Why There’s No Future For Most Crypto, NFTs, or DeFi
Most crypto has no future.
There, I’ve said it. Yes, after being in the crypto space since 2012, I’m finally willing to admit that 99% of anything to do with cryptocurrency, NFTs, and Defi is doomed. Now, I can already hear you saying,
“WTF Oli, I thought you loved crypto?”
Well, I do, but that’s why I think we need to be honest. If we don’t, then all crypto is as good as dead.
For the past few years, the crypto and NFT space has been rocked by crises and scandals, from the collapse of Celsius and FTX to the dramatic fall of NFTs like Bored Apes, and the ongoing controversy surrounding Tether. Many charlatans and fraudsters were exposed, and a fair few were arrested.
At the same time, we’ve witnessed plenty of theatrics from regulators and politicians, either appearing to attack the crypto industry or trying to ride the hype. And, now we have the world’s biggest investment management company, BlackRock, poised to launch the first spot Bitcoin ETF (with rumors of a spot Ethereum ETF to follow).
It’s all been very dramatic (and stressful, for anyone holding crypto).
Crypto adds friction to an already complicated world
The point is, that all of this noise has distracted from the fundamentals. We have, collectively, lost sight of reality. We have forgotten about the basic things that underpin adoption and success. The things that decide whether something reaches the critical mass needed to become part of the fabric of our world, or not.
But, the truth is, like it or not, crypto has not been widely adopted for daily use. Sure, to those of us interested in crypto, it can seem like it is already mainstream. But, it just isn’t. What is happening is a self-obsessed industry increasingly existing in an echo chamber.
Yes, it is more widely used than it was, and yes, every now and then there are publicity stunts and surprising news stories. But, at least according to Zeke Faux, the Bloomberg journalist who was one of the last people to interview a free Sam Bankman-Fried, even in the much-vaunted El Salvador, where Bitcoin was made legal tender, the use of crypto for daily transactions is rare.
So, why is this? The answer is simple. In fact, the answer really is ‘simplicity’ — or lack thereof.
Think about it. We are now in 2023, and it is still much easier to use a debit card to pay for everyday goods and services. Even for online purchases, using crypto is more of a hassle than using Visa or Mastercard. And remember, most ‘crypto’ debit or credit cards aren’t really what they sound like, they just convert to fiat at the point of sale.
When it comes to purchasing and exchanging crypto, using regulated exchanges has become like pulling teeth thanks to all the KYC and AML measures, and decentralized exchanges, despite improvements, are still a hassle. Yes, they may be easy to use compared to a few years ago, but that isn’t really saying much.
And this is the point. After over a decade, despite becoming easier to use, trying to use crypto for everyday things still adds friction rather than removing it.
Is there any real advantage to crypto?
So, that begs the question, if crypto only adds friction, why is anyone using it? And, let’s face it, there are basically two groups.
The first is perfectly legitimate. These are the early adopters who are genuinely passionate about crypto and its theoretical potential. Often, they are genuine believers in decentralization and care about privacy and fairness. Unfortunately, there aren’t many of them — I mean compared to the number of people on the planet. Yes, when they converge in groups for crypto expos they can seem numerous, but they aren’t. Perspective is everything. I’m currently writing this from Malta — one of the most densely populated countries on Earth. It sure feels like there are lots of us here, but in reality, more people live in Tucson, Arizona, or Albuquerque, New Mexico.
The other group is using crypto for nefarious purposes because it is more difficult to track. Sometimes this is relatively harmless like trying to hide some income from the tax authorities, sometimes it is to launder money or fund terrorism or rogue states.
But the point is, there isn’t a third group who are just using crypto because it is easier for everyday things.
Of course, there is another group who hold crypto (usually Bitcoin), as a store of wealth, much like digital gold, but they aren’t using it for everyday purchases. In this context, the core problem with crypto — complexity — isn’t so much of an issue. People are buying Bitcoin and sitting on it. If a transaction to buy it is complicated, it doesn’t matter so much — it’s not an everyday occurrence and is likely of a relatively high value.
And, this is why I believe there is a future for crypto — at least for Bitcoin and some of the other major coins. But, it is fundamentally just a store of wealth. In this role, Bitcoin excels. It has a finite supply, is secure, and compared to physical assets, is easily transportable. We’re all familiar with this concept — many Bitcoiners have been saying it for years. And now, it looks like the big guys on Wall Street agree (only after casting shade on it for years, keeping the price suppressed, and gradually scooping it up, mind you).
But what about NFTs and Defi?
So, the rest of it? Well, it was exciting and sounded good, but that’s it.
The vast majority of altcoins and tokens were nothing more than ways to capitalize on hype, hopeium, and ignorance to make their developers rich. Sure, some people, who get the time right between the pumps and dumps make a fortune, but then so do some casino players. Most just lose.
