The end of the prologue and the beginning of a new chapter: Reflections on the current situation of the cryptocurrency industry and visions for the future

Written by: pillarbear, Four Pillars

Compiled by: Yangz, Techub News

Summary

Source: Delievery at Dawn | a 4844 filmAs Paradigm co-founder Matt Huang said, we are like building a casino on Mars . From redefining currency to reshaping interactions with applications, the systems and mechanisms built by society are being reimagined to adapt to a new paradigm called "Crypto". It goes beyond the scope of technological innovation and embodies different cultural and social significance. For libertarians, cryptocurrency provides a path to free markets and autonomy. For cypherpunks, it provides a censorship-resistant, permissionless value exchange network. For entrepreneurs, cryptocurrency is the foundation for building the next generation of the Internet. For traders, it is a source of endless dopamine and potential profits. Depending on your personal point of view, the casino built by cryptocurrency will be very different. What do you think of the future shaped by cryptocurrency?

2024 is already halfway through, and looking back, this year has been full of energy, highlighting the multifaceted nature of the cryptocurrency industry. Bitcoin has gained institutional recognition through ETFs. Ethereum has successfully implemented the Dencun upgrade, including EIP-4844. Rollup has been deployed to numerous projects and has become a mainstream solution for launching new chains. Solana has had a stunning resurgence after a difficult period, and the bull run that began last year has also sparked investor enthusiasm for memecoin and celebrity coins. In terms of applications, we have seen significant developments in the cryptocurrency space. Over time, mainstream DeFi protocols have matured and grown steadily. At the same time, tracks such as SocialFi and narratives such as re-staking and artificial intelligence have emerged, attracting attention and speculation. Compared with the previous bear market, the market has clearly recovered. However, with the recovery, there has also been an unprecedented polarization in the industry. In the case of memecoin, on the one hand, opponents call it meaningless speculation, while supporters believe that it represents innovation going "to market" and is a model of the emerging model of the attention economy. Furthermore, the industry is divided in terms of narrative, with one side praising new narratives and the evolution of infrastructure, and the other tired of the elitism of the field. Since the creation of Bitcoin in 2008, the cryptocurrency industry has traveled a more turbulent path than any other industry, going through multiple cycles of growth and recession to become what it is today. When public interest shows signs of waning, the industry will make a dramatic comeback, sparking new narratives and hype. Similarly, the future development of the cryptocurrency industry also contains countless scenarios and possibilities. This article reflects on the narrative games that have driven the development of the cryptocurrency industry to date, explores the latest trends in the changing industry landscape, and considers the direction of the industry.

Source: Fractal LivesIt all started with Bitcoin. Since its inception, the cryptocurrency industry has undergone countless developments and changes, but Bitcoin remains the benchmark for the entire industry. As of writing, Bitcoin's market capitalization has reached $1.2 trillion, ranking tenth among all asset classes. And with the approval of spot ETFs, Bitcoin has further consolidated its position as "digital gold." The reason why Bitcoin can achieve a market capitalization of $1.2 trillion is not that it is a business based on operating profits, but that it is regarded as an asset with scarcity and legitimacy. Even the world's most widely used payment networks, Visa and Mastercard, have a market capitalization of less than half of Bitcoin.

Source: Visions of Bitcoin Bitcoin was not seen as "digital gold" from the beginning. In the early days, most people believed that Bitcoin was a new electronic currency or a low-cost payment network. In the early 2010s, people also generally believed that Bitcoin was a Dark Web currency. However, over time, Bitcoin gradually gained legitimacy and its narrative changed from a medium of exchange to a store of value. The second half of the above chart, around 2018, clearly shows that public opinion is more inclined to view Bitcoin as an asset class rather than a payment network. Although the above chart does not show data after 2018, the argument about Bitcoin's "digital gold" has not only persisted, but has also continued to strengthen. Satoshi Nakamoto's insight into Bitcoin is that the essence of currency comes from social consensus. The blockchain is just an encrypted implementation of social consensus between participants. The value of such a network depends on the participants' evaluation of the network. If Bitcoin is only seen as a payment network or Dark Web currency, rather than a narrative of value storage, it would be difficult to achieve its current value. Bitcoin's success set the standard for protocols and tokens that have emerged since then. Like Bitcoin, most tokens in cryptocurrencies have both commercial and asset characteristics. In addition, the censorship resistance and permissionlessness of blockchain provide a foundation for anyone to issue tokens and allow others to trade them. In order to increase the value of the token, each protocol needs to get more people to agree with its vision and believe that its token has value.

