How much do you lose out on by saving your money in a bank?

Today’s newsletter is a pretty basic personal finance 101 lesson, but is still worth going over. You can’t just save your money in the bank, since the dollar’s value decreases over time because of inflation. But how much is saving investing really costing you? I put together a quick little table in excel to show you.

Imagine that at the end of each year, you’re left with $5,000, which you can either store in your savings account or invest. If you save the money for 50 years, you have $5,000 * 50 = $250,000 in savings. If you invest the money each year, however, and you earn a rate of return of 7% (the average S&P growth rate), you have…

Over $2 million dollars! Just by investing the same $5,000 you would save anyway, you now have an extra $1.75 million for your retirement. That’s why you can’t just save your money in the bank. The opportunity cost is tremendous. In the modern financial system, you simply must invest.

Which, for what it’s worth, I think is terrible. I believe that this dynamic – the financialization of savings – makes our economy weaker and the poor poorer. I wish that you were able to just save your money and be able to comfortably retire. But you can’t (at least in USD), because the dollar just doesn’t hold its value over time. So you need to play the game.

By the way – and this is probably a newsletter for another day – the same chart above is true of the taxes you pay every year. It’s why taxes have an asymmetrical downside for people. Think about what happens if you could invest the money you paid in taxes. If you pay $5,000 a year in taxes for 50 years, the government gets $250k, but you lose out on the $2 million of retirement money you would have had if you were able to invest those funds.

Before last year, meaning before remote work went mainstream, you had to live in the high-tax places if you wanted the high paying jobs. Now though, that’s not the case. I wonder how much people’s location preferences change knowing that every $5k you save in tax payments could net you an extra $2 million at retirement…

The stock market has become detached from reality. But why?

At one point, investing in stocks was actually a risk. It was kind of like betting on the win-loss record of a sports team at the beginning of the season. You could see what the team or a company was projected to do, and you believed they would either be better or worse than that projection.

Back then, though, who could invest in the first place was pretty limited. There was no Robinhood. If you wanted to invest in equities, it had to be through professional investment advisors and stockbrokers, and the like. 

Now, it’s easier to invest than ever. You don’t need a stockbroker or investment advisor anymore. People can easily invest from their phones or online, and as a result, more people are investing than ever, by a considerable number. The ‘you need to make your money’ grow narrative is ingrained in all of us. 

However, most people don’t have the time to be professional investors, and they can’t spend hours a week looking up companies trying to find undervalued ones. What they do instead is invest in index funds that track the whole market. Most investing in the US is done through these funds now, which is a massive shift from just 20 years ago.

Because of this idea that you need to make your money grow, which comes from inflation – you need to make your money grow because the money that you keep in the bank isn’t going to hold its value – people are just dumping their savings into the stock market through index funds. 

Because it’s easier to invest than ever – all this new money is in the economy, and so many new people are investing in index funds – stock valuations do not reflect actual cash flows, projected growth, or anything fundamental anymore. Since people are investing in funds that track the market as a whole, the valuations of all companies are increasing whether or not they’re financially sound. Index fund investing has risen all tides. 

In the past, if a company underperformed its projections – a sign that the company is doing worse than expected – it would mean the stock price of the company would go down since projected future growth is now worse than previously expected. In today’s market, however, that stock will be at all-time highs again in two weeks.

Stocks, primarily through index funds, have become a vehicle for savings for most Americans. Instead of investing being a game of winners and losers, a risk, investing has now become so critical to the financial security of Americans – with most people’s savings stored in markets where they don’t even care what companies they’re holding – that the stock market has become a place where everybody has to win. Numbers have to keep going up, or else.. The entire country is invested in a way that’s never happened before. Investing has become saving.

What’s really happened here is that stocks have taken on a monetary premium for filling the store of value feature of money. When a new good becomes money, its value increases beyond its general utility. As we know, gold and silver have an industrial value and are often used in machinery. The price of gold and silver, though, is much higher than their industry value would otherwise be if they were not fulfilling a role of money – in this case, to hold value. When a good acquires a monetary premium, its value exceeds its base worth. 

