96 Theses for Crypto in 2019

Often imitated. Never replicated. I call your predictions post, and raise you.

(This post was originally sent to Messari’s Unqualified Opinions subscribers. Sign up here for our daily crypto market insights.)

There have been a few good predictions pieces so far this year. This one is my encore from last year, with a little help from my colleagues at Messari, who are building the industry’s best market intelligence platform.

Without further adieu…

Top General Trends

1. Our top 2019 bets:
   • Lightning Network growth will blow up (50x YoY in USD growth = $100mm channel capacity) and have its “irrational exuberance” moment.
   • Ethereum will face legitimate smart contract platform competition (EOS, Dfinity), AND “parachains” (Cosmos, Polkadot) will chip away at ETH’s dominance.
   • ICO’s are dead (for now). It’s all about security tokens…at least that’s the narrative. New synthetic securities will be really exciting, the tokenized real estate assets we see in 2019 betas…marginally exciting, but not more than that.
   • Privacy upgrades will cause headaches and pushback from regulated exchanges and wallets. Some of the new tech is so good it might hurt compliance efforts.
2. On Lightning Network, it’s our theme of the year. We could see network growth get crazy and hit $100mm (50X 2018). It will continue to get easier to spin up nodes with out of the box solutions (e.g. Casa), and there will be numerous technical improvements (e.g. dual-funded channels), and perhaps major exchange buy-in. Arjun Balaji covered a bunch of these in his post, which I’ll reference throughout this piece. (Want more plain English details on the state of Lightning? Andreas also walks through some Lightning Network misconceptions in this 20 minute video.)
3. Although we won’t see a serious proposal this year to re-appropriate Satoshi’s bitcoin or add perpetual low inflation to bitcoin in lieu of transaction fees, it does make sense to begin to explore. I wrote about this back in 2015. *Eventually* this issue will come to a head: when bitcoin inflation dips below 1–2% (a few years), miner’s incentives will skew to “attack” vs. “secure” the blockchain.
4. Serenity NOW! Ultimately, the transition from PoW to PoS is shaping up to be as messy and unpredictable as we should have expected. I’m excited about Ethereum 1.x (state pruning, Ewasm, transaction parallelization) because 2.0 won’t ship before 2020 (earliest). I liked (Ethereum core developer) Lane Rettig’s breakdown, and CoinDesk also has a good backgrounder.
5. Top 20 coin hot takes:
   BTC: Digital Gold | ETH: ICO Reserve | XRP: Too-Big-to-Jail-Coin | BCH (ABC): Bitmain Casino Chip | EOS: Wait, It’s Legit? | XLM: Cool, Enigmatic | LTC: Now Useless | USDT: Surprise! They’re Solvent. | TRON: omg, these guys own BitTorrent | BSV: Faketoshi Coin | ADA: DO YOU KNOW WHAT IT IS? | IOTA: Ass hole founders | XMR: Fluffy Pony Reserve | BNB: exciting unregistered security | DASH: airplane promos | NEO: “Chinese ETH” | XEM: wtf is NEM? | ETC: [redacted]’s shitcoin | MKR: #DeFi Reserve | ZEC: Winning Privacy Coin
6. Top 10 people to keep an eye on in 2019:
   CZ (Binance), Vitalik (Ethereum), Elizabeth Stark (Lightning Labs), Jae Kwon/Jutta Steiner (Cosmos/Polkadot), Zooko (ZCash), Rune Christensen (MakerDAO), Bram Cohen (Chia), Robert Leshner (Compound)/Nadav Hollander (Dharma), Will Warren (0x), Joe Lubin (ConsenSys), Arthur Hayes (BitMEX).
7. I know. Many of those are obvious, but they continue to be the ones to pay closest attention to. If I had to pick 5 more under-followed folks (sub-15k), I’d go with: Hasu (researcher), Mason Borda (TokenSoft), Yaniv Tal (TheGraph), Demi Brener / Manuel Araoz (Zeppelin) (both had great year-end pieces, too), and Spencer Noon (investor).
8. Biggest rebounds? I’ll be fascinated to see what happens with both Bitmain and ConsenSys, two of the world’s largest crypto companies that got burned by concentrated crypto positions. I think Bitmain’s IPO is in trouble, but rumors of ConsenSys’s death have been greatly exaggerated.
9. Taxes will get more nightmarish. You thought thinking through ERC-20 like kind transactions and scraping Poloniex trade histories was bad? Try trading from a self-custodied wallet using a non-custodial exchange where your keys never move.
   And what do you do about “interest” on staked tokens, or dapp usage where you leverage multiple tokens? It’s near impossible to proactively report on these, so imagine the helluva time the IRS will have tracking all this down. Worse still, complexity means that audit victims are going to have a bad time explaining the esoterica to the men in suits.
10. Security tokens will fall flat. a) nobody actually cares about hard assets on the blockchain (beyond some initial hype and novelty), b) none of the assets / cashflows getting tokenized are interesting to crypto geeks. The “killer app” for STOs are DAOs, but don’t expect those in 2019 because the infrastructure isn’t there. Yet. (h/t Ben) AGREED

