What does the monetization of a new technology feel like? The last two weeks in digital assets. Or, holding Amazon stock from 1999 to 2007 — more on that below.
Bear markets are painful and human memories are short. It’s important to remember three things in this environment: investing in emerging technologies is and will always be volatile; it’s the technology, not the price, that creates value; and things likely get worse before they get better.
Investing in emerging technologies is and will always be volatile.
Amazon peaked in the internet bubble in late 1999 at approximately $90 per share. Nearly two years later, at the trough, shares traded at $6. That’s a 93% drawdown. Amazon leveraged the digital disruption of the internet to de-materialize brick-and-mortar retail. If you owned shares of Amazon in 2001, things felt a bit less certain.
Digital asset prices are down 50-75% over the last six months and will likely go lower. Digital assets, like Amazon, are leveraging a technology that will underpin the next wave of digital disruption — public blockchains.
It’s the technology, not the price, that creates value.
A blockchain is a digital ledger that records the transaction history of a community of users. Ledgers have existed throughout history — the earliest versions were pen and paper used to track the exchange of goods and services. Today, ledgers are primarily owned and operated by centralized “trusted” third parties. The trusted intermediaries that facilitate exchanges add value by reducing information asymmetry through third-party verification. Or said differently: they establish trust.
The breakthrough of public blockchains is that they establish trust without requiring a trusted third party. The rules are written in software and are unalterable. That is a genuinely novel capability — and its implications extend well beyond currency.