Over the years, crypto has declined into ever more predatory and evil territory. In 2010, there was just bitcoin. Obviously, very speculative, and many of its early proponents were blatantly shilling their bags with populist falsehoods. In 2013, we had the altcoin mania, most of it were pointless “Bitcoin killers”, but whatever. In 2017, we had the ICO mania. I thought that was the pinnacle of market madness, and the most irrational market in centuries, or at least a century. I was very wrong - that was merely a lack of imagination on my part. Things would get much, much worse.

The DeFi ponzis, the memecoins, the ugly JPEGs of 2021. It’s the same story every time - there’s some grandiose narrative for what’s nothing more than pure casino. Can’t get much worse, right?

Sadly, nope, things have hit an all-new bottom with 2024: racist, sexist, and other shitheaded memecoins which are merely a vehicle to transfer wealth from the many to the most obnoxious people on the planet.

So why has there been such a sharp decline? I think it’s pretty simple - the crypto community lacks any moral compass.

The same defensiveness and cope keeps repeating:

• “Everything’s a ponzi”

  • This is obviously false. There are many productive assets worldwide, organisations that have invented products that have led to significant increases in productivity and quality of life, governments that have executed effective policies that have led to billions of people lifted out of poverty. MSFT stock and your bigoted memecoin are not the same.

• “Scammers are everywhere”

  • Yes, crypto does not have a monopoly on scammers, grifters and opportunists. There are industries that are almost entirely free of scammers, and there are those that where scams run rampant. Crypto is absolutely on the extreme end of the latter spectrum.

• “There’ll always be demand for casinos”

  • Yes, but crypto is a really terrible casino. Watch this excellent talk by Jon Wu:

  

And the latest cope:

• “Racists are everywhere”

  • I’m not even going to dignify this with a response

In all these cases, the clear problem is being blind to the magnitude of the problem. Like I said, it doesn’t even matter if there’s bad elsewhere - you have to acknowledge the problems in your community first and do something about it. That has simply not happened.

Some people think all of this is perfectly fine, “people can do as they please” - couldn’t disagree more, but I’ll save it. Others clearly know all of this is very, very bad, but give it a wide berth, “I’ll just focus on the good and ignore the very very bad”. Then there are those that know these are pure evil, but are too afraid to speak up because they don’t want to be silenced by the degenerate mob, or they don’t want to FUD their bags.

In December 2022, I posted a tweet about wanting to see a cultural shift. Things have only gotten worse since then. Even the people who were willing to speak up back then have said nothing about this latest wave of insanity. At this point, this evil in crypto is banal and normalized. This has become the identity of crypto - sure, some useful stuff, but mostly just infested with scams and absolute degeneracy.

Those who read my blog will know I have given up a long time ago, this community simply is not for me, but I wanted to be as gradual about it as possible. I quit crypto twitter in June 2023 (aside from a couple of one-offs). In January 2024, I decided to give it one last shot given an alternative, more sensible audience growing on Farcaster. But things quickly went south, and I went on an indefinite hiatus from writing. Huge thank you to everyone who has read my blog posts and derived some enjoyment or information out of them. I’m sorry I couldn’t do more. I’ll try and make the occasional cast on Farcaster, and I’ll absolutely fulfill my delegate and investor obligations, and privately help anyone who wants to fight against degeneracy and build useful products. But this is the end of the road for this “polynya” blog.- 30 -

PS: I’ll be happy to consider writing again if the aforementioned aggressive cultural shift (where crypto’s most popular influencers loudly deride everything that isn’t sustainably useful) were to happen, but it’ll be under a different pseudonym. If it ever happens, it’s not going to happen before the “polynya” pseudonym is forgotten anyway.

What is stateless infra?

First, what is “stateless infra”. Some would say UTXO or DAGs or whatever chains are stateless. Others would say chains with stateless clients are stateless. Even some solutions I’m calling stateless have a state - though in a different form to blockchains. So maybe we need a better term for this type of infra, suggestions welcome, @polynya on Farcaster.

But for now, for this post, we’ll stick with blockchain = any chain achieving real-time strict global consensus (including rollups); stateless infra = not a chain, no consensus (or loose consensus), but decentralized complements that interact with above mentioned blockchains.