Source: X (@alphanonceStaff) As a result, a unique "narrative game" culture has begun to prevail throughout the cryptocurrency industry. Emerging industries usually value future potential more than the actual benefits to users in the present. However, in the field of cryptocurrency, this narrative-driven approach has become dominant. Marketing strategies based on fascinating stories have been effective since the rise of the ICO boom, when people rushed to release white papers, and even today. In the field of cryptocurrency, the most influential figures have always been philosophers, researchers, and thought leaders. The tendency to worship these figures as idols has become one of the most notable characteristics of the industry. In addition, narrative games are particularly effective because most participants in the cryptocurrency market are investors and traders. The success of crypto narrative games is not just about effective marketing campaigns. Its biggest advantage lies in the permissionless nature and ownership model, which allows anyone to tokenize any idea and give it economic value. How convincing and attractive the narrative a project can present will become a key factor directly linked to its market value. As token prices rise and trading volume increases, traders are constantly looking for the next compelling story, and projects create an endless cycle of providing these narratives. The cryptocurrency industry maintains its growth in this cycle of new narratives emerging and disappearing.

Source: X (@intuitio_) The memecoin craze since the beginning of this year has exposed the essence of narrative games in the cryptocurrency industry. The fact that these tokens that offer little practical utility or vision are sought after in the market fully demonstrates that narrative games are still the dominant force driving the development of the cryptocurrency market. The rise of Memecoin is not just due to speculation. It also reflects criticism of the elitism of pursuing complexity in cryptocurrency and the market imbalance between retail investors and VCs. As the industry matures, truly innovative narratives are becoming fewer and fewer. More and more projects are using subtle differences to label themselves as the next "blockchain revolution." This has also led to oversaturation of platforms, excess block space, and fatigue with repeated narratives. In addition, mainstream projects can even obtain exaggerated valuations from VCs before they are launched, and try to control prices through limited circulating supply. This situation makes it difficult for many retail investors to participate in narrative games.

Source: X (@gainzy222) The meaning of cryptocurrency narratives and the way practitioners consume these narratives are changing. It is unclear how long the old routine of creating new stories to justify high market capitalization can last. But we can't expect new technological innovations or business models to emerge every week. The cryptocurrency industry has always been based on narratives based on technological breakthroughs and capital efficiency. Now, investors and users seem to have a meta-awareness of the narrative game itself. The narrative game of cryptocurrency seems to be developing in a polarized way. One side complains that new innovations and narratives are not as good as before, while the other side keeps hyping up emerging memecoins and hot projects, and then watching them burst like a bubble. In the near future, we may see this change become more obvious.

Since its inception, the narrative game of cryptocurrency has undoubtedly played a vital role in building the foundation of the industry. More than just maintaining token prices, the cryptocurrency industry needs goals and visions to prove its existence and potential, especially under fraud, speculation and regulatory pressure. Many people have accepted the vision of blockchain and Web3, and they are committed to promoting the development of the industry and have played an important role in shaping the current form of the industry. However, the technical limitations of blockchain and Web3 are obvious. For everyday applications, the network with sufficient security and censorship resistance is too slow and costly. During the DeFi and NFT Summer, the single transaction fee on Ethereum easily exceeded $100.

Source: Rollup.wtfThanks to the efforts of engineers and researchers, blockchain technology has steadily moved forward. Now, a secure and scalable blockchain space has become a reality. Most L2 or high-performance chains have transaction fees of less than $0.01 and speeds comparable to traditional applications.

