So, Is Crypto, Web3 Dead?
This is Article 4 of 4 for the Bankless Writer’s Cohort.
Last week Tuesday, I was talking with a friend about Web3. Let’s call this friend Frederick. Frederick has never been a fan of crypto, Web3, NFTs, and other related technology. I believe the reason was/is because he does not understand how they work, plus the myriad of negative experiences he has heard from friends. However, while the mention of crypto leaves a bitter taste in his mouth, he has not entirely left the subject as he keeps up with crypto news through social media and our discussions.
During our usual conversation, while recounting some of the recent downtimes, he asked a question that caught me off guard: So, is crypto dead now? I answered the question on the spot, but later, while thinking about it, I was prompted to write down my thoughts to answer it conclusively, hopefully. This article is my brave attempt at answering the question. Let’s dive in.
Are Crypto and Web3 all over now?
The 2021 bull market was surprising but well-welcomed. NFT project floor prices mooned above-expected speculations while the prices of Bitcoin, Ethereum, and other altcoins reached new all-time highs rallying the entire crypto market to a record $3 trillion later that year. Unfortunately, this bull market is currently in our rear-view mirror, with the market suffering some of its most troublesome times this year. NFT trading volumes have gone down from billions, hundreds of millions to just millions. $LUNA and $UST combined wiped out more than $60bn worth of wealth from the market. We have also seen some big crypto players, like 3AC, Celcius, BlockFi, etc., become insolvent and bankrupt, leading to more downtrends.
To answer Frederick’s question, I firmly believe crypto is not dead. Yes, the above paragraph paints a doom and gloom picture, but I argue and daresay that the worst days are behind us. Sure, the overall industry has slowed down, but a few factors indicate another bull market is sure to come. One such factor is the unchanging human nature of greed and fear, which has been the driving force behind hype-and-bust cycles through which we achieved previous technological breakthroughs and mass adoptions. To better understand the greed and fear phenomenon, let’s look back at history and how technologies like crypto get adopted through cycles.
How Cycles Form
Gartner Hype Cycle shows that “Technology Triggers Hype.”
Innovative technologies often come with bold promises which are accepted during cycles. The graph above shows the maturity and adoption of technologies, their relevance in solving the problems they were created for, and creating new opportunities. Let’s look at them individually.
- Technology Trigger: Here, the technological breakthrough, proof of concept, and media interest trigger some publicity. But, a usable product and product-market fit are still far away.
- The Peak of Inflated Expectations: The early publicity makes companies and individuals take action and invest, creating success and failure stories.
- Trough of Disillusionment: Here, interest in the technology slows down as existing experiments and implementations start failing more.
- Slope of Enlightenment: This comes immediately after the disappointments. Surviving companies continue to improve products, creating instances of how the technology can still benefit people. More funds enter the industry while observers and participators remain cautious.
- Plateau of Productivity: Finally, mass adoption takes place. Product and usability parameters are more clearly defined while the technology’s broad market keeps growing.
Jean-Paul Rodrigue’s Four Phases of a Technological Bubble shows how Smart Money Moves First.
Besides the technological aspect of hype cycles, different investor types play different roles in each stage. For example, the chart below depicts the relationship between bubbles and investors in four phases.
Crypto — and Web3 — have gone through several similar cycles since Bitcoin’s whitepaper was publicly released in 2008. However, unlike other trends that died over time, crypto always came after each hype-and-bust cycle with even bigger cycles. Each time it seemed like crypto was dead, certain behind-the-scene technological breakthroughs were achieved, causing developments leading to the next hype cycle and more technological advancements. Below is a crypto history tree from Trinito detailing crypto’s previous tech cycles and breakthroughs over the years.
2008–2013:
The Advent of Bitcoin Whitepaper, Network Forks, Crypto Exchanges.
Bitcoin’s whitepaper is (in my humble opinion) the first breakthrough that created the crypto industry we are familiar with today. The whitepaper laid the blueprint for Bitcoin, the world’s oldest and biggest digital currency and blockchain. Many network forks have ensued since 2008; Litecoin, one of such forks, is an altcoin used as a payment system with a market cap valued at billions of dollars. The first crypto exchanges were also formed during this period — exchanges like Mt. Gox, Bitstamp, BitFinex, Coinbase, etc. Mt. Gox eventually collapsed while the others remained and helped onboard hundreds of millions of users plus setting the groundwork for compliance with regulators and government.
2013–2017:
Ethereum blockchain, Smart Contracts, ICOs, and NFTs beginning
Vitalik and Ethereum’s cofounders built Ethereum because it is near impossible to use Bitcoin’s blockchain for other use cases besides money. After Ethereum’s unveiling in its 2013 whitepaper, it conducted a $16 million ICO and $150 million funding of “The DAO” paid via Bitcoin. The two incidents were regarded as two of the biggest funding in history at the time. Ethereum’s popularity was bolstered by its protocol infrastructure — developers could build and deploy their decentralized applications (dapps), smart contracts, and tokens. This infrastructure paved the road for thousands of projects, dapps, some NFTs, and ultimately ICOs — hence the ICO craze of 2017–18. About 3,250 projects were reported to have raised $21.4 billion during the ICO days. Unfortunately, many of these projects have failed to fulfill their promises. However, I can argue that the ICOs catalyzed the next bull market while providing developers with faster ways to finance their projects.
NFTs also started during this period but were just used as digital proof of ownership for collectibles and valuable items. It wasn’t until CryptoKitties’s November 2017 debut and instant success that the phenomenon gained more publicity and use.
2017–2021
Layer 1s and 2s, DeFi Summer, NFTs as a norm, Tokenomics standards
During this period, L1 and L2 protocols like Solana, Polygon, Near, Cardano, etc., launched in response to the crypto market’s scalability and high transaction fee dilemma. They provided more alternatives for crypto users through faster, cheaper blockchain transactions allowing them to build their dapps and conduct project research and grants. 2020 sparked the growth of DeFi as projects like Compound, Uniswap, and Aave attracted large amounts of users and capital during the DeFi summer of 2020. While NFTs gained more cultural and brand significance from late 2020 to the end of 2021. Apart from DeFi, NFTs, and layered protocols, other phenomena like Play-to-earn gaming, Move-to-earn projects sprung up and attracted millions of users. The newer concepts utilized crypto’s existing technological infrastructure, like blockchain, fungible and non-fungible tokens, and basic tokenomics. These projects proved that crypto is not only about finance and payments but could also improve internet usage, hence the birth of Web3.
2022 and Onward:
Although we have come a long way from zero to one in just 12 years, I believe there is still much room to grow to unlock our full potential. As such, research and experiments in areas like
- Scaling and interoperability
- Decentralized Digital identity
- Advanced Token Engineering
must be made accessible and easy to participate in for all involved.
Conclusion: The significance of each cycle
Via the charts illustrated above, business cycles go through booms and busts repeatedly, while peaks and bubble busting occur when innovative technology is developed or adopted. Crypto is unarguably an innovative technology, so there is room for many possibilities. Because of this, I believe more bull and bear markets will ensue in the coming years. The human nature of greed and fear will NEVER change. Developers are still working on projects that will boom during this bear market. Some of these projects being built will achieve new highs and leaps in the net bull market (whenever that happens). Finally, what gets built now, will provide the groundwork for the bull market, and hopefully, it will last for us to build better products.
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