Crypto would be better off remaining a niche.
The greatest crisis in crypto so far has been, undoubtedly, the rapid decline and tremendous fall of FTX. At the time of the collapse of what turned out to be Sam Bankman-Fried’s personal piggy bank, it was the third-largest crypto exchange. Its demise caused shockwaves across the industry, bringing down not just prices but a litany of companies.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
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At the time, in late 2022, it was unclear if crypto as a concept would ever recover – the blatant fraud of what was, up to then, among the most consumer-savvy and trusted crypto companies appeared to confirm the widespread assumption that all of this was just artifice covering up fraud.
Today, things are looking up, though there remains a pervasive fear that the industry is repeating old mistakes and bound for another comeuppance. For veteran crypto investors and observers, this is and always has been normal: ever since the bitcoin (BTC) market crash of 2014, following the failure of Mt. Gox, and subsequent rebound, the cyclical nature of the market has been an accepted part of life.
But isn’t it odd that this maturing industry has normalized these boom-and-bust cycles? It seems to me that mass adoption for any blockchain or consumer application is contingent upon the price of its token – or the industry itself – not always being at risk of imminent collapse.
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And that’s the thing. To a large extent, the biggest problem with growing crypto is the growth of crypto. This whiplash between euphoria when the markets surge and despair when it shrinks, every four years or so, is a result of crypto’s pursuit of mass adoption.
The process is clear, a textbook case of economist Robert Shiller’s “irrational exuberance.” Promises of reinventing everything from money to the internet itself spark interest. People buy into the dream of decentralization (or, for many, the promise of a fast buck). Popularity drives prices up, which reflexively drives them up further as more and more people invest – until something breaks.
Almost always, the things that fail are the things that blockchains were built to mitigate or replace. And these things, almost always, were built to make crypto palatable and/or easy-to-use. It’s not an uncommon opinion that “the masses” likely won’t self-custody. But without self-custody, what’s even the point of something like Bitcoin?
“The risk of growing adoption is that new entrants aren’t aware of Bitcoin’s core principles: decentralization, self-custody, hard money, etc. If new entrants don’t learn, understand, and espouse these core beliefs, the features that make them reality may not remain in the protocols over time,” said Alex Thorn, the head of firmwide research at investment bank Galaxy Digital.
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Adoption means following the law (which is often at odds with crypto’s values) and creating easy-to-use sign-ins and on-ramps (which can be compromised). There is a tension – if not direct competition – between the aims of decentralization and mass adoption. Grow crypto too big, and you risk destroying what it is actually useful for. “Simply becoming folded into the dominant financial system ends up ceding a lot of the opportunities that matter with this tech,” said Nathan Schnieder, professor of media studies at the University of Colorado Boulder and author of “Governable Spaces.”
It’s a point echoed by University College Dublin lecturer Paul Dylan-Ennis, who said “crypto is a subculture that cannot accept it is a subculture. Most of our troubles stem from how talk of ‘onboarding the next billion’ causes us to decay our values.”
There is a certain irony that developers, founders and investors have spent 15 years and billions of dollars searching for a “killer app” for blockchain, and yet it already has one.
Satoshi Nakamoto, and those who actually walk in his footsteps, have built digital bearer instruments that can be used any which way and cannot (easily) be taken from you.
That’s it. That’s the whole point of crypto.
That’s why, while almost no one pays for coffee with bitcoin, many use the privacy coin monero (XMR) to buy this or that on the darkweb. If you look at how crypto is actually used to connect with the real economy, you’ll see it’s essentially in niche areas. These include black or gray markets, stablecoin remittance corridors and hobbyist pursuits.
Mind you, these are huge markets. But today, as in other periods where it seems like crypto is right on the cusp of breaking through, this usage pales in comparison to the speculative use of crypto, where capital goes in, jumps around from coin to coin or protocol to protocol and causes the number to go up – essentially creating a circular economy.
And that’s fine. Gambling is a use case to a certain extent. But if people want crypto to be used productively, developers, founders and investors should be building for people who have an actual need for censorship-resistant money and tools. Almost by definition, that’s a limited audience.
This is just my opinion. Many disagree.
Molly White, author of crypto-critical news services Web3IsGoingGreat and “Citation Needed,” argues that crypto is already mainstream. “There are individual projects that are still small and niche, but with Brian Armstrong and Sam Bankman-Fried rubbing elbows in Congress, and BlackRock and Fidelity launching bitcoin ETFs, I think that ship has probably sailed,” she said in a direct message.
Privacy advocate, educator and monero superuser SethforPrivacy sees things differently., The “unfortunate reality is that most people don’t yet realize the need for Bitcoin nor are they willing to take on that much personal responsibility, and as such we must focus our efforts on improving Bitcoin for those who do realize the need today,” he said.
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There’s also an argument that decentralization is precisely the reason crypto will go global, so to speak.
“The ONLY thing that makes Bitcoin’s global ascension possible is its most cypherpunk attribute: that it is owned by no one, and operated by the users, not states or corporations,” said Alex Gladstein, chief strategy officer at the Human Rights Foundation.
However, it’s not exactly clear what the masses want. Ethereum advocate Emmanuel Awosika, for instance, admits that “while we believe *everyone* wants privacy, censorship-resistance and protection against nation-state attacks, some people are fine with a product that solves a problem and has good UX.”
While not everyone needs, let alone wants, privacy, censorship resistance and maximum decentralization, Awosika added, “We should explore getting crypto in the hands of as many people as possible.”
Likewise, Roko Mijic, of “Roko’s basilisk” fame, argued that it’s actually scale that gives decentralized tools any power, which is observably true in that Bitcoin is difficult to attack because it has miners spread across the world. “You can’t resist censorship from inside a small-scale crypto network because the government will just bring down the whole network,” Mijic said.
Justin Ehrenhofer, founder of Moonstone Research in Chicago, echoed this sentiment, pointing out that a currency is only useful if it is widely accepted, and so “cypherpunks should focus on building systems that appeal to outsiders.” However, he did add that “with wide-scale adoption” there has been a degradation in the spirit of crypto, given that the average user stores their wealth in custodial exchanges.
I suppose the question is, how valuable are crypto’s core values?
