Predicting the Market | Andy Tang

Just a little bit commercial. So, Draper Associates Fund, we have been an investor in Coinbase, and it's the first unicorn company out of blockchain. So, it's fun to always look back. My partner Tim Draper in 2014 said, you know, Bitcoin's gonna break $10,000, and this is 3, 4 years ago. I think a lot of people kind of laughed it off until it happened. So, another thing to track is one of the most interesting aspects of cryptocurrency is that most people don't realize network effect is not confined to communication. If you think about the way we communicate through phone call, email, the other way is by exchanging currency. So the currency network effect is actually really, really high. Every time you make a consumption, imagine we're exchanging value. That carrot, potato, chicken, cow, that is working in the background. Okay, so by tracking the blockchain wallets, you can actually get a sense How fast that network effect is happening, and it's nonlinear. I'll show you why. Again, Tim actually does some fundamental research on his own. He had my colleague Megan track the number of wallets growth, and that is the dashed line. That's somewhat linear. That makes sense, because as people get more wallets, you know, it hasn't gone viral yet. But what happens if you look at the value of Bitcoin? The value actually rises exponentially. But initially, you see it's kind of flat because below a certain number, your telephones are useless. But once you get big enough, then suddenly you can start using your telephones. And that's what happened. That's when we went from 10 million to 20 million wallets. And in 2017 alone, we doubled the number of wallets. Okay, now let me cut to the chase. I mean, you're like, I've heard all this, right? So 2018, what do I think? So let's first, to understand future, let's study the history, right? I hate to tell you this, but this is nothing new, okay? Blockchain is yet another innovation. Yes, I'm very excited about it. I call it Internet Square. I'm pumped. But if you look at railway, was just equally exciting. Okay? The internet was equally exciting. What else was equally steam engines, steel industry, automotive industry? These are all transformative industries. And what did they all go through? Initial excitement. The technical term is called installation. And then there's the collapse. Sometimes we call it the bubble. And then what you really have is a long stretch of prosperity called deployment. That's why in my business, we kind of cop out a little bit. We say, we'll make a 10-year prediction. When you make a 10-year prediction, things actually become really easy. Things become really easy. Like, I could— I can't tell you what happens in 2 years, even maybe 5 years, difficult. I can tell you what happens in 10 years, very easy. Okay, in 10 years, blockchain is Internet Square. Crypto 18, so you heard it from here first, okay? Crypto 18 is either Internet 97 or 99. I told you I can't predict a 2-year, make a 2-year prediction. But if you ask me to make a 10-year prediction, it doesn't matter if it's 97 or 99, because you are up to 2007, 2009, a 10-year stretch? Yes. There was Netscape, there was, you know, Amazon, there was eBay, Lycos, Excite. A lot of these guys disappeared. But the ones that survived, they got really big. So the key is to think about these things longer term and not be speculative. This is basically as transformative as I've seen since the internet. And I'll actually give some examples. In 2018, I see continued investment in protocol and infrastructure layer. And I see the next 10 years a decentralization of internet commerce, even society. If you look at how internet has transformed the various industries from telecom initially to IT to software, right, to industrial and now to banking, government will also transform. Not the fastest adopter, but you know, get there. Okay, lots of logos here. They'll all be transformed, right? If you take a 10-year view, if you go to any you know social media website today, right when you leave, guess what? They keep your social graph. Okay, you decentralize this thing on blockchain. Social graph is on your phone. You go to a payment portal or Equifax, one of those, you know, whatever financial services. They take your mother's name, maiden name, birthday, you know, your favorite hobby. All of that stays on your phone. Why? As important and awesome as I think I am, I think hackers generally have a better return on investment if they hack bigger databases. Okay? We talked about food, we talked about payment, we talked about insurance. Insurance industry is another one. If you're a big farming company, you want weather contract, you hire an investment bank, you hire a lawyer to draft a contract, investment bank shops this with investors, and you hire auditing firms to audit the weather, You hire an escrow agent for the funds, and then you hire a bank to wire the money just to insure against some crops, against weather. With blockchain, you put it— you make a smart contract in theory, right? This is like talking about e-commerce in '97 or '99. Yes, it's a little bit far ahead, but I'm making a 10-year prediction. You put this on a smart contract, you have an oracle, weather is good, Farmer pays investor. Weather is bad, investor pays farmer, right? You don't need an escrow agent. You don't need— maybe you don't need a bank. You need a lawyer to program this for you, right? You don't need an investment banker to shop this because, you know, you could just syndicate this insurance out to millions of individual investors who want to play. This gets transformed. Music industry is another one. Every time you play a song on the radio, these, you know, 1-cent royalty gets split 20 ways between publishers, artists, you know, songwriters, the band, the lyric writers, investors, right? Each one of this is like a venture capital IPO exit, right? Like a cap table. Put that all on blockchain, so payment is automatic, these micropayments. Okay, I'll stop.