At MX3 CS we find ways to generate passive income from machines. In this blog post, I will explore why IoT tokens aren’t hot right now, and why I think they are due for a pump.
DeFi and NFTs are sucking all the talent and economic energy away from every other segment of the blockchain space. They are both associated with money verbs such as store, lend, borrow, stake, spend, trade, swap, exchange. This is because intangible financial instruments are becoming increasingly easy to assemble online using money legos like AAVE and Compound.
The NFT craze is focused on non-physical artifacts such as digital art and in-game items — not real-world assets. I am aware of several projects that are attempting to tokenise things like fine art, real estate, rare whisky, and commodities. However, the latter is attracting far less interest than the former. This is because projects that attempt to bridge the tangible and intangible just aren’t hot right now.
Perhaps one reason is that it has taken humanity many millennia to master the physical world. Whereas we have only recently entered the virtual one. It will, therefore, take time (perhaps many generations) for our species to fully adjust. Apologies for being ageist, but you only need to look at the difference between Boomers who mostly prefer to interact with a real person in a real-world context, and Zoomers who prefer to interact with AIs in the virtual realm.
Not only is it a generational issue, but unlike cyberspace, the physical world is far more messy and chaotic. In cyberspace code is law (more on that later), but in meat-space, it is far easier to renege on an agreement or impose an outcome using physical force or manipulation. One example to illustrate my point is the credo “not your keys, not your coins”. This oft-repeated saying is used by crypto-natives to stress the importance of self-custodianship. It is generally understood that if your crypto is held on an exchange like Coinbase, Binance, or Kraken it is far less secure than storing it on a self-hosted hardware wallet. That is true if you keep your credentials well hidden and your hardware wallet in a vault, but if a bad actor knows where you live and suspects that you possess one both your skull and your vault are exposed to a wrench attack. This is why the Ledger hack was potentially so damaging to its customers.
This is primarily why a new rule being proposed by FinCEN is being so vigorously opposed by the DeFi community. They believe that smart contracts negate the need for government involvement. Once an agreement has been entered into it is immutably recorded on a blockchain. Code (not a central authority) is used to block nefarious activities and make it impossible to renege on an agreement. This is because the smart contract automatically reconciles the transaction and takes what is owed — and there’s nothing either party can do to stop it. Unlike CeFi or legacy finance, there is no rent-seeking intermediary to pay or third party to bribe, threaten or intimidate. Code just does what it was programmed to do; hence the beauty and efficiency of trustlessness, but as previously stated, linking DeFi with real-world physical assets is far more challenging.
You only have to look at the Distributed Autonomous Organisation (DAO) platform Aragon to see the conundrum. Its stated goal is to empower communities to replace hierarchical management with decentralised and trustless forms of self-governance that run entirely on the blockchain. However, it already looks like it may become a failed experiment due to a spat between the founders that has led to an off-line court case. How ironic. Another example is the Etherum community, which continues to gravitate towards the project’s founders, particularly Vitalik Buterin even though they have no direct responsibility or control. Why do we keep seeking out leaders when we now have the gift of technology that can do away with centralised leadership? Well, because humans are irrational creatures! As advanced primates, we have an innate compulsion to return to a place that we can see and touch.
Although the DeFi space deserves all the hype it currently gets, and yes successful human-operated DAOs like Kyber and Maker do exist, I just believe the investment community should take another look at projects that have the potential to leverage the Machine Economy.
What I’m about to propose may scare some people, but it is where things are headed and it doesn’t need to be scary if done responsibly. What I propose is we focus on extracting humans from the equation and enable machines to run DAOs — created by humans for humans, and of course with human oversight. Getting humans out of the loop will enable machines to interact with other machines to perform simple tasks (initially) that humans value.
This fits our core mission at MX3 CS. We constantly look for new ways to generate passive income from machines. We want them to do our bidding by generating wealth for us and undertaking tasks that we humans do badly, or don’t enjoy. I’m not suggesting we give them free rein, as that would be highly irresponsible. We just need to establish very clear remits and governance structures that machines can follow.
For example, a vending machine that uses accrued profits to replenish inventory and pay for its repair and maintenance. Any profits generated would be split with its human owners according to pre-defined rules coded in a smart contract. Even if the vending machine became self-aware it is very unlikely that it could ever conspire with other vending machines and take over the world!
I hope sentiment towards tokens and blockchain protocols that bridge physical connected objects using the IoT will become more attractive to investors. There are so many incredibly lucrative and valuable business cases that remain untapped.
Innovators need time to fix technical challenges that have yet to be solved. For example, machines (and other physical assets) need immutable hack-resistant non-fungible physical identities. This is important as machines need to be linked to wallets and they need to possess proof of ownership credentials. If solved, many billion-dollar opportunities will emerge. Some of my favorite projects include IOTA, Centrifuge, Energy Web, and Robonomics.
I urge you to take another look at this undervalued category because they deserve to receive more attention (not financial advice, just my informed opinion).
