The Good Ol’ Days
For those of us who are old enough to remember the mid-to-late 1990’s, this was the dotcom era, when the Age of the Information Super Highway arrived. Nobody knew exactly what the Internet was or what it was capable of doing. All we knew was we could connect our computers to our phone lines via dialup modem, and we can access a wide expansive array of content from all over the world. Different companies popped up all over America, promising us that this is the New Economy, and they would deliver us into the new Information Age, while making boatloads of money. Companies like Lucent, Brocade, Compaq, Dell, Sun Microsystems, Buy.com, EMC, and Redhat – remember any of those? – filled the financial news cycle. Heck, Enron was promising the masses with fiber-optic technology at the time, and we all knew what happened to Enron.
Personally, I still remember hearing about my friends building websites, while I bought my first stock in 1999. My first “investment” was in a microchip/semiconductor company. Of course, the company was grossly overvalued and subsequently tanked. But, I still remember when I first bought the shares at 9 ½ – yes, stocks were still trading in fractions back then – and found out a day later that the stock went up to 9 ¾. I thought to myself that I am a genius and that I am on my way to the life of wealth and riches I could never imagine.
Back to Reality
Fast forward fifteen years. Most of the dotcom Wall Street darlings are no longer in existence. The ones that are left standing are the larger players, which are thriving in today’s economy. Some of those players include Amazon, Microsoft, Intel, and Cisco Systems. These companies weathered out the storm and stood the test of time. Not only did they survive the dotcom bust, but they are dominant players in today’s market.
A New Technology
Now we have a new technology, and just like the Internet, it can revolutionize the way we do business and conduct everyday activities. This new technology is the Blockchain. Tech industry leaders are already proclaiming the Blockchain is a game changer. Some would even go so far as to say that Blockchain technology can be more revolutionary than the Internet. Of course, with new life-changing technology, many new players and a lot of noise will emerge out of the woodwork.
The New Players
Perhaps the current two largest players in Blockchain technology are Bitcoin and Ethereum. Bitcoin is the original form of digital currency created not too long after the 2008 Financial Crisis, and Ethereum is a platform for developers to deploy various applications and smart contracts. This is reminiscent of Amazon and eBay of the dotcom era – these two companies were the largest and most promising Internet retailers at the time – now Bitcoin and Ethereum are the largest and most promising players to bring Blockchain usage to the next level. In the 90’s, a whole slew of dotcom IPO’s emerged from Silicon Valley all the way to Wall Street, and like fifteen years ago, a whole slew of ICO’s (Initial Coin Offerings) are emerging all over the Internet.
Significance of Blockchain Technology
Although I am not an expert with Blockchain technology, with all its potential uses, I can confidently say that this technology could eliminate any inefficiencies we have in our current financial system and can get rid of a lot of human errors associated with personal and business dealings.
Take our current banking system for example. When we make a deposit or withdrawal to/from our bank nowadays, the transaction will mostly take a few days to clear…and this is presuming everything goes smoothly. Additionally, the bank incurs transaction costs, which are passed down to the consumer. (Some of us never notice these transaction fees because many banks waive them if we keep a certain balance within the institution.)
With Blockchain technology, the financial transaction clearance lag would be reduced, if not, eliminated. The current Bitcoin Blockchain updates every ten minutes, or so. Therefore, all financial transactions would clear in a matter of minutes, rather than days. Additionally, the Blockchain reduces all the cost inefficiencies related to financial transactions. All the manual and paperwork associated with deposits and withdrawals would be eliminated because everything would be recorded onto the Blockchain. All this info can be reported to any desired party or entity.
The Blockchain is constant, continuous, and transparent. Once when something is recorded onto the chain, nothing can change or manipulate it. If anybody tries to hack or alter the recorded transaction(s), then all the efforts would be recorded onto the chain. Therefore, there is a permanent paper trail leading to everything that’s recorded, which brings me to the next point…
Less human errors. There are times where we all did something, whether in personal or business matters, but forgot to document our actions, or we recorded the incorrect information, thus leading to confusion, and in some cases, major catastrophes. In some cases, the lack of documentation can signify that a transaction never occurred. For example, if you paid a vendor $10,000 for an order, but the payment was never recorded, the vendor can still go after you for the open balance. The dispute can be settled in court through long time-consuming deliberations, but all this can be avoided through Blockchain technology. The vendor can just look into the chain and see whether the payment was made.
Just like the dotcom’s and the Internet in the 90’s, Blockchain technology, Bitcoin, and Ethereum are still really young in this day and age. Like the dotcom companies in the 90’s, cryptocurrencies are super volatile. Furthermore, nobody knows exactly how to value the new technology. The government could not keep up and devise adequate laws to regulate the new tech.
In the 90’s, most older and experienced investors were afraid and shunned dotcom companies, while inexperienced investors and speculators jumped into the band wagon. Some got rich, but a huge majority got burned. We are currently witnessing a very similar advent with cryptocurrencies.
Whether the recent market activity in Bitcoin and Ethereum is a bubble remains to be seen. However, as a reminder, the Dotcom Bubble Burst happened on March 2000. Many dotcoms disappeared, wiping out tons of wealth in the nation. However, those who stuck to their guns, investing into what’s safe and sound ultimately walked away with enormous wealth. If you bought $10,000 worth of Amazon stock since IPO inception and held the shares until today, you would be sitting on more than $6.5 million in your brokerage account. Some people might not be impressed, but how many people can say they have $6.5 million in their name?
Now, I am not saying that what happened in the 90’s will also happen with cryptocurrencies today. However, what I am acknowledging is that there are a lot of similarities and patterns to what occurred fifteen to twenty years ago. So, I am admonishing us all to remind ourselves of the risks and the rewards associated with Blockchain related investments. We do not know if Bitcoin is the second-coming of the Dotcom Era of today. But, if you missed out on the dotcom bubble in the 90’s, like myself, then this could be your second chance. Just don’t make the same mistakes as most people did in the Dotcom Bubble Burst during 2000.
Also published on Medium.