Hey Everybody 👋
Welcome back to MWF! It’s been a second, but today is well worth the wait. I’ve been on a run of dissecting technology trends. This has mostly led me down a Web 3.0 rabbit hole of blockchain and the like. This is timely because Big Tech has recently experienced hiccups around trust. Blockchain, through a medium called decentralized autonomous organizations (DAO), can flip the script of trusting technology companies.
It’s a fun journey that I went on and hope you enjoy it, too. I should be back writing more often (I was working on a project/traveling most of June). If this topic generates interest to you, let me know and I can dissect it even more. I’m fascinated with Blockchain right now.
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Solving Trust in Tech
How many people do you trust? It's an interesting thought to ponder. The number changes more often than it should, but right now, I'd be willing to bet it's a little tight. We've never known more about people and simultaneously known less about people. What I mean by that is - we've built Facebook "friendships" with 1,000+ people, and we know what they are doing, but we don't know them, at least not anymore.
Trust is seldomly built online. People on dating apps don't continue messaging for the rest of their lives. Eventually, they want to meet up to build a relationship. The opposite of trust is assumed online. It's more common for me to form animosity online, as scrolling is a one-way ticket to nowhere. Part of this is from the distorted lens of not knowing what is real or fake with the internet. The idiom, "Everything you see on the internet is true," comes from the idea that most of the stuff you see is fake.
Considering all of the internet's negatives, nothing in human history has withstood a volume of faults better. Actually, we have never trusted the internet more than we do today. The difference here is key - being online and not trusting the content versus the general fear of being online (where we were in the early days of the internet).
The internet is ingrained in everything we do. The conversation of trust has shifted away from the internet as a whole and toward trillion-dollar tech corporations. For the next couple of minutes, we will look at solutions forming to alleviate the antitrust people are developing with tech companies. Specifically, Decentralized Autonomous Organizations (DAO's) are a new way to operate, govern, and comply through the technology of Blockchain.
The Rise of Corporate America
Corporations are one of the most outstanding achievements in American history. Although being the spokesman that I am for Gen Z, it's been fun to watch the schism of corporations and the next generation of workers. We don't see the bigger picture of how good our lives are because of these innovative businesses. My generation has the resources to succeed because our parent's generation could scale financially through Corporate America.
Corporations haven't been around since the dawn of time, though. They began to form when we developed solutions for transportation and communication. Before that, local business centered around the community (I wrote more about this here). If someone in the town came to your shop and said, "Think we can start carrying this new tool I made? Here are the advantages..." Chance are, you, as a shopkeep, would listen and stock that product. Now, picture yourself with a $1,000 stock position in Apple calling Tim Cook and saying, "Tim, buddy, what's up? Hey, I've got this new idea for iOS 20. Got a few seconds to chat?" Corporations scaled from communication and transportation, but as they got bigger, nothing changed at the top.
It wouldn't be a MWF piece if we didn't take a step back and see the historical trends. For starters, no single business has ever reigned superior in this country.
In the early 1900s, U.S. Steel was running circles around the market. We were building infrastructure like crazy and have not stopped since. Then, GM and Ford made a car and dominated the market, along with oil and gas companies, for much of the 20th Century. Around 1955, a company called Bell Systems (AT&T) takes the #1 spot in market cap because now you can call Aunt Suzy every so often. In the 1960s, IBM begins its ascend to the #1 spot as computers and computing hardware is progressing like crazy. Here is a screenshot from 1970:
A couple of other companies to note. GE consistently stayed in the top 10 because people need power and appliances. Kodak skyrocketed off the craze of owning a personal camera. Imagine if GE would have started in renewable energy research, or if Kodak would have brainstormed that you can share pictures on an application to your friends instead of emailing them. They might still be relevant.
The Rise of Tech
But, hindsight is 20-20, and everything is easy to critique when all we know is our tech-driven world. Below is the market cap timeline of 1980-2020:
A few highlights from the timeline looking back based on what we know now:
Walmart makes a meteoric rise in the 1990s. What if, at that time, Walmart would have put all its eggs in the e-commerce space. They would be the Amazon.
Microsoft, Cisco, IBM, and Intel are all crushing the market based on computing/telecommunication in the late 1990s. Microsoft most effectively jumped to the world of software that would consume our needs in the 21st Century out of those four.
The rise of Big Finance is also on display. Today, Citigroup, AIG, and Bank of America are all kicking themselves for not seeing the solutions FinTech, and now DeFi has produced.