In a way, people treat their investment account as if it’s a savings account. People often critique Bitcoin because you can’t spend it in stores, but stocks function in the same role. They have become store-of-value money. A savings account that you can’t spend. 

You may still think that stock prices are based on something tangible. Cash flows and revenues. I’m not so sure. 

Don’t get me wrong, I’m still playing the game. When the music is on, you gotta dance. But the idea that valuations reflect fundamental value is just as wrong as the belief that gold’s value is related to its use in certain industrial electronics. Monetary premium is everything.

Synthetic stocks and why you can’t ban new technologies

SEC Commissioner Gary Gensler issued a warning last week regarding synthetic stocks, which are essentially crypto tokens that mirror the price of real-world stocks. When I see comments like this or other people or news outlets calling to ban emerging technologies, I can’t help but shake my head. Technology is not on their side.

When you own a synthetic stock, you do not own any legal claim or equity to the company. Instead, you just own something that tracks the price. For instance, Synthetic Apple on the exchange Kwenta (not an endorsement) mirrors the price of actual Apple stock. This kind of thing is only technologically possible in a way that can’t be shut down with the advent of distributed crypto networks.

You – a financially privileged person in the US – might be wondering why you would own a crypto-version of a stock.

There are billions of people around the world, literally, that have no access to US stocks. They simply have no means to access Apple stock if they want to. With the advent of things like synthetic stocks, anyone worldwide with a mobile phone can gain exposure to the financial assets that have previously been restricted to us, the financially privileged.

Here is the other side of the proverbial coin, however…  

What if you are in the US and you get some juicy insider trading information? You don’t want to make trades on any of the typical US brokerages because you know that you’ll eventually get found out. So instead, you hop on a synthetic exchange and profit from your insider knowledge, able to skirt the US law.

Pretty interesting right? There are some real questions about how technologies like this will lead to good and bad outcomes for the status quo.  

Most people don’t want to have nuanced conversations, however. Usually what they resort to is ‘let’s ban it’. What these people don’t realize is that the power balance of technology itself is shifting.

Before, leaders and regulators were able to gatekeep access to many financial tools and technologies. If you wanted to use them, there was no other alternative. Now, as technology is progressing, anybody with an internet connection can do things using distributed, censorship-resistant networks that did not previously exist.

Before, you could prevent certain people from even partaking in many technologies and financial tools. Now, the balance of power is swinging, and you can only hope to catch them after the fact.

There are genuine, nuanced conversations to be had about the emergence of distributed networks that may replace the centralized and regulated financial products that currently exist. Defaulting to banning these tools shows that you aren’t ready to have those conversations. They’re here, and they’re not going away.

This is why I’m not really willing to engage with any ‘ban it’ folks these days. Sure, you can still make things illegal and threaten to throw people in jail, but you aren’t really accomplishing anything by doing so. You aren’t stopping people who want to access these tools from doing so, because the technology is on their side. The playing field has changed.

Technology is evolving in a way that is shifting the balance of power from the people looking to enforce controls to the people looking to circumvent them. Personally, I think that’s a good thing.

The bubble boy economy

Are you secure like a sewer rat or like a bubble boy?

There are two approaches to security out there, applicable to many different fields. The first is that of a sewer rat. Rats are exposed to incredibly harsh conditions, often living in dirty environments with dirt and disease all over.

Living in these conditions is exactly what makes the sewer rat so robust. By being constantly exposed to dangerous elements, the sewer rat has evolved to be immune to many of the dangers and diseases that many other animals would be susceptible to. Sewer rats are tough because they are exposed to all elements. Our immune system is a good example of sewer rat toughness.

