How Crypto Could Look Like The Music Industry: Tyler Cowen

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To envision the future of crypto, I keep trying different analysis tools. This time around, the concept of relevance is focality, that is, the part of the system that consumers direct their attention to. The focus could determine whether crypto ushers in an era of dystopian inequality, or whether most of its advantages flow to society at large.

This all sounds pretty abstract, so let’s consider a simple example from the world of music. Famous artists such as The Beatles or Taylor Swift attract attention by their very name, in other words, they have become unmissable. Then there are performance spaces or bars known to play great music, like the Blue Note or, in earlier times, the Fillmore. In this case, the place is central.

So the question is, when people frequent crypto institutions, do they value the “innovator” or the “middleman”? Or, to continue the analogy with the music industry, the artist or the place.

One scenario is that ordinary Americans will simply find crypto too confusing to deal with it directly. Rather than choosing their preferred crypto assets, DeFi investments, and NFT providers, they will outsource their decisions to well-known intermediaries. Imagine entering into a crypto contract with a company that you have an established relationship with, such as a social media company, your bank, or maybe your union. The intermediary would provide a “crypto package”, tailored to the needs of a wide range of customers.

Significant parts of the crypto world are said to be relatively centralized. These traditional brokers would benefit from economies of scale, due to their reputation and their ability to exploit network effects. They would probably offer low risk, well established products.

Consumers might be better off, but the crypto world would be boring. Many of its benefits would be captured by these well-capitalized intermediaries. Additionally, censorship issues would reappear, as these reputable intermediaries won’t want to offer every possible crypto product. They might not give you easy access to a rephrased version of Twitter, for example, where writing is saved on the blockchain and posters cannot be censored.

Another very different scenario is that users focus their attention on the crypto assets themselves, such as Bitcoin, Ether, or Dogecoin. This type of user focus would mean that many of the crypto’s gains would benefit early holders of crypto assets. Intermediaries (eg, Coinbase) may earn a return, but the true value of the brand would be held by the crypto asset itself.

Much of the crypto world today looks like this, although it may not last as crypto expands in applications and usage. If you own any current, long-standing crypto assets, you may be hoping that this type of scenario spreads, as those assets will accumulate much of the value of higher crypto demand.

Yet another scenario: what if consumer attention focused on crypto innovators, who in this case would be analogous to more well-known musical artists? One person may think, “I like DeFi options at Uniswap”, while another may say, “I am going to use prediction markets at Hedgehog”. In this scenario, there is relatively little intermediation and strong competition to gain the attention of consumers. Thus, most of the gains from competition go to users.

Customers would use, own, or invest in crypto in a variety of ways, just like they listen to music on vinyl records, CDs, MP3s, and streaming services. And in the same way that people share their playlists, crypto users could issue their own tokens (currencies) if they wanted, or serve as their own banks in the sense of making their own lending and banking decisions. perform them independently.

I’m not sure if people are up to all of this work (or is it fun?). But in my opinion, it’s the best of times – and the most technologically ambitious. Interestingly, crypto’s radical disintermediation ability, if extended to its logical conclusion, could result in a radical equalization of power that would reduce the prices and value of assets, businesses, and platforms. currently well established cryptographic.

So you can be bullish on the future of crypto without being bullish on current crypto prices. For a simple analogy, Spotify and YouTube have dramatically expanded the reach of music, but overall the price of recorded music has come down and many artists are making much less than their peers in the LP era. Or consider the agricultural sector, broadly defined: it has performed very well over the last few centuries, but food prices have fallen rather than increased, due to higher production and higher prices. increased competition.

One conclusion here is that in order to know where crypto is heading, sociology is as important as economics. Crypto will continue to be surprising as people see it not only as a way to make money, but as a way to make sense of their lives.

Tyler Cowen is a Bloomberg Opinion columnist. He is professor of economics at George Mason University and writes for the Marginal Revolution blog. His books include “Big Business: A Love Letter to an American Anti-Hero”.

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