Bitcoin, El Salvador, IMF discussed on The Breakdown with NLW


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Now, there are a lot of possible legacies of the El Salvador Bitcoin experiment. And we won't know how it influences the rest of the world for a while to come yet. But it is notable that for the first time in 2021, a sovereign nation chose to make this non sovereign uncontrollable currency legal tender. That is as power shifty as power shifty gets, and I am watching carefully to see how this plays out in 2022. What are the other countries considering making that same game theoretical move? Are there central banks who even if not interested in replacing their Fiat currencies are thinking about putting Bitcoin on the books? I'm not even gonna go much deeper on this because I think it's gonna be such a recurring theme this year, but you can't deny that Bitcoin versus Fiat is lurking as one of the biggest potential power shifts of the year and beyond. Speaking of Bitcoin in El Salvador, I asked folks on my Twitter, what they thought I should include in these big picture power shifts I'm watching next year. And one that stood out was the IMF versus El Salvador, or really the IMF versus Bitcoin bonds. So you'll remember El Salvador reached out to the IMF and the World Bank in the wake of their Bitcoin legal tender decision and tried to get their help with implementation and other issues only to be rebuffed. A few months later, when it was time for El Salvador to negotiate another loan from the IMF, they instead chose to sell Bitcoin backed bonds. Now there were plenty of folks who said that this was just worse than the other types of el Salvadoran debt that was available on the markets, Matt Levine notable among them, but that doesn't really matter if there's a market that's willing to give you better terms because you're invested in the same thing they're invested in, which is, of course, Bitcoin. I think the thing that matters to me from this heuristic of power shifts is that did you expect in 2022 for the IMF to have actual practical consideration for where emerging markets might turn for loans? I certainly didn't but you better believe that's something that I'm going to be paying attention to in the year to come. So those are all big kind of macro picture things. And now we're going to transition a little bit more into the micro into the crypto industry. And in a lot of ways, I think the way that I would frame this whole power shift idea and how it relates to the crypto industry is that to me, Bitcoin is clearly in the role of big picture power shift. It is having a disruptive effect right now in the markets in a macro landscape. You can't ignore it. Everything else going on in crypto is competing to be in a similar position. Much of it has very disruptive aspirational goals and is trying to break out of this industry subsection to have the impact in the world that it actually believes that it can have. I think even if not all those disruptions will come to be what the people invested in those ecosystems want them to be, they're still worth paying attention to from this framework of power. So number 7 on the list of shifts that I'm watching in 2022 is Bitcoin D 5 versus other DeFi. For this, I'm not using the framework of Bitcoin as DeFi because it's a permissionless decentralized currency, which I think is a reasonable argument. Instead, what I'm talking about is the sort of smart contract powered protocols and systems that create interesting open permissionless financial primitives. Now already you could argue there is a Bitcoin DeFi where people are using wrapped Bitcoin as the base layer asset for DeFi systems. However, if 2021 is any indication, there's going to be a lot more attempts to have Bitcoin native DeFi in the year to come. First taproot expands some of the capacities we have for that. Second, there are already protocols building some of this sort of functionality on Bitcoin like stacks. Third, you have, of course, Jack Dorsey leaving his role on Twitter. It seems in part to build exactly this sort of thing via a new division at square. How much will the sound money monetary premium of Bitcoin attract defied to it once the tooling starts to become available? Speaking of DeFi number 8 on my list of power shifts I'm watching is DeFi versus KYC. And what I mean of course is that if anything in the crypto space outside of stablecoins seems to be headed for a regulatory reckoning, it is of course DeFi. The language that politicians are using this is extremely aggressive in many cases, and really the question in some ways is whether the version of DeFi that we see that has no relationship really with the KYC AML bank secrecy act regime can survive in mainstream U.S. society or whether it will be shunted out. Will the story of 2022 be permissioned DeFi where you have the KYC to use these protocols? And if that is the case, what is the value proposition outside of something like censorship resistance? There are plenty of possible answers to that, but there's certainly going to be questions that I think are forced this year. Moving to a different part of the crypto space, let's talk about NFTs for a second. I want to talk about them in two contexts. The first is NFTs and web three