NFTs were fundamentally flawed from day one. Their biggest selling point, true digital ownership, was always a lie (see my piece from December 2022, ‘NFTs: The Elephant(s) in the Room’). An NFT is nothing more than the link to a digital asset and offers no real ownership (legally speaking) and no real security. And, even if they did offer theoretical true ownership, for things like digital art, they can’t protect their touted scarcity. While there are, no doubt, some genuine use cases for NFTs (like fan tokens, possibly), the whole sector was largely hot air.
When it comes to crypto and NFTs in gaming, developers have so far failed to understand that, for any entertainment franchise to last, it has to be, well, entertaining. Most Web3 gaming projects lack an engaging story and characters, or any kind of soul, and are in essence just thinly disguised ways to drain wealth from participants. Earlier this year, I wrote in detail about why I think the obsession with tokenomics was holding blockchain and NFT gaming projects back. Now, almost a year later, I stand by what I said. Blockchain and NFTs still have the potential to be integrated into video games, adding extra depth and engagement, but fundamentally, for the games to be successful, they have to be developed around playability and a real story.
And, Defi. Well, what can I say? Decentralized financial services sound fantastic. Cut out the middleman, trustless transactions, and all that. But, in reality, they add complexity and offer a terrible user experience. By this, I mean things like having to mess about converting fiat and multiple tokens several times. Again, remember, to those immersed in crypto, it sounds easy. But, compared to traditional financial services, the user experience is clunky and laborious. I mean seriously, try explaining something like a peer-to-peer perpetual lending protocol to a random guy at your local bar.
Step back from the crypto world for a moment. Fast food restaurants have to put big warnings on hot drinks, warning that they are, well, hot. The simplest self-service machines have to have instructions toddlers can read. People drive their cars into the sea because they literally follow their satnavs. This is the world we live in. To think that Defi will ever make a serious dent in the mainstream consumer financial services market is beyond absurd.
And, then let’s not forget one of the most critical issues with crypto. Taking all the responsibility for security. Yes, to crypto enthusiasts, this seems like a plus. You know, you are in control, rather than an untrustworthy bank. But, in the real world, it is a huge negative. Think about the people you know in life — how many of them are always misplacing things, forgetting PINs, or falling for some scam? Most people actually want and/or need someone else to shoulder the ultimate responsibility for things like security.
CBDCs will happen and Bitcoin will make the rich even richer
So, we’re right back at the fundamental issue. Contemporary life is getting ever more complicated. This is a huge problem, but one that is rarely appreciated — especially by those living in the tech space. The more complex everything becomes, the more individuals have to invest in maintaining order in their lives. It’s the same with any natural system. Yes, if you isolate something and analyze it, you can always make the argument that something improves something, or even makes it easier. But, nothing exists in splendid isolation. Not even crypto, NFTs, Defi, or any related blockchain tech.
The truth is, for crypto to go mainstream, it has to sit comfortably within the real world, with all its complexities. It has to improve people’s lives in aggregate. It has to remove stress, free up time, and add security. I would argue that, on the whole, it simply doesn’t do these things. Again, I realize that, in abstract situations, it can improve things, but on the whole, it doesn’t. And, this is what so many in the sector either can’t or don’t want to see.
And, I understand why so many crypto enthusiasts don’t want to acknowledge reality. The traditional financial system is rotten to the core. Neither bankers nor politicians can be trusted, and our wealth is being inflated away by ridiculously unsustainable monetary policies. A decentralized digital alternative, controlled by neither banks nor politicians, seems ideal. And, in theory, it might be. But, we don’t live in theory. We live in reality. The masses are stressed out, rushed, ignorant, angry, and have precious little time. They want convenience and ease. So far, no crypto project has truly delivered this, and given the fact that any project has to integrate with an incredibly complex world, I doubt one ever will.
Sadly, Central Bank Digital Currencies (CBDCs) probably will reduce friction and make people’s lives easier. Of course, they will also give governments Orwellian levels of control, and be open to obscene abuse. But, that won’t matter, because most people will take the path of least resistance. Personally, I don’t want to see this happen, because I think governments will abuse the power, but I don’t see anything stopping it.
But hey, I still love what Satoshi Nakamoto wanted Bitcoin to be. And, as I said last month, I still think Bitcoin and a handful of cryptocurrencies have a bright future. But, I think they will predominantly make the rich even richer. When it comes to Bitcoin specifically, sure, anyone already holding even a little BTC will probably do very well over the coming years, but with such a limited supply, and the big guys about to scoop up even more, the vast majority of people on planet Earth will never own any. I suspect that the rise of Bitcoin will actually end up giving Wall Street even more power over us all.