As we head into a bold new world of hybrid applications that use blockchains only for strict global consensus - and mostly only for finance and identity - we’ll see almost all of their compute, data etc. happen on non-blockchain infra.

But first, we need to shift our perspective when discussing stateless infra. In the blockchain world, we have been attuned to honest-majority assumptions, and thus running as many nodes as possible is important. However, outside of blockchains things for the most part operate with an honest-minority assumption - as long as there’s one honest party, it’s all good.

I think we can broadly classify these as three different classes:

1) Servers - This one’s obvious and a well-known quantity.

2) Servers with redundancy - Add redundancy and the ability for anyone to spin up a server, and you get some decentralization but also retain the max efficiency of traditional servers.

3) Stateless infra - This is a broad category in itself. These are maximally decentralized constructions, running peer-to-peer, but there’s no consensus (or loose consensus). As a result, you run with an honest-minority assumption, and even a network with 10-100 nodes is perfectly decentralized. But there can also be certain types of stateless infra where there’s only one node, but thanks to validity proofs, they don’t need any more. (These are called ZK Coprocessors) Stateless infra can enable a lot of features incorrectly attributed to blockchains - decentralization, privacy, auditability, permanence - but without the burden of consensus. By calling it “stateless”, we get some sense that they have something to do with blockchains, but they don’t have a state [PS: they can have a state, but not a real-time strict consensus state with strict state transitions as we associate with blockchains] and thus don’t come to consensus. Again, this is a very broad category, and I’m sure we’ll see many different solutions. IPFS, BitTorrent, Farcaster Hubs, ZK coprocessors - all can be thought of as forms of stateless infra.

Why do we need stateless infra?

Today, blockchains are extremely inefficient, requiring tens of thousands of times overhead over a server for the same compute. With new tech like validity proofs and data availability sampling, we can be thousands of times more efficient, but even an endgame ZK rollup settling using DAS will probably have a 100x overhead overall.

Today, “web2” runs on 100,000,000+ servers. How bullish we are on decentralized compute varies wildly by who you ask. Monolithic chain maxis are the most bearish, and think 1 chain can handle most of it. More optimistic folks will tell you 1% of all compute will migrate to decentralized compute, while the most optimistic ones would say 10%.

But let’s take 0.01% as an example - not as pessimistic as monolithic maxis, but still fairly pessimistic. This would require the equivalent of 10,000 servers. Adding all the inefficiencies added by chains, you’re looking at a million chains, probably.

With ZK tech, it’s actually possible to scale up to a million chains with universal synchronous composability and shared security - which is literally a million times improvement over monolithic chains.

But it’s not enough. Let’s take the example of a multiplayer game like Palworld. According to their developers, they have a monthly server cost of $500K. Making it all run on endgame ZK rollups - which is the very most efficient frontier of blockchains - will cost multiple millions, making it financially infeasible. (As mentioned above, a usecase like this is completely impossible without using ZK tech)

Instead, we have to take a hybrid approach, while retaining decentralization. Multiplayer games can run largely peer-to-peer, with the game clients running on each person’s computer or console effectively running a vast decentralized network. Somethings need to be coordinate on servers - these can be moved to a peer-to-peer stateless infrastructure. Stuff that needs verifiability but not consensus can run on ZK coprocessors. Finally, the stuff that needs strict global consensus can run on ZK rollups/validiums.

Lastly, it’s important to note that parallelizing across multiple cores and multiple machines is much, much easier with stateless infra, which can lead to exponentially higher scale.

It’s still going to cost a lot more than $500K, but by using the most efficient solution for each task, while retaining decentralization, we can enable new usecases that are simply infeasible today and won’t be feasible in the future just using blockchains, even at its most evolved ZK form.

It’s all about enabling new applications

Today, we are in a very restrictive paradigm. Whether it’s an L1 or L2 doesn’t matter - the hardware limits to one chain - effectively one server - is extremely limited. We have seen L1 after L1 after L2 after L2 reach their limits and get congested very quickly, with even the fastest chains only able to accommodate a few thousand transactions per second at most.