games which include all the play to earn games and things like that versus the traditional gaming sector. Last year, of course, was a breakout for the whole play to earn NFT powered gaming movement. Axiom infinity was the poster child for this, but there were many, many others with a lot more in incubation by the end of the year. The traditional gaming space for its part is no big fan of NFTs. Remember when ubisoft announced that they were going to incorporate NFTs into a title, there was so much backlash that they had to walk it back. Now I've tried to wrap my head around it. It seems like some of its environmental. It seems like some of its people holding a grudge that crypto mining has made graphic cards much more expensive and harder to acquire for the last decade. But whatever the case, given how big an industry gaming is, given how much human time is devoted to it, I think it's going to be fascinating to see how that plays out. There's also certainly a lot of investors in the space who are making a bet that this is going to be a serious area to watch. A second power shift around NFTs that I'm watching in 2022 and this is probably a little ambitious and personal is NFTs versus record labels. And by record labels, I mean really the whole music industry complex. When I first covered NFTs on this show, it was in the context of their potential disruption to a music industry model, which is largely exploitative and hugely problematic for nearly everyone except the biggest biggest superstars in the space. It's no surprise to me that some of the earliest adopter of NFTs were in fact musicians who had lived inside the system and seen just the crazy power disequilibrium between them and their labels and the other representation that they had, and the other gatekeepers they had to access in order to play around in the music space. Now they have a mechanism to go directly to their fans to incorporate their fans in the upside of what they do, although of course we may have speaking of regulations, some more securities consideration for what that might mean, but regardless, I think the idea that NFTs represent a fundamental potential power shift in the music industry is something that I'm not only watching but actively rooting on and I hope sees some traction in 2022. 11th on this list of power shifts I'm watching in 2022 is Dow's versus other forms of capital formation. I've talked a lot about dows, it was a big subject for the end of your extravaganza. To me, they just make sense in the context of something that exists as an Internet native organizing force. Now I kind of think that 2022 is going to see a lot of call it over complication and dows. There will be a lot of false starts and missteps and really frustrating moments of people rediscovering the problems of human coordination and discovering or perhaps better remembering that a token won't solve the messiness of any sort of human democratic organization. At the same time, I also think that we'll probably get some examples of extremely lightweight hyper productive capital formation and capital deployment dows that have very specific mandates, very specific goals, very few decisions, and a lot more just raw group power manifested through money. I think that could be pretty game changing in a variety of ways. And so it's certainly something that I'm keeping an eye on and will likely end up being dragged into in some way, shape or form. Finally, number 12 gotta close it out with web two versus web three. One of the hallmarks of the end of 2021 was investors who had missed almost all of the crypto movement rising their heads up to try to take a dump on whatever they thought web three was. Now, I don't personally feel like I'm in a position where I have to defend web three against the onslaught. I do think of course that you have to examine people's motivations and in the same way that perhaps you should be wary of people shilling a protocol that they own lots of. You should also be wary of people who see their livelihood being disrupted right out from under their eyes. How you weigh how those incentives play in people's opinions and where you come out between them is ultimately your own opinion. But it does feel to me like there is a confrontation coming between the models that made web two work and the models that web three is trying to develop. I think this one was an inevitable clash and is going to be going on in some cases within a single organization. Can Facebook or now meta really be a web three native company or will it always be web two? Looking to own an extract as much as it can while giving lip service to the ideals of decentralization at any other principle that seems to matter for the folks who are most invested in web three. I don't know the answer, but I know that it's going to be a big part of 2022 and it's certainly something we're going to come back to. All right guys, there it is. 12 power shifts I'm watching in 2022, let me know what yours are. Come join the Discord and jump into the conversation. Hit me up on Twitter at MLW. It's gonna be a fun year and I'm glad to have you here hanging out as we dive into it. Until tomorrow guys, be safe and take care of each other. Peace.

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