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Why Crypto Matters: Generative Tech Meets New Capital Formation | Josh Rosenthal

By Lightspeed

Published on 2024-01-11

Discover how crypto is unleashing new business models and transforming capital formation with historian and investor Josh Rosenthal on the Lightspeed podcast.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

The Crypto Renaissance: A Historical Perspective

Josh Rosenthal, a historian, investor, and entrepreneur, brings a unique perspective to the world of cryptocurrency and blockchain technology. With a background in French Renaissance and medieval history, Rosenthal draws fascinating parallels between the transformative power of past technological revolutions and the current crypto revolution. He argues that we are witnessing a "Crypto Renaissance" that mirrors the societal changes brought about by innovations like the printing press and double-entry bookkeeping in the 15th and 16th centuries.

Rosenthal's thesis is that crypto represents a convergence of generative technology and new forms of capital formation. This combination, he believes, has the potential to reshape our economic and social structures in ways as profound as the original Renaissance. By examining historical patterns, Rosenthal provides valuable insights into how crypto might evolve and impact our world.

Generative Technology: Creating Abundance from Scarcity

One of the key concepts Rosenthal introduces is the idea of generative technology. He defines this as technology that creates new users, new marketplaces, and new things. Historically, generative technologies have had the power to transform scarcity into abundance. The printing press, for example, turned the scarcity of written information into an abundance of printed material, leading to increased literacy and the spread of knowledge.

Rosenthal argues that crypto is following a similar pattern. He states, "Generative tech, like by definition, it creates abundance. Generative tech always cannibalizes the market for scarcity." This means that crypto has the potential to create new forms of value and new markets that didn't previously exist, rather than simply redistributing existing wealth.

New Capital Formation: Redefining How Businesses Are Built

Perhaps the most revolutionary aspect of crypto, according to Rosenthal, is its potential to create new forms of capital formation. He explains, "My basic thesis is that crypto is generative technology that literally creates new users, new marketplaces, new things, meeting participatory capital formation. And by capital formation, I mean, how do you pool money together to build a business that wouldn't otherwise be possible?"

This new model of capital formation allows for the creation of businesses and projects that might not have been feasible under traditional financial systems. Rosenthal points to examples like Helium, a decentralized wireless network, as evidence of how crypto enables new business models and solves "cold start" problems that have traditionally been barriers to entry for innovative ideas.

The Solana Advantage in Capital Formation

While Rosenthal discusses crypto in general terms, he specifically highlights Solana's role in enabling these new forms of capital formation. He notes, "Solana is saying not only possible on Solana from a technical sense, yes, but we're starting to figure out, oh, that's from a business sense too, right? That capital formation and business model is absolutely crazy."

Solana's high-speed, low-cost blockchain provides an ideal platform for experimenting with these new business models and forms of capital formation. Its efficiency allows for the rapid iteration and deployment of innovative financial structures that can support a wide range of projects and applications.

Democratizing Venture Capital

One of the most exciting implications of this new capital formation model is the democratization of venture capital. Rosenthal argues that the traditional VC model aggregates power and control to established hubs, making it difficult for outsiders to participate. Crypto, on the other hand, allows for more inclusive participation in early-stage investments.

"We're fund to funds. We're kind of first money in multi-coin. A number of other folks you might know, Parify, Coin Fund standard, folks like that, and then do direct things and most importantly, operate the stuff ourselves," Rosenthal explains. This approach allows for a more diverse range of investors and entrepreneurs to get involved in promising projects from their earliest stages.

The Interplay of Digital and Physical Worlds

Another fascinating aspect of the crypto revolution that Rosenthal discusses is the increasing interplay between digital and physical worlds. He sees NFTs and other crypto assets as "bi-directional doorways" that allow value and utility to flow between the digital and physical realms.