Using new tech like validity proofs, we can start using multiple chains while retaining security and composability, which is already a massive, infinite improvement.

Using stateless infra, we can go further.

By combining all of these, we can start to realize applications that would just not be possible without.

But what about decentralization?

Stateless infra can actually be more decentralized than blockchains. Achieving strict global consensus is an extremely difficult process, and requires an expensive Sybil resistance mechanism with honest-majority assumptions. The block production mechanism is at best a plutocracy (proof-of-stake) and at worst a corporatocracy (proof-of-work). These blockchains mitigate this by node running, but they still operate with an honest-majority assumption, and you need thousands of nodes to achieve any level of resilience for the consensus-forming process.

While stateless infra will come in various different forms, most of them will be just fine with honest-minority assumptions - so as long as there’s one node it’s all fine. As a result, they can be much more decentralized with much fewer nodes, and have fewer points of failure and centralization.

In short, if strict global consensus is not required, peer-to-peer stateless infra are both more efficient and more decentralized than blockchains.

Concluding

It’s about time we stopped fighting over blockchain infra and started building applications, new applications enabled by stateless infra.

Happy to discuss more on Farcaster, @polynya. By the way, Farcaster is a great example of an application that’s only possible using stateless infra, and why it has succeeded where its blockchain-only counterparts like Steem or DeSo failed. More Farcasters please, less L1s and L2s.

As you might expect, how you define objectivity or subjectivity is… yes, you guessed is… subjective. But in the context of blockchains, we can be more precise.

The key function of blockchains is achieving strict global consensus. However, this can only be done on a set of numbers and letters with some mathematics involved in between. This is what I mean - blockchains can only process objective inputs, objective compute, and return objective outputs.

The simplest form is, Account A sends account B 1 BTC, so the Account A balance is -1, Account B balance is +1. You can have “smart contracts” which have more complex changes, but are still bound by objective variables.

We are complex beings with even more complex societies. >99% of our interactions are subjective, with different people having different interpretations of the situation, and on a broader scale, different jurisdictions having different laws.

So, a “smart contract” on a blockchain is still extremely dumb, and you can’t do actually smart contracts.

You can’t have a music artist make a contract with a publisher onchain because it comes with many subjective clauses that can never be parsed by a blockchain. They would instead need the law, and lawyers. Maybe in a far flung fantasy you have a benevolent AGI capable of doing this task, but that’s a long ways away. And no, said AGI won’t use a blockchain - it will obsolete it.

Today, the product-market fit for public blockchains is almost entirely financial in nature, and this is because a big part of finance is objective. However, we can also see its limitations and where blockchain protocols have to work around its limitations.

You can’t have subjective monetary policy, so you have to use stablecoins. But most of these stablecoins - USDT or USDC - are defacto centralized. You can’t do credit, so you have overcollateralized lending or borrowing - which kinda defeats the purpose of lending and borrowing for most people. There’s no reversibility or dispute resolution, and thus no protection against scams, mistakes etc. Probably why this space runs rampant with scams.

Now, you can start bringing oracles and such onchain, what they effectively do is take an objective output of a subjective process, and bring a representation of them onchain. You can have DAOs which can bring subjective processes and decisions to otherwise blockchain protocols. However, it’s important to note all of this is outside of the blockchain with their own points of failure.

Embrace the objective nature of blockchains, be wary of the subjective components of oracles and DAOs, and avoid trying to shove subjective things like reputation or governance onto blockchains - they can come with disastrous results. (See Black Mirror’s “Nosedive” for an entertaining spin)

OK, I didn’t want to make this post about criticizing Vitalik’s list, but I write these blog posts improvisational style, so it’s important to note that the “Banking system” is a much larger superset of what the “Decentralized stack” offers. Vitalik notes that we still need banks for loans, but it’s not just loans, it’s really anything subjective - subjective money with monetary policy, dispute resolution for scams, etc. In reality, there’s an overlap between “Banking system” and “ETH, stablecoins, L2s for payments, DEXes etc”, but they also offer different services, so the two stacks are not comparable, and you’ll need both. Yes, you can add the traditional stack on top of the crypto stuff, but then it’s just part of the traditional stack. Finally, I’ll also note that Vitalik is not a fundamentalist and readily acknowledges that most people will mix and match both stacks.

