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In roughly early February, a subset of cryptocurrency types made an intriguing transition: their obsession with blockchains shifted to coronavirus. They began talking about infection rates, sharing ‘prepping’ tips, advocating social isolation, transitioning to remote VR meetings, and predicting dire outcomes.
Notably, this started well before things seemed quite as hairy as they do right now, and some wondered whether all the concern was overblown. A Recode article about tech VC anxieties seemed dismissive, and cited among others former Coinbase exec Balaji Srinivasan’s tweets.
It’s easy to understand where Recode was coming from. Over the past few years, it has become common to critique tech types for assuming their expertise in coding means they have special insight into how other parts of the world work. It’s the sort of ego on display when, say, Mark Zuckerberg opines on how Facebook is impacting politics. Apparently there’s even a word for this: Ultracrepidarianism, or the habit of offering opinions on things you don’t know much about.
(That criticism isn’t applicable to Srinivasan here: before going into crypto, he cofounded a genomics company and has taught bioinformatics – the use of data to model biological systems – at Stanford.)
Now, with infection numbers rapidly rising and the cancellation of massive events like South by Southwest, the crypto-doomsayers are looking more prescient than panicky. So we may rightly ask: leaving aside those with actual training in biology, does focusing on new kinds of money and payments systems offer particular insight into pandemics?
Economist Tyler Cowan’s column in Bloomberg last week suggested that the answer may be ‘yes.’ Cowan identified the split between “growthers” and “base-raters” among those trying to predict the progress of coronavirus. “Growthers,” he says, are focused on the idea of exponential spread, while “base-raters” look only at present-day infection rates.
The “growther” viewpoint, Cowen rightly argued, is more common among people savvy in mathematics, finance, and technology, and led those types to arrive at dire conclusions sooner. He cites the exponential growth of tech companies as a kind of template for thinking about how a mass infection spreads.
That parallel may be even stronger when applied to digital payments systems. Crypto investor Anthony Pompliano (though he has largely steered clear of epidemiology) is notorious for declaring incessantly that “the virus is spreading” in reference to bitcoin and crypto adoption. The catchphrase hits on two bits of deeper common ground between coronavirus and fintech.
First, whether you’re talking about an independent networked asset like bitcoin or simply a payments system like Venmo, fintech adoption is often person-to-person. That can be through either the spread of underlying ideas, or simply the need to transact with someone using a particular medium.
Second, payments systems are the mirror-image of epidemics because of network effects. The more people use PayPal, the more useful it is – and the more people have coronavirus, the more deadly it is.
Does that tell us anything useful about coronavirus? Probably nothing that we haven’t already heard: the shutdown of major events and other “social distancing” measures are designed to disrupt the adoption rate and network effects of the virus. The goal is to flatten the curve of the disease’s spread.
A deeper takeaway from crypto-twitter’s preoccupation with coronavirus, though, has to do with how we think about the world. The complexity of society has increased massively over the past century, and even over the past decade. Networked systems are only becoming more common, and the connections between all of us, both digital and physical, are tighter. Understanding that tightly-meshed system requires a particular sort of thinking: rigorous mathematical approaches increasingly outperform “base-rate” intuition.
Even when we don’t like what the math is telling us.
David Z. Morris
DECENTRALIZED NEWS
This edition of The Ledger was curated by David Z. Morris. Contact him at [email protected].
Credits
China's Ant Financial buys a (small) stake in Swedish consumer-lending startup Klarna... Staffers from shuttered U.S. Democratic primary campaigns swap drinks on Venmo... Amazon, in shades of AWS, starts selling its cashierless technology to other retailers... Crypto exchange Kraken offers new foreign exchange pairs.
Debits
The European Central Bank warns that coronavirus could trigger a wave of cybercrime... Lebanon's debt-driven financial crisis doesn't need any help from coronavirus... India's Yes Bank was taken over by the government, disrupting many of its fintech partners... A federal ethics officer overseeing credit unions retired abruptly after findings he had visited strip clubs on the job... Geoff Golberg, a social-media sleuth who has exposed cryptocurrency-promoting bots, sues Twitter for banning him.
FOMO NO MO'
The dream of tokenizing all assets, enabling people to issue their own coins and have them accepted as money, founders on the problem of trust... The cost of reliably linking tokens to real assets inevitably drives the market towards consolidation, oligopoly and even monopoly.
Banking expert Frances Coppola on the long-touted concept of 'tokenizing' real-world assets using blockchain-based digital coins. The idea behind tokenization is that it would allow independent operators to make something illiquid - Coppola uses the inspired example of steel girders - into an easily-tradeable digital asset on a blockchain. In theory, this is meant to bypass the centralization and complexity of a commodities exchange and market regulations. A recent, cheeky real-world example is SardineCoin - a blockchain token backed by vintage canned fish.
But Coppola argues that the costs of convincing users you actually have the commodity backing your coin are too high to make sense for an independent operator, inexorably leading to consolidation of such schemes. That, she says, would wind up looking a lot like a traditional, centralized commercial operation.
BUBBLE-O-METER
$21 million
The amount of money Sequoia Capital essentially gave away to the payments infrastructure startup Finix. As pieced together by TechCrunch, Sequoia apparently didn't conclude until after making an investment in the hot startup that it might compete with another Sequoia portfolio company - specifically, it seems, Stripe. Sequoia gave Finix back its board seat and ownership stake - but let the startup keep the $21 million investment. If that seems awfully generous, the alternative would likely have been a legal battle that would risk damaging the esteemed VC shop's reputation: according to TechCrunch, this is the first time Sequoia has ever backed out of an announced deal.
THE LEDGER'S LATEST
A would-be Pinterest of stock-buying apps raises more cash - Jeff John Roberts
How algorithmic trading programs can make bad stock market days even worse - Adrian Croft
Coronavirus may not be all bad for tech. Consider the 'stay at home' stocks - Robert Hackett
Researchers say they found a hole in PayPal's security. PayPal says it's no big deal - David Z. Morris
Robinhood crashes for third time as markets tank - Chris Morris
Why plunging Treasury yields are so alarming - Erik Sherman
MEMES AND MUMBLES
Arizona Congressman Paul Gosar, under self-quarantine after exposure to the coronavirus, indulged in some rather catastrophic thinking (despite, apparently, no sign yet that he has actually contracted the illness). Gosar's tweet inspired a slew of imitations.
But what does it have to do with fintech?
Well, Gosar is the author of the "Crypto-Currency Act of 2020," a bill he recently introduced in the House. The bill contains provisions that worry crypto advocates, including a requirement that all cryptocurrencies be traceable. The crypto-savvy may note that's a big (read: impossible) ask, and indeed, several analysts have concluded the bill shouldn't be taken seriously, either legally or politically. Gosar doesn't sit on any of the relevant committees in the Democrat-controlled House, has no cosponsors for the bill, and is notably unpopular among his peers - and his own siblings.