Rosenthal provides an example from his own experience: "The building I'm in is an old bourbon bar from literally, you know, 160 years old through prohibitions, for right fires. It's slated for demolition. They're going to turn it into mini storage. We're down the street from Churchill Downs. And so we ran a little helium IoT node back in 17. And for 500 bucks, no coding on an app, use the proceeds to do a full historical renovation, stop the crime, stop the heroin fires and now turn into community center."

This real-world application demonstrates how crypto technologies can have tangible impacts on local communities and physical spaces, bridging the gap between digital innovation and real-world problem-solving.

Abundance vs. Scarcity: A Paradigm Shift

Central to Rosenthal's argument is the idea that crypto is shifting our economic paradigm from one based on scarcity to one of abundance. He explains that traditional economic systems are built around the idea of scarcity – there's only so much land, so much gold, so much of any given resource. Crypto, as a generative technology, has the potential to create abundance in ways that were previously unimaginable.

"The idea behind like decentralization from a historical perspective is that like it opens up the opportunity for the other basically," Rosenthal says. This means that instead of fighting over limited resources, we can create new forms of value and new markets that expand the overall economic pie.

Tribalism and Identity in the Crypto Space

While Rosenthal is overwhelmingly positive about the potential of crypto, he doesn't shy away from discussing some of its challenges. One of these is the tribalism that has emerged within the crypto community, with different groups strongly aligning themselves with particular projects or ideologies.

Rosenthal sees this tribalism as a natural part of the evolution of any new technology or movement. He explains, "In the early days, it's almost like incentivizing a cold start now. In the early days, people have nothing. You're asking participants to discuss the heart of the problem, to literally create something from nothing. So you have to do that as a matter of belief."

However, he also argues that for crypto to truly succeed and reach its full potential, it needs to move beyond this tribalism and attract "net new people who don't care about your particular thing." This evolution towards a more inclusive and diverse ecosystem is crucial for the long-term success of crypto.

The Role of Memes and Community in Crypto

Interestingly, Rosenthal doesn't dismiss the importance of memes and community-building in the crypto space. He draws parallels to the early days of the printing press, where a significant portion of printed material consisted of images and what we might today call "memes."

"If you look back at the flute shift and the the old timey prints that really took the world by storm that count for like 80% of the printed material, like those were like crazy, crazy stuff," Rosenthal notes. He sees the meme culture in crypto as serving a similar function – helping to spread ideas, build community, and create shared narratives that can drive adoption and innovation.

Crypto as a New Form of Capitalism

Perhaps one of Rosenthal's most provocative arguments is that crypto represents a new form of capitalism. He suggests that just as the original Renaissance gave birth to modern capitalism through new forms of capital formation and economic organization, crypto is ushering in the next evolution of capitalism.

"Capitalism creating value from nothing, but it also being participatory. That's what drove like the recreation of the world," Rosenthal explains. He sees crypto as potentially democratizing access to capital and allowing for more participatory forms of value creation.

The Promise and Perils of Decentralization

Throughout the discussion, Rosenthal repeatedly returns to the theme of decentralization. He sees the decentralizing potential of crypto as one of its most revolutionary aspects, but also acknowledges the challenges it presents.

"The idea behind like decentralization from a historical perspective is that like it opens up the opportunity for the other basically," he explains. This means that decentralization allows for a greater diversity of ideas, business models, and forms of organization. However, it also introduces new complexities and challenges in terms of coordination and governance.

Solana's Role in the Crypto Renaissance

While Rosenthal's discussion is broadly about crypto, he does highlight Solana's particular strengths in enabling this new paradigm. He notes that Solana's technical capabilities make it particularly well-suited for experimenting with new forms of capital formation and business models.

"Solana is saying not only possible on Solana from a technical sense, yes, but we're starting to figure out, oh, that's from a business sense too, right?" Rosenthal observes. This suggests that Solana is not just a technical platform, but an ecosystem that's actively exploring and enabling new economic models.