Source: The Myth of The Infrastructure Phase Looking back, Bitcoin has been around for 16 years and Ethereum has been around for 9 years. Over the years, the cryptocurrency industry has gone through several cycles of infrastructure and application development, with both technological progress and decline caused by greed. In the initial stages, the industry developed relatively slowly due to a lack of demand and the resources needed for research and development. By the DeFi and NFT Summer of 2020, the demand for applications began to explode, but the systems to support this demand were insufficient. At that time, we deeply felt the need for stable and scalable infrastructure. The Crypto Winter after 2022 marked a period of rapid development of blockchain infrastructure. Rollup, data availability layer, and ZK technology entered the commercialization stage from the research stage. The market actively adopted these innovative technologies. Integrated chains such as Solana attracted new users with their low-cost and fast transactions. High-performance chains such as Sui and Monad have also attracted people's interest and are expected to launch more applications in the foreseeable future. The development of infrastructure and applications complement each other. There is no saying that one is more important than the other and who needs to be developed first. Applications stimulate the demand for infrastructure. In turn, advanced infrastructure provides the foundation for new applications. YouTube was born in 2005 rather than 1995 because of the widespread availability of broadband infrastructure, which in turn was made possible by the success of early web companies such as Amazon and eBay.

Source: X (@Imrankhan) Blockchain technology still has a lot of room for improvement. We look forward to seeing wider adoption of networks that provide better user experience and security. However, it is undeniable that the narrative of the cryptocurrency industry is too focused on technical improvements and ideological concepts. Now, it is time for the applications of the crypto industry to inspire the development of infrastructure. Most importantly, we need applications that can bring block space demand. As mentioned earlier, there has always been a market demand for new narratives in the cryptocurrency industry, and this tendency is particularly strong in the Web3 environment where value accumulation is concentrated at the protocol layer . Therefore, almost out of inertia, the industry continues to show a preference for platforms and infrastructure, the emergence of applications is relatively lagging, and the impact on users is also underestimated.

Source: Vitalik Buterin (EthCC 2022) After the Ethereum Dencun upgrade earlier this year, Vitalik Buterin published his thoughts on the future direction of the cryptocurrency industry. Today, I would like to say that we are clearly on the right side of this S-curve, the deceleration period. As of two weeks ago, the two biggest changes to Ethereum, the switch to proof of stake and the re-architecting of blobs, are a thing of the past. Further improvements will still be important, but will not have the drastic impact of proof of stake and sharding. Ethereum's first ten years were largely a "practitioner" phase, with the goal of getting Ethereum L1 to the ground, and applications were mainly used by a small group of enthusiasts. Until a few years ago, we were setting a low bar for ourselves, that is, building applications that were obviously not going to be used at scale, as long as they could run as prototypes and were reasonably decentralized. Now, we have most of the tools we need to build cypherpunk- style and user-friendly applications. We should just go for it, and developers have no excuses.

Source: X(@QwQiao) If broken down by track, tokens as stores of value (such as Bitcoin) and stablecoins as a means of payment have entered a mature stage. Stablecoins have become on-chain reserve currencies and are actively adopted by countries with unstable currencies such as Latin America or Africa. The DeFi field has also emerged from the disillusionment stage, and the business of mainstream projects has also stabilized. Token Terminal data shows that MakerDAO generated $3 million in revenue in the first quarter of 2024, an annualized rate of about $12 million. However, the token has a market value of only $20 billion and a price-to-earnings ratio of about 16. Even compared with traditional fintech companies, this does not seem to be overvalued. On the other hand, for a wider user base, applications in some areas are still limited. NFT seems to be experiencing a "disillusionment". After the bull market in 2021, most NFT projects, except for a few core IPs, have failed to gain social favor. In addition, even though the market has high hopes for games, the performance of this track is not optimistic and has been greatly neglected by users. As for other tracks, such as artificial intelligence, DePIN and social, they have either not yet reached the peak of hype or are just in the early stages of innovation.

The cryptocurrency industry has passed a critical threshold. Despite various challenges including the Terra and Luna incidents, the collapse of FTX, the severe macro environment and regulatory pressure, cryptocurrencies continue to move forward. Even in extreme hypothetical scenarios, it becomes unreasonable to imagine the scenario of the entire industry collapsing. However, it is undeniable that the application of blockchain is still mainly limited to the financial and trading fields, catering to a limited user base and lacking mainstream appeal. The current cryptocurrency industry is at a crossroads and may continue in its current state, with only incremental improvements in mature areas such as tokens as value stores or DeFi. This does not mean that it does not make sense to continue to play the role of a currency market, but that the cryptocurrency industry will only be a hobbyist-driven market like the poker or marijuana industry. Cryptocurrency has huge potential as an application layer. Ideally, after taking advantage of this, we can fully usher in the adoption of mainstream applications and the emergence of new business models.

