How the Crypto Industry Seesaws Between Assets and Infrastructure

In the beginning, there was bitcoin. And with bitcoin, a new asset was invented. And with that new asset, the way we interact with capital was redefined.

Bitcoin achieved both of these things. It created a new form of money: one that needed neither central banks nor collateralization. One that was provably scarce and governed only by code and those who wrote and ran it. 

It also created a new model for ownership, trading and transacting. This new model required no third parties or middlemen. It meant that anyone could directly control their assets and could transfer them in a purely peer-to-peer manner. A new form of money. A new model of ownership. 

With bitcoin, there was born a new industry. The cryptocurrency space. The blockchain world. The creation of bitcoin spawned thousands of new assets and just as many new ways to interact with those assets. And while these two forms of innovation – assets and infrastructure – have often occurred side by side and have frequently happened under the same banner, they should not be confused. New assets do not necessarily create new experiences of ownership and trade. Similarly, new models of ownership and trade do not always require new assets.

The fact that bitcoin marked the invention of both a new asset and new infrastructure has long been a source of confusion and has resulted in the conflation of the two. It’s time we started noting the difference.

The industry, while rarely recognizing it, has pivoted back and forth over the years between prioritizing the creation of new assets and prioritizing the building of new infrastructure.

The period from 2013 to 2015 saw the emergence of altcoins like zcash, monero, ethereum, Ripple, litecoin, dogecoin and a multitude of others. These represented new assets. Some of these new assets also offered users fundamentally new ways of interacting with their assets and with each other: privacy and programmability, for example. Others did not offer much that was new at all, besides branding. The cryptocurrency universe was left holding many bags it wasn’t quite sure what to do with.

See also: Jill Carlson - What Goldman Gets Wrong About Bitcoin (From Someone Who Used to Work There)

From 2015 to 2016, having learned the lesson that not all new assets are valuable, much of the interest in the industry turned to building new infrastructure around old assets. The whole enterprise blockchain space was born. Companies like R3, Chain, Symbiont and Digital Asset focused their efforts on re-platforming legacy financial products like equities, bonds, derivatives and swaps. 

These companies sidestepped the challenge of creating new assets. What they encountered, however, was the potentially even bigger problem of how to create new, peer-to-peer models of ownership and trade around old, entrenched asset classes that today rely on rich, powerful third parties.

Tiring of this slog, the collective attention of investors and operators returned to new assets. 2017 and 2018 were, as anyone will recall, the year of the ICO: initial coin offerings. Tezos, Polkadot, 0x: again, some of these new assets also offered fundamentally novel experiences for their new owners. 

Many others – far, far too many to mention here – did not. Much value had been extracted in the form of unprecedented fundraises, but in many cases, not much value was created, even in the cases where networks were launched and assets were issued. The reckoning around this became known as crypto winter.

And then, over the last two years, we saw a return to innovation around infrastructure and experiences of ownership and trade. The rise of decentralized exchanges, fresh competition among wallet providers, the creation of blockchain-based lending and borrowing protocols. All of this, much like its enterprise-oriented predecessor, has been much more an experiment around how we interact with our assets than an exercise in attempting to invent new assets themselves. 

This experimentation in decentralized finance has, in many ways, proven fruitful. People, albeit a limited number for now, are for the first time able to conduct two-way, purely digital trades, without relying on centralized third parties to custody and escrow their assets or to provide liquidity. The primary limitation of this new infrastructure lies in the fact that many of the assets that are compatible with it still do not represent fundamental, durable, long-term value.

See also: Jill Carlson - Me, Myself and My Multiple Avatars

There has emerged a pattern of fluctuation back and forth between innovation in crypto assets, discovering the challenges, turning to build blockchain infrastructure, running into roadblocks there and back. Before long (and perhaps sooner than I anticipate) we will see this pendulum of interest swing back from infrastructure to innovation around assets themselves. 

Indeed, we are already seeing this in the world of decentralized finance in moves like Uniswap (an infrastructure project) issuing a token. The persistent rise of community- and governance-tokens more generally represents a continued search for a way to issue new, decentralized assets imbued with fundamental value. Renewed attention on non-fungible tokens and the significant traction among certain, primarily artist-affiliated NFTs also indicates a swing back in the direction of emphasis on assets. 

The resurgence of conversations around “Initial Country/Currency Offerings” and central bank digital currencies also represents a possible direction for porting real-world value into the digitally native universe of blockchains. I also suspect this exploration will drive interest back to Bitcoin, one of the few blockchain-native assets that seems to have proven its value.