I had a remarkably good year as an industry analyst – a term I prefer to “expert.” Almost no one in crypto is an expert, to be fair. So many things change every month.
Last October, after the end of a rather enjoyable and intense journey with ConsenSys, where I spent most of my time talking Ethereum to financial institutions, it was painfully obvious to me the future of blockchain technology wasn’t in private permissioned ledgers. On the positive side, it was also very clear the institutional fear and resistance to public permissionless networks and crypto was starting to fall apart. So I took a sharp left turn from so-called enterprise blockchain into crypto and ended up doing some very useful work on contract with crypto startups like CDG, and then Binance and Paxful – two of the world’s largest crypto firms.
It was a good call. Being at the intersection of “tradfi” and crypto and having worked deeply in both spaces has given me a rare perspective on the dialectic between the twin forces of cypherpunk revolution and Wall Street’s resistance. I will tell this story of megatrends with links to my articles that have proven particularly prescient this year and will likely stand the test of 2021 as well.
Long open internet, short consortium
Just before bitcoin and ethereum started a very sharp rise, I wrote an article challenging Chris Skinner, a close friend who is one of the world’s foremost fintech experts. I argued that even though crypto was still fringe, this fringe was now big enough to start a snowball. Chris and I eventually agreed this blockchain wasn’t the same “private DLT” that consultants (like me once) were pushing on banks and enterprise clients but a compelling technology and actual source of technological innovation in the internet. [FYI, if Chris calls something in fintech, that thing usually happens.]
Long India, short crypto ban
After ConsenSys founder Joseph Lubin’s famous “one million devs” talk at last year’s Ethereum developer conference, I had tweet–asked how Ethereum would get to one million devs without India, which is one of the world’s largest pools of developers in any area of technology.
It turns out when all of us in the West were all worrying about India’s crypto ban, developers and entrepreneurs in India were building some really cool pieces of crypto technology exemplified by projects like Matic Network, Marlin Protocol, Instadapp and Razor Network (Disclosure: I have a small investment in Razor and Marlin and I hold a small amount of Matic). Meanwhile some of the best investors in the space including Arjun Balaji of Paradigm, Avichal Garg of Electric Capital and Binance Chairman Changpeng "CZ" Zhao had started investing in India's crypto ecosystem and bitcoin buyers had started popping up on peer-to-peer bitcoin platforms like Paxful.
This is why, in my CoinDesk article, I declared India’s Supreme Court decision to unwind the crypto ban a victory for the entire crypto ecosystem. As of today, if you are a crypto investor,and you are not investing in India, you are going to live to regret it.
Long Polkadot, short 'eth killers'
(Full disclosure: Most of my crypto net worth [otherwise known as bags] is in ethereum, I am a small time Eth 2.0 staker and I don’t hold much Polkadot or Kusama at all – yet.]
In a popular YouTube interview with SwissBorgs Alex Fazel this year, I bravely declared Polkadot the likely Ethereum disruptor as of today. I argued that not only had Gavin Wood contributed seminal ideas to Ethereum 2.0, he had also witnessed firsthand how the Ethereum developer community was built and in my humble opinion, “he knew exactly what he’s doing.”
At the risk of upsetting my fellow Ethereum old-timers, I think of Polkadot as Eth 2.0 without the technical debt and much more clarity in terms of vision and technical roadmap. If you ask dapp developers today, what Polkadot is missing is the rich set of developer tools that ConsenSys built to power the Ethereum ecosystem. In a sense, Polkadot is missing its own ConsenSys – a venture studio to invest in developer tools and infrastructure. This hasn’t stopped Polkadot from becoming the second most popular blockchain for decentralized finance (DeFi) already and, if Polkadot finds its own portfolio of powerful dev tools, it’s going to be a very close contest.
Conversely, Ethereum can sustain its lead by taking occasional steps back from open-ended research and providing more architectural clarity to its core constituency – dapp and DeFi developers sooner rather than later. The Ethereum Foundation is doing really well by encouraging innovation in layer 2 protocols to enable optimisations for different non functional parameters. Layer 2 protocols, a leading-edge developer toolset and network effects could preserve Ethereum’s lead, but it’s far from a done deal right now.
Long parachains, short prop chains
It amazes me that some of the biggest winners in crypto still don’t want to get the joke about the internet. Without naming any particular countries, entities or individuals, there’s no end to really smart, wealthy and powerful people trying to launch their own blockchains, their own stacks, their own smart contracting languages and thus their own vertically integrated crypto ecosystems they can own and control. Essentially, too many champions of crypto want to be the epicenter of decentralization. It’s only funny because it’s true.
