EVERYTHING IN GLOBAL FINANCE IS ABOUT TO CHANGE. And it’s going to be extraordinary. Everyone will benefit from it—especially those who are quick to grasp that fact, and do something about it.
This might all sound like a series of radical, hyperbolic statements, or a sales pitch—but it’s not. In fact, it’s a pretty measured, rational truth. But to understand what that change is, and why it’s going to happen, it helps to think of the way we transact business as an operating system.
And we all know what an operating system is, right? And we’ve all gotten those annoying alerts about system updates—You have new updates to Install. There’s a new operating system to install. And then, you’re offered? Do it now? Or: Remind me later?
We’ve all been there. And who among us hasn’t hit Remind Me Later? But we all eventually update, because we know: An operating system is the fundamental framework for how a system runs a program, executes on a computerized function. It’s iOS and Android; it’s Linux and Windows. It’s the ground beneath the digital feet of everything a computer can and does do. And if you don’t update yours, your computer will slow down, new programs won’t run on it, and you’ll be left with a slower machine—if not, on occasion, with a broken one, entirely.
Before, the operating system for global finance was paper—you would buy a stock over a telegram, and the Pony Express would deliver you a certificate of ownership a few days later. Now, we do that same function over websites, over apps. But that paper, or data on your app, whatever it is—it represented a piece of a company; an investment into an ETF; maybe a mutual fund, or a bond. And traditionally, the more money you’ve had, the more access you have to various investments. The operating system is linear and limited; it certainly has its faults, but it worked, and until now, it’s been the best one we’ve had.
Again: Until now.
HERE’S WHAT CHANGED: We caught up with the horizon. We reached the final evolution of digitizing those old transactions, and asked ourselves what was next. We can transact deals near the speed of light—in nanoseconds, hundreds of millions of dollars can move from one place to another. We’ve put the power of the investor into something as easy to use as a pizza delivery app. We reached a ceiling of sorts. The question was no longer “What’s next?” The question became: “What questions aren’t we asking?”
And the answer went something like this:
- Why can’t we buy—or invest—in a piece of anything?
- Why can’t we commoditize anything?
- Why’s the supply of buyable, sellable, or traceable assets limited to a specific, finite class of objects?
- Why are we limiting people who don’t have the resources or capital of the biggest players in the game from investing in whatever they want? Why can only the most elite entities make the most elite moves?
- We wouldn’t prevent college basketball players from making slam dunks, or from shooting beyond the three-point line—so why do we limit average human beings from taking and making elite shots?
- And because we limit the average person’s ability to invest in something, or create something to be invested in, and limiting the way it can be invested in? We’re limiting their ideas. We’re limiting our own human possibility—we’re limiting the incentives for people to innovate and revolutionize our world. Why?
ALL OF THESE QUESTIONS USED TO HAVE rational answers to them, too. We couldn’t just buy or invest in anything because sometimes it was impossible—you could buy stock in a dairy, or you could own a cow, but twenty people couldn’t share ownership of a cow in a simple, easy way. You could invest in a real estate investment trust, or you could buy an apartment and rent it out, but you couldn’t invest in one-eighth of a specific apartment on your block—nobody wanted to bother with it.
Maybe that’s because nobody had a better idea, or a better technology. Or maybe that’s because power, when concentrated, usually does a good job of staying that way. But the digitization of the world democratized us. Instead of newspapers being the sole media outlets with massive distribution, blogs, and Twitter, and Facebook posts gave us access to nearly unlimited audiences. Instead of having to go to your record store, and only buying the CD or the single, iTunes enabled us to buy the fourth track off the third album of an artist nobody you knew had heard of until you put that song on a CD mix, or now, a Spotify playlist for them.
These small democratizations—the ability to give people opportunities to buy and sell things they’ve never had before, be it music, or words, or the weirdest ceramics you can find on Etsy—they’ve changed so, so much about the world, already. For buyers, for sellers, for investors. For your life, my life, everyone’s life.
And we’re about to begin the next evolution of this change—we’re watching this radical paradigm shift right before our very eyes.
Point blank: The average human being with any kind of financial mind or financial acumen generally doesn’t (or can’t) get involved with large-scale investments. Real estate, infrastructure, and venture capital—where billions of dollars transact every day—have generally been the sole provenance of sovereign wealth funds, pension funds, private equity firms, insurance companies, and the millionaire/billionaire class.
That’s about to change. And it’s about to change dramatically.
BY NOW, you’ve no doubt heard about blockchain (or: “the blockchain”) and security tokens, and you’ve probably heard about them quite a bit, along with their supposed magic—heard about all this so much you’ve possibly rolled your eyes at them, and the idea that these technologies are supposed panaceas that can unlock all stripes of human potential, especially where the world of finance is concerned.
The thing is: It’s all true. But it’s not magical, or all that incredible of a technology, or even that complicated. It’s about as revolutionary and complex as a key opened a locked door—a door that was only locked in the first place because we invented the locked door before we invented a key for it.
Blockchain is a technology that’s unleashing new stripes of innovation, and democratizing access to value for the world. Again: In the same way Twitter gave people all over the world the chance to have an opportunity to communicate on the same text platform as global leaders—to talk at them, with them, alongside them—the blockchain is giving people opportunities in the global financial system much in the same way. It’s an opportunity to be a part of global finance in ways you never could before, and no more so than the current moment, right now, as its in the early stages of what it’s about to revolutionize. It’s an explosive force that will drive innovation from entrepreneurs and technologists, the likes of which have never been seen before.
Understanding the scale of this thing is important. Let’s go back to iTunes: Apple made millions of songs and movies available by digitizing rights for usage. People who went to buy music? If you didn’t have $17.99 to buy a full album, you were stuck buying the single that the record company wanted you to have. But what if you only had $0.99, and only wanted one specific song, and you couldn’t get it without buying the album? You were out of luck. Until iTunes.
