Before you accuse me of clickbait, let me upfront by saying that I’m not sure if tech entrepreneur and SPAC investor Chamath Palihapitiya’s opinions on alternative cryptocurrencies are directly involved Speckle (CCC:DOT USD).
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Given that Polkadot has been touted as having potential, though ether (CCC:ETH USD) Killer, Palihapitiya’s recent bold statements are nonetheless extraordinarily relevant.
According to a recent Business Insider article, the tech guru explained this Visas (NYSE:v) and MasterCard (NYSE:MA) will generally encounter the highest rating in the new year. Not only that, Palihapitiya criticized the entire traditional payments ecosystem; as such, other credit card issuers/processors are not immune to his harsh criticism.
Given Palihapitiya’s support of cryptos, it’s not surprising that he believes emerging blockchain and DeFi (decentralized finance) projects will topple mainstream (centralized) financial institutions. Or more specifically, advanced decentralized protocols — of which Polkadot is one — may replace outdated relics of a bygone era with lightning-fast blockchain applications.
Palihapitiya even went so far as to suggest taking bearish action against the aforementioned credit card giants. He said, “If you read the white papers of these crypto projects and systematically put together a framework, I think you can be long and Visa/MasterCard short because I think this is their highest market cap.”
Again, I’m not sure Palihapitiya considers Polkadot as one of the projects tied to a viable whitepaper. However, considering that Polkadot is one of the pioneers of open source shared multichain protocols – meaning it can route information across different blockchains – I think it’s a reasonable bet that the entrepreneur has nice things about DOT would have to say.
Certainly he will not blast this altcoin like he did with the credit card giants. However, you should carefully examine the issue before proceeding.
Polkadot is awesome, but centralization is necessary
It is perhaps ironic that I bring this up. But a few years ago, Steve Wozniak, a co-founder of Apple (NASDAQ:AAPL), indicated that someone stole Bitcoin (CCC:BTC USD) from him with a stolen credit card. In short, the scammer bought 7 BTC from Wozniak but then subsequently canceled the credit card payment.
Since the card was stolen, there was nothing Wozniak could do. The cryptos were gone and he had no recourse.
On the surface, this cautionary tale seems to challenge the security mechanisms of centralized institutions like credit card issuers. But in my opinion it actually challenges the viability of cryptos, including useful ones like Polkadot.
You see, when you transact through the centralized fiat money system, you, the consumer, and the other parties to the transaction pay higher fees (compared to decentralized systems). But that’s to be expected. The US dollar is an internationally recognized currency, and a key part of its branding power is its stability.
If you think about it, a volatile, unstable currency is the hallmark of an unstable society.
In addition, participants in traditional transactions pay a premium for protection. In most cases, buyers and sellers of credit transactions have recourse. When traditional lending is used to acquire decentralized assets, the situation becomes dire.
On the surface, Palihapitiya is right. Crypto-based transactions are infinitely faster and more convenient than their fiat-based counterparts. Additionally, blockchains like Polkadot make decentralization more useful than ever. But you must be wondering why that is.
Because cryptos are decentralized, they require distributed actors to engage and strengthen their underlying blockchain networks. If these distributed actors are not adequately compensated, that particular blockchain will fail.
So this convenience carries with it the great danger that a black swan event will destroy everything.
You can’t have your cake and eat it too
It is bizarre to me that while so many smart people are jumping on the crypto bandwagon and criticizing the greenback’s negligence, few seem to be wondering why the greenback is the way it is. Even fewer engage with the idea that centralization is not necessarily the enemy that people make it out to be.
With polkadot, or any crypto, it boils down to a simple concept: you can’t have your cake and eat it too.
If Palihapitiya is right, advanced blockchain networks could one day replace cumbersome credit cards. But what happens when merchants ship products (paid for with cryptos) to buyers’ homes, only for porch thieves to steal the packages? Or what to do against fraudulent traders who do not deliver as promised?
Will you turn to an artificially intelligent algorithm, only to find out that your Golden Retriever could have a higher IQ than the magical blockchain everyone is screaming about? When you decentralize financial transactions, you also decentralize the moral, ethical, and legal principles that covertly and overtly underpin those transactions.
You cannot have centralized ethics and safeguards while decentralizing everything else. That will not do. So whatever you think about Polkadot or other cryptos, please do so because you believe in their upward valuation mobility.
Don’t do it because a tech guru – no matter how smart and awesome that person might be – thinks everything will be decentralized. Most likely it will not be.
At the time of publication, Josh Enomoto held a LONG position on ETH and BTC. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publicity guidelines.
A former Senior Business Analyst at Sony Electronics, Josh Enomoto helped broker key deals with Fortune Global 500 companies. Over the past several years, he has provided unique, crucial insights for the investment markets as well as various other industries including legal, construction management and healthcare.
