In two weeks a nonprofit less than a year old is going to raise tens of millions of dollars to help homeless people. Alongside its more established partner nonprofits, it will fight the opioid crisis, house LGBT teens that are homeless, and give away technology and training to those below the poverty line.
Cryptocurrencies — or to name them more accurately, crypto assets — are the only reason this can happen.
Last year crypto assets had a total market value of about $45 billion. Now they’re worth more than $150 billion. Startups are raising funds in initial coin offerings (ICOs) where they make a “coin” and sell it – like an IPO but without the equity. Startups have raised more from ICOs than from venture capital so far in 2017. Where a company used to raise $1 million, it might now raise $20 million, and where an investor might have had to wait five years to get her money back from a purchase of illiquid startup equity, she can now sell her crypto asset an hour after buying it.
Like derivatives, it is important to ask what crypto assets do in the context of current institutions, not in some social vacuum. Derivatives like mortgage-backed securities are a great idea. In the context of institutions full of ideological regulators, that great idea caused the Great Recession.
And this is where we get back to the nonprofit-crypto asset connection. The thing that will change the world isn’t crypto assets, it’s crypto asset-issuing institutions. If you want to think seriously about crypto assets, you have to think about what new institutional capacities they create.
Traditionally, profits and markets go hand in hand. Markets only exist where there is profit to be made.
Derivatives-based financial innovation has tinkered with that relationship for many years. Shorting a stock, for instance, creates profit when the company’s stock goes down. Short sales are an example of a market that is profitable primarily when t...