With iTunes, Apple unlocked a pent-up demand that was always there, latent, laying in waiting—that people wanted more music, film, and television, and they wanted it quickly, and on-demand. And if they had it in front of them? They’d buy it.
In a greater sense, that level of freedom—to buy, own, or sell whatever you want—is what blockchain and security tokens can bring to the table. Want to buy ownership in a local coffeeshop? And trade it? And sell it? You can. You can do it on your phone. And you can do it on your phone with people from all over the world. The digitized asset has found a new home, forming a previously unavailable “long tail” of business roadmaps and revenue.
In Chris Anderson’s book The Long Tail, journalist Doc Searls is quoted calling this a shift from consumerism to participative “producerism.” Basically, Searls pointed out that—right now—most people, most consumers, are just things to be monetized off of it by people making things to monetize them, the producers. He went on: “This is the absolutely corrupted result of the absolute power held by producers over consumers since producers [and not the workers, or the people] won the industrial revolution.” And when we give anybody the ability to produce, create, and dictate value? According to Searls, “this practice radically transforms both the marketplace and the economy that thrives on it.”
And you know where this is going: The blockchain enables the traditional consumer class to become investors. Right now, in your typical 401(k), most people get three investment options: cautious, balanced, or aggressive. Your investment portfolio is made up of a collection of stocks and funds created for the middle class to gain wealth. And that’s it. It’s by others, for them. Kinda feels like a fixed game, doesn’t it?
Not anymore. Digital products and services are being created so that anyone will be able to pick from a vast variety of investments to create a customized portfolio that suits their individual needs. In the past, none of these traditional investment offerings gave people the chance to make hyper-specific investments. Like the kind that might align with your individual values, or with inherent and direct observations.
For example—let’s say you live in a hot neighborhood in Brooklyn, and you love it. You attend community board meetings, you patronize the local businesses, you’re doing what you can to make it better, and you believe in it. Forget what Zillow says. Forget what economists say. You know, because you’re on the ground, that this neighborhood is a great investment. It means something to you, and you believe in it, and that belief is why you want to invest in it. But you don’t have enough money to buy an apartment in it, because apartment prices in your neighborhood are already sky high—and, of course, they’ve been driven up by a company owned by another company owned by another company that your “moderate” 401(k) plan has you invested in.
That’s unfair, impractical, and Kafka-esque! It’s absurd. And it’s also exactly how our current financial system works.
But if that apartment building could be tokenized, instead of having to buy one-eighth of that building in the form of an apartment in it, you could start by buying 1/16th of that apartment.
And why couldn’t we do this before? It was too complicated. And there wasn’t enough processing power in the world, given the past operating system of finance, that could make that transaction simple, fair, quick, and accountable to all parties.
Hence, our new operating system: Blockchain. A shared, distributed, constantly updated ledger with unbreakable digitized rules and records that make the issuance, regulation, and trade of these tokens possible. Now, the technology exists to buy 1/20th, or 1/100th of that apartment—and do it in a fair and accountable way. The Pony Express is everywhere, all at once, able to cut all deals, at all times.
And there’s the big idea: it’s not just the way we trade that’s been digitized—it’s the entire concept of trade that’s becoming digitized. It’s our new financial “operating system,” one in which everyday consumers play an active role in economic development that they never could before. We’re talking about everything from the rights to a musician’s back catalog to a Picasso to an insurance policy—all of the way money moves within and around these things will change. There will be fewer—if any—middlemen at all. That’s what a distributed ledger does: It gets rid of the middle entirely, and makes the transaction (and all of its components) entirely omniscient, all at once.
A number of firms like our partners Futurism Markets are developing the technology, business processes, and governance principles that will be consistent with the legal and regulatory structures to address these transformative opportunities across multiple asset classes. By enabling new assets to be issued and traded in digital form, with less friction and greater liquidity, cleared and settled on blockchain, investors will have new and diverse ways to build and grow their portfolios.
This can’t be stressed enough: The implications of this new operating system are profound. For consumers. For innovators. For investors. For the global economy. New markets we can’t even conceive of yet will develop. Trillions of dollars in value will emerge where it never was before. Imagine if the most powerful element in the world were locked in a rock we couldn’t break open before. Now, we have the hammer, the rock is open, and we’re just beginning to see what we can do with this incredible new element.
As we progress through this new era of innovative work, vast exchanges will offer entirely new menus for people to select investments from, and ways to understand and affect the appreciation of those assets. Everything—and, we have to be clear here—everything will change.
The traditional market infrastructure hit its limits. It doesn’t serve the needs of modern society, which is looking for better ways to deploy capital, and entrepreneurs who are competing for it. And, by the way? The amount of capital trapped in these private markets is immense.1 Through this new operating system, we can provide a liquid financial ecosystem for any asset class. We can do it legally, and fair, and in a way that puts everyone on a level playing field.
That’s what disruption looks like. It’s not about making things more simple, and undercutting prices, or creating a fraction more value than there was before. It’s not about beating the S&P 500, or the rate of return on last year’s 401(k). It’s about changing the entire way we think about investment and ownership and trade—it’s about creating opportunities previously deemed impractical or improbable. It’s a new sense of order—one that’ll empower and unlock human potential in ways we’ve never seen before, at levels we’ve never been able to democratize it. The world is about to change; the new operating system installation has started. The only question left for you, then, is pretty simple:
Will you update now? Or will you wait until tomorrow?
J. Todd Morley is a founding partner of Y2x and Guggenheim Partners.
1 In 2017 $1.7 trillion was raised through Reg D and Reg A offerings, dwarfing the $165 billion raised through public IPOs.
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