The Importance of Pluralism in Crypto

Rosenthal argues strongly for the importance of pluralism in the crypto space. Rather than seeking a single, dominant blockchain or cryptocurrency, he believes that a diversity of approaches and technologies is crucial for the health and growth of the ecosystem.

"If we create like a single decentralized thing that replaces the last decentralized thing, that fails historically. It just doesn't work," he explains. This perspective encourages a more collaborative and inclusive approach to crypto development, rather than a winner-take-all mentality.

Crypto and the Future of Work

One of the more intriguing implications of Rosenthal's thesis is how crypto might change the nature of work and vocation. He suggests that crypto could enable more people to pursue work that aligns with their passions and skills, rather than being constrained by traditional employment structures.

"If your alpha is booze or building an ISP or music do that and like that's where the crossover for physical space is so interesting," Rosenthal explains. This vision of a more flexible, passion-driven economy is certainly appealing, though it also raises questions about economic stability and social safety nets.

The Challenges of Adoption and Understanding

Despite his enthusiasm for crypto's potential, Rosenthal acknowledges the challenges of widespread adoption and understanding. He notes that many of the most transformative aspects of crypto are not immediately obvious or intuitive to most people.

"In history like people in the middle of the biggest changes are usually least aware of it at the time," he observes. This suggests that the full impact of the crypto revolution may not be apparent for some time, and that patience and persistence will be necessary to realize its full potential.

Crypto as a Tool for Economic Empowerment

Throughout the discussion, Rosenthal returns to the theme of crypto as a tool for economic empowerment. He sees it as a way for individuals to participate more directly in value creation and to have greater control over their economic destinies.

"Now you can choose not to share that, or you can choose to get paid for that," he says, referring to the potential for individuals to monetize their data and online activities through crypto. This represents a significant shift from current models where large tech companies are the primary beneficiaries of user data and activity.

The Role of NFTs in the New Economy

Rosenthal has interesting thoughts on the role of NFTs (Non-Fungible Tokens) in this new economic paradigm. Rather than seeing them as mere digital collectibles, he views NFTs as powerful tools for creating liquidity in previously illiquid markets and for bridging the digital and physical worlds.

He provides an example: "Baxas just folks and I'm booze. They literally take bottles of booze. They scan them. They vault them as an NFT." This allows for easier trading and price discovery in the whiskey market, demonstrating how NFTs can add value to traditional markets.

The Importance of Real-World Applications

While much of the discussion focuses on abstract concepts and historical parallels, Rosenthal repeatedly emphasizes the importance of real-world applications for crypto. He sees projects like Helium, which aims to build decentralized wireless networks, as prime examples of how crypto can solve tangible problems and create real value.

"Can you literally transform and impact your physical space? Like, yeah, you can. You can do that with like no coding necessary," he explains. This focus on practical applications is crucial for demonstrating the value of crypto beyond speculation and financial applications.

The Evolution of Trust in the Digital Age

One of the key themes that emerges from Rosenthal's discussion is how crypto is changing our concepts of trust. By enabling trustless transactions and decentralized governance, crypto is fundamentally altering how we think about and implement trust in economic and social systems.

"I trust that you have this bottle. I trust that it's authentic. I'm in a machine vision match it. I trust you have nothing blah, blah, blah," Rosenthal explains, demonstrating how crypto can create new forms of trust and verification.

The Potential for Solving Public Good Problems

Rosenthal sees significant potential for crypto to address public good problems that have traditionally been difficult to solve through market mechanisms. By creating new incentive structures and enabling more direct participation, crypto could potentially tackle issues ranging from local community development to global challenges.

"Now you're solving public good problems through unearning, which is wild," he notes. This represents a potentially transformative approach to addressing societal challenges.

The Importance of Historical Context

Throughout the discussion, Rosenthal emphasizes the importance of understanding the historical context of technological and economic revolutions. By drawing parallels to past transformations, he provides a framework for understanding the potential impact and trajectory of the crypto revolution.

