The early days of 2018 have seen a volatile start for cryptocurrencies. Asset prices aside, prominent vendors like Stripe decided to stop accepting Bitcoin for payments and regulatory uncertainty is washing through the industry.
Truth be told, I’m not sure this volatility tells us that much about crypto’s future. The daily, weekly, and even monthly gyrations of the “market caps” for projects that are just a couple of years old and whose technical underpinnings few understand are more noise than signal.
What we should be looking for are atypical signs of success. Think of the rapid decline in the value of taxi medallions during Uber’s rise. Taxi cabs were a critical part of NYC infrastructure for decades, and the medallions that enabled these were like gold to their owners. Only when a credible threat emerged in the form of Uber did it become clear that true change had occurred. Debate Uber’s valuation and future prospects all you want, but there is no question it has remade the way we navigate cities.
Here are three “Uber tests” that would get me to believe the crypto economy will create ripple effects on par with the internet.
1. When Jeff Bezos says ‘Filecoin has really dented our AWS business’
Today, even after a dramatic devaluation, the top 20 cryptocurrency projects have market caps that would place them among the top 20 percent of NASDAQ listings. When will we see a commercial impact that matches market cap?
I think we’ll be able to definitively say crypto has outgrown any bubble talk when the CEO from a public tech company cites a crypto project as the reason the company missed guidance during an earnings call.
Wall Street analysts are already asking companies — from tech giants to makeup manufacturers — about their cryptocurrency strategies, but thus far none have blamed the rise of crypto for a fall in profits or market share.
We’ll know that crypto is living up to its promise when a cryptocurrency project does to one of these companies what Apple did to Nokia. Even a small cap tech company being delisted due to competition from a superior crypto project would be an important milestone.
2. When a cryptocurrency becomes an official national currency
It sounds crazy but in some ways, this seems to me to be the clearest line from the current use of cryptocurrency to a future use. Imagine the day a country scraps their currency for Bitcoin or Ethereum or something altogether new.
Legitimacy from a government institution, even a developing nation, will suggest that crypto has gone beyond a techno-fad to a true asset and medium of exchange. Bitcoin is no more “artificial” than a South African rand or the euro. In the future, many may have more trust in these digital currencies than fiat issued by a shaky government.
Just as we’ve seen with ride/home sharing, driverless cars, and other innovations, governments will start by regulating or even outright banning cryptocurrency, as we’ve started to see in China. But I suspect over time it will be consumers that lead their governments to adopt these new tokens, just as they did with the aforementioned innovations.
How long this will take — months, years, or decades — is hard to predict.
3. When 20 percent of Valley employees replace their stock options with crypto
One of the promises of crypto enthusiasts is that we’re seeing the birth of a new industrial structure on par with the move from an agrarian economy to an industrial one, or an industrial economy to a knowledge-based one. These are bold claims. An important piece of evidence in their support will be seeing a great migration from one employment type to another. Perhaps the closest thing is the move away from unionization.
10 years hence, will the top 1,000 software engineers in the world be working for Facebook/Apple/Google/Amazon, traditional startups or for crypto projects? Will crypto projects be able to offer the same level of remuneration, esteem, and stability that the best leaders can command?
We see hints of this already. Startups are struggling with recruiting in part because the most forward-thinking engineers are charging towards crypto. We’re seeing allocations of as-yet unreleased tokens used as an equivalent to a stock option. But while this isn’t yet widespread, it may be in the near future. When 10-20 percent of engineers are being compensated with coins rather than options, we’ll know crypto is here to stay.
None of these milestones will be definitive proof, but these will be the clear signs that the much-ballyhooed promise of the crypto economy is beginning to be realized. I’m taking the long view and believe that blockchain technologies could hugely transformative, on par with the internet. But it’s still possible they’ll ultimately have a narrower impact. For instance, we could see real adoption focused on specific applications like FinTech — or cultural uses, like a super-charged version of the open source community. What proof would you want to see before believing the bull or bear case?
Micah Rosenbloom is a managing partner at Founder Collective.