Dear Early Investor,
There’s a growing movement toward decentralization around the world.
I believe it’s the most important and disruptive movement of my lifetime.
At its core, this is a backlash against abuse of centralized power. By this I mean any situation where a small but powerful group of people is making bad decisions for the majority, often using threat of force.
We’re talking primarily about governments and government-enabled monopolies/oligopolies.
Today’s monetary system is the most obvious example. Almost all of us have no choice but to transact in the currency issued by our central bank.
Look what happens when central banks print money and play with interest rates.
The resulting bubbles are a disaster for the vast majority of citizens. But big banks make a killing on the way up, then get bailed out later if necessary.
Central banks provide the fuel for bubbles. The problem is the Fed and other central banks are owned by private commercial banks. So, naturally, it’s the private banks they look out for.
It’s too much power in the hands of too few people. It distorts the market and results in an endless transfer of wealth.
In the mid-1800s, the great philosopher Frédéric Bastiat put it this way:
When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.
That could have been written yesterday. Yet 170 years ago, Bastiat succinctly described the situation we find ourselves in today.
This is why I believe today’s decentralization movement is so critically important. It has the potential to bring about peaceful revolution.
The Federal Reserve is a prime example of the dangers of centralized power. It (kind of) works, but it mostly exists to benefit the people who control it.
This is exactly why bitcoin and other decentralized currencies are so appealing. (Read last week’s article if you haven’t yet.) The decision making is decentralized and based on the free market.
Let’s look at a real-world example of how cryptocurrencies are cutting into fiat currencies’ market share.
In states where marijuana is legal, merchants often can’t find a bank that will do business with them. This is because our federal government strongly discourages banks from doing business with the marijuana industry.
As a result, business owners have been forced to hold millions of dollars in cash. It’s a bad situation, security-wise.
Now cannabis entrepreneurs are using bitcoin and other cryptocurrencies to do business.
Cannabis companies are turning to the world’s most popular digital currency in an effort to get rid of all that cash.
The inability to access traditional financial institutions is one of the marijuana industry’s biggest impediments. Legal cannabis was a $6 billion industry last year and is expected to grow to $50 billion by 2026, according to Cowen & Co. But because pot is illegal under federal law, big banks and credit card companies steer clear. That’s forced most merchants to accept cash only, a logistical headache and constant security threat.
Applications like these are part of why I like cryptocurrencies.
But even without the government restrictions on the industry, bitcoin would still be worth using.
Unlike government-backed currency, cryptocurrency is fast, cheap and far less prone to inflation. Not to mention it has the potential to appreciate in long-term value.
Crowdfunding, Distributed Networks and More
Equity crowdfunding, naturally, is also part of the decentralization movement. It’s the beginning of the end of unjust restrictions imposed on us by centralized powers.
New projects like Anyfi are also part of it. Anyfi aims to build a user-distributed Wi-Fi network. This takes advantage of the fact that our phones can act as Wi-Fi hotspots. Here’s a picture depicting how it works.
With the advent of powerful computing in our pocket, the possibilities for decentralized services are endless.
I believe such services will change our lives as much as the internet did, if not more. And we’re at the very beginning of this exciting time.
It will be a bumpy ride, with established power structures fighting tooth and nail. But in the end, I believe decentralization will win. It must.
Founder, Early Investing