Contrast this with the bubble boy.
The bubble boy takes a different approach. Instead of being built to withstand the harsh elements of the world, the bubble boy tries to shield himself from them. As a result, the bubble boy hardly has any immune system at all. He must be protected and shielded, for if his bubble pops, he is surely doomed.

The reason I’m writing this is because we live in a bubble boy economy right now, even though the economy should be more like a sewer rat.

What keeps an economy robust is the natural progression of economic cycles. Bull markets start when debt is taken out and put to productive use. As long as income growth outpaces debt growth, the economy benefits from increased debt.  

What eventually happens however, is that as the economy booms, people increasingly take out debt that is used unproductively. Debt growth outpaces income growth and eventually people have trouble paying back their debts. That’s when economies dip into recession, and it’s a good and natural thing that helps reset a healthy economy for the next cycle.

Now though, the idea that we can just let a recession happen is unpalatable. There are no more economic cycles. Recession must be prevented at all costs. 

Instead of a recession fueled by a debt contraction, we’re encouraging more and more debt. Interest rates keep getting lower. There’s a ton of money in the economy. While in 2006, there was a housing bubble, now there is an everything bubble, with nearly every investable asset class at or near all-time highs. Debt is our protective bubble.

Our house of cards is getting taller and more fragile. The real problem with our bubble boy economy is that it can’t withstand uncertainty. It might be okay for now, but when that unexpected gust of wind blows, it could all come falling down…

Inflation is a flat tax on savings

There is an extra tax out that that many of us don’t even realize that we pay. It affects all Americans equally, yet it is not something we get to vote on. What I’m referring to here is inflation – a flat tax on your savings.

If you are not already aware, a flat tax is when one tax rate is applied to all levels of income. For example, if there was a 20% flat tax, the person making $20k a year pays the same tax rate as a person making $200k per year. This is not how taxes are today, where the tax rate paid varies depending on income level.

Progressives hate the flat tax idea for a straightforward reason – it disproportionally burdens poorer Americans. Taking 20% of the income from a person who lives paycheck to paycheck affects that person significantly more than a person earning millions of dollars per year. So a flat tax takes away income from all Americans equally, which predominantly hurts the poor.

What about inflation though?

Inflation, as you well know by now, is the idea that the value of money goes down over time, which in turn results as prices rising. So, just like a flat tax, all American’s have the value of their money fall by the same percent. And like a flat tax again, this mostly burdens the poor.

Price inflation is usually tracked by the CPI, a basket of goods that monitors specific prices over time. The CPI is valuable for tracking certain costs, but it doesn’t represent the devaluation of a currency. As a result, the CPI can be flat year to year, but your dollars are still losing value.

This can be a tricky concept to wrap your mind around – prices don’t have to go up for your dollars to lose value. Costs of goods and the value of a currency are not the same. Creating new currency (printing money) is inherently inflationary, but the price of goods rise and fall for many different reasons.

That’s kind of what’s happening today. Prices have remained relatively flat (until recently…), but dollars are losing value. All the extra money circulating has to end up somewhere, and where it’s ended up is in investable assets. Stocks, sports cards, real estate, ect; almost everything is at all-time highs now. That’s not CPI inflation, but it is dollar devaluation. If you have held your money in cash this whole time – money in a savings account – you are falling behind. Your piece of the pie is now smaller. Stocks aren’t going up in value, dollars are just going down.

Every new dollar that enters the economy reduces the value of every dollar already in existence. That is because there are a limited amount of goods and services in the world (for example, things like steel, food, wood, everything), and money is the system of accounting. Printing new currency doesn’t create any new value; it just redistributes value away from the people that already hold that currency.

In this way, inflation is a tax – a tax on savings. Whether it’s an expansionary monetary policy from Federal Reserve or deficit spending for something like an infrastructure bill or a new healthcare system – creating new currency is not a ‘something for nothing’ proposition. We aren’t getting stuff for no cost.

