Brenda Vingiello, Sand Hill’s Chief Investment Officer, joined Squawk Box to discuss her thoughts on the latest market trends and market outlook for 2025. This
In Blockchain We Will Trust
Published Date : January 26, 2018
Much has been written about the founding of Bitcoin in the wake of the Financial Crisis, the blockchain technology that stamps every transaction with a code akin to a serial number on a dollar bill, the “miners” who earn fractional shares of Bitcoin in exchange for verifying each transaction, and how much a select few made last year participating in one of the market’s greatest – and narrowest – speculative bubbles.
But whether Bitcoin’s rise represents a bubble, or is justifiable as an asset on a steep “adoption curve” as its proponents believe, is a secondary debate that distracts from the acknowledgment that the blockchain technology behind this phenomenon will revolutionize the way we think about money, payment processing, and every aspect of commerce in the not-so-distant future.
While it’s hard to imagine today, paper money is on track to be phased out globally. China’s central bank aspires to be the first major country in this transition with plans to launch a crypto-yuan. Russia is exploring the concept of a crypto-ruble to circumvent various western sanctions. Sweden plans to eliminate physical money within five years. And in the United States, where cash usage is forecasted to fall from a third of all transactions in 2016 to just 12% of transactions by 2020, a crypto-dollar is only a matter of time.
There are many reasons to expect a federally-backed cryptocurrency in America’s future, first among them being the elimination of counterfeiting, illegal transactions, and tax evasion. A national, regulated cryptocurrency would record all transactions in a government ledger, identifying any party to an illegal and untaxed transaction – and it would make counterfeiting nearly impossible. Additionally, a crypto-dollar would deliver vast improvements in transactional efficiency for the rest of us as digital transactions are faster, cheaper and more secure.
A national cryptocurrency would also strengthen the government’s ability to manage the ups and downs of our economy. The Federal Reserve could set interest rates more efficiently, including implementing negative interest rates, if necessary, to stimulate the economy out of a recession. Meanwhile, the government could accelerate the implementation of any stimulus programs. Imagine for a moment, the ability to go ‘direct to consumer’ by simply injecting a couple of thousand dollars into every citizen’s crypto-wallet in order to jumpstart a stalling economy. And along the way, the government will undoubtedly legislate that only their federally-backed cryptocurrency is legal tender in the United States.
Of course, not all bubbles are created equally and that is certainly the case here. Consider how Netscape’s IPO foreshadowed the coming internet age, captured the unbounded enthusiasm of investors and launched the technology bubble of the late 1990’s – only to then be disintermediated by better innovators. While the vast majority of those early dot.com companies are now worthless, the ubiquity of the internet ultimately changed every aspect of our existence. It is an apt metaphor in the context of the current enthusiasm for the pioneering cryptocurrencies versus the ultimate role of blockchain in the future.
While it is easy to equate market disruptions like blockchain with unbounded value in the future, many of the early cryptocurrencies will likely end up as the digital equivalent of a limited edition commemorative plate: an interesting souvenir from a notable moment in time, but with insufficient intrinsic value to justify their lofty price. The big idea here is the underlying blockchain technology, which will ultimately change everything about commerce, data storage and even how we vote. And that is certainly worth thinking about.
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