We are seeing it unfolding right before our eyes. Over the last 12 years, since the introduction of Bitcoin, we are witnessing a parallel financial system being erected. At present, things starting to migrate over.
This is going to have profound effects upon the world. One of the reasons is because this financial system is built upon technology. It is something that rides technological waves which are astounding.
Over the past 40 years, we heard a lot of bankers and Wall Street people discuss "financial innovation". The reality is that there was little innovation in the traditional sense of the word. At the same time, most of it did not produce large benefits for society. Instead, it favored the few in the financial community. In other words, their innovation was a way just to enrich themselves, commonly at the expense of everyone else.
Cryptocurrency and all that goes along with it appears to be the exact opposite. It has to ability to generate massive returns and provide an economic growth rate that is truly mindboggling.
The Lessons Of Mega-Tech
Recently we saw Facebook join the $1 trillion club. There are now 5 companies that have a market capitalization of more than $1 trillion. In addition to Facebook we have Apple, Microsoft, Google, and Amazon. Notice something common about all these companies? They are all technology based. There is not a single traditional company in the list.
Each of these companies essentially created a platform. It was through the expansion of this that they were able to dominate their particular fields. This presents a situation where "winner takes most". While they do not have total market share, it is pretty close.
These platforms all experienced the Network Effect. The valuation model is summarized by Reed's and Metcalfe's Laws. In short, the growth rates are such that linear valuations no longer capture what is taking place. Hence, we see the valuations operating on an exponential scale.
This also puts these valuations on a path to near infinite. There is no limit to what can be added to these platforms. Since they operate in the digital world, they can keep adding features which generate more revenue. While there is a limit on the number of people who can participate (since there are finite humans on the planet), this is not true for the number of nodes. With AI we see the ability to add in near infinite activity. Thus we become limited only by bandwidth and computational power.
For example, there is really no cap to the number of products Amazon can sell. All that is required is to add another page to the Website. This allows them to enter any market they desire. At the same time, many of the products are not even handled by the company but shipped directly from the seller. Here Amazon simply operates as an intermediary. For the use of their platform, and massive customer base, they take a piece of each sale.
This is a radical difference from how things operated before.
Network Effects Of Money
We are now seeing a similar situation arise within the blockchain and cryptocurrency industry. It is obvious that there is no limit to the number of currencies that can be created. We see thousands of them already and it will eventually grow into millions. Couple that with NFTs and we see how a completely new system is arising.
The present financial system is akin to physical retail. It is slow as well as limited. There is no way to expand like there is in the digital world. FinTech started the process yet that was built around platforms. While that was akin to what the abovementioned companies did, we are about to see something entirely different.
Instead of building financial platforms, the aspects of cryptocurrency will be integrated into platforms/applications that are being developed. Once the infrastructure is far enough along, we will not be building financial platforms but, rather, platforms that serve a wide range of everyday purposes with the financial component woven into the architecture.
Basically this means that most applications will serve as a financial networks. The financial industry is being blended into everything. This is, in part, what the Tokenization of Everything means. We will have access to financial services on any network.
This is a concept that is difficult for many to visualize. The reason for this is we are accustomed to things being separate. It is not common for different industries to be mashed together in the physical world. Once in a while we will see the merging but it is rare.
In the digital realm, we operate on an entirely different set of principles. Most anything can be merged together if developers are so inclined. Hence we saw information generation blended with retail as people started selling stuff from their sites. The advanced message boards (social media) started to integrate marketplaces into their operations. Of course, advertising changed completely.
People find it astounding to mention that crypto will have values into the hundreds of trillions, if not quadrillions, of dollars. While that is true, the same thing existed 15 or 20 years ago. The idea of a single company being worth $2 trillion was outlandish. There was no way an individual entity could generate enough to have that valuation.
Yet today we see 2 companies at that level with 3 more over $1 trillion.
When we look at the number of people served, we see how the story unfolds. The high valuation comes from being able to have more than a billion users across the world. These companies enter most geographic markets. At the same time, they keep expanding their offerings simply be adding some more code.
Our parallel financial system is following a similar path. Imagine when all we utilize with has a financial component to it. The technology will be interwoven into everything. The "Internet of Things" will be operating nodes that generate revenues throughout the day. To be competitive, products will have to provide this benefit.
Eventually, as the infrastructure advances, we will be able to take the valuation in our wallets and use that as collateral for other financial services. This is how wealth is generated. Basically, through these monetized networks, people will generate the funds to basically finance their own home or car. This is a radical concept from where we are now yet the foundation is forming. We will see this within a few years.
The gamification of life is about to come upon. We are entering a realm where gaming and "life" are going to blend. This means that we will do things as normal yet will be rewarded for it. Since data have value, all we do will be valuable since it will generated through all we do.
What we are seeing built now is the bridge between the past and what is coming up rather quickly. For many it will be a tough transition since it requires a completely new mindset. However, for those who apply a bit of creativity, we can easily see how all of this is going to play out.
All of this is based upon the idea of building a financial world, sans the banks.
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