Big Pharma brands like Johnson & Johnson, Merck, and Pfizer are now at billions of dollars in valuation as we have made tremendous strides in healthcare solutions. I'm not that knowledgeable about the medical field, but I'm sure there are tech start-ups now, maybe like Tele-Doc, Big Pharma wish they would have predicted.
Apple struts into the picture in 2009 as iPhones were taking off. In correlation with Apple's rise, Google is right on its heels as now more people can use Google than ever before.
Facebook and Amazon appear in 2014 and rapidly ascend to the top 5, where they have been since. FAAMG is born.
Overall, companies enjoyed more longevity in the 20th Century because innovation was more gradual. Again, it's easy for anyone to sit there and play hindsight with the legacy companies of America and how internet companies upended them. Even 10+ years ago, we can scoff at a company's slow adaptation. It highlights how what is happening now will look drastically different in 5 years.
People forget that Amazon, Facebook, and Google are 20+-year-old companies. Apple and Microsoft are 40+-year-old companies. They were building solutions for the future that were not conceivable in the 1990s when everyone was pushing $1000 computer hardware memory (Now we can get 1000 Gb of memory for just $5).
Some argue that Big Tech is different, though. I was of this assumption the past couple of years. The notion comes from the idea that Big Tech will never concede market share because of how aggressively they play the game of mergers & acquisitions.
Suddenly, in the past year or so, there is one glaring hole that Big Tech can't bridge the gap on. So let's dissect the problem of technology companies and trust.
Internet + Big Tech = Antitrust?
Internet
If you're a 90s kid, think back to your first days of using the internet. I remember the commercials that would run on Nickelodeon or Disney Channel that would advertise a website. At the end of the commercial, it would always be cautioned with, "Ask your parents before going online." That's exactly what I would do. We had our family desktop computer, and I would ask mom if I could go on the internet. That notion alone has changed drastically. Today, kids have the internet spoon-fed to them like it's Gerber. It's a complete 180 in terms of caution.
One particular internet trust issue I remember was online payments. In 2007, Playstation developed an online store to buy software versions of games instead of going to the store to buy them. This development was dangerous to a video game-addicted middle schooler who could now get any game at the press of a button. My dad was always hesitant to allow online payments because of security concerns. I remember never blaming him, even at age 11. I certainly didn't understand how it worked. Today, I can't tell you how many times I have used my credit card online across hundreds of sites. The trust has shifted seismically.
It's not like the internet itself has changed; instead, we have unlocked new functionalities. I can still open up a new tab and play mini-golf on the same internet used to build advanced AI solutions. What has changed is our comfortability or trust of the general use.
Big Tech
The second part of the equation is the tech companies that have made millions, billions, even trillions off the internet. FAAMG has produced unavoidable solutions necessary to everyone in America. Long story short, it's been a dream ride for Big Tech.
The past half-decade has seen the conversation of trust shift away from the internet and toward Big Tech. The narrative on Big Tech is gradually changing from, "Wow, this is awesome" to, "Wow, these companies control everything I do." In fact, 3 in 4 Americans say they are concerned about the amount of power that Big Tech companies hold.
Now, Congress is aligning on this issue of regulating Big Tech and their power. Before I dive into the government aspect of this piece, I'm a pro-capitalist society. You should able to build and scale as much as you want. Generally, capitalism is not a Democratic idea. They would rather have the government intervene in market scenarios like the one we have here (thus why tech companies proclaim their Democratic faith). This scenario is different. Additionally, it has made me reassess capitalism's boundaries because it certainly is not unlimited.
Here are the problems with Big Tech's powers the House Judiciary Committee (Democratic majority) posed back in October of 2020:
Big Tech platforms now serve as a "gatekeeper" over a key channel of distribution (1). Meaning they control the market of access to consumers.
Each platform uses its gatekeeper position to maintain its market power. By controlling this infrastructure, Big Tech has cut out threats or competition (1).
These firms have abused their roles as intermediaries to further entrench or expand their dominance (1). Basically, Apple will push you Apple products, same with Google, Facebook, Amazon, etc. (This is the weakest of the issues).
Based on these three problems, just recently, Lawmakers unveil major bipartisan antitrust reforms that could reshape Amazon, Apple, Facebook, and Google. This legislation addresses the above issues along with Big Tech's dominant merger & acquisition agendas. It seems like the government's goal is to separate the platform from the operations.