Just because a policy isn’t paid for with a tax doesn’t mean that it’s not paid for. New money, printed for whatever purpose, comes at the expense of the people who already hold the currency. These things are being paid for, through the dilution of your savings. It’s just harder to see.

If 10% more dollars are created – for whatever purpose and no matter what happens to the CPI – you should start thinking of your savings as being worth 10% less.

Like a flat tax though, the cost is spread evenly among all Americans. And just like with a flat tax, the burden tends to fall on those who can least afford it.

El Salvador makes Bitcoin legal tender

The nation-state games begin.

In case you aren’t aware, a bill was announced and passed to make Bitcoin legal tender in El Salvador in the last week. This bill essentially puts Bitcoin on par with the Dollar in El Salvador, and the two will be akin to co-national currencies.

Below is announcement video from the Bitcoin 2021 conference if you haven’t seen it. The emotion in the room is real.

One thing that’s clear to anyone who follows Bitcoin closely is that for the people developing Bitcoin tools and software, being in Bitcoin is not about making money and getting rich. It’s about better money.

Typically I’ve been pretty good at keeping my newsletters concise and focused on a single thought. This one is… not that. Instead, I’ve just decided to bullet out a bunch of scattered thoughts stemming from this news. The points don’t necessarily connect, but there are many different ideas at play here. Each bullet could be its own newsletter.

Okay – so what does this all mean?- First and foremost, this is the President of a country embracing Bitcoin. This is not your annoying Bitcoin friend, it’s the leader of a nation. That is significant.

– This is not a country with a hyperinflationary currency, they use the dollar! I find that particularly interesting. Take a look at this section of the bill:

“IV. Central banks are increasingly taking actions that may cause harm to the economic stability of El Salvador;

V. That in order to mitigate the negative impact from central banks, it becomes necessary to authorize the circulation of a digital currency with a supply that cannot be controlled by any central bank and is only altered in accord with objective an calculate criteria.

I would have expected the first nation to look to Bitcoin to be one with an unreliable local currency.  The fact that a dollarized nation is the first is notable. There are 60+ currencies around the world that peg their local currency to the dollar. Something to watch…

– The bitcoin bill mandates that every merchant must accept bitcoin, as long as they have the technology to do so, but they are not required to hold the bitcoin once they receive it. A whole lot of of people are going to learn how to use Bitcoin in the coming months.

– There will be no capital gains taxes on Bitcoin in El Salvador since the dollar and Bitcoin are both legal currencies. This will surely be another common theme for countries that embrace Bitcoin and look to entice people to move there. Pretty darn good inventive..

– The nation-state games have begun. There will be other countries like El Salvador. Countries that feel they are excluded or limited in the global financial system are likely to be the next to follow. Other countries in Central and South America and some of the usual suspects in the Middle East and Eastern Europe are the next natural places to look.

– In fact, look at this list of politicians in Central and South America that have come out in favor of Bitcoin since the El Salvador announcement. Politicians in Paraguay, Panama, Argentina, Brazil, Colombia, and Mexico.

– Latin America unifying under Bitcoin would be a heck of a way to push back against the USD-based debt that has plagued these economies for decades. That’s getting a bit far ahead though..

– Word on the street is that the US government and state department wasn’t prepared for what El Salvador did and the news is a major wake-up call for people downplaying Bitcoin in politics. What happens from here?

– We are way beyond the point where it’s possible to argue that Bitcoin has no purpose. If that’s still a belief that you entertain, it’s time to Check Your Financial Privilege (brilliant piece by the CSO of the Human Rights Foundation Alex Gladstein. You can listen to the audio version here).

– This is in all stark contrast to the recent G7 agreement to set a minimum national corporate tax rate. The wealthiest countries in the world are mad that big companies are working in more favorable tax locales. So how do they react? By attempting a cartel-like attempt at stricter controls. As I said in Physical Borders and Societal Borders, more stringent restrictions will not work in an increasingly digital world. Why would any nation outside of the richest few agree to an international minimum tax?