With that said, ETH and native crypto assets absolutely, 100% need strict global consensus! Indeed, this is the dominant usecase, accounting for >90% of crypto’s $ value.

Some of the other usecases - it depends. Stablecoins don’t necessarily need strict global consensus, but strict global consensus has allowed them to frontrun regulations and come to market early. But eventually, there’s no reason a US CBDC cannot offer exactly the same service as a USDT or USDC, but in a more decentralized and efficient manner, cutting out the middlemen (i.e. Tether, Ethereum, L2s etc.). I’ve also argued using ZKPs CBDCs can be fair and democratic - but of course, bad implementations of CBDC can also be dystopian.

Now, even in that world, there’ll be demand for blockchain-based stablecoins, so yes - it does require strict global consensus, but perhaps more as a niche long term.

DEXes - yes, they do need strict global consensus, but also it’s a niche. A vast majority of trading happens on CEXs, and will continue particularly with regulated products like spot ETFs now available. I’ll add DeFi into this camp, and yes - DeFi absolutely needs strict global consensus for its unique properties. Obviously, it’s a niche too.

I’ve already railed against DAOs. I’d argue that a vast majority of DAOs don’t really need strict global consensus. They do need it for making their tokens globally accessible, but that’s about it. Or, if the DAOs are crypto protocols, and the proposals and voting lead to smart contract execution. But a vast majority of things that a vast majority of DAOs do - they don’t need strict global consensus.

Yes, ENS does require strict global consensus! You need a global registry that everyone agrees with. At the same time, I don’t know if this is the endgame, and it’s possible see new identity solutions emerge beyond what public blockchains can do.

I’ve grouped all of these things together, because by and large, most of these do not require strict global consensus, and can be achieved peer-to-peer.

The one exception is Sign in with Ethereum. Though it doesn’t need to write to strict global consensus, it may need to read from strict global consensus. Also, some of these may need strict global consensus for one or two aspects, even if they are mostly done without.

To conclude, we keep coming to the same conclusion, and growing our evidence base - strict global consensus enables objective money and objective identity. Applications requiring these two things can benefit from the strict global consensus property of public blockchains. For nearly everything else (niche usecases aside) - just use peer-to-peer or other traditional methods.

Once your transaction fee is substantially lower than $0.01, the chain and chain’s infrastructure becomes vulnerable to spam, DDoS and micro-MEV attacks. This is particularly true if the chain also has a financial ecosystem. Let’s consider two chains with fees in the sub-$0.01 range - Arbitrum Nova and Solana. For strategic reasons, Arbitrum Nova is promoted as more of a gaming and NFT chain, while Solana is more of a degen casino chain. Obviously, there’s more to both, but those are the primary usage as far as I can see. The latter comes with a financial ecosystem, and has led to rampant micro-MEV and spam transactions - what I had previously described as “low quality” transactions.

But first, micro-MEV. The lower your fees are, it exponentially opens up the possibility of low-value MEV opportunities. There’s a mad rush to capture these, which leads to many failed transactions. Even Solana and Arbitrum Nova do have a minimum fee, but other chains could experiment with even lower fees, and it could eventually lead to a scenario where >99% of transactions are failed, spam, and just worthless.

Now, some would say - what’s the problem? Let them spam the chain away. There are two big problems:

1) Sustainability and cost: The spam is socialised across the network, and history can pile up to petabytes in short order. Innovations like validity proofs can minimize the compute burden significantly, but it’s still a linear cost for the sequencer/builder, and the history remains the endgame bottleneck. By simply not processing worthless transactions, the marginal cost of legit transactions becomes cheaper - orders of magnitude so for chains where >90% transactions are spam, micro-MEV or failed. It’s easy to sweep these under the rug in the short-term, but in the long term they can become crippling weaknesses.

2) $0.01 is too expensive for some usecases: Some usecases need free transactions. The difference between $0.01 or $0.001 is negligible if you’re making a $100 DeFi transaction, but the difference between $0.001 and $0 is everything if you’re taking an action in an onchain game or a social network.