DeFi / Open Finance

1. “Open finance” (lending, derivatives) will become the primary use case for Ethereum. Most other dApps (gaming, distributed storage, attention markets) will move to competing blockchains that are optimized for single uses. (h/t Eric) AGREED
2. The Gemini Dollar, Paxos, TrueUSD, or USDC will overtake Tether as the largest fiat-backed stablecoin. Three of the top ten assets by market cap will be fiat-denominated stablecoins by year-end. You can track the action here. (h/t Eric) BOLD
3. A legitimate game development team will build an NFT app that gets more DAUs than any other dapp. Everyone is talking about Ethereum NFTs, but the Ethereum blockchain’s performance is lagging its less decentralized competitors. Meanwhile, something viral will get built on EOS. (h/t Ben)
4. It’s getting less sexy, but I still believe in digital resource tokens for storage, computing, etc. Its importance isn’t obvious to many (yet) and it’s a five year vs. 2019 trend, but these tokens will be critical to fueling Web 3.0’s growth. I’ve gotten more bullish on them recently as a) speech censorship globally is ramping up, b) the “Airbnb” model for of excess file storage / compute / cellular data seems intuitive, c) AWS margins are insane, and ripe for the “your margin is my opportunity” treatment…this time by disruptive distributed protocols. Filecoin is the one to keep the closest eye on. They’ll launch by Q3. (Ok, maybe Q4).
5. I still believe in governance tokens with serious caveats. Most of these tokens were wildly overvalued last year, but many have crashed so viciously, they make more sense today. The litmus test? Is the governance token in question securing a valuable code base upon which a good deal of economic activity relies?
   If so, you can value them sort of like insurance premiums. Ones you pay to guarantee the underlying code’s reliability. I buy that narrative for Zeppelin (reusable smart contracts), 0x (reliable DEX logic), and Aragon (DAO governance). In those protocols, if the majority of “governors” abuse their power in any of these systems, the disenfranchised still retain the right to fork / exit.
6. Speaking of 0x, if you’re them, you have to be thinking of how to share your token reserves with top relayers more efficiently. The previous top relayer by volume, DDEX, forked away in order to build on a $3 million market cap protocol token (Hydro) in which it had a stake. I wonder if these defections could be avoided with more generous token treasury distributions. Slippery slope, maybe.
7. 0x is making baby steps in that direction by rolling out incentive plans for market makers (announced yesterday, actually). This seems like a critical initiative as the DEX ecosystem has no small task in bootstrapping liquidity to become competitive with larger, faster, better custodial exchanges. Which leads to…
8. If any DEX captures significant market share, it’ll be one built by a company with a centralized exchange (e.g. Bitfinex, Binance). The giants already own the user relationship, have the liquidity and market making capabilities to make spreads competitive, and UI to abstract away the actual DEX. (h/t Qiao)
9. After regulatory action against EtherDelta chilled DEX developers’ willingness to push the envelope, and neutered perceived advantages of decentralized trading, we’ll see a DEX launch with completely anonymous founders (a la Grin), with code similar to Bittorrent’s. (h/t Eric)
10. That anonymity might be a critical missing piece of the DeFi movement in general. Here’s my five variable formula to create unstoppable commerce:
    secure wallet hardware + DEX + stablecoins + zk-SNARKs + high-throughput smart contract platform = Web 3.0.
    If you can store value, exchange freely, self-custody, and program scalable contracts, you can conduct any type of transaction.
11. Over time, DEX will be an indispensable abstraction for machine to machine smart payments, and application interoperability. Today, however, the killer app for DEX may be tax evasion (see #9). DEX power traders will be tough to trace, and you’d be willing to pay a 2% spread if it meant 20% in capital gains evasion. (NOT A RECOMMENDATION. I use TokenTax.co)
12. DEX skeptics underestimate the hassle of global asset onboarding to centralized exchanges. DEX protocols can support new tokens instantly, so in a future with thousands (or millions) of tokens, “listings fees” will be obsolete, and liquidity pools will aggregate globally.
13. Are DeFi spreads silly? Of course! That’s how this starts, not how it ends. We work our way from the most chronically underserved retail user to enterprise adopters, not the other way around. BitMEX is a $10 billion company because it helped bootstrap a global margin trading market for “degenerate gamblers.”
14. I’m extremely excited about Ripio’s collaboration with MakerDAO. Bringing dollar-pegged lending products to customers in an economy experiencing 40% annual inflation is massive. I’m sure the compliance teams are buttoned up, but even if these initiatives aren’t explicitly blessed by regulators, they’re worth pursuing aggressively. I view stablecoin fueled cross-border credit as a killer app for crypto.
15. Speaking of MakerDAO (track it here — graphic below), it’s today’s most systemically important crypto dapp. $Dai should power all sorts of DeFi applications, while centralized stablecoins end up getting relegated to a primary use case of facilitating inter-exchange liquidity. Fully reserved regulated stablecoins are less “crypto,” more just simply “finance.”
16. Dai also survived one of its most significant tests in 2018. “Can Dai survive a market crash?” Asked and answered. Dai survived the 94% drawdown in ETH, and the move from a single-collateral to multi-collateral model should accelerate its adoption in 2019. (Now if we can just scale it safely…no one yet knows whether Dai works without significant over-collateralization. Big TBD.)
17. Dollar-backed stablecoins will catapult “open finance” into mainstream adoption. The idea of dollar backed stablecoins will be generalized to other asset classes, i.e. a token that tracks S&P 500. New crypto indices that mirror traditional asset performance (synthetic crypto securities) are a massive untapped (and probably illegal) market that could pick up steam in 2019. (h/t Qiao)

