While other technologies of our time are innovative — crypto is the only one that’s actually disruptive. AI, mobile, VR further entrench the players of today. Crypto isn’t another feature you can implement in your org/product. Regardless of location, past achievements or status, no one really knows what will happen. This piece is a consolidation of my thoughts but also a chance to open it up to scrutiny.
First and foremost, blockchains are humans around the world coming to agreement about how to coordinate when we don’t necessarily trust each other. These agreements are then translated in the form of code. We’re at a time in history where there’s only two meaningful chains to talk or reason about: Bitcoin and Ethereum. Why these two? Because no other chain pays more than $10k to miners securing the network. Bitcoin pays ~ $500,000 and Ethereum pays ~ $50,000.
Bitcoin, having celebrated its 10th birthday, was a paradigm shift as it was the first economy outside of any state’s control. An achievement that will be remembered throughout history. Bitcoiners had to overcome skepticism of no-coiners.
Ethereum being ~4 years old spawned as a result of Bitcoin’s rigidity and inflexibility to create a state execution machine (smart contracts). It rose to prominence in 2017 as a result of the ability to issue custom digital currencies. Ethereum ironically has to overcome the skepticism of the Bitcoiners who came before them.
None of the technology that’s been created today has found product-market fit on a scale of internet applications, instead people become excited and disappointed in waves. There’s two waves that I view crypto through, speculative waves and generational waves.
I truly believe that most people in crypto don’t appreciate the cyclic nature of these markets. Without them, it gives very little reason for people to get involved and try a technology which quite frankly doesn’t live up to the expectations — yet.
Most people, including myself, have very similar stories of being alluded to a goldrush and then staying to learn more as time progresses. If you think of it as a funnels, you have speculators -> users -> builders (designer, product manager, developer) -> entrepreneurs. The cohort decreases rapidly as you go along but the results start compounding over the decades as people reach the end.
The powerful force of waves is that it influences the psychology of masses of people to create temporary shared alignment (blockchain will change the world) and then allows those same people to re-evaluate their beliefs once the hype is out (wait, what’s this technology actually about). Most people don’t survive, but that’s okay. New ways of living and shaping the world quite literally take decades.
The term “generational waves” refers to the state of the technology and ways in which it gets utilised. Each generation brings with it interesting new ideas, a more defined direction and wild price swings to attract and cleanse millions of people.
I’d describe the first wave as the “pioneer generation” — people who wanted to transact with a true, global peer-to-peer cash system. During this time proof-of-work was a brand new concept introduced to the world, digital currency exchanges were a novel concept and consumer wallets had never been made before, mining was a very new concept. Everything was centered around doing things around Bitcoin (supporting services and products), scaling wasn’t really an issue and skepticism around the technological viability was probably at its peak. 2008–2016.
A lot of what we’re seeing play out at this point in time was imagined by the pioneers in various Bitcoin forums between 2011–2013. The only difference between then and now is we have the technology to make a lot of it reality. One observation is that many companies or projects in the space have struggle having a foot in both generations. Coinbase is attempting to be a part of the settler generation through Coinbase Wallet. Binance has a better chance but it’s uncertain if they’ll ever make truly decentralised products. It’s not to say that they’re these businesses won’t continue to be profitable or won’t be, just that neither are leading the pack in terms of innovation in the current or next generation of technology.
We’re currently in the second wave, or what I term as the “settler generation” — early entrepreneurs and developers dreaming of how to bring the world into the future. During this point in time we’re experimenting with consensus algorithms, we have more expressive platforms (Ethereum) and the products we’re working on are novel and game-changing in their scope. Scaling, regulation are major issues which I’m confident will be solved over the next 5 years or so as we aim to close the gap between theory and reality. Crypto has many “tribes” and is much larger as industry after receiving mainstream attention in 2017. Skepticism is around product-market fit, not the technology. 2016–2024.