So, it’s clear, we need solutions for the transaction quality trilemma. That brings us to Immutable X & Sorare, which have the best solutions thus far. They have free transactions, but employ “web2-like” spam mitigation methods. The key is offering an alternative censorship resistant path which does cost. This way, you get the best of both worlds - free transactions for those who need it, but censorship resistance for the edge cases. Ideally, you would want free transactions with censorship resistance, but that’s much harder to solve.

The key to achieving this is - a) state isolation, and b) spam mitigation. a) is key, otherwise you end up with micro-MEV and unrelated spam. Theoretically, this can be doable within a chain (L2 or L1), but currently it’s best done in L2s, as seen with Immutable X and Sorare.

Now, the obvious drawback here is a lack of composability, but the solution could be restricted composability with other L2s/L1. It’s also worth considering that pretty much all conceivable usecases that require microtransactions with zero fees only need composability - social, gaming, $ streaming etc.

Spam mitigation is an open-ended question - and I feel there’s significant research and engineering pending to develop the best solutions. I suspect this will need to be bespoke solutions tailored to the specific application.

Lastly, for the chains oriented towards high-value financial transactions, they will be just fine with a ~$0.01 fee floor. This is good enough to include pretty much all valuable transactions, but at the same time having minimal spam or micro-MEV. I don’t know what the optimal figure is, but it’s probably in the $0.01-$0.10 range.

1. It’s centralized: You’re relying on either a plutocracy and/or a corporatocracy for strict global consensus. Indeed, you need a fallback to make that acceptable, but this relies on rough consensus. So, it’s not really strict global consensus in those edge cases? Confused? Yes, that’s the drawback.

2. Expensive: Even in the endgame with validity proofs, there’s still going to be a significant overhead, technically, economically, and socially. In the monolithic era, which we are still transitioning through, it’s 1,000x worse. Strict global consensus comes at a cost.

3. Slow: At the endgame, you can have many high-performance chains interoperating via validity proofs, with each chain featuring parallelism, each faster than the fastest chains that exist today. However, you can’t really have a high-performance application as each application is ultimately bound by a single thread. Some applications can be multi-threaded by accessing different state, but many of the apps suitable for strict global consensus will be bound to a single thread. There might be solutions to this - one that I can think of is something like an EVM ASIC, instead of running on a CPU, with a “massive thread”, so to speak. But it’s still not going to match non-consensus applications which can parallelize seamlessly across thousands of servers and millions of threads.

4. Limited: You’re kind of limited by the VM enabling strict global consensus. Some applications can deploy app-specific rollups bypassing VMs, but others requiring composability are bound by the rules of the chain.

5. Objectivity only [Addendum]: I’m adding this in later, because it’s kind of obvious, and also, a lot of P2P stuff can’t do subjectivity anyway. But it’s worth noting that strict global consensus can only be achieved on objective inputs. So, subjective things like credit scores, reputation, monetary policy - and really most of the human experience - are not possible through strict global consensus.

For many key applications enabled by strict global consensus - particularly objective money/value & objective identity - these trade-offs are well worth it.

However, a lot of purported “web3” applications simply don’t need strict global consensus. If you need decentralization, non-consensus peer-to-peer is significantly more decentralized, efficient, flexible, and performant. If you need privacy and cryptographic guarantees, zero-knowledge proofs enable new usecases without using blockchains. There are interesting hybrids like ZK coprocessors, stuff like Cowswap. Build your application hybrid so it leverages strict global consensus only when actually essential, while using better methods for other features. Of course, it’s a spectrum, with some applications where everything onchain is essential, and others which only use it for 1 thing.

In 2022, hybrid applications were kinda theoretical and I accepted that criticism, but today, Farcaster has proven this model works. Use onchain for the one or three things that need strict global consensus - objective money (fees, assets) & objective identity (ENS) - while doing everything else offchain. For a better visualisation, see:

The answer is - you make it expensive to gain the rights to append your own block. On Bitcoin, it’s practically impossible, so you need a) an industrial operation with hundreds of millions of dollars, b) collaborate with other such industrial operations to collectively produce a block. On Ethereum, the above applies, but there’s also a side channel where you can stake US$75,000 for the privilege of appending a block once every 4+ months on average. On top of that, you stand to lose most of that stake if you’re malicious. There are other mechanisms, but either way, the goal is to make it very expensive.