Other Killer Dapps

1. The top dapp markets at the end of this year will prove to be the ones already running experiments, although the market leaders may (will?) change. I’m more bullish than ever on prediction markets (Augur), lending products (Compound), and digital gaming assets (Decentraland).
2. Re current Dapp usage being slow / non-existent: a) it’s expected (we’re in the “toy” stage), b) we should compare Dapp stats to 2019’s most hyped project, Lightning (e.g. $2M $REP staked = current $2M LN capacity), c) Dapps with a stablecoin are far more usable than Dapps with ETH. Usage will come slowly, but surely. Until then, usage charts will look ugly.
3. Speaking of Augur’s $REP, prediction markets may eke out steady growth this year, but it won’t be explosive because market making is still so risky (potentially illegal gambling or unregistered futures trading) for such a small payout. The CFTC’s “developer liability” assertion was chilling, there is no major catalyst for volumes until the 2020 election, and the top prediction market may be highly centralized. Good teams will figure out how to better abstract away the tech. One of my top companies to watch in 2019 will be Veil (funding announcement).

Macro/Politics/Taxes

1. I like Fred Wilson’s President Pence by EoY prediction. Part of me hopes it’s so. Especially after last night. But Trump is more likely to get reelected than he is to resign. How do most people still underestimate how little he gives AF? The Democrats will blink over “the wall” before the gov’t reopens. (And I doubt they blink anytime soon. Did you watch the addresses last week???)
2. Why bring this up in a crypto post? Well, Trump wreaking havoc on the government (shutdowns, scandals, god help us if a national security crisis emerges), impacts the crypto markets insofar that crypto is still a highly correlated “risk” asset that will crater further in a macro recession. Generally, political dysfunction slowly advances the move from USD as reserve currency to something new, and that could greatly benefit bitcoin. So long as the dysfunction isn’t severe.
3. The shutdown will impact bodies that still need to provide better clarity on crypto tax rules (IRS) and the bitcoin ETF (SEC — next deadline is in Feb). It will also delay the 60+ crypto companies (word of mouth) that have filed for a Reg A+ offering, which allows companies to offer shares to the general public. Without approval, a lot of those tokens cannot be legally distributed. (KWu)
4. The two greatest American lies: “Rising debt isn’t a big deal because the dollar is a reserve” (we’ll lose reserve status by 2030); “If you don’t like things, vote!” (voting for big gov’t right (R) and big gov’t left (D) isn’t a choice if you’re in the small gov’t party. “Exit” is a choice. Long live bitcoin!)
5. Speaking of losing reserve currency status… Given Brexit, the Chinese economic slowdown, the rise of global populism, etc. 2019 will be the year a top 50 central bank starts purchasing crypto as a speculative bet on a new type of disaster hedge. Look to mid-inflation developing economy banks in particular. What is there to lose? It’s an asymmetric bet.
6. Things aren’t all doom and gloom. It doesn’t take magic mushrooms to appreciate we live in an era of abundance. The average time an average human needs to work to purchase a given commodity has fallen 65%. As that falls, we get further from a Mad Max-level dystopia. My favorite 2019 prediction: things will continue to get better! So stay rationally optimistic.

