The Preamble to Crypto might have just ended

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tl;dr - Crypto does have a few usecases, ETH2’s switch to Proof of Stake means it’s worth building on, and Blockchain represents a chance to reshape policy and regulation that is ossified.

Slightly longer TL;DR

I am keenly aware of how much everyone hates reading about crypto so I’m going to try and front load as much of my thesis as possible, as plainly as possible.

You do not have to read this whole thing, you can literally just read this section and be done. Precious few of the arguments in this post will be new if you’ve followed/thought about crypto for very long.

Usecases

I think these blockchain use-cases are still intact. Rampant speculation may make it hard to use blockchain in these ways right now, but keep an open mind:

What was the problem?

In my opinion, up until now cyrpto was uninvestable (with either money or time):

  • Resource usage (PoW)
  • Inability to scale to at least VISA’s payment network throughput

What has changed?

Ethereum’s successful (as of now) move to Proof of Stake mean that the problem (1) is solved right now.

Given that Ethereum has current and future plans for rollups (Zero Knowledge (“ZK”) rollups) and sharding) the second pernicious problem with crypto has a chance that must be re-rated (given the merge’s success).

I think Ethereum has actually shown that PoW was actually something to be escaped (once at sufficient velocity). I think PoW will be antiquated once enough time has passed.

The risks

If you’re still with me, then we should at least chat about the risks. There are risks to this view of blockchain that I’m keeping my eye on:

  • FEDNow may drive the price of money transfers (and possibly payments) much closer to zero
    • If the US can replicate systems that already exist in Europe, the price to transfer money would be much lower
    • That said, the price to transfer money using apps popular is Europe is low for now, for no other reason than the current politics
  • ETH2 may have a technical hiccup or large issue with the merge
  • Cryptocurrency could be banned or regulated so heavily that it ceases to be viable
  • The value of crypto currency could go to zero in all

The rambling longform bit.

OK here’s the part that’s rambling and long-form.

Why are you bringing up Crypto, yet again?

This post was inspired by recent events and some pieces:

I didn’t see enough posts taking into considering the amount of people who may have been waiting on the sidelines of crypto because of it’s inherent downsides and lack of capability.

There were three things that made me choose to overlook blockchain technology:

  • PoW uses too many resources unnecessarily (this sticks out in contrast to more traditional systems)
  • Most widely used coins cannot scale to VISA payment network level as written
  • Solidity is unsafe to write programs in

How I’ve felt about crypto until now

I’ve been a semi-no-coiner this whole time. I say semi, because I mined some BTC in the past – I bouthg a Butterfly Labs ASIC far too late (even if I was early). I was able to generate a tiny fraction of a BTC, then promptly lost my wallet.

I am not, by any means a Bitcoin/Blockchain/Cryptocurrenty maximalist. What I welcome most is the option it present to the existing financial machinery, even if it is less efficient (for now, depending on what kind of transaction you’re performing).

Cryptocurrency as a chance to rebuild policy

Financial policy is ossified – for both better and worse.

It comes as no surprise that the interests of larger players are much better represented when it comes to deciding what can and can’t be done in the financial system. Glass Steagal should not have been repealed. Financial deriviatives should have been heavily controlled at their creation. To be fair there is also an outstanding amount of consumer/investor protection that is worthy of praise.

Good or bad, the current financial system is what it is. Cryptocurrencies provide a chance at a new system.

This is a take I haven’t seen much of – regulation of crypto currency presents a chance to re-write financial policy and regulation.

Sometimes reforming an existing system is just too hard – you have to build anew. Even if you rebuild to a system that is 99% the same but 1% different, if it gets 1% better there is a chance that meaningful improvement. Cryptocurrency at least represents this chance.

I am prepared to eat my words though – if the new regulation is 100% the same as the previous regime, it’s very difficult to defend cryptocurrency.

I do not plan to speculate

I do not plan to hold ETH or any other crypto currency as a speculative instrument – I probably won’t be holding any until I’ve build something that people pay for in crypto. Even then, I will likely immediately withdraw my crypto to fiat via stable coin (likely USDC) as soon as it is possible to do so.

Just to make it clear (again) – I’m not a cryptocurrency maximalist. I am a lets-experiment-with-new-financial-systems pragmatist.

I LOVE my local Credit Union. I freak them out every few months because I live abroad but I wouldn’t dream of Banking anywhere else. I also like my JP Morgan Chase credit card – it’s extremely convenient. Wise also makes it pretty darn easy to move money across countries.

I’m not here to burn down the old system – just to see if a viable alternative (i.e. competition) can be created.

Will the builders come?

Cryptocurrency is still mostly the domain of scammers and con artists and it is widely reviled (somewhat rightfully so). That said, it’s also an extremely interesting technology, and with ETH2 the moral issues are all but gone.

I’m personally fine having my money controlled by a group of wealthy individuals (i.e. wealthy enough to stake and run verifier nodes) – as long as it’s a different group than the current group of wealthy individuals controlling the current financial machinery.

Now, I can pretty heartily say I have few to no qualms writing software and investing time in building things for the blockchain ecosystem (ETH).

Crypto still isn’t ready for the average person, and that’s OK – in fact it may never be. I don’t expect the average person to know how to use git, and maybe it will be the same for crypto. What I do know is that if it’s useful, someone will bring it to the masses (in a real, non-scammy way) as they’ll be curious and willing.

Building a place for utility-focused builders

I wonder if it’s possible to create a counter culture of people who only use cryptocurrency for utility (transferring money, paying for goods)?

Some sort of limited board or reddit (ActivityPub?) that is only for people who are provably using crypto for utility where karma is a gained as a result of using crypto as a utility.

The future

Will ETH land the proposed sharding and rollups (opportunistic vs Zero Knowledge) changes? If their success in switching to PoS is any indicator, they will.

This means the future is bright for ETH actually bootstrapping it’s own value – as a morally acceptable on-ramp to the crypto ecosystem which could facilitate the use cases discussed earlier.