Current takes on crypto and web3
So we can see how wrong I am a year from now
A spot of housekeeping: In case you didn’t know, you can respond to me directly by replying to these emails. You can also post a comment at the post page, which will be public. And feel free to share the newsletter or individual posts with others, if the spirit moves you.
I thought I’d kick off the year with a snapshot of my current thinking on some things I do know a bit (but not that much) about. I like the framing of a “take,” which feels less heavy or committed than an “opinion” or a “stance” or, doge forbid, an “argument.” A “take” also makes me think of filming a movie, which is not only fun to think about, but also each individual take in a movie is usually pretty quick, and if you mess up, you can just do another one. (Except for a “long take,” which these aren’t.) I like “current” because it means I can change my mind, which I probably will.
A bit about what this post isn’t:
Unfortunately if you’re totally new to these topics, this isn’t a primer on crypto or web3; this is one of the (hopefully rare) Tailwit Capital posts that is higher than 101-level, as I’ve been active in the crypto community for about a year now (first cycle achieved ✅). You can read all about my experience of that year, which might be easier for new folks to absorb. If that’s you, I’m not sure how much this post will help, but at least you’ll probably be able to guess how I feel about each topic based on how snarky my take sounds. Plus, maybe it can still provide some entertainment value.
This isn’t a persuasive essay. I’m not trying to change anyone’s mind; this is just a snapshot of my current thinking in case I want to refer back to it later.
Finally, these aren’t predictions or forecasts. As I explained in my last post, actual well-defined predictions are falsifiable, meaning that at some known point in the future, people can more or less agree on whether the prediction came true or not, because 1) it has a time limit or end point, and 2) the criteria are specific and measurable.
Anyway, here are my current takes on a few things around the cryptoverse.
Bitcoin is the OG crypto and warrants the respect due to the OG. But the situation it’s in where it’s becoming harder and harder for miners to be profitable and competitive (at this point, “miners” referring to huge mining conglomerates) feels precarious to me. Bitcoin may continue to work as a store of value, where its strength is in its “boringness” (Ryan Selkis) but it’s not going to be an interesting chain to do stuff on, because the culture of the development of the chain is to NOT develop it, and to not enable people to do more stuff. The religious fundamentalism of Bitcoin maximalists is off-putting to most people and isn’t helping its ecosystem thrive.
Ethereum is best thought of as what Justin Drake calls it: the settlement layer for the internet of value. (Disclosure: in terms of crypto, I hold almost exclusively ETH.) I think of Ethereum like TCP/IP for SWIFT. If you haven’t heard of one or both of those, that’s exactly my point. One is the backbone of the internet, and the other is the backbone of international banking. People don’t need to know how it works to benefit from using it in their day-to-day lives. Hopefully they increasingly won’t have to know how it works. But Ethereum is not constrained to money as SWIFT is, rather it’s a settlement layer for value, which includes so many more things besides money. All concerns that aren’t inherent to its design—e.g. concerns about scalability, security, high fees, UX—will be a non-factor in time, as they get addressed one by one by the insane gravity well of talent that is the Ethereum ecosystem.
I wrote this whole take on Solana last week (it was not positive), but then Solana had such an existentially rough week that I thought, you know what, regarding Solana and all other L1s that have yet to survive multiple cycles, I will defer to Nassim Nicholas Taleb’s maxim (in Antifragile and Skin in the Game) which says that (I paraphrase) what survives is ultimately what’s rational; it doesn’t matter what we say about it. If something looks nonsensical, but works (over the long term, through many stressors), then it’s not nonsensical. If something looks genius, but blows up or collapses, then it’s not genius. So any chains that are left standing as major players by the end of this entire bear market, I can comment on, maybe in next year’s takes!
Crypto as a form of currency may maintain a relatively small role in the US economy, but it may have much more significant impact on everyday life in some developing countries.
NFTs aren’t always going to be synonymous with expensive JPGs or other art assets. That’s conflating a technology with its first and most famous use case. The true nature of the NFT is that it’s a technical primitive (a building block) representing the very abstract concept of digital property. It’s actually even more abstract than digital property, in the sense that sometimes you have something not to have it but to say something—for example, when you have a diploma on your wall, which you don’t put up to prove that you own it, exactly, but rather because it proves something about you. So NFTs can and will represent not only “property” but also something more like “attestations.” They already do: most of the NFTs in my possession were created and given to me by friends, to commemorate something I did or am doing with them.