Image: HumanProgress.org

Information overload:

1. The bad news is that along with our commodity abundance, we also have information abundance, yet finite attention. We tend to get more of our information based on its memetic value these days (see #41), and what is “popular” vs. what is mentally nutritious, which is one reason the web is such a wasteland of messy, unstructured, and unreliable information. Curation markets will be massive for solving some of our attention and information problems even if early concepts have struggled.
2. Yes, token curated registries launched to date have been disastrous, ineffective, and offered questionable incentives. ConsenSys has a few interesting experiments to keep an eye on though (TruSet, TCR.Party), and I’m watching developments from Slava (Relevant) and Thibauld (Continuous Organizations) closely as we think about how to roll out Messari’s token registry.
   This primitive is young. There are solutions to all the critiques…
   + popularity contest! -> well, design TCRs for popularity contests, then! + easy to corrupt at launch! -> well, distribute the registry tokens slowly to strategic parties and incorporate lock-ups / illiquidity by design!
   + who’s actually going to vote on this?! -> make sure you include delegated voting logic so token-holders can vote by proxy!
3. Lots of good niche data services. No great information aggregators and curators. Messari is going to win this market. (Or I’m going to be eating ramen until the Citadels pop up.) Stay tuned.
4. People will finally realize valuation metrics like NVT have no predictive power because you can game them. We’ll also get much better measures of token size and importance than market cap, likely a liquidity adjusted market cap.
5. Technical analysis on BTC and other liquid cryptoassets will become much less effective as real prop shops begin operating with meaningful capital. Crypto economic data will become more valuable as people bargain shop, and that will coincide with a decline in CoinMarketCap’s dominance.

Memes and Meanies:

1. Success in crypto community building hinges on memes:
   Pomp: “The Virus is Spreading.” “Long Bitcoin, Short the Bankers.”
   Blockstream: “Make bitcoin great again.” “Don’t trust, verify.”
   Neeraj: Take the least sexy crypto role (policy), and win w/ 24/7 memes.
2. When you’re behind in the polls, go negative. Or troll your way to the top. Vitalik coined the term bitcoin maximalism in 2014 to combat critics.
   Gemini’s “Crypto Needs Rules” campaign is BRILLIANT.
   Mike Dudas / TheBlock started with obnoxious as a strategy. It’s working.
3. One of my favorite lines from 2018 came from Ameen Soleimani, who told me BTC vs. ETH communities were like Spartans vs. Athenians in this scene from 300. 2019 will show which ETH Athenians earn their warrior stripes and which jump ship to other protocols. Many Ethereum folks have never been through a crypto bear market. Many will run out of money. How religious will they be once the dry powder runs out?
4. #XRPthestandard is a top all time astroturfing campaign from the Ripplecoin aficionados. These folks have reinvented truth, attacked and pissed off everyone else in crypto, and still get to delude themselves into thinking a former President is a fan of the project. “I’m not even mad. That’s amazing.”
5. You look like this when you get all tribal about your favorite crypto. But you’ll never admit it. (h/t Roger Ver)

All time favorite cartoon. Gets better with age.

