Cryptocurrencies offer incredible opportunities to make investing more tangible for regular people.
Traditionally, common stock in public companies is the most practical starting point for the investor journey.
Unfortunately, understanding what a stock represents is hard. Anyone who has ever tried to explain exactly what stock is and how it gets its price to a child knows how abstract and clunky this explanation can be.
I began asking, "What would be the ideal introduction to investing?"
And my answer included two pieces:
- The new investor should be as young as possible
- The investment should be as concrete and tangible possible
Imagine being a parent, and having a child of around 9 or 10 years old, and visiting the best independent coffee shop in your town – where ever that happens to be. You get your coffee, you sit down, you're enjoying your morning with your kid.
What happens next? You might have the opportunity to point out to your son or daughter some basic lessons about people and business.
"Look around. Do you see how popular this place is? There's a lot of people, they serve good coffee and food. It feels good to be in this space.
If I like being here, and I can see these things, that probably means other people feel that way, too. Do you see how there's a line of people? Every day there's a line of people. Which means they're making money every day.
And there's other coffee shops in town, but it seems like most people are choosing to come to this one. That makes it special.
What if you could make some of the money they're making? Well, you can.
Here, let me show you something goes to a website for trading coins
I can buy a coin that represents a piece of this coffee shop, and every day I make a small fraction of the money they make. So if I give $100 worth of coins now, just once, then I get a coffeeshop coin that pays me a little bit every day, forever, as long as the shop is here.
So over time, after I earn back my $100, I keep earning money from this investment, that's called a return on investment."
Something like this, I realized, is the ideal journey for a young person learning about money and basic concepts around investing.
Smart contracts are ideal for enabling this type of experience. It's straightforward to create all pieces to enable scenario above. A small business could use a smart contract as its collection point for money, and to distribute shares representing ownership or revenue share.
The coin could be easily connected to Uniswap, or any other exchange, to effectively "take it public", and all of these financial transactions could be displayed publicly and transparently.
So why don't we already have this?
Firstly, this would be considered a securities offering. Which shouldn't be a big deal, except the amount of paperwork required to offer a security is extremely expensive and onerous.
The process of offering a security was designed in a time when everything that happened inside of a company was opaque, and it was hard to keep a corporation accountable. The rules were not designed with transparent, real time, fraud proof smart contracts in mind.
Governments being what they are, unfortunately this means that they will be slow to adapt. And these technologies are not likely to flourish in places with well established securities markets and strong nation states. They're likely to flourish in places with the least institutional friction.