“I keep on hearing about this Bitcoin thing”

A friend emailed me some common crypto/bitcoin/blockchain questions, so I summarized a FAQ. This might be helpful for your next dinner party, since everyone is talking about it.

Why is everyone suddenly excited about crypto? Most of the hype comes from speculative investors who made money. Speculative investing has happened before, and never ends well. There are some true long-term believers, but I think they wish the current mania would end.

Why has Bitcoin/Ether gone up/down recently? The forces behind the daily volatility are opaque. The previous surge may be from the many crypto hedgefunds being started, a Bitfinex bank run, ICO mania or a reaction to China’s ICO ruling. Or the solar eclipse. Nobody knows. Read your own tea leaves.

Isn’t Bitcoin just used to buy drugs online? Yes. A lot of people buy drugs with it. As it turns out, the biggest use-case for Bitcoin isn’t transacting for things. It’s storing value. Like gold. Do you use gold to buy coffee? No. Is it a good place to put your money? Yes. Internet Gold is a big deal.

Aren’t all ICOs scams? Yes. Most are flat-out scams. Amogst the genuine ones, are two types:

(a) those that make use of blockchain technology to produce a token-marketplace (e.g. Filecoin).

(b) those that are building regular products and are trying to capitalize on the hype (“Kickstarter with much more money”).

So are ICOs like IPOs, on day 1? Isn’t this a bad idea? Yes. As Warren Buffett says, “When the tide goes out you discover who’s been swimming naked.” I’m sure things will get ugly in 2–3 years. Moreover, I suspect the ICO market will look much like the IPO market (SEC regulation, etc) in time. It’s just new.

Can everything be solved via the Blockchain? No. Blockchain products need to be fungible. And consensus needs to be controlled via an algorithmic contract. Only a few things fit into this model. Thankfully, those few things are big ideas (a new form of gold, Dropbox, a new AT&T, new power grid, etc).

A blockchain POWER GRID? Really? Come on. When will that happen? Depends who you talk to. The crypto community is full of brilliant, over- enthusiastic technologists. Just like the early Internet, many are geniuses who have more of an affinity for code than solving a real-world problem, today. Like Tim Berners-Lee, these people are directionally correct, but everything will happen 10 years after they anticipate it. So it’ll be a while.

Won’t Google or Facebook conquer this market, like everything else? As far as I can tell, crypto is being ignored by the incumbents. In addition, because early investment is heavily incentivized, a blockchain-based app can disrupt traditional marketplaces.

So will anything real come out of this today? We have our first product: Internet gold. That’s a very big deal! The rest is on the way.

Other than “Internet gold”, how will a blockchain affect my life? Most companies are building replacements for existing things. Filecoin for storing files. Golem for compute. I think this is a head-fake. The first TV shows were cameras pointed at radio shows. Not The Simpsons. Early mobile startups pitched “web search on mobile”. Not Uber. Every time there’s a new medium, we use analogies from the old medium, incorrectly. I’m less excited about the blockchain yielding “50% cheaper storage”, and more about making something impossible, possible.

Make the impossible possible? Like what? Predicting the acutal product is hard. I find it easier to think about what the technology allows: censorship resistance, micro-payments, etc.

What should I do now? Stop making reactionary judgements from a headline you read on Twitter! Read, maybe invest.

Crypto feels like a massive, global version of the Homebrew Computer Club. As obvious as it sounds today, “personal computers” were a contentious idea back then. So while the market feels weird, uncertain and unregulated, you can’t afford to ignore modern-day Steve Wozniak tinkering with an Apple I.

Please let me know if anything wasn’t sufficiently clear or wrong. Thank you to David King and Elad Gil for reviewing this post.