#Influencers

1. The 1 million bitcoin lawsuit against Craig Wright will prove once and for all that he is, in fact, not Satoshi, but he will continue pandering to the less sophisticated masses about his early involvement to shill shitforks and obvious scams until he has no more ammunition (social, crypto, or otherwise) left. (h/t Ben)
2. (47a, for those wondering the count.) Actually, Ben’s wrong. I continue to believe Craig was at least part of whoever created Satoshi Nakamoto, and he’s been hiding in plain sight. This lawsuit IS the most interesting thing to watch this year in the search for Satoshi.
3. CoinDesk, Breaker, TheBlock are all tracking the movements of execs in the industry well and killing it on the research and content. But if CoinDesk doesn’t fix its site performance and cut down on the dogshit adware, TheBlock will eclipse them by year-end. CoinDesk has great content, but is totally unreadable. It’s Forbes-level terribleness on Chrome.
4. I’m intrigued by efforts I’ve seen to score crypto twitter using a “people rank” algo that monitors strength of following. Heavy bias for tenure in crypto, but the work Iconomist & Hive.one have done is interesting. These will end up being incredible tools to leverage in curation markets.
   (Bonus points, I’m in a fun sandwich between two former masters:)

I’m so popular. When will you realize I’m a fraud?

Markets & Price

1. A portfolio consisting of 50% Tron + 50% XRP will outperform a portfolio consisting of 50% LTC + 50% ETC. (Centralized marketing and execution definitely helps.) The S&P 500 will outperform HOLD10 on a risk-adjusted basis. (h/t Qiao) BOLD
2. Look to developing markets for salvation: If there’s a bull market in 2019, it’ll be driven by Europe, South America, or Africa. If anyone builds an open finance killer app on Ethereum, it will be a team based in a developing country. (h/t Qiao)
3. Bitcoin isn’t dead. Ethereum isn’t dead. But the “great cleansing” of top 100 cryptos on CMC won’t happen overnight. It takes time to flush out crap. We only get “decoupling” of quality and crap during bear markets, *not* vertical bull runs. Look at the Dec 2013 top 20 assets, they’re almost all long gone.
4. Returns in crypto will be captured by money/store of value like assets vs startup equity. BTC will outperform equity in Coinbase, Binance, BitMEX, and all of today’s other crypto unicorns over the next five years. If this doesn’t prove true, it’s because BTC somehow lost its lead.
5. BTC and ETH have bottomed. (Maybe wishful thinking, but the November crash sure felt like January 2015.)
6. Filecoin, Telegram, and Cosmos will launch within the next 12 months and catapult to the top 10 crypto assets by market cap. (That’s a lot of top 10 turnover in a less liquid market if I’m right.)

Privacy

1. Lightning will start to be used as a privacy layer for BTC transactions. There will be a lot more talk of privacy solutions for later-1 on bitcoin, but no progress that impacts end users. (h/t Dan)
2. Arjun outlined the monster year in Bitcoin privacy research. But I’m skeptical hosted wallets and exchanges will make speedy upgrades when these features are rolled out due to regulatory concerns. The race is on between Chainalysis + Elliptic (the two largest on-chain data forensics companies) and crypto privacy engineers to unshield, obfuscate, unshield transactions (ad infinitum). Monero, ZCash, Bitcoin, Grin, BEAM…there’s so much to look forward to if you’re a hardcore privacy advocate…or a technical sleuth. Cops and robbers for Web 3.0.
3. Privacy tech’s success also means we’ll eventually we’ll have to move to an opt-in disclosures system, where most economic actors provide their business partners or regulators/authorities with view keys to key accounts and transactions. The powers that be won’t let a multi-trillion dollar shadow financial system emerge with no surveillance capacity. Entrepreneurs know this, so will ultimately be more proactive about this.
4. No one really understands privacy solutions. Few actually use the tools that *do* exist. If privacy upgrades aren’t abstracted away by developers, or there aren’t real economic incentives to adopt them, no one will push for them. This is a pithy take, but it’s worth reiterating over and over and over again because zk-SNARKS, zk-STARKs, Confidential Transactions, etc. aren’t worth anything if they aren’t actually embedded in useable products.
5. Great take from researcher Hasu (h/t Token Daily): “Bitcoin will continue to get more private: LN and sidechains offer full fungibility if you accept certain tradeoffs of trust and security. Dandelion will add more privacy on the p2p network layer (harder to do UTXO forensics). My fingers are crossed for Schnorr signatures in 2019 (these hide multi-signature transactions — that would be a huge deal in combination with Coinjoin). Private transactions by default would be encouraged, because it’s cheaper to share a signature (the biggest/costliest part of a bitcoin transaction) with others.”