These are smart people, and in an unregulated, short-termist environment, historically, it’s been possible to launch your own vertically integrated crypto ecosystems extremely profitably. Further, as Vitalik famously described in his "trilemma," every blockchain ends up being optimized for one set of problems at the expense of another. This has led to building simple distributed ledgers to improve transaction throughput (Ripple), CS professors building throughput–optimized chains (Avalanche and Algorand), engineers building complex compute scalable chains (Solana), centralized notaries to provide transaction data sharing (Corda). The latter problem of “one size does not fit all” is something Polkadot will look to solve with Parachains and Ethereum 2.0 will look to solve with sharding and (maybe) sidechains.
The history of the internet does not repeat but it rhymes. At some point, I don’t foresee a chaotic multi–blockchain world. I see a “parachain” and “mainnet” world – blockchains built on a shared set of standards and rules, no matter what it’s called, will interconnect. The internet of value will be built on organized chaos and proprietary “my blockchain is better than yours” architectures such as enterprise DLTs and Hedera Hashgraph will fall away for lack of connectivity and developer adoption.
Long correlation, short diversification
My day job at Binance involved building fiat on-ramps – something for which my training with banks and PwC made me a particularly good fit. This gave me an insider’s view of how rapidly the attitudes of mainstream (fiat) fintech were changing. In 2017, I had witnessed U.K. "high street" banks refuse bank accounts for Coinbase firsthand (which they certainly regret), and in 2020 electronic money institutions and banks were suddenly quite keen to work with all the major crypto exchanges.
This pleasant surprise led me to write a series of articles describing how COVID-19 was changing regulators’ attitudes towards crypto, how the fiat and crypto worlds were starting to converge, why this convergence of fiat and crypto will be good for crypto in the short run but prove to be a mixed blessing in the long run, why central banks need to shed fear and launch retail central bank digital currencies and, last but not the least, why banks needed to adopt crypto now to remain competitive in a world of digital money and intelligent wallets.
Long Satoshi, short Saylor
As of today, if you are a senior executive at a bank, hedge fund or asset manager and you do not have a crypto strategy, you are making your board very unhappy indeed. A worrying inference I haven’t mentioned before is that the entry of funds and corporate treasuries will increase its correlation with other risks on assets like equities, eliminating one of bitcoin’s biggest value propositions for institutions – diversification.
Bitcoin, like Apple, is a multi-hundred-billion dollar brand but as professor Scott Galloway argues in his brilliant book “Post Corona,” we live in the age of products where the product has to live up to the narrative of the brand. The narrative around bitcoin has shifted nearly every year with the digital gold narrative finally sticking with the likes of Michael Saylor and Jack Dorsey, in part due to the relentless money printing by Western governments.
At some point, the novelty value of crypto assets for PayPal and CashApp customers will wear off, the bear market will set in, average consumers will lose money and CashApp’s customer engagement numbers driven by bitcoin will drop as it has with Tinder, Facebook, Instagram and everything else that’s new and gamified.
The only way Dorsey can fulfil his vision for bitcoin is by investing in the technology that shifts the “GODL” narrative back to Satoshi’s original “P2P internet cash” narrative. The world needs internet money that facilitates censorship-resistant instant cross-border consumer payments. It does not need digital gold or gamified money if it’s a commodity cornered by a few early institutional whales or if it becomes more and more correlated with the stock market over time.
Long dapps, short fat protocols
Historically, the crypto playbook has been to compete with bitcoin and print undifferentiated "Burning Man" money. This is done by launching your own blockchain with protocol tokens, making the number go up with marketing, supply management, community building and building a loyal following of consumers who couldn’t care less about the technology or utility.
This is also partly because dapps weren’t really that useful until now. DeFi dapps like Aave and Uniswap have changed all that. These dapps are now extremely useful for the crypto aware, with monthly average users and volumes climbing continuously. Crypto is not just coins, marketing and fat protocols anymore. Further, so far there hasn’t really been a Web3 real economy, but it is now starting to come online with non–fungible token and gaming token marketplaces like Gemini’s Nifty Gateway.
This sharp increase in utility of dapps is a tipping point and a small preview of the future that lies ahead. The next bull run will not belong to bitcoin or fat protocols. As blockchains start to converge towards a “parachain” or “sharded” future, the next bull run in 2025 will belong to decentralized applications and it will be at the dot.com scale. I wrote about this in my substack, “Why you should pay attention to DeFi."
I hope when I retire all these blogs and articles will feature in a nice historical chronicle of Web3. If no one else wants to print them in a book form, maybe I will pay a few ETH or DOT to print them and buy all the copies :–). Yeah, paper books are going to outlast at least my generation, sadly.
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