IEX #173: WAGMI... Aren't We...?
Shifting positions in the fast changing world of Crypto & Blockchain
Last week I missed sending the newsletter. It just got harder and harder, and I was fighting the weekend, and also trying to assuage my guilt at not working on my book deadline which looming at the end of the year. The good news is, we’re back to mid-week. Enjoy this week’s innovation exchange, which takes another look at the rapid evolution and sophistication of the crypto world, and why WAGMI (We’re All Going to Make It') is the rallying cry of crypto enthusiasts.
I've had a simple set of 4 rules about the world of crypto currencies and blockchain.
Blockchain: brilliant disruptive technology whose time is getting closer.
Bitcoin: most definitely not a currency, but apparently a store of wealth, albeit a volatile one, and hence one that lends itself to much speculation. Which makes the idea that you could get your salaries in bitcoin frankly, a very strange one for me.
Crypto currencies in general: good money chasing bad ideas. Largely subject to the greater fool principle.
ICOs - highly transient bubbles designed to entice unsuspecting punters with get rich quick schemes.
These are of course generalised in the extreme. But with a few exceptions, I test them regularly and by and large have stuck with my position. However, the arguments have gotten a bit more complex of late, and it's worth laying some of this out.
Blockchain continues to evolve at pace. The two problems with block chain technologies in the way they were designed for bitcoin were about speed and resource intensiveness (hence also their energy efficiency. Oh and did you know that the coin mining rush in places like China is one of the reasons for the current global chip shortage? ... Even though China has now cracked down on this.) But to come back to the point, the performance of blockchain solutions is getting better. The use of proof of stake, the simplification of the algorithms, and other advancements, has improved the speed of blockchain transactions, and also reduced their resource footprint. And yet the demand has far outstripped the supply, which has meant maxing out crypto capacity for some major tools such as Ethereum, and the hypergrowth of a number of parallel systems. Here’s a good comparison of blockchain speeds.
The earlier model meant that there were constraints on the kind of transactions you could settle via blockchain based models. Land registry, or b2b settlement were fine, because they were large amounts involved and sub-second timing wasn't a necessity. But you couldn't think of paying for a coffee with bitcoin. It would take too long, the cost of the transaction would be too high. And of course, you wouldn't know the price of coffee from one day to the next in bitcoin terms.
Then along came NFTs, and reassigned value back to originals in the world of digital copies. (Ever wonder why the original recording of the piece of music doesn't have the same value as an original piece of art?). I wrote this primer on NFT's almost 6 months ago.
As of the end of 2021, the value of all cryptocurrencies is over $ 2 Tn - and the amount of venture funding to date this year is almost $30bn, a 384% increase over 2020. These numbers tell me 2 things: first that this is too much money and too many smart people for this to be 'value-less'. And the second is that even though the original model of 'currency creation' may go nowhere, the space is morphing and new value sources and business models are constantly being created.
Consider the confluence of gaming and crypto currencies. Wired Magazine presents a fascinating world of role playing games evolving into crypto wallets and de-fi players. In fact, this piece made me realise, that the metaverse will not be about middle class office goers dipping into an alternative environment for relaxation or for 'digital meetings'. The metaverse is neighbourhoods and empires populated by gamers, and online traders, digital collectors, crypto miners, and professional role players, who live, work, and socialise in the verse, and come out into the real world to eat and poop.
In the new world, digital collectibles are NFTs are earned by gamers in 'play to earn' games, and stored in blockchain wallets. And they can be further exchanged with ether leading nicely to the world of decentralised finance. There are entire universes of alternative economies being created. People can earn real money by renting digital assets already owned by seasoned and 'wealthy' gamers. There are entire companies with business models around this kind of renting.
I also wrote skeptically about Web 3.0 almost 18 months ago. The promise of a semantic web was a long way off, and it looked like the phrase was being appropriated by would be crypto evangelists. Today, the intellectual takeover of Web3.0 seems quite complete. Web 3.0 is now about blockchain, NFTs and decentralised finance, and even a decentralised internet.
This report - the annual Crypto theses publication from Mesarri is quite a tome, but it makes some fascinating points even if you just read the introduction. The crypto world is maturing and scaling at high speed, and the information asymmetry is significant. It also argues the point I made earlier. The crypto markets seem to have reached a critical mass where it's hard to see it going back. As the report says, for crypto investors, it's "In, Up, & Down, Never Out". Even though the very way that VC’s work may transform into DAOs (Decentralised Autonomous Organisations)
And yet, everybody anticipates a correction. Call it a crash, or the bursting of the bubble, the word is that crypto-winter is coming. This might shake out much of the frothy speculation. But it definitely feels like there are plenty of parts of the crypto world which has started building permanent infrastructure, communities, economic value, and livelihoods, which will continue to grow. Before China cracked down on crypto miners, it had a thriving community of migrant crypto miners who would undertake annual seasonal migrations by train to places where access to energy and computing was cheaper, within the country, notably Sichuan, in the monsoon.
In all of this the more broad adoption of blockchain is also likely to continue. Identity management is one of those areas where less is more. Having multiple identity systems is as good as having none. What you need is a single system which is almost universally accepted, and is as tamper-proof as possible. This seems like a winner take all model to me, and right on cue it says here that identity management venture funding has hit new highs. We also spoke previously about the decline of trust and the implication of complexity. The growth of crypto connects to both sides of that conversation. The complexity, for the uninitiated, is insane. But equally, the growth of decentralised finance, is equally a sign of the decline of trust in the institutions which have managed our economic lives. Although de-fi is still a tiny fraction of global financial markets, this may be the time to get ahead of it.
There’s no ignoring the ever present shady underbelly of crypto - replete with nefarious charactors and dodgy transactions. This 9 part audio story from the BBC about Dr. Ruja aka the crypto queen with an abandoned pentouse in Kensington will give you a flavour of the intrigue that might be afoot behind the scenes.
The two enduring acronyms of the crypto enthusiasts are HFSP, and WAGMI. HSFP is a taunt for the non-crypto people and it stands for 'have fun staying poor'. WAGMI is the rallying cry for the insiders of the crypto world, and it stands for 'We're all going to make it'. This time last year, I would have called that a hollow claim, like people reassuring each other on the decks of the Titanic. Today I'm inclined to think that at the very least 'SOUAGMI' (some of us are going to make it) is definitely a valid position.
Further reading:
Here’s a useful walk through of digital assets
And here’s a story about a man who has half a billion dollar’s worth of bitcoin that he can’t access because he threw a hard drive away.
The World Economic Forum - on the future of Blockchain Regulation
Reading This Week
Future Tech: Apologies - I missed the link for the previous edition. Here are the top 22 technologies to watch in 2022.
Smart City: Smart design in San Francisco to cut down on pedestrian deaths caused by cars. Turns out that left turns are the real killers there.
Robots: MIT engineers have created a threadlike robot which can be magnetically steered through blood vessels. (Note: funded by NSF, still doing cool things!)
AI Implementation: A ‘shazam’ for birds. What’s not to like?
The Week: Years, months, and days are all connected to natural phenomena. But the week? That’s absolutely artificial. Here’s a look at the story of the 7-day cycle we follow.
Sustainability: A zero emission flight might be on the cards?
And before I go, a big shout out to TCS for sending this important message to all employees as people across the world start heading back to work.
Please be kind to your pets. Have a great week.