Top-Down Regulation — Boo.

1. The SEC’s mandates are to facilitate responsible capital formation, promote fair and efficient markets, and protect investors. But their slowness, vagueness, and demonstrated enforcement-first mindset will lead to more market opacity, and offshoring. U.S. teams are getting frustrated that all conversations with regulators are one-way streets.
2. A large, offshore exchange will face serious legal action from a U.S. regulator (even if the exchange blocks IPs or restricts U.S. user access via its terms of service). It will set up an epic legal showdown, as $10 billion companies usually don’t roll over without a fight. (h/t Eric)
3. Ripple will get away with murder. Too well capitalized (~$500M in 2018 $XRP sales), too well connected (ex-regulators Mary Jo White, Ben Lawsky, Gene Sperling are advisors or directors) to face trouble for their private money sales to retail. Negligible, if any, fine, showcasing the ineffectiveness of relying on the state.
4. Thanks to SEC/CFTC hostility and uncertainty, we’ll see more anonymously deployed token projects and sales. Some will be legit like MimbleWimble. Others will be epic scams made possible only because SEC regs drove people to this behavior. (#self-regulation) (h/t Dan)
5. Token ratings and research shops in the U.S. are going to flirt with the SEC as well. Rating tokens “BB” based on your interpretation of the NVT ratio, a TradingView chart, and a witty telegram post is going to lead to some questions about how and who you’re marketing those scores to, anyway.
6. The SEC will do nothing of real import aside from impede the progress of good teams, pick easy cases, make scammers harder to identify, and block the actually useful bitcoin ETF. Elon spoke for crypto twitter when he said: “I want to be clear. I do not respect the SEC.”
7. This was a good take from Arjun that I pretty much agreed with wholeheartedly: “Some of the US-based teams working on the DeFi stack are taking on material risk and will face regulatory scrutiny in the US (70% confidence) given their move into structured products. This will test the runaway killer app of Ethereum: regulatory arbitrage (first with the offering of unregistered securities offerings and now with quasi-legal structured derivatives), as teams “move fast and break the law.” While engineers are discussing “compounding financial primitives,” I’m worried about compounding technical (or legal) risk.”

Market / Self-Regulation — Yay!

1. There will be a ton of asset delistings this year. For many exchanges, trading certain cryptos is too much of a headache for little to no return. I’m talking about the absolute *gems* like Clams, PascalCoin, Viacoin, and Primecoin. (All still on Polo. All sub 50k in daily trading volume and single digit millions float. There will be blood…)
2. There will be voluntary and involuntary conversions of ICOs to security tokens. ICONOMI did it the “voluntary”(?) way. Others will do it the involuntary way either via SEC enforcement (Airfox, Paragon) as teams are forced to brush up on investor rescission rights. We also have a new brand of activist investor who’s entering the fray, something I’m especially excited to watch unfold with respect to converting tokens to equity, or other protocol tokens.
3. Messari will onboard 100+ projects to our crypto registry. (We’re closing in on 20. If you’re interested in staking / sponsoring your favorite token team, hit us up!) Binance, Coinbase Pro, Polo, and others will require basic disclosures + add them to their sites.
4. I’m really hoping GDF, the Blockchain Association, Coin Center, the VCA, ADAM and others play nicely together. Crypto self-regulatory groups seem like they’re going to almost inevitably compete and talk past each other. I hope I’m wrong, but standards setting in 2019 will look like this:

Opinionated people tilting against windmills wrt standards setting.