Why so expensive, then? It’s the only known objective method to deter block producing participants from corrupting the network. The more expensive it is, the greater the deterrence.

By following this method, this new database - let’s call it a blockchain - can achieve strict global consensus, where everyone agrees on the same block in real-time. Different networks achieve finality in different ways, but once it is achieved, the job of the blockchain is done. Indeed, this is the only job that blockchains can uniquely do. From here on, you can discard the blocks from this network - as long as there’s one copy it’s all good.

However, there’s a caveat. This is extremely centralizing. No matter which mechanism is used, this is effectively a plutocracy, where a few of the wealthiest people in the ecosystem can collude to control the network. In the case of Bitcoin, the economies of scale for mining are very powerful, and with dwindling subsidies over time, it’ll inevitably be down to an oligopoly of a handful of highly industrialised mining operations and maybe a couple of mining pools doing all the block producing - effectively a corporatocratic dystopia.

So, you have achieved strict global consensus, but in a highly centralized manner.

This is where you need a last line of defence, and it comes in form of subjective rough global consensus. A public blockchain network is ultimately formed by node operators who are not producing blocks. It’s not free - as you need a computer and the knowledge to run the node - but it’s accessible. The cheaper and easier it is to run a node, the more independent unsubsidized operators there are, the stronger the rough consensus.

In very rare occasions, the objective strict global consensus formed by block producers diverges from the subjective rough global consensus formed by the node operators. The canonical chain is always determined by the node operators. So, the objective strict global consensus is thus conditional on the subjective rough global consensus.

I tried to make this post simplified and without nuance, but even so, it’s more complicated than I would like.

The goal should be to invent a better objective method for appending blocks - without losing said objectivity and neutrality - so you don’t need a subjective fallback as much. No idea if that’s possible, though.

First, let’s address the tweet being quoted, that “i cannot think of something that makes less fucking sense than a million rollups” -

Today, “Web2” runs on >100,000,000 servers. “Web3” (““ because its a very silly meme) necessarily more inefficient. Even at the endgame state of ZK proving, chains have to process signatures, generate proofs, feature some degree of replication, and are much harder to parallelize - indeed, I haven’t seen any mechanism which has achieved parallelization on the same application. If you think that “Web3” will take even 1% of “Web2’s” compute, then absolutely there’ll be millions of chains. And barring a couple of exceptions these will be rollups or rollup-like constructions because it’s impossible for a million chains to self-secure. Personally, I don’t think 1% is realistic, but I also think a few chains is far too pessimistic - the reality is probably somewhere in the middle. I do think there’s a possibility that a lot of these will be hybrid applications, with constructions like coprocessors where the lines between chain and server are blurred. Anyway, enough of a digression, let’s get back to Hayden’s tweet…

Immediately, the first point, “history can be verified” is wrong. All high-performance chains (L2s, L1s, doesn’t matter) will prune / are already pruning history and state, and eventually even high-resilience chains like Ethereum L1 have a roadmap for both history and state expiry. Bitcoin is probably going to be the only remaining relevant chain where history can be verified. This is not an issue at all, because the public blockchains are not meant for storage or history - they are meant for real-time consensus. Indeed, there are far better solutions for historical storage, which will be used by chains for history. As long as there’s one copy, it’s all good.

“Accessible to all + can’t be shut off” - once again, you can easily have a server that is accesible to all. You just need to extend it to a peer-to-peer network and it can’t be shut off.

“Interoperate with other servers” - traditional servers interoperate all the time, and to much greater extent than can ever be possible with public blockchains.

If you just need the above three things, you’re much better off with an open peer-to-peer network (e.g. BitTorrent) that doesn’t require strict global consensus - it’s significantly more efficient and decentralized.

The real superpower of chains, then, is… you guessed it… strict global consensus. This enables unique properties that lead to applications like Uniswap - I have discussed these in detail across multiple blog posts so I won’t rehash them here.

