BlockTower Capital CIO Ari Paul: 2019 Will Be the Year of Permissioned Blockchains
On Friday (February 1st), Ari Paul, Chief Investment Officer and Managing Partner at cryptoasset investment firm BlockTower Capital, explained why he believes that “2019 will be the year of the crypto intranet”.
BlockTower, a leading cryptoasset hedge fund based in Stamford, Connecticut, was founded in August 2017 by Matthew Goetz, a former vice president at Goldman Sachs (where he spent eleven years), and Ari Paul, a former risk specialist and portfolio manager at the University of Chicago’s endowment investment office and a derivatives trader at Susquehanna International Group.
Ari, whose motto is “Stay hungry. Stay humble. Stay ambitious. Stay curious. Be a student, always”, used Twitter (@AriDavidPaul) to share his latest thoughts on permissioned blockchains.
1/ It’s increasingly looking like 2019 will be the year of the crypto intranet (or permissioned blockchains, or bankcoins and corporatecoins), whatever you want to call them.
— Ari Paul (@AriDavidPaul) March 1, 2019
He started by acknowledging the fact that for people who have been in the crypto space for a while and understand/appreciate the philosophical ideothe logy of Bitcoin, permissioned blockchain projects such as those by JP Morgan and Facebook, seem totally uninteresting:
“JPMcoin, facebookcoin, etc, are certainly inherently uninteresting to those of us interested in censorship resistance, seizure resistance, depreciation resistance, and self-sovereign money. They will produce some confusion and annoying article headlines by journalists.”
However, Ari argues that such big-name permissioned cryptocurrencies can benefit permissionless cryptocurrencies such Bitcoin and Ether by greatly increase global awareness and interest, thereby speeding up the rate of mainstream adoption, which (if you believe Metcalfe’s Law) should make these permissioned cryptocurrencies more valuable:
“But….it’s awesome for Bitcoin and other decentralized permissionless cryptocurrencies. Things like Facebookcoin increase global interest dramatically. Consider how carpet stores in NYC are all located right next to each other. They’re not hurt by competition, they benefit.”
“Let’s say 300 million people adopt facebookcoin, and 1 in 10 of those stumbles across bitcoin as they explore it. That doubles the number of bitcoin users, increasing the pace of adoption, the network effects, and the value of the bitcoin network.”
Furthermore, he points out that some of the services that part of the ecosystem and infrastructure built around these permissioned cryptocurrencies may be useful for permissionless cryptocurrencies, e.g. once a brick-and-mortar store starts accepting one cryptocurrency, it is easier for other cryptocurrencies to get accepted there in the future:
“And things like facebookcoin will produce a whole ecosystem of services and infrastructure around it, much of which will be able to be used directly or indirectly by permissionless cryptocurrencies.”
“this is similar to how a US regulated Bitcoin ETF benefits Venezuelan refugees indirectly by providing more liquidity and incentives to build Bitcoin ATMs in every major city that refugees can then make use of.”
“There was very little investment in things like Bitcoin custody, hardware wallets, key abstraction, educational materials, etc until 2017, because it was simply a small market. This is a rising tide that will lift all boats.”
Finally, Ari finishes by noting that it is a lot easier to explain to someone who is already interested in cryptocurrencies what makes Bitcoin special than to someone who has not heard of cryptocurrencies before and therefore has zero interested in them:
“Instead of having to explain from scratch what a cryptocurrency is and why it’s interesting, now we get to tell legions of already interested people why bitcoin is better than facebookcoin for many things. We’ll have an eager instead of reluctant audience.”
“it’s way easier to point out critical flaws in a well followed things and why there’s a great alternative, than to generate interest from scratch.”
Although Ari makes some excellent points, not everyone would agree with him. For example, some Bitcoin maximalists might feel that having many people think of these permissioned blockchain projects as “cryptocurrencies” devalues the word “cryptocurrency”.
Here is one of the replies to Ari’s tweetstorm that explains why these “corporatecoins” may be detrimental to Bitcoin in the long term:
It could be good for BTC in the short term, but if the long-term vision for BTC was being the global currency of the internet or a global currency – then alternatives from major corporations are direct competition. Could lower long-term BTC value proposition.
— John Markoff (@JohnMarkoff2) March 1, 2019