NZ Everyday Investor

Sam Blackmore: Restless Crypto Natives / Trust-less Banking

Episode Summary

Sam Blackmore: Restless Crypto Natives (Part Two) - The Maker Dao project

Episode Notes

Sam Blackmore: Restless Crypto Natives (Part Two)

That word 'Crypto' already puts some people off but before you tune out, allow your mind to stay open long enough to let some understanding in - it's not rocket science (it's way worse!). The already and the not yet - blockchain technologies have developed to a point where already there's an alternative to our current centralised financial system. The move to blockchain based technologies will benefit us all, but especially early adopters. Understanding a bit about how it works could make all the difference between being the head and not the tail. This future will happen, and it will either move you, or move right through you.

Why are we covering this - isn't it a bit fringe? Truth is, we're covering this because we can, and gosh darn it, it's really interesting! The ways in which we build wealth in the future will be significantly affected by this emerging technology so simply put, if all we ever covered was conventional wisdom around the current ways of doing things, we're not being true to the mission of this podcast.

Remember when you taught your parents how to use their first smartphone? Well, you are them right now, and all the geeks are trying to show us something significant - pay attention. Essential reading firstly btw is this article, which has provided the basis for this discussion.

As context let's briefly go back in time to around the era in which Bitcoin emerged. Lehman Brothers and the near collapse of Merrill Lynch, AIG, Goldman Sachs and Morgan Stanley - highlighted this thing called counterparty risk. In 2008, our faith in the current financial system became less immutable- there's no doubt about it. The current system, which we're all fully entrenched in is based on a principle of risk shifting (risk shifting happens when risky investment decisions maximise shareholder value at the expense of debtholders' interests). Eventually, when the deck of cards fall's down, those who have taken the 'risk-free' path of investing bear the brunt of the fallout.

It's important at this point to make a distinction between learning about investing, which is what this podcast is not about, with learning how to create wealth that will last - which is what this show is about. All conventional wisdom that exists to help equip the self-directed investor build wealth under the incumbent system cannot necessarily be translated into the new decentralised financial system to come. New wine-skins for new wine - we're talking about a new world which is qualitatively different from what we know now - a transformed world.

The current financial system- what words/phrases can we use to describe it:

-Unequal access. About 27% of the world's population does not have access to a financial institution. I get this - banks are in this for a profit, and it's not feasible for them to serve some areas.

-Censorship. Are you truly free to conduct business with anyone you like, free from interference and control by an outside force?

-Lack of transparency - have a look at what Kenneth Haynes and the Royal Banking Commission in Australia is all about - we're all starting to expect that banks need to lift their game in this area

-Counterparty risk.

Now counterparty risk is what you accept when you enter into a contract with another party - what if they don't perform? Smart contracts, a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract reduces this risk. Think about the last time you used a solicitor to help you with a contract - imagine if the contract itself had the power to enforce and to deliver built into it?

So enter blockchain based technologies - let's call it a better wall to hang your art on. For many, the word Bitcoin immediately points their mind in a direction that implies speculation - fair enough too, with the crazy fluctuation in prices we've seen over the last two years one could be forgiven to think that Bitcoin was just something to speculate on. What if we looked instead at the wall, not just the artwork?

Cryptocurrencies and blockchain tech eliminates:

-Unequal access. Most areas negatively affected by lack of access to financial institutions are embracing cryptocurrencies at an incredible rate (finally something to help those who have been 'locked out!')

-Censorship. In NZ we may not get this, but what if your government was corrupt - how could you participate in financial transactions under a totalitarian regime?

-Lack of transparency - Using Bitcoin as an example, it's all there - every transaction - it has to be because 2+2 is always 4

-Counterparty risk - Using game theory principles, it's in the best interest of all who are participating to ensure that all sides of the contract are honoured. Check out the tragedy of the commons as an example.

Sam, Darcy, and Tanya, attempt to understand all that is difficult to comprehend around finance and blockchain tech rolled up into one - this episode is not for blockchain enthusiasts, but more for those who struggle to see what the big deal is about.

Where to find Sam Blackmore: Sam@vimba.co

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