Life hacks

1. For those who swear to make new years resolutions, but have a tough time keeping them, this is an awesome habits tracker, you can use. I recommend also reading the original thread on forming new habits from Ali at a16z.
2. This multiple inbox custom gmail implementation changed everything for me a few years ago. I actually keep up with email now, and regularly hit inbox 0. (Update: Jinx. I’m now at 50 again.) It’s tough to get shit done with a messy desk or desktop or inbox. I promise you, it’s worth the 30 minutes to set this up. It will pay dividends for years.
3. Don’t worry if you’re not waking up at 4am, meditating, working out for three hours, eating keto, and journaling. Self-improvement is great, but this is how Ali’s boss claims to start his day:

pmarca knows what’s up

Protocol Wars

1. For the die hards trying to keep up with the various ETH scaling proposals, Arjun did a nice job aggregating them all. If this looks complex, it’s because it is. Now try to imagine Ethereum 2.0 actually coming to market successfully in the next 18 months herding all of these cats:

yikes.

1. EOS will surpass ETH. EOS could surpass ETH in dapp activity; as serenity delays continue, developer mindshare will wander; EOS smart contracts use C++ and compile into WebAssembly (better dev experience); on-chain governance works in EOS, isn’t close in ETH. (h/t Jane)
2. Various ETH competitors with seasoned executives, top VC backers, and technically superior platforms will run aggressive marketing campaigns, but stall as ETH’s culture, grassroots mindshare, and developer network-effect lead prove too strong to overcome. (h/t Dan)
3. This month could be a messy one in Ethereum. We’ll see major pushback from disenfranchised ETH miners around the Constantinople upgrade (which, among other changes is going to crush ETH miner margins further by reducing block rewards 33%). [We’ll find out tomorrow.]
4. Protocol M&A! In this bear market, consolidation is inevitable at the company level. But it will make more sense for many teams to merge together than fork away from each other. The TRON and Stellar acquisitions of BitTorrent and Chain were the biggest M&A eye-openers in 2018 (even moreso than Polo to Circle and Earn to Coinbase). This year, the question isn’t about companies that will get acquired, but how many low market cap crypto tokens will “merge” with larger competitors?
5. We’ll see more tokens buy back portions of their supply like ICON did. Here’s a few token projects trading well below their estimated balance sheet ETH coffers:
   Aragon: Market Cap $14MM | Balance Sheet $26MM
   DigixDAO: Market Cap $42MM Balance $58MM
   Gnosis: Market Cap $13MM,117 Balance $28MM
6. Could we see more tokens proactively burn some of their undistributed treasury tokens to ensure the majority of their supplies are decentralized like Numerai did? If a token project: a) issued 100% of its supply at inception, b) currently holds more tokens in treasury than is circulating, c) doesn’t have a pre-defined secondary sales process, then the entity should burn a significant portion of its treasury tokens! That would look like a share repurchase in equities, but with no capital outlay required or board approval. Just a snap of the fingers.
7. While it would be great to continue to see new crypto VC blood enter the fray to take advantage of bear market prices, the universe of crypto fund managers is unlikely to see many new entrants until the next hype cycle. The ones that closed their funds know they are now in position to “Raise during bubbles, deploy during busts.”
8. We’ll continue to see an explosion of ecosystem development funds, but for smaller projects. Metaverse was an interesting early example. Multicoin capital frames it well: “Just as a traditional VC firm would set aside capital for follow on rounds, we believe that crypto investors who typically invest in protocols will find it’s a best practice to also set aside capital for supporting the network.”
9. Bitcoin benefits from its static nature. There’s just one problem: bitcoin will have more contentious hard forks in the future. A big one will be around changing the hard cap as the fee market compresses, another will be — you guessed it — around the block size. We know forks are risky and dilutive, but the next one will be a real threat, because it will likely incorporate significant privacy upgrades that governments will not like and block at all costs.