– While having nothing to do with taxes, the move by El Salvador shows one way that smaller countries will increasingly be able to opt out of the control of larger players, powered by neutral technology that doesn’t pick sides.

– I know many of you still look at the price of Bitcoin and feel like you missed out. One company in the S&P500 has Bitcoin on its balance sheet (Tesla), and now there is one Bitcoin country (El Salvador). You are earlier than 99% of companies and nations.

– One fascinating point is that the President of El Salvador might not be the best guy. He’s done a few questionable things. That’s part of what makes this extra interesting. He easily could have designed his own surveillance/spyware digital currency like China is about to launch, with the US and Europe eventually following. Instead, he’s embracing a currency that gives his people freedom.

– Quote from President Bukele on Twitter – “I’ve just instructed the president of @LaGeoSV (our state-owned geothermal electric company), to put up a plan to offer facilities for #Bitcoin mining with very cheap, 100% clean, 100% renewable, 0 emissions energy from our volcanos.”

Now THAT is interesting. I’m here for volcano energy. Maybe I should bring that idea to Hawaii?

This is exactly the kind of economic incentive to invest in renewable energy through Bitcoin that I’ve discussed previously. You might wonder “if they were able to harness electricity from volcanoes before, why weren’t they?”. The answer – because people don’t want to live near volcanoes! Duh! So there was no reason to generate electricity there. Now though? Not only does mining Bitcoin drive investment into renewables, but it has the opportunity to bring crucial revenue to many cash-strapped locales. There is now an international market for energy.

If I’m one of the following countries/states, you bet I’m exploring volcano mining – Guatemala, Costa Rica, Honduras, Colombia, Chile, Guadalupe, Nicaragua, Peru, Ecuador, Italy, Alaska, Iceland, DRC, Indonesia, Philippines, New Guinea, Japan.

Okay! That’s all for now. I know it was a lot. There’s a ton at play here and it’s all just getting started. Interesting stuff, though, isn’t it?

How did banks fall so far behind?

Whether you think the idea of non-state money is a good idea or not, it’s hard to deny that certain aspects of crypto represent large advancements in payment technology. But if crypto has opened the door for how money can be used as an application layer in the future, how did traditional banking end up so far behind in the first place?

We may not always realize it, but banking is a slow, lumbering industry. It takes days to wire payments from bank to bank, and even then, it takes longer before the payments are truly settled. There are fintech companies that make digital payments easier, like Venmo or Paypal, but those just hide all the slow banking settlement that takes place behind the scenes. With Bitcoin, I can send a payment across the world near-instantly with no friction and no delayed settlement on the back end. Is Bitcoin that advanced, or has banking and modern money just been asleep at the wheel? If so, why?

Here is an idea – it’s hard to start a bank. In fact, it’s nearly impossible and requires an enormous number of resources and capital. This is why the number of new bank licenses issued each year is steadily dwindling and small banks are continuously being swallowed up by larger banks, leading to an industry dominated by a few big players.

The reason it’s difficult to start a new bank because the industry is one of the most highly regulated in the country (and world). Now, those regulations protect people like you and me from bad bank actors, but it’s worthwhile to consider what this means.

What if I, Sean, had an idea for a new, better bank? A bank that is innovative, more efficient, and better for consumers than traditional banks. How would I go about starting that bank? Well – I can’t! There’s pretty much nothing I can do about it. It’s essentially impossible for me to try and start a better bank, the way I could make a new food delivery company or social media app or whatever.

Since creating a new bank is  basically unachievable for an individual, I cannot see if my innovative idea works – and that’s why modern banks have fallen so far behind first fintech companies and now crypto. There is no room for attempts at innovation within banks because the barrier to entry is so impossibly high. That hinders progress, and that is why traditional banking feels like a relic – slow and outdated.