This is why I spent most of 2023 writing about this topic - when even the inventor of the most successful application can’t quite explain the strengths of public blockchains, and it’s such an unpopular topic in the face of infra and degeneracy obsessions that run rampant in crypto. Of course, it’s much more likely that I, an amateur blogger, am delusional and wasting my time.

Crypto has found a vast majority of its product-market fit by $ value from being alternative or speculative store-of-value. This is why BTC is still dominant, 15 years in. ETH has also found monetary properties circa 2020. Both combined command over 75% of the market excluding stablecoins, and even higher in terms of liquidity. Tokens such as XRP and ADA have also found not-insignificant lasting demand.

Over the years, people have had a multitude of theses about crypto - doomer theories about imminent global economic collapse have been pretty common. Ironically, the global economy has proven to be very resilient, and continued to grow, with productivity reaching new highs year after year. This has led to greater demand for alternative stores-of-value like BTC or ETH. No matter the thesis, crypto has continued to ride high on the monetary demand vector.

This has created a new economy based on BTC and ETH. The problem is, there’s very little productivity in this new economy. Which is to be expected when the vast majority of value comes from simply holding and speculation.

And here, speculation becomes the key. You’ll find 70 crypto tokens worth $1B or more. Many of these have been around for years with negligible product-market fit. They have made a dozen pivots and still failed to find any productive use. New tokens that clearly have very limited product-market fit potential for the foreseeable future are inflated up to billions. The end result is tokens that fundamentally should be worth a few million at best end up on the low probability they are worth something some day being worth billions; and hundreds of tokens that are very obviously worth zero continue to be worth millions - because of a massive speculative premium derived from the backbone of the industry, the store-of-value. There’s also the small matter of people mistaking infra as being the demand driver, rather than money and speculation, but I’ve beaten that horse to death on my blog.

To be clear, there are a couple of actually productive assets in the space, but these are massive outliers, and hilariously most of them are undervalued even relative to value stocks.

So, what’s the solution? There’s no solution - this is the very nature of this industry. Gamble on random rubbish, rotate back to an asset that you deem to be a store-of-value.

Of course, there’s a demand ceiling for all assets. We’ve seen BTC’s exponential growth come to an end in 2017, and it has seen only modest growth since, barely keeping up with NASDAQ. Diminishing returns will continue, until it comes to a point where the market for an alternative store-of-value and related monetary properties is near saturated. It’ll take many years of going sideways that’ll lead to a slow bleed to near-zero for all of these grotesquely overvalued tokens.

In the here and now, though, the crypto market remains the craziest, most utterly-detached-from-reality, unhinged casino market the world has ever seen, and will probably remain so longer than anyone with the bare minimum of sense may expect.

The problem is, of course, what makes a “citizen” is a highly subjective matter, and subjective matters need significant human input. At the end of the day, the value of a person’s contributions can only be judged by other people with expertise in the matter. It’s dangerous to think a set of numbers will ever capture the complexities of a person’s reputation. That leads to the obvious solution - bureaus or councils of naturalisation.

But before that, it’s imperative to note that such a community will need a clear and well-defined constitution, part of which includes what the goals for a citizen are. The naturalisation council, so to speak, will obviously need to be elected and have checks and balances as well.

The scope of such a council will depend purely on the goals of the DAO. If it’s simply a profit-making enterprise, then a DAO is perfectly fine with plutocratic voting. For most DAOs, just onboarding a few reputable people, just enough for adequate checks and balances is fine. On the other end, it’s theoretically possible to experiment with a full-blown democratic network state, which will need pretty extensive processes - this is the only one where the word “citizen” may be used appropriately. Let’s focus on the middle scenario, though, acknowledging once again “citizen” is inappropriate, but maybe something like “enthusiast”, “fellows”, “badgeholder” or “evangelist” should work better.

Objective attempts at identity do exist, including attestations or reputation scores. While I’ve highlighted the hazards of these, and they are inherently very limited, they can still be one of many useful tools. One way they can be used is as a base requirement or filter for people to apply as “fellow” or whatever it’s called. Or they can just be used as one metric.

