Written by: Matti
Compiled by: Yangz, Techub News
The reality is that you can't help but ask yourself, "Do we need more infrastructure to attract more users?" The answer is that compared to new applications, we don't need too much new technology.
All along, the technology narrative in the industry has been grabbing more value, and in the process of pursuing value, we have entered the era of crypto entertainment, and everyone, including institutions, wants to participate.
There’s been a lot of news about hot infrastructure funding in the industry, but are the technical frictions of cryptocurrencies really holding back mainstream adoption? Or are we just afraid to confront the really tough problems?
I saw a video of the founder of Shopify saying that the VCs who missed out on investing in the company initially thought the TAM (total addressable market) was too small. At the time they were counting about 50,000 online stores. Today, Shopify alone has 1 million merchants.
Shopify’s solution created a new market by solving the technical friction of creating an online store. The question for on-chain economics is: do we need more use cases or better technology to attract users? Or is the hype about technology itself a use case?
Are developers the product?
We currently have more developers building products for other developers than for actual users. It’s also easier for projects to optimize for VCs. The more obscure the product, the more reflexive the token. We’re also currently shipping more technology than use cases.
In view of the above situation, I think at least one of the following points is correct:
We first need better technology to remove user friction
But the technology is not that important, we need to build for the users first, then build the infrastructure (like Amazon/AWS)
Technology is the product, and VC is the consumer and funder
If we extrapolate Shopify's success story to today's on-chain applications, we can assume that the lack of good use cases can be attributed to technical friction. If the assumption is correct, I think we need to abstract the complexity of blockchain rather than adding infrastructure. In other words, the answer should be to reduce the introduction of new technologies rather than increase them. At the same time, we need better use cases that go beyond speculation and attract more funds.
Reduce the reasons for introducing new technologies
The blockchain design itself is very complex. Based on redundancy, the blockchain liberates state preservation from a closed database. Block space is a container for updating state, but its generation is not easy and the principle behind it is extremely complex.
Developers and entrepreneurs have proposed various forms of blockchain abstractions. These solutions should make it easier for people to interact with blockchains, such as tying together various wallets in a convenient way, building bridges between chains, and deploying applications at a lower cost and faster speed. In a sense, they are the middlemen between the block space and the users.
From a macro perspective, blockchain abstraction is about bundling blockspace with development tools/composable infrastructure for users to use. But are we teetering on the edge of centralization with over-engineered solutions? Does this mean that we end up with complex multi-signatures as "AWS for Web3"?
If you don’t think abstraction is the solution and you are a tech geek, you might be looking for the next ZK/FHE (fully homomorphic encryption) solution to make blockchain accessible to everyone.
Solutions to today’s technological friction can be summarized in two areas:
Reducing the complexity of blockchain
Adding new technologies: expansion and cross-chain (faster, cheaper, seamless transfer)
To onboard the next 500 million users, we need scalable, interoperable blockchains that make it easier for users and developers to interact.
Developers are aggressively promoting wallets and universal applications with better user experience to attract new users to the industry or grab some of Metamask's market share. However, from a user's perspective, the user experience of cryptocurrency applications has evolved, and what is needed now is new use cases and more interesting and useful features.
It’s much harder to come up with new use cases than to copy something that already exists and tweak it. Many apps are built with “what should be” in mind (“users should want to own their data”, “Twitter shouldn’t have that much power”) rather than actual needs.
Therefore, I think the problem is not the technology, but the lack of imagination in terms of use cases. Given the fact that there is more money in the industry than ideas that can be properly executed, we end up in the "Lollapalooza" effect of the cryptocurrency cycle. (The "Lollapalooza" effect was proposed by Charlie Munger, also known as the "ensemble effect", which refers to the strong amplification effect of multiple interconnected factors in the same direction)
Lollapalooza in the cryptocurrency industry
When you don’t know what to build, you build more technology. When you’re stuck for money, you discover financial instruments. And when you’re bored, you browse memes on the internet. It’s in all of this that the cryptocurrency industry escapes reality.
I call the macro cycle that the industry is currently in "degentropy". In this cycle, speculation is eating up the industry, and the industry is eating up speculation. For the past and future macro cycles, I divide them into the following four eras:
2009-2014: The Cypherpunk Era (Conception)
2014-2020: Crypto Startup Era (Entropy Increase)
2020-2025: The era of crypto entertainment (entropy reduction)
After 2025: The Deployment Era (Negative Entropy)
Currently, the industry is stuck in two extremes: on one hand, a utopian embrace of memes that have no intrinsic value, and on the other hand, utopian promises of technology that cannot solve the current thorny problems. No one is focusing on answering the hard questions (use cases). As shown in the figure, this is a true portrayal of entropy reduction:
Although the judgment of the group in the middle of the curve will be correct at the end of the cycle, it may also mean that they can’t make money (nor lose money) now. Cryptocurrency has become a reality for betting on the future; everyone is both a technology investor and a meme investor. Since there is no entry barrier, everyone can participate in the trend of the times.
On the other hand, the groups on the left and right sides of the curve will continue this grand "role-playing game" and benefit from it. The rules of this game are simple: just sell the coins to any investor who is willing to take them.
It may sound a bit "worse than bad", but when the economy itself depends on "alchemy" and few people can justify it without relying on the performance economy, how can we anchor it in reality? Some people would say that the $400 billion global consulting market is also a joke, but the fact is that its existence does make it difficult for people not to participate in this particular role-playing game.
In fact, the market has become largely an entertainment industry, and this is the impact of 24/7 information flow on society. Cryptocurrency provides a good product-market fit for this highly performative era. We are blurring the line between games and reality.
That's the reality. I'm not doing prescriptive analysis, nor am I saying this is bad. What I'm trying to point out is how the financial game has evolved. This evolution can make something that seems worthless become priceless in the future (and in most cases become worthless again).
In this day and age, following the money means following the Lollapalooza trend. If you can play this game, then congratulations, you have better sales skills than KOL. In my opinion, the current cryptocurrency industry is roughly the entertainment industry. We are in the token sales business.
Of course, I don’t think this is the final form of the cryptocurrency industry. It is expected that a great depression (real disillusionment) is lingering ahead, after all, the "Internet bubble" of the cryptocurrency industry has not yet happened. Here are the reasons why I guess so:
Most of the funding we see is for technology for technology’s sake
Blockchain cannot scale to meet mainstream needs
Few consumer-facing use cases
Institutional support and traditional financial adoption are still immature
No matter what you think, we are not ready or qualified to absorb trillions of institutional inflows. If these inflows are coming through ETFs, then the final degen bigwigs will enter the last leg of the macro cycle that began in 2020.
From a macro perspective, the success of cryptocurrency depends only on whether more money enters the market. In the short term, its success may become a self-fulfilling prophecy, that is, "financial degeneracy" will ignite the system that cryptocurrency is trying to replace. In the long run, anarcho-capitalism will bring "financial degeneracy" into the city of "traditional finance" through the Trojan horse of "revolutionary technology".