Then They Join You

1. I’m bearish on Facebook’s stablecoin in the short-term. The WhatsApp Indian remittance target use case is not compelling, and crypto regulation in India is notoriously tough to navigate. USD works fine as a parallel currency most places, and competitive services are entrenched. The Indian government won’t look kindly upon a private company undermining its monetary sovereignty. (h/t KWu)
2. Very few blockchains that raised mega pre-launch rounds will find product-market fit. One that will actually launch, and have wild success, will be Telegram. Top team, massive user base, crypto ethos, and they’ll fork whichever relevant crypto protocols work for their own purposes. Good artists copy. Great artists steal. (h/t Eric)
3. As global macro fears return, talk of central bank digital currencies — and their Orwellian surveillance and control — will excite Big Brothers globally. BTC will remain an antidote to financial totalitarianism. CBDCs “replacing bitcoin” will become this cycle’s “blockchain not bitcoin” stupid establishment meme. (h/t Dan)
4. China will be the first to issue a sovereign-backed digital currency that *actually* sees widespread adoption. China’s economy is already highly digitized, and this could be a way for the Yuan to replace (or seriously threaten) USD as the dominant reserve currency. (h/t KWu)

Great Artists Steal

Throwback to a few October 2017 forward-looking predictions from Daniel Jeffries that I really liked, and am going to steal for 2019. Full post is here.

1. “Many governments will not sit by and lose control of the money supply without a vicious fight. Anyone working on a project right now should be anticipating protocol level assaults on decentralized cryptos and designing defenses against them.” China is still a major threat to bitcoin. The U.S. less so, because the government is so slow and dysfunctional.
2. “The same factors that make it hard to form consensus across a blockchain, make it hard for all the world’s governments to agree on anything. They won’t be able to do it. Some governments will love decentralization and others will hate it.” Smaller governments (e.g. Malta, Singapore, Estonia) can make asymmetric bets on crypto and potentially catapult their economies forward. This trend will continue to accelerate as PBOC crackdowns continue and as the SEC pursues more frequent enforcement actions.
3. “We will have four dominant meta coins, plus fifty to one hundred minor coins, and infinite virtual variations of these coins, plus state coins. At this point I can only see four types of coins needed, with a blockchain of blockchains (or post-blockchain tech) seamlessly swapping them as needed to consume services: Deflationary Saver Coin — hoarding and investing, these rise over time like a “digital gold” — it’s the reason Bitcoin started in the first place; Inflationary Spender Coin — inflationary coin mirrors the dollar today, these are the stablecoin experiments; Action Token — actions on the network that should always be free (i.e. voting); Reward Token — designed to flow around the system as a digital representation of karma, incentivizing good behavior and punishing bad behavior; You could literally build the ultimate universal system with just these four coins. Every other coin could simply act as a subcomponent with different metadata.”

And my favorite three from the ~40 I read on Token Daily’s curated 2019 prediction piece. (Curate the curators!)

1. Alex Pack (co-founder, Dragonfly Capital) “The largest crypto businesses in the world are already in Asia — of the top 20 exchanges by volume no more than a handful are based outside of Asia, as are the largest mining companies. In 2019, we will start to see these exchanges and mining companies act as distribution channels, offering new financial products and smart contract-based applications to their users.”
2. Benny Giang (co-founder of Cryptokitties) “Korean market will have consolidation amongst technology and crypto businesses next year. There will be a huge effort amongst some of the top gaming companies to break into this space. What this means as a whole, is that Korea will be leading the way for consumer adoption early next year. We’ll see lots of questions about decentralized systems being slow vs semi-centralized systems with mass adoption. (The Multicoin Capital debate on platform-grade vs. sovereign-grade censorship resistance)”
3. Benny again “Japan’s largest tech companies have secretive R&D teams. From my perspective, I don’t think a lot of the efforts will translate into new business lines in 2019. However, there is a handful of experienced veteran game producers who have formed their own blockchain gaming studios. A lot of high-quality blockchain games will be released in Japan late Spring to Summer of next year. This will set a new standard for hybrid on/off chain blockchain games.”

Us and Me

1. I’ve always been the best at shameless self-promotion. My thought leadership, influencer status, pioneer pedigree, plus general authenticity and good humor is why Unqualified Opinions will be a top 50 crypto newsletter and podcast by 2020. Share with your friends, and show some bear market love. Give a gift subscription. Or contact us about corporate subscription rates. No one ever got fired for paying an idiot with the corporate Amex. (At least no one I’d tell you about.)
2. But actually, I’m terrified UO is going to suck, and it’s going to be all my fault and CT and the subscribers alike will finally tell me what a fraud I am. If our new podcast underperforms, remember this interview instead, which captures my thoughts on the year ahead. It’s me being my best self.

Hope y’all are your best selves in 2019 as well.

Keep building. Beat the bear.

-TBI