Source: Insights from 'The Almanack of Naval Ravikant'Traditionally , only those individuals or companies with capital and labor have leverage. However, the popularity of software and media has broken this situation. Software enables any individual with very little capital to develop applications and services, which has brought innovation and the birth of numerous platforms and SaaS products. The widespread use of platforms such as YouTube and Instagram can expand personal influence, triggering the "Cambrian Explosion" of influencer markets and small media. The greatest value provided by cryptocurrency is the ability to assign economic value to any idea and provide a trading platform. In traditional systems, the formation of markets requires the intervention and permission of intermediaries to maintain economic value and mutual trust. However, blockchain technology provides the basis for tokenization, allowing users to exchange economic value with others and form markets through the Internet without having to trust others or obtain permission from others.

The term "meme" was first proposed by Richard Dawkins in his book "The Selfish Gene". It is a concept similar to genes, which transmit genetic information through physical means. In society, a meme is a cultural unit that can represent a certain idea, trend, fashion taste, etc. Later, memes adapted to Internet culture and were widely used with their current meaning. Memes, like genes, spread through social interactions and continue to evolve in the process of copying, modification and reproduction. Recently, Michael Rinko of Delphi Digital emphasized in his article "Attention is all you need" that cryptocurrencies give economic value to people's ideas and interests, allowing users to own their interests and profit from them. On Instagram, we follow brands and influencers. But the most I can do is repost and share these contents with friends. The value of our attention is 100% obtained by others. Cryptocurrency is different. Cryptocurrency democratizes attention and allows us to own it. If you find yourself spending a lot of time on some topics, you can actually own your attention and profit from it. This truth is obvious and seems stupid, but it represents a major shift in Internet economics. Memecoins take the “attention is value” framework to an extreme. They offer the purest way to buy a token because you believe it will attract attention in the future.

Source: X (@jessewldn) It is important to understand that memecoins themselves are not the most important thing. They are just a meme after all, and once they become boring, they will quickly disappear from people's sight. What memecoins show is the raw potential of tokenization, hinting at the possibility of new applications. From identity and data to the maker economy, the ability to assign economic value to attention paves the way for unprecedented markets and applications. This is particularly true in the first half of 2024. The cryptocurrency market has become active again, and applications that convert people's attention into speculative demand have grown rapidly.

While this list is not exhaustive, the launch and experimentation of both large and small applications continues. Although the industry has existed for more than 10 years, the work of developing applications that take advantage of the unique characteristics of cryptocurrency has just begun. The range of unique user experiences that on-chain applications can provide is still undetermined. We should attach greater importance to these initiatives because they provide meaningful experimental results on how cryptocurrency applications can meet user needs and adapt to the market. We look forward to more experiments in the underexplored areas of cryptocurrency social, gaming, NFTs, and prediction markets.

Blockchain is a backend technology. In addition to application-specific chains, most networks provide a general execution environment and database for applications to run. In principle, most applications we use daily can run on blockchains. Just as software no longer uses its ability to run on mobile devices or use the cloud as a marketing keyword, cryptography should not be a vocabulary to describe application functions. Eventually, "blockchain" or "cryptocurrency" will no longer be used to describe applications, and users should be able to use applications without knowing the underlying chain or wallet. When someone wants to launch a product or service, no one asks why they should release it online. Because deployment costs are lower, it is faster, and except for special circumstances, customers can enjoy greater convenience and accessibility than offline. Similarly, it is foreseeable that running applications on the chain will eventually be seen as a natural thing. As the use of wallets in permissionless markets and interconnected application ecosystems becomes common, we will no longer question why applications need to run on the blockchain. However, in the current limited blockchain environment, such an assumption is nothing more than a hope. The current blockchain development environment is still challenging, and users are not only unfamiliar with wallets, but also tend to avoid them. Except for a small number of enthusiasts, most users need strong motivation to use on-chain applications. It’s not just a matter of increasing adoption by 10% or 20%, we need user experience and functionality that can only be achieved in an on-chain environment.

