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Chris:
Hi there and welcome to this week's edition of the Weiss Crypto Sunday Special with me your host, Chris Coney. My guest analyst today will be Marija Matic, back again; Marija, welcome back to the Sunday Special.
Marija:
Thank you, Chris., for having me.
Chris:
Good to have you, madame.
So today, I want to talk about what I've called it the business model of blockchains. In truth, it's also going to be the business model of various decentralized apps (dApps) and so on. This is I think something that investors think about in terms of: It's not the same as regular equity investing, so does the different structure of crypto and the way it's supported and developed pose a risk to my investment? That is the fundamental question I think some investors have that I want to try and alleviate today.
So, I'll just set the premise here. The reason I was thinking about this topic is that this overlaps with the conversation I had with Kenny Polcari, which focused on this overlapping period which kind of started when, well, the technology revolution and the internet came.
So, we're moving from this society and these organizations that are built in hierarchies — like a traditional company with senior management and junior management and so on — to these more horizontal organizations that are more like hives. Now, we have lots of individuals that are collaborating. So that again is the representation of the way sort of organizations and society at large is moving.
And the whole crypto and blockchain thing is a brilliant facilitator of that because now you can have these worldwide organizations, like these decentralized autonomous organizations (DAOs), which is what you could say blockchain is. So with that becomes the reinventing phase of different models and what motivates people to participate in these organizations.
So, when I call this the business model of blockchains, well, funding needs to happen somehow, or an incentive structure needs to be there for human beings to expend their energy or the mental or physical to maintain these technology platforms.
In equity-based companies like Amazon.com (Nasdaq: AMZN) and Facebook Inc. (Nasdaq: FB), it's obvious. We know how that works: People buy the equity or they work at those companies and get paid salaries. The salaries come from the profit the company makes providing a service that they charge for.
But how does it work when you take all the levels of management out and there are no owners?
So, let's begin with the big daddy, the originator: Bitcoin. There are different actors in Bitcoin like miners, like developers, like node operators. So why do those people do that and how do they fund the costs involved in those operations? Do you want to give us a bit quick tour through that?
Marija:
Well, yeah. Funding the of development of cryptocurrencies is done in many ways, but I think we could start from the largest one, from Bitcoin, and talk a little bit about that.
Bitcoin developers are, for example, funded in a decentralized manner and mostly by the companies that work in crypto as these companies have a lot to gain from strong Bitcoin fundamentals and usage. Some developers are working for Bitcoin core, some are testing, some are just the doing all sorts of work. And then we have these crypto exchanges such as Coinbase Global Inc. (Nasdaq: COIN), BitMEX, Gemini, etc., that have their own funds to support of the developers.
Chris:
Yeah. Because their businesses rely on Bitcoin, they have an incentive to protect it in that way.
Marija:
Yes. And it's also a sign of goodwill because it's expected by the community. The community sometimes asks these crypto exchanges or other groups and companies that push them to sponsor the development of Bitcoin.
Some developers are financed by human rights foundations that also have a Bitcoin development fund. Some are financed by Blockstream, by Square. Then we have universities that are funding them, as well; some teams like MIT Labs or companies like Chaincode, etc. And many other companies and private donors that are sponsoring developers, as well.
So, as I said, the sponsoring of the development is expected by the community. If you're a crypto company, you would really want to do that as well, because your job and your business depends on strong Bitcoin fundamentals and usage.
Chris:
So, if you were a company like Coinbase making huge profits by using the Bitcoin network and providing services and didn't give back to the community by investing in the development, that might look bad. Right?
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