Investing in Innovation - Part 1 of the Best Crypto Practices

Often the first reaction to innovative products is one of distain, this has occurred for the light bulb, automobile, airplane, personal computer, the electric car and the blockchain.      Adoption of these products were initially held back by incumbent industries and vested interests.   Early reaction to many of these products is a fear people will not use it.   Inventors sometimes do not understand the impact their product will have or feel the cost of implementing the product is too great.

Books, movies and TV series have been made about the challengers faced by these productions; I will try to summarize this with some short snippets about each product. 

The Light Bulb - The gas companies laughed, our lighting is cheaper and safer.   They are going to replace gas lines in every city with power lines, where are they going to get this power and how are they going get it into every city.   The facts where gas lighting was not that bright, would flicker and was actually very dangerous.  

The infrastructure to bring electricity to cities would be a challenge that would lead to many innovations and successful companies.   In 1878, Thomas Edison founded was The Edison Electric Light Company, which in the future becomes General Electric (GE).   A year later he formed the Edison Electric Illuminating Company, which would transform years later into Consolidated Edison (Con Ed).   This would pave the way for multiple power companies through out the country.   

In 1896 General Electric is one of the original 12 companies of the Dow Jones Industrial Averages.  The expansion of GE and electric power companies transforms American, leading it into the electrical era.

Here is a summary of other innovations and the naysayers’ responses:

Automobile – Horses have served men through the centuries and will continue to serve them for the endless future.   Horses are much cheaper and better; automobiles will only be for the very rich.

Airplane – The public belief and response to the reporting of the Wright Brothers inaugural fight at Kitty Hawk was the same, it didn’t really happen.   Several scientific reports followed in public prints with the same conclusion: the flying of a machine heavier than air was impossible.  “The public should not be fooled by silly stories about two obscure bicycle repairmen who hadn’t even been to college”

Personal computer – After years of research, the significance of the first PC was not understood by the company that designed it.  Xerox PARC (Palo Alto Research Center) invented the Alto PC in 1973, they would incorporate object-oriented programming.   Later they would add an ethernet network connection and a graphical user interface.   Larry Tesler, a PARC employee, recalled Steve Jobs and his teams visit in 1979, “After an hour looking at demos, they understood our technology and what it meant, more than any Xerox executive understood after years of showing it to them”.    Bill Gates and his team were also early visitors to PARC.  Xerox never created a PC for commercial release and use.

Tesla - I look forward to the day when a movie is made about Elon Musk and the Tesla car company.  The amount of FUD, skeptics, and short sellers for Tesla is legendary.    Tesla was founded on July 1, 2003.   Its first car, the Roadster, was launched in 2008 using cutting-edge battery technology.

Tesla had its IPO on June 29^th 2010, at a price of $17.00 dollars a share.  On March 8^th, 2011 it had fallen to a price of $4.92 per share, not a ringing endorsement.   Skeptics stated that a startup could never take on the entrenched auto industry and succeed.  Quotes used to describe Tesla include “The last time any startup car company in the US achieved mass manufacturing startup was about 100 years ago” “Tesla Doesn’t Burn Fuel, it Burns Cash”, “might not have enough cash to make it through the calendar year”  ” – Bloomberg.com  April 2018.  

Since its IPO Tesla, the price of Tesla has risen over 15,500%.   Its current market capitalization now is great than the “Big 3” automakers combined: General Motors, Ford and Chrysler (now Fiat Chrysler Automobiles)

The Blockchain – The naysayer’s narrative – “Bitcoin is used by drug dealers and for money laundering”.   The worst part is this narrative is spoken from US Government leaders.   Elizabeth Warren who chairs the Senate Banking Committee’s Subcommittee on Economic Policy stated during a June 2021 subcommittee session “crypto has become a haven for illegal activity. Online theft, drug trafficking, ransom attacks, and other illegal activity”.   The fact is that digital currencies on a percentage basis are used less for illegal activity than fiat currency.

The Chainanalysis 2021 Crypto Crime report has the following facts:

• In 2020, the illicit share of all cryptocurrency activity fell to just 0.34% of all crypto transactions.
• The largest component of illicit activity are cryptocurrency scams (54%)
• Ransomware attacks is the component of illicit cryptocurrency activity that is significantly increasing.
• In 2020, government agencies around the world uncovered, investigated, and prosecuted more terrorism financing schemes involving cryptocurrency than ever before. (As cryptocurrency transactions are traceable)

The United Nations estimates 2% to 5% of the world’s GDP is used for money laundering, which is a range from $800 billion to $2 trillion annually.   Fiat currency is used 400x times than cryptocurrency for money laundering (If we use a $1 trillion annual amount).    This really shows that money laundering is the real problem, not the currency that is being used in the transaction.   

Comparing the innovation of the Blockchain to the Lightbulb

• The light bulb required a basic change of infrastructure that took decades to accomplish, this included additional innovations of power production and transmission that is still occurring today. The blockchain also requires an infrastructure change, however this change is more process oriented in how transactions are processed than a physical change.
• The light bulb had many obstacles to overcome, many said would be impossible to overcome.
• Blockchain technology is more advanced and is a significant improvement that is just getting started. It has with better security, has greater transparency, increased efficiency and speed for advanced transactions, improved automation (with smart contracts).

All the industries mentioned in this article significantly changed the way the world functions.   Large fortunes were made in all these fields by inventors, investors, and employees.   The blockchain is just getting started, the innovations will keep on coming.   Do not let the FUD scare you, the most successful innovations had to deal with it too.

This is part one of a ten-part series.   To see more Quantify Crypto trading tips, select the ? character on the right side of the top bar.   https://quantifycrypto.com/

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None of this is meant to be financial advice and I do not have any financial expertise. Although I worked at the New York Stock Exchange for over 23 years, it was as a developer supporting computer systems, not as a stock trader.

Full discloser: I do own Bitcoin and other Altcoins.