Dr. Paul Ennis is an assistant professor at The Centre for Innovation, Technology & Organization at University College Dublin, specializing in bitcoin and blockchain studies.
In this opinion piece, Dr. Ennis takes readers on a tour of the cryptocurrency metropolis, comparing ICOs to a neighbourhood, once hardened, that is in store for a cultural shift.
For years, I have described blockchain as the gentrification of bitcoin, meant positively.
Bitcoin is, without doubt, what it is because it has an edge, a Wild West dimension. Yet, residents of “Bitcoin Country” know this quasi-lawlessness comes with a price, specifically its appeal for scams and heists. When reversibility of transactions is outlawed, outlaws will appear, no doubt about it.
That’s enabled because bitcoin is about channelling the old cypherpunk spirit and becoming as deregulated as possible through technical means. This is a form of total freedom where the risks and the rewards really begin to accelerate.
Our time, as well, is a time of acceleration, and in terms of technology, that means a time of deregulation through exit. This concept of exit, develop in the 1970s by Albert O. Hirschman, is the libertarian ideal condensed into one possibility, the option to opt out and live according to one’s own conditions (“to live as if one were already free,” as Graeber puts it).
Bitcoin has attempted to create pockets where one does precisely this, little islands of freedom, but always aware of where the true power lies. This leaves the potential of bitcoin as a “regulative ideal,” as described by Immanuel Kant, a target to aspire to.
This has played out in numerous forms, most notoriously the attempt by Ross Ulbricht to engage in “profitable civil disobedience,” leading him to create his shadow Amazon – narcotics direct to your door, bought using a slick interface with all the trappings of a clear-net e-commerce site.
Within these worlds, whether with cryptocurrency or cryptomarkets, there has always existed side-by-side the idealists and the exploiters.
Crypto is a rough neighbourhood, but like our brick-and-mortar versions, we find true innovation there (“the hustle”). We also find a tendency to appropriate ideas and culture from there, drawn to the hard-nosed and scrappy desire to make something of nothing.
And yet there is the more clear-cut process of gentrification where, over time, an undesirable neighbourhood is altered bit by bit, coffee shop by coffee shop, until the local population begins to look around and wonder, “When do the suits arrive?”
People begin to speak differently, to speak of blockchain, rather than the blockchain. Rents go up, the locals feel marginalized. What happens, however, when digital rather than physical space is occupied? The costs of exit become much lower, the ability to ignore one another much easier.
Bitcoiners and blockchainers can co-exist, engaging and disengaging with what intrigues them.
Gentrification is now apparent with the rapid expansion of initial coin offerings (ICOs).
In my own small country, one finds an ICO located in one of its most salubrious suburbs (Confideal) and run by the country’s most successful hedge fund manager (Mingocoin). Alongside gentrification, one finds mainstream-ification, represented most abruptly by surreal, but surely exciting, celebrity endorsements, running the gamut of Floyd Mayweather to Paris Hilton.
What has changed? Well, for one, traditional businesses are no less drawn to the deregulationist tendency than cryptocurrency ones. They are, however, often more cautious, unused to the “better-to-ask-permission” philosophy underpinning numerous crypto innovations.
However, with the success of Uber, it seems that a cultural shift may be taking place that asks, what if, perhaps, one is able to self-fund? Or rather, to fund on one’s own terms and in the democratized manner ICOs allow. Or put another way, why precisely would we not self-fund, especially in a community rooted in a libertarian politics of self-sufficient and a cypherpunk DIY ethos?
The retort, of course, is that regulations exist in order to constrain rampant exploitation of naive investors and no doubt the ICO space will have many of these. But does this mean ICOs should engage in the process of adopting regulatory frameworks that will appeal to this audience?
The answer is that, broadly speaking, they already are. The new breed of ICO is operating in a “post-ban” phase, meaning that the various warnings and crackdowns have occurred, are not simply theoretical, as they were for the original wave of ICOs (e.g. Gnosis).
This is why it is not uncommon to hear these days about “passing the Howey test.”
In the case of ICOs, this test would determine whether a token is a security and therefore subject to SEC regulation. And what recent comments from the SEC suggest is a “thoughtful” approach is being taken, one that will take care to assess ICOs according to circumstances.
For now, the question is open, the ontological nature of tokens bracketed for the time being.
So, here is where we find ourselves, at the point where the cypherpunk insight – we can raise our own capital within this cryptocurrency community, using our own creative technologies – begins to attract outside interest, bringing in new neighbours, all sharp suits and business acumen.
Here is where I think the promise of cryptocurrencies begins to seep back in.
With contentious issues over transactions fees rendering older cryptocurrency ambitions, such as serving the unbanked, almost quaint in its idealism, we find the opening up of a new space of possibility, one hinging on creativity. For what ICOs allow for is the option of exit from endless rounds of venture capital funding, oriented to a select few of angel investors.
Instead, ICOs democratize the process to a massively-distributed network of people, allowing them to assess the situation, and giving them a chance to access investment opportunities in a way that is normally complicated by intermediaries and middlemen (remember, this is what all this is about).
Disintermediation of old business practices is always a little bit messy, a little bit of a culture shock.
But crypto is no ordinary shake-up, it goes right to the heart of what is assumed about the nature of what things are. Bitcoin disintermediates money; ethereum contracts and ICOs combine both to disintermediate the raising of capital.
The best part of all this?
Companies will finally be able to focus on their projects; in that spirit let a thousand ICOs bloom.