David Friedberg on the rise & risk of decentralization
00:00:00.000 | This is the most important learning from this experience. Forget about the fiduciary and the
00:00:03.920 | governance responsibility of these companies, whether they were good or bad will be resolved
00:00:07.440 | over the next couple of weeks and months, I'm sure, as more information comes to light.
00:00:11.600 | But what's super interesting about what happened this week, and I think is the most impactful
00:00:15.840 | societally over time, is that we're seeing this phenomena where individuals in aggregate
00:00:23.600 | can believe something to be true and make it true. And we saw this with Tesla. And I don't think
00:00:30.880 | Tesla got this level of notoriety because it was such a longer play out cycle. But Elon was not
00:00:38.240 | hitting numbers that people thought he was going to hit, margins, production volume, etc. People
00:00:42.880 | were shorting the stock. But enough people believed in the story that Elon told about what
00:00:47.600 | he wanted the future to look like, that they bought the stock, and that gave him the ability
00:00:51.840 | to do shelf offerings, raise additional.
00:00:53.600 | capital and ultimately build the business and make it manifest in reality that he said would
00:00:58.400 | happen. And the same is true of Bitcoin. And the same is true of Trump. And the same is true of
00:01:05.280 | storming the capital. In all of these cases, there was a belief in something. And there was an
00:01:10.400 | aggregation of individuals using social media as a mechanism for sharing and talking and engaging and
00:01:17.200 | creating a collective outcome that wouldn't have happened through a centralized system or a
00:01:21.920 | centralized process, and wouldn't have happened in the traditional way where history defines the
00:01:26.960 | future. And I think that is what's so powerful about what's happening right now. And we're
00:01:31.760 | seeing it in financial markets, but we're also seeing it play out in politics. And we're seeing
00:01:35.600 | it play out in the real world in a remarkable way. And it goes back to this notion that like a stock
00:01:43.200 | is worth the underlying value of the company. And that's not true.
00:01:47.040 | People can dream a stock to be anything as they did with Tesla at the time that people were buying
00:01:51.840 | Tesla stock. The historical performance of that business was not what hedge funds considered to be
00:01:58.080 | a profitable, good business. It shouldn't be worth anything. But the belief in what it could be is
00:02:03.920 | what drove the value of that stock. And ultimately, that value enabled that business to become true.
00:02:08.480 | And it's amazing to see it happening. And I think the counter, which is really what makes this so
00:02:14.720 | striking, is the centralized institutions that are trying to block this from happening. And the
00:02:20.320 | shutting down of Parler, which is a big part of the problem, is that it's a big problem. And it's a
00:02:21.760 | big problem. And the shutting down of Robinhood Trading are equivalent, from my point of view,
00:02:26.560 | or at least equivalent, I think will be perceived to be equivalent broadly, which is if a group of
00:02:32.240 | people get together and try and use an online service to make a change in the world by sharing
00:02:37.600 | and talking with one another and communicating a belief, a collective belief, and that gets yanked
00:02:41.840 | away from them, that institution that has the ability to yank it away from them is evil. And
00:02:46.640 | it will force people to decentralize and it will enable new ways of trading, new ways of communicating
00:02:51.680 | and new ways of building. And that's the profound change that I think this decade is going to
00:02:56.240 | realize. And we're just seeing it start now. We talked about decentralization. And, you know,
00:03:00.960 | we all feel the emotional response to the little guy getting screwed by the big guy that controls
00:03:05.600 | the system. And we want to fight the system. That's the basis of every great movie. It's worth
00:03:10.080 | highlighting, though, that decentralization and what I would kind of characterize as swarming
00:03:15.280 | behavior, uncontrolled swarming behavior, can actually have negative consequences. And there's
00:03:20.400 | a reason systems are so much more efficient than they were in the early 2000s. And that's because
00:03:22.000 | exist. You know, when you put a bunch of people in a room, let's say you put 100 people in a room
00:03:26.720 | and every time and someone says the word door, and every time you hear the word door, you're
00:03:30.080 | supposed to repeat it. Within 30 seconds, the entire room will be like deafening with everyone
00:03:35.140 | screaming door, door, door, and suddenly everyone will be screaming it. That's a feedback loop that
00:03:39.400 | occurs in an uncontrolled social system. And that's what's occurred with GameStop. And it's
00:03:44.020 | what occurred with with with Bitcoin. So there are, as we've seen, remarkable outcomes when you
00:03:49.340 | allow systems to operate without centralized control, and without centralized brake pads,
00:03:54.200 | that kind of slow them down or put in place some rules and some obligations to how that system
00:03:58.880 | operates. The problem with decentralization, and this swarming approach to resolution,
00:04:05.460 | where lots of people basically work together individually, is you end up with things like
00:04:10.360 | cancel culture, where before a judge and jury determines whether or not someone did something
00:04:15.840 | wrong, the community decides that person should be punished and shouldn't.
00:04:19.320 | And then the system shuts them down in the real world and their career and their life is ended and ruined.
00:04:23.760 | And we saw the same and we saw the same with the Capitol riots, you know, people basically died
00:04:30.540 | because of the swarm that occurred, where this idea that there was fraud in the election became an
00:04:36.000 | echoing, deafening noise for these people, and they swarmed and killed people. And the system by which
00:04:43.200 | you can actually have vigorous debate, and the system by which you can actually have controls and
00:04:47.520 | processes and judges and juries and trials, is what needs to be improved for this to work. Otherwise,
00:04:54.480 | people will go to decentralization, and you will have a Lord of the Flies moment that engulfs civil
00:05:00.000 | society, because the tools are there today. And so centralized systems can work, but they have to
00:05:06.960 | adapt and adapt quickly to be fair and to enable and to not discriminate. Otherwise, we're gonna
00:05:13.260 | see Lord of the Flies, and we're gonna see decentralization being the solution to getting out
00:05:17.340 | system that's inhibiting us and we're going to end up having really fucking ugly outcomes.