Enter the unspeakable: Crypto fundamentals
Three theses that exemplify the market's diversity
When thinking about cryptocurrencies, many tend to get drawn into the finer details: hourly price movements, consensus mechanisms, VC tokenomics, and so on. And while these are often useful, it’s also worth looking at the bigger picture: ultimately, where can crypto lead us?
Personally, this tends to lead me back to simpler, more digestible, and arguably cooler-sounding ideas. Flying cars. Moon colonies. Personal robots. Zero Gravity Boots.
But here’s the catch in order to achieve this vision: good projects need to win, and bad projects need to die. If projects with good fundamentals are the ones that keep attracting capital, progress will happen a lot faster. On the flip side, if bad projects keep attracting significant amounts of capital, well-meaning developers and mainstream audiences might start losing touch with the broader crypto vision.
The latter scenario has been and continues to often be the case, and this is probably most evident from price movements. Even now, cryptocurrencies remain quite correlated with technology stocks, and this is a pretty absurd thing. Think of it this way: if Ethereum truly succeeds, Google might be in a bit of trouble. But at the moment, when Google’s stock price goes up, Ethereum’s price follows upwards. Huh?!
Thankfully, amidst this bear market, there’s a good chance that we’re moving towards a phase in which prices reflect underlying value.
This is really exciting. Price reflecting underlying value implies better education among the masses. In my opinion, the lack of education is probably crypto’s biggest inhibitor today—even more so than governments. There’s enough room and variety in the crypto market for everyone; once people find an informed reason to believe in certain coins, tokens, or protocols, governments won’t be a sustained problem.
Hence on the topic of crypto fundamentals, I wanted to spend this post touching on three protocols that I believe exemplify a good deal of diversity within the crypto market. Recently, someone asked me whether crypto is “going up or down”, and my initial mental response was “Focus on a specific protocol, not the entire market!”. So in that spirit, let’s touch on those three protocols.
(It’s worth noting that these are simply my perspectives at this point in time.)
The first is Bitcoin.
Bitcoin’s thesis and value proposition are different from every other cryptocurrency in the market. I think that this can be attributed to two broad things: firstly, the context surrounding its inception, and secondly, the goal it tries to achieve.
Regarding context:
Bitcoin was released in the aftermath of the Financial Crisis. Unlike every other crypto today, Bitcoin has no identifiable real-life leader or coins that were distributed to specific entities from the get-go.
So really, the very first cryptocurrency network was also the only one to start off from a completely neutral and blank state. Nic Carter explains this excellently here, and I think that such a starting state is the dream case for a protocol that wants to be genuinely decentralized.
On its goal:
Bitcoin’s trying to do essentially one thing, and that’s to be a splendid payments and settlements system. Indeed, this opens up other implications (like literally a different kind of monetary system), but at the technical level, this is about it.
The attempt at doing only one thing is notable—because the more you try to do, the less good you become at doing specific things individually. For example, one might be trying to be a platform on top of which someone can create a decentralized Youtube, AND use the platform’s tokens as money for everyday transactions. The platform might eventually end up being pretty good at both, but it’s just less likely to be as good as two other protocols trying to do those things individually.
This brings us nicely to Ethereum.
Ethereum tries to do several things at once. It was created with the vision of becoming a decentralized computer on top of which decentralized applications (think decentralized Youtube, Instagram, etc.) were built. It was also created to have its base layer currency—ether—be used as money. So already, we can see two fundamental things Ethereum’s trying to achieve: (1) Be a program on top of which you can build applications for everyday users, and (2) Create usable everyday money.
Is trying to do multiple things at once necessarily a bad thing? Not at all. One point that I made in my proof-of-stake vs proof-of-work piece was that beyond a certain point, the added utility from one specific factor shouldn’t matter too much. For example, if Bitcoin and Ethereum are objectively extremely secure, to the point where it’s practically impossible to take down either, even if Ethereum is more secure, that shouldn’t be the reason someone leans towards Ethereum as opposed to Bitcoin. At that point, you should begin considering other factors like scalability or the economics.
And to Ethereum’s credit, there are certain benefits that come with trying to do a couple of things at once. For example, when you build Layer 2 applications on top of Ethereum’s Layer 1, to some extent, those applications inherit the Layer 1’s perhaps superior security.
However, such security is poised to be possibly achieved in different ways, without having to have a single blockchain doing multiple things at once or necessitating repeated layering.
This brings me to the last protocol I’d like to touch on, which is Cosmos.
Here’s one way of looking at Cosmos: protocols like Ethereum were invented to get us closer to the ultimate Web3 vision. Protocols like Bitcoin were invented to help us do very few things extremely well.
Cosmos tries to bring in aspects of both visions and puts forth this simple thesis: to get closer to the Web3 vision, we need to accept that you can’t have the same protocol doing too many things at once.
More precisely, Cosmos puts forth a framework where the future is made up of multiple blockchains. So we aren’t looking at a decentralized Youtube, a decentralized Spotify, and other decentralized applications existing on top of a singular blockchain (like in Ethereum or Cordano). Rather, you’re looking at a decentralized Youtube running on its own blockchain.
Cosmos is the third example behind the big two because its thesis fundamentally differs from Ethereum’s. You don’t see this in many altcoins, which sometimes basically tweak transactions-per-second numbers and set up an entirely new blockchain.
Based on these three protocols alone, it’s apparent that crypto is extremely diverse, and amid such diversity, if people are able to make some effort to frame protocols and understand what they’re putting money into, progress will happen a lot faster.
And eventually, we might just find ourselves in a society that invests more in flying cars, moon colonies, and personal robots than it does in making phones with additional cameras year after year.
You can also find me on Twitter @ramwithouthorns!
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