#8 How Crypto Will Impact You

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1 Concept 💡

For this week’s concept, I wanted to try something different. Instead of diving deep into core crypto concepts like we’ve been doing over the past few weeks (NFTs, digital wallets, web3, crypto’s adoption curve, generative art), let’s go the other way and zoom out. This week, let’s understand how crypto will impact you (or any average person). In this piece, we’ll cover:

  • Why crypto’s un-relatability underscores its massive potential

  • How our society is currently designed to solve for the “cost of trust” and who this benefits (hint: it’s not us!)

  • How crypto disrupt the powers-that-be by re-designing trust through software

  • Predictions for how a post-crypto world might impact you

Crypto = 😐?
Let’s be honest: for many people, crypto just isn’t relatable. It’s this amorphous technology that feels more theoretical than practical, doesn’t impact their day-to-day, and seems fueled purely by hype and speculation. My response? I think that’s a perfectly valid initial reaction. But that underscores the true potential of crypto, which is much more exciting than price. My opinion is that crypto’s impact on society will be FAR more transformational than even the Internet: it will forever alter the structure of modern society + markets and how people interact with one another — for the better. Intrigued?

So like the famous scene in “The Matrix”, you now have a choice: you can take the blue pill and keep believing whatever you wanna believe or take the red pill and I’ll show you how deep the crypto rabbit hole goes. What’s it gonna be?

The Cost of Trust
That red pill was yummy, right!? Ok look fundamentally, society revolves around people transacting with one another. And since trust is 🔑 to transaction, much of how society is structured can be boiled down to enabling trust. However, because humans are inherently unable to trust one another, the next best alternative has been to rely on something both parties can trust: a centralized intermediary (government, banks, courts, internet platforms, etc). If you really want to simplify how most transactions take place in our society, they look like this:

The diagram above is worth repeating in text: you are often unable to have a direct financial relationship with people that you transact with. For example, when you pay the grocery store down the street with your debit card, you’re both interacting with VISA — not with each other. Or if you’re buying a house from someone, you’re both interacting with the title company, not each other. Or if you’re a fan of a music artist, you’re both interacting with a Spotify or social media, not each other. Your initial reaction may be “Sure, but what’s the big deal?”, but I bet you’d see it differently if you tried to go on a date with someone and the only way involved bringing a trusted chaperone along 😘. I would argue that the “cost of trust” that intermediaries charge is far too expensive with profound consequences:

  • Takin’ a Cut - Because they’re in the middle of every transaction, intermediaries get a piece of all action and get to live large — at our expense. For example, credit/debit cards take ~3% off of every transaction and banks pay you < 1% interest for money you deposit, and then lend that same money to someone else at a 4%+ interest rate.

  • Influence - Again, because they’re in the middle of every transaction, these intermediaries have immeasurable amount of influence and an unfair advantage over everyone else — especially regular citizens like you and me. The banking and legal sectors historically have had benefited from their tight relationships with the government (see bank bailouts from 2008 which was one of the original inspirations for the invention of crypto). Further, these intermediaries have the power to discriminate against or “cancel” you.

  • Overhead - Since these intermediaries represent an extra “hop” in every transaction, they add friction. For example, when someone Venmo’s you, it takes 2-3 days for that money to actually arrive in your bank account.

These intermediaries are designed to profit, maintain power, and take advantage of us. They have all the power, we have none - as a result, they have minimal incentive to improve or make the experience better for us. Why do we put up with this? Unfortunately, they are so fundamentally entrenched in the design of our society that life seems inconceivable without them. Plus there hasn’t been a better solution that even had a prayer of disrupting them — until now.

Enter crypto

"Crypto enables software to operate autonomously and make commitments on how it will behave".
Chris Dixon, a16z investor

What crypto unlocks is for software to become our trust partner when transacting with one another. Instead of trusting a single human-run intermediary to transact, you trust a decentralized network of peers all running the same software. If you set aside the price movements, hype, speculation and noise - the real innovation crypto brings to the table is that we can now rely on a network controlled by no one & owned by everyone to transact, updating our previous diagram to look more like this:

The network is unbiased, not controlled by any one person or entity, not incentivized to unfairly profit, up 24/7, more performant, and has far lower overhead. Equally importantly, as the network grows, we the people as consumers, investors, and owners get the power and upside, not some corporation. Crypto finally provides us the ability to have a direct financial relationship with one another without someone sneaking their hand in the cookie jar.

