and ensuring all racial and ethnic minorities participated and benefitted at the same rates their white counterparts would have created $23 trillion in additional economic output over the 30-year period 1990-2019. (Buckman, Choi, Daly, and Seitelman 2021)
- Closing gaps between black and white adults in wages, higher education, home ownership, and entrepreneurship would have led to a GDP boost of $16 trillion over the past 20 years, and a projected $5 trillion gain over the next five years (Peterson and Mann 2020).
In other words, a range of studies, using different methods and closing different gaps, all point to the same thing: substantial gains from a more inclusive economy. Our economy could be MUCH stronger and healthier if we stopped tolerating the equity gaps that we see.
Here is an example of a program - LELE (Leaders for Equitable Local Economies) - that enlists city leaders to be champions who ensure that economic recoveries provide an equitable impact for communities in Massachusetts.
The above issue is just one scenario where change leaders often must question and challenge economic arrangements that are working in one-sided ways and not delivering appropriate value and equity.
When this becomes necessary - a critical balancing act is required, along with the right communication and engagement approach. You can communicate and engage with more success if you remember 4 realities about economic change:
Reality #1: This is about economics not people. Sometimes pointing out the way thinks are working can seem incriminating or accusatory to people who are performing roles in an economic arrangement. So you have to be very clear: "When we talk about (problem), we may sound judgmental, BUT please know we are describing the economics in play, NOT the worth or intentions of the people involved!"
Reality #2: Often intentions are good. Usually there is an original legitimate basis for the role they operate in. Over time the economics in play have come to have unforeseen or undesirable effects.
Reality #3: Often the current arrangements cannot be immediately unplugged. A transition is often required. And a critical balance is required: making appropriate investments in the next arrangement, doing the best you can to optimize the current arrangement without milking or perpetuating them.
Reality #4: Sometimes the exact working mechanisms of the next and better arrangements are not fully fleshed out. It will be natural for existing stakeholders - who are fully aware of the weight of existing responsibilities (daily operations, regulatory compliance, etc) - to be skeptical of new proposals.
I share this because I've been somewhat surprised to find very little written about how to challenge and influence economic decision makers. Much has been written about how financial institutions are committed to local communities or are reforming predatory practices - ie already doing all the right things, but not so much written about how to actually address the significant work that remains.
Wherever you are advocating for change, thank you for what you are doing. I find it so encouraging to meet and talk with change leaders from different circles, comparing notes on challenges, hearing what works and doesn't work, and what wins have been achieved. Connecting and learning from each other is one of the best parts of change leadership.
🍱 Sensible Ideas
I am blessed to be part of a family that knows their way around the kitchen and the campfire. So each week I share what I call "sensible ideas" for good times and good food!
The Provence Wine Region
This wine showed up recently on the menu at our favorite local french bistro: Keep an eye out for Bandol Chateau Canadel Provence wine - the herbs/garrigue pairs perfectly with spicy tomato based seafood dishes or lamb (first hand experience in both cases).
Here is a great guide to the Provence wine region with maps and wine recommendations.
🍄 Nature Notes: Mushrooms
August and September is a surprisingly good time to look for mushrooms on your walks in the woods. Not suggesting that you eat them - maybe see how many different kinds you can identify with the help of iNaturalist.
Here is one recent find from a hike last weekend - this is called a Reddish Brown Bitter Bolete - one member of a very large family of Bolete mushrooms (full list here - appears many have not been fully documented) .
Mushrooms come in a mind-boggling array of different shapes, sizes and colors. Here are a couple of suggested field guides available from used bookstores:
💬 Final Note
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Opinions mine. Not financial advice. I may hold assets discussed. Thanks to CopyPasteCharacter.com for the cool emoticons!