When it becomes impossible to play within the rules, to do something like start a new, better bank, people start to look outside the existing framework entirely. That is partly what has happened with crypto. There’s no room to change how the current structure works, so people innovate entirely outside of it, and what they often end up doing is create something far better.

So yes, banking has fallen far behind. And now banks are trying to play catch-up now because perhaps they are feeling threatened for the first time. But the problems with traditional banking are still the same. Progress comes from innovation, and as long as banks are forced to operate within an extremely limited framework, they will always be playing from behind.

By the way – the same kind of issue is at play in healthcare too. What if I had an idea for a better, more efficient healthcare company or insurance idea? Too bad, I don’t get to try it because the rules are so tight. No innovation allowed. When progress has to be made with a vote instead of from innovative people creating something new, the legacy system has already lost. My guess is that the way healthcare meaningfully improves comes from outside the system – maybe some sort of advanced wearable and self-diagnostic tech?

Separating the real from the fake in crypto

There are three components of the cryptocurrency world that I want to try and separate out here a bit today. 

1 – The obvious scam
2 – The false prophet (the coin that promises the world but is actually useless)
3 – The actual innovation

It’s hard for a newcomer to be able to separate these three things when they’re first learning about crypto, and it’s part of why crypto is so confusing to a lot of people. Is it just a big scam, or is there something actually meaningful here? The reality is that it’s both, but unfortunately for newbies, it’s very hard to know what is legitimate and what isn’t – separating the real from the fake. 

We all see people supposedly making a lot of money on crypto, and we want to be a part of it. Most of us know that Doge is not going to change the world. When Dave Portnoy from Barstool talked about the coin Safemoon the other day, he even said “if it is a Ponzi, get in on the ground floor.” This mindset is what most people think of the cryptocurrency space, and they’re not wrong for feeling that way.

Many people can understand that Doge and Safemoon are get-rich-quick schemes, while Bitcoin might be something more, but the hard part lies in the middle. In cryptocurrency, many useless, scammy coins hide behind the claim that they are an innovative technology.

These false promises are what makes cryptocurrency so hard for people to follow. Everyone acts like their coin is some groundbreaking project, but it’s overwhelmingly not true. 80% of the cryptocurrencies in the top 200 are closer to scams than any actual evolution in technology.

Such a small percent of the cryptocurrencies out there represent anything meaningful. And there is a real shortage of good information out there. Seriously.

How can I possibly explain to someone new to crypto that coins #5,6 and 7 on Coin Gecko are useless while #12 might genuinely represent an advancement in financial technology? I can’t.

There is truly no way for me to explain it, and crucially, there is no resource I can point you to to understand for yourself. You simply cannot just jump into crypto and be able to discern truth from BS. It might be easy for people to realize that Doge is just a meme. It’s a lot harder for me to explain why Cardano or Stellar are almost just as bad.

The thing is – there are aspects of cryptocurrency and decentralized tech that will change the future of finance. We will have ‘self-driving banks’ with no ATMs, employees, or buildings. Instead of getting paid every two weeks, we’ll be able to get paid for our work by the second. The democratization of access to financial tools, particularly in countries where populations often don’t have bank accounts (but do have mobile phones!), will be genuinely impactful to billions of people in the coming decade. This is where money is heading, and it’s led by Bitcoin and a tiny percent of other crypto projects.

This difficulty discerning the real from the fake in the crypto world, especially when so much more is fake than real, is why I would mostly recommend not wading into the larger crypto space. Newcomers simply aren’t capable of dealing with the mass amount of false information out there. Just stick with Bitcoin (and maybe some ETH, though I have a few problems with it), start learning more about how it works and why it’s important, and you’ll do just fine. I promise that you didn’t miss the boat.

Physical borders and societal borders

I am starting to notice an increasing belief by many that as the world becomes more chaotic, we need stronger leaders and a heavier hand in managing the country’s direction. This thinking is entirely backward. People are becoming less restricted by borders and can take their business, friendships, and communities online. That’s not something we can manage.