"If history rhymes, I think there's a number of implications for us to be thinking about," he suggests. This historical perspective can help guide decision-making and strategy in the rapidly evolving crypto space.

The Role of Regulation in the Crypto Space

While not a central focus of the discussion, the role of regulation in the crypto space is touched upon. Rosenthal seems to view some level of regulatory resistance as a natural part of any transformative technology's evolution, drawing parallels to how traditional institutions initially resisted innovations like the printing press.

"Everybody says, 'Oh, institutions bypassed by tech. What are you going to do about it?' The only way to break out of that is just when the king tried to preserve land, you can only break out of that through new capital formation powered by generative tech, capitalism," he explains.

The Potential for Economic Inclusion

One of the most exciting aspects of crypto that Rosenthal discusses is its potential for economic inclusion. By lowering barriers to entry and enabling new forms of participation, crypto could potentially provide economic opportunities to individuals and communities that have been excluded from traditional financial systems.

"If you can earn ownership through use, it's anti-inflationary for middle class. That's super radical in its own right," he notes. This suggests that crypto could play a role in addressing economic inequality and providing new pathways for wealth creation.

The Importance of Community in Crypto

Throughout the discussion, Rosenthal emphasizes the importance of community in the crypto space. Whether it's through memes, shared narratives, or collaborative projects, he sees community-building as a crucial component of crypto's success.

"That idea of like these weird images and silliness. And if you look back at the flute shift and the the old timey prints that really took the world by storm that count for like 80% of the printed material, like those were like crazy, crazy stuff," he observes, drawing parallels between early print culture and modern crypto communities.

The Future of Innovation in the Crypto Space

Rosenthal is optimistic about the future of innovation in the crypto space. He sees the current period as just the beginning of a much larger transformation, with many more innovations and applications yet to be discovered.

"The most interesting stuff 99.99% of interesting businesses ideas can like never make it because it can't jump a moat and so like those that long tail distribution curve of like really interesting ideas and products and services like esoteric stuff that's crazy if you can like actually have economic substrate if you can build a business on that using the new business model that's where innovation will come from," he explains.

Conclusion: The Ongoing Crypto Revolution

In conclusion, Josh Rosenthal provides a compelling vision of crypto as a transformative force that combines generative technology with new forms of capital formation. By drawing parallels to historical revolutions like the Renaissance, he offers a framework for understanding the potential long-term impacts of crypto on our economic and social structures.

While acknowledging the challenges and complexities of this transformation, Rosenthal remains optimistic about crypto's potential to create more inclusive, innovative, and abundant economic systems. As the crypto space continues to evolve, his historical perspective and insights into the nature of technological revolutions provide valuable context for navigating this rapidly changing landscape.

The conversation with Josh Rosenthal on the Lightspeed podcast offers a thought-provoking exploration of crypto's potential, grounded in historical context and forward-looking analysis. As we continue to witness the unfolding of the crypto revolution, perspectives like Rosenthal's will be crucial in helping us understand and shape the future of our economic and technological systems.

Facts + Figures

  • Josh Rosenthal has a PhD in French Renaissance and medieval history and has done a Fulbright to the Sorbonne's interdisciplinary think tank.
  • Rosenthal founded and sold two companies, one in AI (natural language processing) and another in data visibility (B2B SaaS).
  • He was named Ernst & Young Entrepreneur of the Year for his work.
  • Rosenthal invested in crypto in 2017 and was among the first investors in multi-coin.
  • The Renaissance saw the advent of two specific decentralized technologies: double entry bookkeeping and permissionless print protocol.
  • Rosenthal argues that crypto is generative technology that creates new users, marketplaces, and things.
  • He states that generative tech always cannibalizes the market for scarcity.
  • Rosenthal sees crypto as fulfilling the internet's promise of earning for participation.
  • He predicts that Harvard Business School will be writing case studies on Bong (a Solana-based project) in 50 years.
  • Rosenthal and his team used a Helium IoT node to finance the renovation of a 160-year-old bourbon bar, demonstrating real-world impact of crypto projects.
  • He argues that crypto represents a new form of capitalism that is more participatory.
  • Rosenthal suggests that crypto could help address the global demographic inversion where we're moving from 4 workers supporting 1 retiree to 12 retirees being supported by 1 worker.
  • He sees NFTs as bi-directional doorways between the digital and physical worlds.
  • Rosenthal argues that crypto enables new business models that can solve cold start problems and bypass traditional moats.
  • He suggests that everyone listening to the podcast is potentially an adventure capitalist with access to information previously reserved for VCs.

