The following article originally appeared in Consensus Magazine, distributed exclusively to attendees of Consensus 2018.
As we grapple with the potential future of crypto-tokens and related developments, Wells’ volume – and particularly the way he thought about the future – bears closer consideration.
The remarkable point about Wells’ reasoning is that he jumped directly from the fairly rudimentary pre-World War I knowledge of radioactivity and atomic structure to the idea that within this science lurked an explosive device of devastating power. In retrospect, this might seem obvious, but it was not until almost exactly 20 years later that a physicist even conceived of exactly how a chain reaction might take place.
Wells was wrong, of course, about all the details. Anyone who imagines the future of technology will necessarily mess up on all the small stuff. The more interesting question is: if we understand the bigger shifts, can we predict at least the direction of future change?
And – much more difficult – if we can see where this new breed of digital, blockchain-based tokens might lead or what they could become, could we glean any insight into when big things might happen?
What we do know is that one feature of this technology is already triggering a societal and economic shift before our eyes: initial coin offerings (ICOs). While it will it take some time, if ever, before this technology’s advocates realize their vision for tokens to forge a new system of economic exchange and governance, ICOs are making waves right now.
There is obviously a lot of debate about the precise nature of ICOs, including whether or not they constitute securities offerings in the eyes of the law – which, in the SEC interprets and applies in the first instance, subject to legal appeals and political discourse, of course.) I’m not a securities lawyer, and I am not here taking a position on this question.
Instead, let’s focus on what promoters of ICOs say they are trying to do by selling digital tokens to the public – and what appears to have caught the attention of investors. While many will describe their tokens not investments but as pre-sold, negotiable “products” with a utility function that gives the holder access to the system’s services, so far the most disruptive aspect of this idea lies in how it changes the fundraising dynamic.
And on that score, the idea is relatively straightforward: someone will build a technology that could be useful to you and others, and that person would like to prefund that in a way that the value generated by that technology is shared with early users (and others who are willing to provide risk capital at this development stage).
Access to capital for risky ventures is a key constraint both for the development of individual firms and for our economy-wide process through which new technology reaches the market. ICOs offer a more direct route for both tapping and deploying funds, for matching founders with investors. That turns out to be quite revolutionary.
What we can be prepared for
If better access to risk capital lies in our future, what can we say about when this might happen?
This is the hardest question, and likely not a good idea to take (or bet on) a strong view. With regard to the future of power generation, transportation, and warfare, H.G. Wells was right on the natural course of science – he picked the 1930s as key decade for applications to emerge from the theory of atoms – but he completely failed to anticipate how much the process could speed up once the resources of a well-run country were applied to a problem with single-minded concentration, i.e., the Manhattan Project.
Fundamental issues surrounding the protection of privacy will need to be dealt with along the way. A host of related issues to be addressed include the precise nature of disclosure, what meaningful reporting through financial accounting means, and how markets obtain and respond to information.
We should probably also rethink what kind of investment portfolios are recommended at different stages of life. Who should be regarded as an accredited investor, for example in a technology they know well – and when they are in their early twenties (so there is plenty of time to ride the cycle)? Investors need protection, but against what and through what methods exactly?
None of this means that utopia is around the corner or that productivity growth is about to jump upwards. In “The World Set Free,” H.G. Wells was too optimistic about the future of benevolent government, and we would do well to avoid that mistake.
But the way capital finds and supports opportunities around the world is not just changing – it has already changed. Spend some time thinking through the implications.