The Great Platform Shift

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In the mid-1990s, Microsoft had a monopoly.

At the time, there was really only one operating system, and that was Microsoft Windows. Apple was still a tiny niche company, and no one else even came close. The personal computer revolution was in full swing, and Microsoft had about a 90% market share: if you had a PC, you ran Windows.

The launch of Windows 95 was one of the biggest technology events of all time. There was a huge launch event in Redmond, where they hired Jay Leno to do the launch demo: not just a standup set, the entire Windows demo. People stood in line for days to buy the first copies of Windows 95. It was nuts.

This monopoly power gave Microsoft a seemingly unassailable advantage: because it had the dominant platform, it attracted the most developers. More Windows developers meant more Windows apps. More Windows apps meant even more Windows users, and so on.

But a new threat was arising: the Internet.

Microsoft was so focused on dominating the desktop that it was late to notice this weird little fringe network used by academics and geeks. While Microsoft was rolling out Windows 95, the Netscape web browser — a Windows app! — was released and downloaded more than one million times.

At first, Microsoft thought that the Internet was just another feature that could be added to Windows. But Bill Gates, to his credit, eventually saw the writing on the wall. In his famous memo called The Internet Tidal Wave, Gates declared the Internet was the next great platform shift.

Microsoft quickly developed Internet Explorer, and famously crushed Netscape. The company won the battle, but it lost the war, as the Web eventually became the dominant platform for developing new applications. (When was the last time you actually installed software on your PC?)

Today, a similar platform revolution is taking place, but it’s not operating systems. It’s financial systems.

Dollars = Windows

Imagine that the U.S. is Microsoft, and the U.S. dollar is Windows.

Today, the global financial system runs on dollars. Sure, there are other currencies, but the U.S. dollar is the default unit of financial trade. This gives the U.S. an enormous financial advantage, because (like Windows 95), the more people that use dollars, the more people that want dollars.

But just as the decentralized Internet threatened Microsoft’s monopoly, the decentralized financial system — blockchain and crypto — is threatening the U.S. dollar’s monopoly.

The U.S. is like mid-90s Microsoft, distracted by the launch of Windows 95. But unlike a nimble software company, it’s a heaving bureaucracy ill-equipped to navigate this technological change. (Are there any economists or central bankers seriously considering the U.S. dollar being replaced by software?)

Even though Bill Gates pivoted Microsoft toward the Internet, it wasn’t enough: developers still moved away from Windows to open-source alternatives. Similarly, nations can move away from the U.S. dollar toward open money platforms.

There are signs this is already happening.

Russia, for example, is frequently targeted with U.S. sanctions, cutting off its access to the dollar and payment networks like SWIFT.

In response, it has recently legalized bitcoin for cross-border payments, and is allegedly working on a “BRICS bridge”: a digital payment network between BRICS countries (Brazil, Russia, India, China, and South Africa) that will bypass the dollar.

Because the U.S. has used its dollar dominance to sanction other countries, those countries are simply turning to DeFi.

I look at it like this: money wants to flow. If there is a way to flow faster and more freely, money will find it. And the fastest way to flow is through software. As Netscape creator Marc Andreessen said, software is eating the world — and it’s just starting on the main course: our financial system.

For investors, this is a pivotal moment. Investors in the mid-1990s who saw the potential of the internet reaped enormous rewards, and investors in the mid-2020s who see the potential leaders of this new financial system can reap even greater rewards.

So, which companies will win — and how do we invest in them now? At Bitcoin Market Journal, that’s what we think about constantly.

Stablecoins = Internet Explorer

When Microsoft introduced Internet Explorer to compete with Netscape, it was much more than a Web browser. The Internet was tightly integrated into the core Windows operating system. (You could actually type a URL into File Explorer, and have it retrieve websites just like a file or folder.)

This “compatibility layer” was needed to bridge the old world of Windows with the new World Wide Web. And today, stablecoins are acting as a similar bridge between TradFi and DeFi.

In The Race to Dominate Stablecoins, Harvard Business Review’s Christian Catalini and Jane Wu argue that stablecoins “could allow software to eat banking and financial services. The companies that control the stablecoin market will wield substantial influence over the future of money.” (Emphasis mine.)

Talking about the “platform wars” of ages past, they state that one platform war has already been decided: bitcoin and Ethereum have become the new “operating systems for money,” and they are unlikely to be unseated anytime soon.

But the platform war for stablecoins is just beginning.

Tether (USDT) and Circle (USDC) are obviously the biggest players, but this may change in the near future, as PayPal recently launched its own stablecoin, PYUSD, which is created and backed by Paxos, which helps companies launch their own stablecoins.

So while we think of USDT and USDC as the primary stablecoins today, there could be a world where Starbucks, Amazon, and Walmart all issue their own stablecoins, which they argue would be a “doomsday scenario” for Tether and Circle.

Or, every major bank could issue its own stablecoin, and they would all be fungible and interoperable, just like dollars today.

And Paxos could potentially issue them all.

Stablecoins — this “interoperability layer” that bridges TradFi and DeFi — is an extremely important area for investors to watch. Paxos could become the power player — but unfortunately, it’s still a private company. (Circle, on the other hand, will hopefully one day have an IPO.)

If dollars are Windows, and crypto is the Internet, stablecoins are the bridge to get people from one to the other. That’s a generational platform shift.

Invest in the Platform Shift

Imagine you’re an investor in the mid-1990s, and see this shift from Windows to the Internet, from Windows apps to Web apps. What are some companies you might invest in?

Some of the answers are obvious: Netscape (early Web browser), Amazon (early e-commerce), Yahoo (early Web directory).

But it’s the infrastructure plays — the companies that support the new platform — that were potentially more profitable: Cisco (networking hardware), Oracle (web databases), Sun Microsystems (web servers).

Today, TradFi is shifting to DeFi. It’s a classic Innovator’s Dilemma, except this time it’s the U.S. dollar being disrupted by technology.

Some investing ideas include top DeFi protocols (Aave, Uniswap, Compound), digital payment networks (Ripple and Stellar), blockchain infrastructure (Ethereum, Chainlink), and tokenized assets (Synthetix, OpenSea, and many more to come). (See our Guide to Sector Investing for more.)

As investors, we can look for the technologies that support the next platform shift. These are the picks and shovels of the modern-day gold rush.

Put another way, each TradFi company will probably have a DeFi doppelganger. In the new world order, who will be the leading banks, payment processors, and asset management firms? Find those, then place your bets early. Then stay invested until the platform shift plays out.

And stay subscribed to Bitcoin Market Journal. This shift is all we think about.