Politics affects life at the margins – it is the micro, not the macro. The more significant, global trends changing the world cannot be affected by a vote. America is where it is today much more because of globalization, the development of the internet, and other technologicial improvements, than anything Reagan or Clinton did. It will be the same in 2050, where the changes in America will have had little to do with who we vote into office in 2024 or 2028, just the way that where we are today has little to do with 1988 or 1992.

So if the world is changing in ways that are primarily outside of our control, shouldn’t we focus on the things we can control? The things we can change with a vote?

Well… If what you want to accomplish politically goes against the larger macro ways that the world is changing, it will not work.

The digital age really started in earnest last year, in 2020. Everything else was just a prologue. We understand this to a degree. Most of us acknowledge that, for example, remote work will continue to increase in popularity. What that actually means though is that physical borders are becoming less important than ever. Where you are physically located means less and less, and we’re only at the start of that. Physical borders are breaking down.

Yet, at the same time that physical borders are becoming less important, many of us are becoming increasingly desperate to push the country into the mold of our desired political beliefs. And those two things are at odds with one another.

Think about this.. Political rules, laws, programs, regulations, influence, whatever, are the equivalent of societal borders – attempts to box society into a particular future. And at the same time that physical borders are breaking down, the consensus seems to be that we need stronger societal borders.

I think these two views are incompatible.

The breakdown of physical borders and societal borders are caused by the same inevitable force – the natural progression of the digital age. Nobody is going to be able to ‘choose’ how the country should develop. It’s just going to happen for reasons that are bigger than what we have control over. When we think about what we want to achieve politically, we should keep this in mind.

Keep thinking about this idea of borders, both physical and societal. They are both are breaking down. It’s time to embrace the borderless nature of the digital world, not try to reign it in. You can’t fight the larger forces at play. Instead, you have to learn how to adapt your philosophy to the changing world.

What is a blockchain good for?

Everybody is curious about crypto these days. It’s a buzzy place and blockchain is a buzzy word. Many people get confused about what a blockchain actually is though and, importantly, its limits. A blockchain is not really a fancy, futuristic new technology that will allow us to thrust society into the future.

A blockchain is just a database. It is a way to track a history. Think of a blockchain like an empty notebook that gets filled with the history of transactions of that network. That’s it. Seriously. In fact, blockchains are slower and far less efficient than traditional databases.

We have good database technology already too. Any large company can already manage its data and history with far better solutions than a blockchain.

There is one singular thing, however, that a blockchain does that a traditional database cannot. That thing is decentralization.

With a blockchain, it is possible to maintain a decentralized network with no person, group of people, company, or government in control. Rules without rulers. This decentralization is pretty much the only thing that a blockchain allows for that current technology could not. 

Why is this important?

Because of all the buzz and the hype. Everyone wants to put everything on ‘the blockchain’, and it just doesn’t make sense.

Here is a simple lesson to go by: if some entity controls a blockchain, then a blockchain is not needed. It’s just an attempt at capitalizing on hype.

So when you read about Walmart looking to integrate ‘blockchain technology’, or the state of California advancing bills to store corporate records on a blockchain, please understand that these people are either deliberately capitalizing on hype, or they simply don’t know what they’re talking about.

The same is true when you hear of cryptocurrencies that, for example, want to track the supply chain of goods or a million other things. We can already track these things in ways far better than what a blockchain can provide. And don’t get me started on the proposals to put voting on the blockchain…

The only thing a blockchain is good for is decentralization. If it does not need to be decentralized, a blockchain provides no benefit in all but a few cases.

Unfortunately, most cryptocurrencies are far more centralized than most realize and are closer to being scams than real technological advancements. But that’s a newsletter for another day…

Note: Blockchains do allow for easier cross-border payments than our current system, since our banking system is built on slow, outdated rails, but that is not the kind of use that most crypto people promote. You’re more likely to hear buzzy things like ‘Facebook on the blockchain!’.