When Congress makes a move, my first question is always, "Why now?" Why do we see this push to regulate Big Tech? Is it because of their evident market cap domination, and they see no other avenue to promote competition? Or is it just an opportunity for the government to regain control? Both are probably true.
I'm open to the regulation of FAAMG tech companies, primarily because of how much they control our lives. Meanwhile, we have reached a point of non-compete because of the size of these behemoths. A system with multiple tech companies competing to leverage their products is more viable long-term than five giving you medicine every day. I believe this shift is happening right now.
DAOs - A new way to compete
So, the internet trust issues have waned, while Big Tech trust issues have grown. Can we solve this? Posed another way; can we build companies that remove the corporate veil that produces antitrust and give control, through the internet, to those who invest? We can through a concept called Decentralized Autonomous Organizations (DAO). Linda Xie describes a DOA as:
Let's break this down further and compare a DAO to a company.
A "group" is what our world is transitioning to, not a "company." It's a technicality, but it's essential. Joining a company means working for a for-profit organization attempting to scale. This model produces consistent issues every company has to hurdle. Today, a "group" gears more toward the creator economy, and it can be any number of people with no model objective. A group can bypass some of the hurdles companies cannot.
"Organized around a mission" is the main similarity between a DAO and a company.
"Coordinates through a shared set of rules" is a significant difference. Do you know all the rules at your company? Did you pay attention to every word during the mandatory HR training? Of course not. I'd be willing to bet most CEOs don't know every rule of operation. Even when we do know the rules, human tendencies have produced some of the biggest scandals through companies. Businesses produce corrupt practices; that’s just how it is. DAOs alleviate this by creating rules on a blockchain through smart contracts. These smart contracts are a piece of code on top of the Blockchain, and they act as a specific criterion to interact with the DAO.
E.g., I sell watches through my company called Ropex DAO. I create a smart contract (criteria) in my DAO that you must be 21+-years-old and a U.S. resident to buy my watches. The transaction must follow this criterion because customers create a wallet using their passport to interact with my DAO. No one can circumvent this control. Alternatively, I made a Facebook account when I was 12 by simply saying I was 18. DAOs can significantly increase the public trust of internet companies through smart contracts that are ⬇️.
"Enforced on the blockchain" Blockchain is the technology that allows this to all be possible. A blockchain is a decentralized ledger distributed across a network allowing users to transact.
I always like to envision Blockchain in real life. How would that look? Go back to our example of selling watches and imagine we are all robots with a yellow legal pad, so every time someone purchased a watch, you had to stop and write it down. By this means, everybody would have the exact copy of the ledger of transactions. That is what Blockchain is, except you don't have to keep the ledger. It is shared across a network, making it immutable and verifiable (I love this video that explains Blockchain across all learning levels).
DAO Functions
As cell phones started to advance, the internet became delivered to you more progressively. At first, checking emails on your Blackberry was revolutionary. Then, getting Safari on your iPhone was a game-changer. Still, there is so much unseen potential with smartphones.
Blockchain is at a similar stage. Currently, there is so much fascination with cryptocurrency. Most people see speculating on crypto as the end-all capability of Blockchain. But, through developments like DAOs, we can expand the functionality to places inconceivable.
Our simplified example of selling watches on a DAO, while functional, doesn't scrap the capability this technology possesses. The two areas where I could see DAOs becoming increasingly popular are decentralized finance (DeFi) and governing.
DeFi
I love the following explanation of DeFi:
DeFi refers to an ecosystem of financial applications that are built on top of a blockchain. Its common goal is to develop and operate in a decentralized way – without intermediaries such as banks, payment service providers or investment funds – all types of financial services on top of a transparent and trustless blockchain network (2).
DeFi is taking your financial institutions and removing them entirely. For example, one of the basic facts of life is you get a mortgage because 99% of people can't pay cash for a home. A use case for DeFi is to develop a Blockchain that removes banks, escrow, etc., from the equation. Instead, you have a system where a DeFi application has specified criteria built into smart contracts (credit score, job status, liquidity, etc.) to allow only proper candidates to get a mortgage. If you qualify, the funds are immediately released, and the transaction records on the Blockchain.
I have been inside my bank maybe five times. I don't carry cash and rarely need any personal assistance. Banks gradually adopted FinTech solutions which is what you use today. What happens when the rules change to DeFi? Instead of financial institutions adapting, DeFi will take out the middlemen completely. It's a whole new financial system.