DAOs aren’t a magic panacea for human coordination. The typical early-stage DAO hasn’t yet surpassed what I call the “high school badminton club” level of coordination problems: Your club treasurer doesn’t know anything about handling money, but they’re an important friend who obviously wouldn’t do as president or vice president. Two different people each believe themselves to be in charge of swag. You throw a pizza party, but can’t get any of the club members to stay and clean up. Oh, and members can’t seem to agree on the actual purpose of the club.
Some of the more mature DAOs seem to be working well for managing specific parameters in a system. A few seem to be actual collectives that produce stuff together. In general, I think DAOs have the potential to be an alternative to existing org structures, but I don’t think they will make all things easier than any other form of coordination. Also, having a big pool of money doesn’t make coordination easier. It makes it harder. And I think it’s overly simplistic to assume you can straightforwardly get people to do good and prosocial things by mapping token rewards to desired behaviors.
Humans figuring out how to work together well is THE hardest problem in all of humanity, ever. There are no shortcuts.
Wallets deserve more credit than they get, for one because they’ve managed to popularize public key cryptography for individuals, when all previous attempts failed to catch on (PGP, etc). (I was reminded of this thanks to a Bankless episode I was listening to the other day—maybe the one with Molly White?). Wallets are also the foremost face/interface of crypto for most people. Did you know that people who are new to crypto often try to call up wallet makers (like the MetaMask team) when something has happened to their money—as if they’re the support hotline for all of crypto? Wallets get a lot of hate for everything that they aren’t yet, but I feel like the big ones are maintained mostly by a lot of diligent people who want to make crypto easier and safer for everyone.
Smart contracts are a technology that has strengths and weaknesses, and they work better for some use cases than a centralized server/API. But they are subject to some of the same principles inherent to all software. Software has bugs. Software can usually use some improvements. If a piece of software is immutable, it won’t get bug fixes or improvements. To push bug fixes or improvements to immutable software, you have to either release a whole separate piece of software and get everybody to switch to that, or you have to use proxies, which complicates the whole premise of immutability. Also, as in all software, developers having admin rights is a double-edged sword: it gives them power and it means you have to trust them, but it also allows them to save you in case something goes horribly wrong. At least it’s hard to lie about what’s in a smart contract. So at least you theoretically know what you’re getting.
I like IPFS. I use Filecoin. There are various non-major considerations that make me nervous about storing important stuff on it, like availability of nodes and the need to go through HTTPS gateways that can be slow/unreliable, but I think these will get better with time. Arweave is something I don’t know about and want to explore. In general I’m supportive and excited to see how decentralized storage evolves.
Play-to-earn, isn’t. Isn’t “play,” I mean. When there exist on-chain games that people widely agree are fun and would play for fun, that will be something maybe worthwhile. Until then, it’s just “earn”… which is otherwise known as a job. Worse, it’s a job consisting of grinding through an unfun game, which David Graeber would call a bullshit job. Worse, the pay for the unfun job comes not from some distant entity eventually getting some value out of the work or even believing they’re getting some value out of the work (as in a click farm situation), but from newer participants putting up money to join in—meaning, it’s a Ponzi.
Web3 isn’t truly revolutionary so long as VCs are still funding most of it—which they are—because of the incentives inherent to the VC dynamic (in short: VC is anti-cozy). I work in web3, not because it’s revolutionary, but because it’s more fun than doing something else.
There are lots of centralized entities in web3. I think centralized services (exchanges, blockchain providers, liquid staking pools, etc) will always have the inherent advantage of convenience over decentralized solutions. I believe that most humans will choose convenience over self-custody, most of the time. But that doesn’t make working on decentralized solutions a waste of time. Because it gives people a choice.
We understand now more than ever the importance of exit as an option when it comes to social media platforms. Well, where you store your money (in whose custody, in which currency) and where you store your data are both a kind of platform. Building another option for people in case their centralized solutions become untenable one day, is a thing very much worth working on.
I appreciate this so much 🤍