Blockchain Technology in Crypto Winter

The news is still filled with examples of FTX’s collapse and with it, cynicism about the future of all things blockchain-related. Somehow, an innovative technology with an impressive set of potential use cases became a technology most of us associate with fraudulent billionaires, celebrities on the take, and ape images.

Let’s not be prisoners of the moment.

Goldman Sachs

The CEO of the world’s most famous investment bank penned an op-ed in the Wall Street Journal, entitled, “Blockchain is Much More Than Crypto.” In this piece, he described a number of applications for blockchain technology beyond simply the cryptocurrencies upon which folks have been speculating with varying degrees of success.

To established financial institutions, the technology offers the opportunity to rethink the execution of complex transactions. Typically, arranging for a large bond between two large entities requires days between agreement and settlement, keeping useful capital “frozen” in the interim.

Further, when the terms of the agreement are not merely DocuSign-ed signatures, but rather, encoded into the software that executes that contract, suddenly, counterparty risk is diminished (neither can renege) and confidence in the underlying system rises. The idea of a “smart” contract is, in many regards, long overdue.

Finally, for those of us who experienced the subprime collapse of 2008, we remember the “dark pools” in which large institutions executed block trades free from the public’s scrutiny or even awareness. And then, when they were over-exposed and highly-leveraged, the public lamented their reckless and the tab with which they were stuck. The blockchain offers a remedy in the form of an unambiguous transaction record.

The Little Guys

On the other end of the spectrum are the individuals experimenting, innovating, and developing. It is often these types of participants from whom fundamental improvements emerge, co-opted by larger entities as time passes.

Blockchain offers opportunities for participation in markets that previously demanded difficult-to-attain scale. The average investor is barred from many real estate transactions, commodity futures markets, and other asset classes that fill the portfolios of wealthy individuals and institutions.

Tokenization facilitates access to portions of these types of transactions without excessive administrative complexity or prohibitive fee structures. Even if you aren’t inclined to buy a handful of coins at the behest of Elon Musk’s latest tweets, you still stand to benefit from the blockchain, simply because it expands the number of sectors in which you can invest.

Longterm

With any technology, the largest returns are received by those who stick around. And we have. In bull markets, those folks are told that they’re overly enthusiastic and should cash out. In bear markets, those folks are told that they’re zealots who cannot read the writing on the wall.

At AE, we’ve lost money on exchanges you’ve never heard of. Sure, FTX and its recently-arrested-in-his-Bahamanian-penthouse CEO will dominate the headlines, but we’ve lost coins in Cryptopia and Mt. Gox before that!

This is the nature of new technology. The first airplanes weren’t safe either. The first cars broke down constantly. I’ll bet the first hominids to experiment with fire received a few burns along the way.

This is reason for caution, care, the growth mindsets required to learn from mistakes, but not the dismissal of the technology itself. As folks lament “this time, it’s different” when describing the latest crypto winter, remember how often that phrase has been uttered throughout history and how rarely it was accurate.

Our perspective

We work with top-tier clients, startups, and large partners, and we see the potential pitfalls along the way. We see companies that no longer have the funds to continue their work developing promising technology.

Worse, despite the overwhelming evidence that our folks are among the most gifted blockchain developers on the planet, investors in a tight market demand the cheapest option. As we’ve argued, hiring mediocre talent is a terrible, common idea.

Fortunately, companies who stick around until the next crypto summer arrives will reap the benefits. Unfortunately, in too many cases, those winners tend to be the large, established institutions with the deepest pockets and the most diversified portfolios.

Vitalik Buterin and his Ethereum foundation’s budget would need several zeros on the back end to match those of investment banks. Those same, previously anti-crypto, old guard behemoths will benefit from fundamental innovations made today by smaller entities that fail to weather the storm.

But the one advantage of these rougher seas is the oft-quoted Warren Buffett expression about discovering who is swimming naked when the tide goes out. Flawed business models will perish.

We’re bootstrapped, not dependent on a VC or PE firm’s whims.

We can help you find your bathing suit during this low tide.