Source: Sound.xyzMost users in the industry are airdrop "hunters" and traders whose main purpose is to satisfy speculative demand. Those who pursue cryptocurrency ideals believe that this speculation goes against the essential purpose of cryptocurrency and try to distance themselves from these practices. However, we need to re-evaluate the role these "degens" play in the industry. It is no exaggeration to say that the cryptocurrency industry is built on the injection of capital through speculation. The fact that most on-chain transaction volume is based on speculative demand, arbitrage, or MEV profits cannot be ignored. Infrastructure without users is worthless, and there is no doubt that Degens are an important pillar of the cryptocurrency industry. During the 2021 NFT Summer, many companies and brands teased and everyone was excited about entering the cryptocurrency industry. However, it was not Disney that succeeded in the end, but Pudgy Penguins . Cryptocurrency has reached a level where it can sustain growth on its own. Compared with external entities entering the cryptocurrency industry, outward expansion through successful products within the industry may be a more likely way to achieve mainstream adoption. Ultimately, Degens are the early adopters and basic user base of all on-chain applications, and meeting their needs should be the first step in validating product-market fit.

Source: eToroThe preference for speculation is not limited to cryptocurrencies; it is a social phenomenon. Rising economic inequality and the shortening of attention spans under the influence of social media have led to an increasing risk tolerance for investment assets. In the 1970s, the average American held a stock for five years, but by 2020, that number had dropped to 10 months. It would be a mistake to accuse Generation Z of being unfocused or a gambler simply because of their high risk appetite. In most major countries today, it has become more difficult for the younger generation to live a better life than their parents. With a clear understanding that labor income cannot exceed capital income, many investors invest with the idea of ​​"nothing to lose". They don't have much chips, but if they don't bet actively, their chances of surviving at the table will become increasingly slim. While the current situation is undoubtedly dystopian, the high volatility of tokens is also seen by many as an opportunity to turn their fortunes around. Easily accessible speculative assets like memecoins have proven to be a major means of attracting new users to the cryptocurrency industry. Driven by the Solana ecosystem memecoin craze, Phantom Wallet ranked third in the US App Store's utility rankings, with 7 million monthly users. Users attracted by speculative demand will unconsciously learn about digital ownership, wallets, and markets while using the app, thus integrating into the culture and potentially converting into organic traffic.

Source: X (@0xJim) Although most on-chain applications have attracted a lot of attention in the short term by leveraging unique user experience and speculative demand, their life cycles are often short due to their rough design and strong speculative nature. However, based on this point, it would be too hasty to conclude that on-chain applications cannot achieve structural retention. The reasons for the short life cycle of on-chain applications include: most of the user base is composed of degens and traders, who have very low product loyalty; very little time and resources are allocated to product development compared to infrastructure development; most products are overly focused on short-term speculation rather than long-term utility. In the end, I would like to say that if speculation is the only use of cryptocurrency, then I will not contribute to this industry. However, in order for cryptocurrency to realize the vision of Web3 and make general applications such as games and social platforms within reach, we must consider not only the goals, but also the feasible paths to achieve them. Given the current industry and social environment, speculative demand seems to be the most powerful tool that cryptocurrency can use. However, in the long run, users attracted by speculative demand must be converted into users who truly appreciate the core value of the service, so as to establish a meaningful funnel and promote interactions beyond speculation. In addition, a token issuance and distribution framework needs to be developed that can withstand short-term fluctuations in price and demand, ultimately providing social graph and product value beyond speculation.

Source: "Bitcoin Is Dead" Emotions fluctuate even more than token prices. When prices fall, everyone gives the market a death sentence. Bitcoin has passively "died" every year since its inception. I believe that the cryptocurrency industry has developed to a level where it can operate and grow without outside interference. However, the next two to three years will be a critical period to determine whether the industry can achieve the Web3 vision and become mainstream. If the fit of important products and markets cannot be verified within this cycle, then there is no excuse.

It’s been 10 years since the launch of Ethereum, the first general-purpose blockchain. Despite extensive research and development over the years, and the ups and downs of the industry, it’s only recently that it has evolved into a technology that can be reliably used by real users. While token prices and narrative games have always driven the industry, now more than ever, the focus should be on products and their impact on real users.