DAOs are taking off in the DeFi space because of the advantages a community brings to financial services like investing. Traditionally, when you invest in a fund, you trust that whoever manages that fund will maximize the dollars you give them. Rather than have a select few run an investment fund, DAOs create an opportunity for the tokenized investors to participate in the fund actively. Therefore, you would have a say in the decisions of where your money should go. It's democratizing knowledge.
Governing
If I ever ran for any sort of political office, I would run based on two premises:
1. Your kids are more important than you (can talk about this another time).
2. Technology can restore government faith.
I would lose based on #2 because everyone is scared of technology. So we take the alternative of continuing to put up with corrupt leadership. Palantir is a data analytics company founded by Peter Thiel (whom I wrote an essay on here). They specialize in government contracts where they help produce decisions based on available data. If we educated everybody a little more on the subject, we could begin to see the advantages companies like Palantir bring to the public sector.
I wrote after the 2020 election that Blockchain could be an essential technology implemented by the government to help voting integrity. At the very least, Republicans wouldn't have had to count votes for months after the fact.
But the idea of improving governing with Blockchain might be better explained with the private sector and corporations. If we callback to our $1,000 position in Apple, investors, like us, don't have a say in the governing of a company. The same goes for those with $100,000 positions. When owning stock in a company, your governing duties get you a proxy notice of what will be voted on at the next shareholder meeting. Usually, it's relating to electing new board members/management. Put another way, choosing the people who will be making the decisions.
DAOs create a world where management doesn't have full reign. Instead of deleting your proxy notice as you would with a corporation, a DAO is community-led. Meaning, investors are incentivized to actively participate in the DAO management and penalized if they don't. It's a whole new way to govern using Blockchain as the backbone. Let's use the example of watches again:
Say I had not positioned my watch company, Ropex, into a DAO yet. I went by the book as a company and have had a lot of success. Now, Ropex is at a crossroads where I, the founder/CEO, want to move on to other ventures and am tired of running the company. Plus, the evolution of watches is moving quickly in ways our current management might be behind in. At this point, I could transition Ropex into a DAO. The existing shareholders would trade their stock for "tokens," weighted by how many shares they owned. Based on this model, the investors are now running the Ropex as a DAO through decisions made on the Blockchain. It's decentralizing the management function of a company and making it autonomous through smart contracts. From now on, Ropex would be run by whoever decides the DAO is worth their time. This could be you.
Until Next Time
The study of money is remarkable to me because it is all centered around trust. America was once a British colony using the British pound. As we gradually detached from Britain, it was inevitable there would need to be a new currency. Do you think U.S. currency was valuable at first? Of course not, but there was hope in a new nation that gave it some intrinsic value.
Here is where the disconnect is with emerging tech and thus, blockchains and DAOs overall. There is no trust in it. But in reality, blockchain is just a belief in the internet. We have come so far in how we accept the internet that this trust will only grow deeper. Mark Cuban said this on Blockchain back in February 2021:
Betting on the internet worked out well for Cuban. If you believe the internet will continue indefinitely, you assume that the solutions will only expand. Blockchain is one of the many technologies of the future. As soon as this becomes understood, you can start seeing how DAOs, NFTs, DeFi, cryptocurrency, and the like can fundamentally shift some of our current long-standing systems.
DAOs, in particular, give communities their shot at making decisions. Often I ask myself, "What exists right now that would work better as a Decentralized Autonomous Organization?" Would Facebook work better if it was a community of tokenized investors making the decisions instead of Mark Zuckerberg? It's hard to say since they are a tech behemoth, but I believe the answer will slide toward yes in the next five years. The opportunities are endless, making DAOs a space you should watch as they, and more broadly Web 3.0, gain more steam ahead.
BONUS:
American CryptoFed DAO made history earlier this month, being the first legally recognized DAO in the U.S. in Wyoming. The DAO’s mission is a monetary system with zero inflation, zero deflation, and zero transaction costs through many of the points we have laid out. Below is a thread highlighting the move from a Wyoming Blockchain Committee member:
Source:
House., Nadler, J., & Cicilline, D. N., judiciary.house.gov (2020). https://judiciary.house.gov/uploadedfiles/competition_in_digital_markets.pdf?utm_campaign=4493-519.
Grigo, J., Hansen, P., Patz, A., & von Wachter, V. (2020). Decentralized Finance (DeFi) – A new Fintech Revolution? Bitkom. https://www.bitkom.org/sites/default/files/2020-07/200729_whitepaper_decentralized-finance.pdf.