Our challenges are how to make this technology a practicality for the next generation. Product market fit is one of the hardest phases of crypto since without it we won’t be able to move past being early adopters. Scaling currently has the following approaches to make the technology ready (while finding product market fit):
Competing chains to fix the problems of the existing winners (here’s a chain X which is Y times faster and scalable than Z). Those who prescribe to this viewpoint largely view blockchains as a codebase, not a living social entity. So far we haven’t seen anything remotely close to dethroning Bitcoin or Ethereum in their specialities. It almost seems like the only way to form mass co-ordination around a base layer chain is to offer a new paradigm.
Cross-chain ecosystems form where communication between different systems are possible and less global coordination is needed at a base layer level. Cosmos and Polkadot are strong contenders for winning this race although both have their respective tradeoffs with security and governance.
To limit the scope of this post I won’t go too much into detail about the problems with competing chains and cross-chain implementations.
Layer 2 ecosystems becoming more sophisticated and work is done higher up the stack. Bitcoin has some activity here with Lightning and Liquid, but the winner here is Ethereum by a large margin. State channels, plasma, side chains and more are coming out at a rate faster than most people are aware of.
It was only 2 or 3 years ago where the idea of creating layers on top of a blockchain were introduced. The basic idea for all layer 2 solutions is that they make use of the base layer chain in terms of interoperability or security (sometimes both). Here’s all the various approaches we know of so far:
- State channels. Collateral is deposited to a hub and two parties can transact between each other. Sometimes these channels are setup as a hub. Transacting with someone who isn’t part of a hub can often be hard from a routing perspective. Some implementations require hub owners to deposit as much collateral as the amount that’s being transacted. Good for use cases such as gaming, gambling etc. Not a fool proof solution to a global payments though (some people may disagree here). See: Connext, L4 Generalised State Channels, Lightning, Celer Network
- Side chains. Completely separate chain from the base layer chain but allow interoperability with it thereby extending the ecosystem. These chains do not inherit from the security of their base layer chain although can submit checkpoints periodically to make sure they can revert the side-chain should anything go wrong. See: Skale Labs
- Plasma. Similar to side chains but have the full security of the base layer chain. Any double spends or 51% attacks cannot result in funds being lost in the base layer chain. Many have skepticism around it however Plasma Cash and Plasma MVP are now live with many UX issues being solved at a rapid pace. Main downside is creating more expressive applications beyond payments isn’t possible in the near term. See: Matic, Loom
The third wave will be the “expansion generation” — crypto making a real, tangible impact in the world. Promises of the past will start becoming reality in a much more practical way. Scaling, privacy and regulation will be largely sorted out issues. We would also have a completely new generation of children who grew up in the digital world turning 20 and the concept of internet native money will be expected, not surprising. The late adopters will be scrambling to catch up by this point, but the ship would have sailed. Many interoperability and scaling plays will have a chance to shine. In this wave the technology, crypto will start to be a very real threat to those in power. It is here when our discussions around security and decentralisation will start to matter much, much more. Skepticism will form around the ideology of this movement, not product-market fit. 2024–2032+.
To me it seems like the vision of web3 (decentralised Twitter/Facebook etc) will emerge in this generation. There’ll be much bigger markets to cater to, scalable technology and more importantly: a pressing need for user owned data.
To bring all of this together, here’s a few predictions of what I see playing out:
- We’re going to have another 1–2 speculative waves before the expansion wave. Each speculative wave will give 10x all-time-highs than the previous speculative wave before it.
- Regulation will play a minor role in the overall scheme of things. The appeal of crypto is participating in unregulated financial markets. Evidence to suggest otherwise is sparse (STOs). Synthetic assets will be a massive winner here.
- Layer 1 chains who’s core value proposition is speed and scalability have no edge with the proliferation of layer 2 scaling solutions. Governance and community may be value differentiators but are minor once again.
- Scaling isn’t super important in the short term. Finding product market fit is.
- Polkadot, DFINITY, Cosmos etc. are competing with Ethereum 2.0, not the current chain. There’ll be a brief point in history where they have the chance provided they have all their tech in order and a community (not incentivised with money)
- Technological problems will be the easiest to solve. Convincing people about the ideology behind this movement will be the hardest. Our assumptions about security are still in a sandbox, they still need to be tested against real world attacks.