The equity value represented by all stocks traded around the world adds up to about $90 trillion.
Tally up global bonds and you get another $250 trillion in value.
Quadruple that debt number and you approach the value of all derivatives – $1 quadrillion.
But none of this is real. At least not in a physical sense.
You don’t bump into a stock when walking down the street. You don’t eat a bond to survive. Rocket scientists don’t have to account for the weight of a derivative when sending a rocket into orbit.
Financial instruments are ideas. We may represent those ideas by a piece of paper or database entry. But representing an idea on paper doesn’t endow it with material existence any more than me writing “I love you” on a note to my wife.
Stocks represent the idea of equity in a corporation. Debt represents money owed. Derivatives are ideas piled onto those ideas. The idea of stock, bonds and derivatives rely on laws put down by government. And everything in this paragraph – including corporations and governments – are just ideas too.
Turtles all the way down.
We may exist in a world seemingly dominated by physical objects and hard constraints. But wealth and power in today’s world comes almost exclusively from commanding ideas.
Indeed, ideas rule the world.
And when a new, bigger idea comes strutting along, wealth and power follow…
Law Without Government Negates the Need for Government
One of man’s greatest inventions was the limited liability corporation (LLC).
LLCs established a claim on equity in an enterprise. And for over 1,000 years these instruments of man’s minds fueled massive investment and growth.
Today, investors and entrepreneurs wade through all sorts of legal entities to establish claims on equity – stocks issued by C-Corps being the most recent evolution. The laws of government enforce those claims. But governments aren’t the only source of laws.
Code is law too. And enforcing law through code is exactly what the cypherpunks envisioned when they began dreaming up cryptocurrencies in the first place.
Just like an LLC or a share of stock represents your share of a company’s equity, a smart contract can issue tokens that represent equity as well.
So, rather than drafting up an LLC or C-Corp agreement, entrepreneurs can launch a smart contract that represents an enterprise. And rather than issuing stock, that smart contract can issue tokens as shares of equity in that enterprise.
None of this requires government laws to enforce. In fact, the only thing a government can do is try to make such arrangements illegal. But getting complete privacy encryption into blockchain technology will remove all teeth out of such threats.
Toothless laws cannot prevent value creators from exiting the world of LLCs and C-corps and manifesting all their value through crypto. And once that idea sets firmly in the minds of value creators, power will simply slip out of the hands of government and squarely into the hands of doers where it belongs.
While the idea of equity and value may not change, how you claim them will. And as the true power of the cryptoverse slowly becomes apparent, you can either follow the new path to wealth or wither away alongside old ideas.