Let’s take Bitcoin as an example: instead of a merchant accepting payment with your credit card that has a 3% fee and takes ~14-30 days to settle payment, the merchant can now accept payment over Bitcoin with nominal fees and get settled cash in minutes with any customer regardless of their geography or banking status. It accomplishes this by the network collectively agreeing that 1) you have enough $$ to make this transaction, and 2) the updated state of transactions has your account with $X less and the merchant’s account with $X more. No credit card numbers, no billing zip codes, no discrimination, & no downtime. Now, that’s what I call disruption!

It’s really difficult to get your mind wrapped around the concept of a network replacing the intermediaries that we have known forever (trust me: I’ve been there). But once that mental light switch is flipped, you officially become “crypto-pilled” and start seeing the world differently much like Neo in the Matrix once he realized that he was living in a computer simulation. You quickly realize two things: 1) there’s no going back, and 2) the inefficiencies of our current system become more glaring by the day and you begin to see opportunity everywhere for things to be designed better.

How Crypto Might Change Your World
I wanted to leave you with some personal predictions of how I believe crypto will impact your day-to-day life within the next 5-10 years:

  • You won’t pay for anything (IRL or online) with a debit card - instead, it will be paid directly via your digital wallet using crypto as the settlement network. It’s the vision for Apple Pay without the mess of the existing legacy system.

  • Amazon, Shopify, and all e-commerce sites will accept digital wallets given how much lower the friction is to transact + how much better the experience is for merchants. You’ll see e-commerce grow by 10X in the next 10 years.

  • Having a savings account at a bank will be a thing for boomers. Instead, you will make your savings work for you in the decentralized finance world (crypto) where interest rates are set by supply and demand via software + earn a far better interest rate than what’s set by the govt (think ~4% compared to <1%).

  • You will be able to lend and borrow sizable amounts of money (even for a car or home loan) directly from other pools of people, instead of going through a bank.

  • We won’t need lengthy “closings” for home purchases that require a million signatures and expensive fees for title insurance / escrow mgmt (easily can cost ~$10K+). Rather, it will happen over a crypto network via smart contracts/NFTs.

  • It will be simple to send money to anyone in the world *instantly* regardless of where they live, without getting straight-up fleeced by places like Western Union which take huge fees. In fact, Strike Global already offers this today via the Bitcoin network. This is especially critical to improve remittances for labor workers who go work in other countries to provide for their families back home.

  • Up and coming music artists will avoid going to record labels and instead raise $$ directly from fans, compensating them with a % of royalties and tokens to form a more intimate relationship (3LAU is building this with Royal)

  • Every professional sports teams will create social tokens & communities for their fans to create a more intimate relationship with them and be able to reward their most ardent fans.

  • Instant micro-payments will become possible, allowing for really interesting things like tipping a good Samaritan or every car on your street to collectively bid to change a traffic light sooner.

  • It will be easier than ever for entrepreneurs to pay contributors in equity (via tokens). This will result in people having many side hustles (or even jobs) with multiple organizations at once, and earn more $$ and fulfillment.

Becoming Crypto-Pilled

I’m not expecting anyone to become crypto-pilled after reading this, but I hope this stripped away the technical jargon, hype, speculation and noise from crypto — and helped demystify crypto to what it truly represents, its potential to make society better, and how it might impact you. While crypto is still in its infancy, change always happens sooner than we expect - will you be ready?

2 Themes On Our Mind 🤔 

1. We talked quite a bit about if the internet will realize its potential in #5, and Jackson Palmer (founder of $DOGE) lays out his thoughts here in a similar manner. My take: I disagree with Jackson that crypto will definitely be good or bad. It’s a technology that gives us the tools to make the world better, but it’s ultimately up to us to decide how we want to use it.

2. Twitter had a huge announcement where they plan to enable tipping (payment will be settled over the Bitcoin network!) and NFT verification. This is a harbinger of what we talked about above and the metaverse (much more on the metaverse coming soon!)

3 Things To Check Out 🔍

  1. If you loved this and want to continue your journey to learn, use and invest in crypto, I encourage you to 1) join the HAX Discord server and 2) check out our FREE HAX crypto starter kit we’ve put together that walks you through the basics of crypto, our favorite podcasts + memes, and more.

  2. I’m running an experiment and am offering ten 30 minute slots over the next week for anyone to talk crypto with me 1:1. We can talk about this newsletter, crypto questions, investment opinions, HAX’s future vision or anything else you want to shoot the shit over. I’d love to meet you - please book time here!

  3. NFTs have reached fast food with Burger King launching a way for people to win digital collectibles. Can’t wait until McDonalds does this for their Monopoly game so I’m not terrified of losing a scratch off piece 🤪!

Until next week, always be learning
Karthik


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