Questions Answered

What is Josh Rosenthal's background?

Josh Rosenthal has a diverse background spanning academia, entrepreneurship, and investing. He holds a PhD in French Renaissance and medieval history, has founded and sold two tech companies, and was named Ernst & Young Entrepreneur of the Year. Rosenthal has also been an early investor in the crypto space, being among the first to invest in multi-coin and other prominent crypto funds.

How does Rosenthal view crypto in a historical context?

Rosenthal sees crypto as part of a larger historical pattern of transformative technologies. He draws parallels between the current crypto revolution and the Renaissance, particularly focusing on how double entry bookkeeping and the printing press revolutionized society. He argues that crypto, like these historical innovations, is a generative technology that creates new forms of value and enables new models of capital formation.

What does Rosenthal mean by "generative technology"?

Generative technology, according to Rosenthal, is technology that creates new users, new marketplaces, and new things. It doesn't just redistribute existing value, but creates entirely new forms of value. Rosenthal argues that crypto is a generative technology because it's creating new markets, new forms of ownership, and new ways of organizing economic activity that didn't exist before.

How does Rosenthal see crypto changing capitalism?

Rosenthal argues that crypto is ushering in a new form of capitalism that is more participatory and inclusive. He suggests that crypto enables new forms of capital formation that allow more people to participate in value creation and ownership. This could potentially democratize access to investment opportunities and allow for more diverse and innovative business models.

What role does Rosenthal see for NFTs in the new economy?

Rosenthal views NFTs as more than just digital collectibles. He sees them as powerful tools for creating liquidity in previously illiquid markets and for bridging the digital and physical worlds. He provides examples of how NFTs can be used to tokenize real-world assets like rare whiskey bottles, enabling easier trading and price discovery.

How does Rosenthal think crypto can impact real-world problems?

Rosenthal believes crypto has significant potential to solve real-world problems, particularly in areas where traditional systems have failed. He gives examples like using crypto projects to fund community renovation projects or build decentralized wireless networks. He argues that crypto can create new incentive structures that enable solutions to public good problems that have been difficult to address through traditional means.

What does Rosenthal think about tribalism in the crypto space?

While Rosenthal acknowledges that tribalism is a natural part of the early stages of any new technology or movement, he argues that for crypto to truly succeed, it needs to move beyond tribalism. He suggests that the long-term success of crypto will depend on attracting "net new people who don't care about your particular thing," emphasizing the importance of a more inclusive and diverse ecosystem.

How does Rosenthal view the future of work in relation to crypto?

Rosenthal suggests that crypto could significantly change the nature of work and vocation. He envisions a future where more people can pursue work aligned with their passions and skills, rather than being constrained by traditional employment structures. He sees crypto as potentially enabling new economic models that allow people to monetize their interests and abilities in novel ways.

What advice does Rosenthal have for people interested in crypto?

Rosenthal encourages listeners to view themselves as potential venture capitalists and entrepreneurs in the crypto space. He argues that the open nature of crypto information gives individuals access to insights and opportunities previously reserved for professional investors. He advises people to be willing to bet against the market, to look for asymmetric opportunities, and to be patient as the full potential of crypto unfolds over time.

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