The Naturalization council will process each application individually, and will also have the right to invite individuals who have contributed a lot. Depending on the nature of the DAO, it may be sufficient to have a few hundred such people, or it may require more. Adding a few hundred highly reputable people as checks and balances to a plutocratic voting apparatus is a significant step forward over the pure plutocracy status quo. But maybe some communities/DAOs will want to go further.

Now, some will complain that the Naturalization council is a “centralized” body. Well, not quite, as they will be elected by both tokenholders and existing “fellows”, and have considerable checks and balances and veto rights against them. Indeed, by adding this subjective assessment of a person’s contributions, it makes the DAO significantly more decentralized than de-facto being controlled by a few whales.

As I’ve been writing for years now, I’d like to see more experimentation with DAOs, and moving beyond pure plutocratic voting. I believe something like a naturalisation council, even if in a very limited form to begin with, can be worth experimenting with.

Today, there are 2 dominant usecases for crypto:

1) Alternative store-of-value and/or speculation: There are hundreds of millions of users worldwide that trade or hold crypto. However, a vast majority of these users do so on centralized exchanges or related custodial solutions. Larger players opt for institutional custody solutions. Coinbase and Binance alone have over 100 million users each.

2) Stablecoins: Likewise, most consumer usecases of stablecoins have chosen centralized stablecoins like USDT and USDC, over CEXs like Binance, with a lot of it activity happening on Tron. Ethereum is preferred for larger transfers, but a lot of consumers - particularly in countries like Argentina and Turkey - have anecdotally overwhelmingly chosen USDT on Tron, mostly via Binance.

Custodial solutions too have improved by leaps and bounds, but there remains significant scope for improvement, including becoming semi-custodial.

But first, some reasons why most people will not opt for self-custody:

1. Key management is brutal. Even with friendlier solutions emerging over the years, and more to come, a single accident or mistake means you can lose everything.

2. No recourse for crime. Likewise, the space is rampant with scams, phishing and malware. A single momentary lapse means you may lose everything, with no recourse.

3. It’s just too complicated. There are many wallets, many applications, many chains, many block explorers - it’s just overwhelming.

Of course, there’ll always be a niche who will opt for self-custody and accept responsibility if things go south - this will not and should not be the norm. Most normies just want good services, and they are happy to pay a service provider who is proficient at it, with years of experience and a strong reputation.

So, here are some suggestions for better custodial solutions:

Usecase-based UX: In many cases, people just want to use crypto to do something. Let’s say you just want to use crypto to hold or exchange stablecoins. The correct UX should be, for example - I log in to Coinbase.com or the Coinbase app, convert USD from my bank account to USDC, select the sendee or merchant from my address book/QR code/URL, and that’s it. In the background, Coinbase can mint USDC on Base (or an instance of), do the transaction, and if the user wants, they can verify onchain. All fees and UX hurdles are abstracted away. There are many solutions that can go beyond trustmebro, the above is just an example of how you can be semi-custodial.

Another usecase could be the user wants to earn yield. Coinbase can have active strategies, which are transparent, and the user simply deposits their funds into a selected pool. There can also be “recommended pool” so it’s even simpler. The user can once again verify if they want to, but the baseline UX is seamless.

Applications-based UX: Moving up to more advanced users, we now have people who want to select what applications they use, but don’t want to go through the hassles of vetting applications, avoiding scams, managing keys etc. For these users, semi-custodial solutions may also be useful. The paradigm that people understand well is the app store model.

Coinbase can audit and curate applications that have a high probability of being safe, and offer a risk analysis in simple terms. Personally, I use Gnosis Safe and I like the Applications UX, though it could be a lot better. Of course, users can also opt to use unverified applications at their own risk. (i.e. sideloading)

But a simple app store where users can use applications on one app or website can go a long way to making the UX seamless. What chains are being used, what fees are needed can be abstracted away from the user. Of course, this will require close collaboration from the service provider and the application developers. An ideal solution would be to have an open standard that all app stores can implement and all applications can develop for, but coordination will be difficult.

My first post on Mirror in October 2021 was kinda about this topic. (One thing I’ve changed my mind on is I now believe many of the “tech-savvy normie users” will opt for semi-custodial solutions like the ones described above, instead of smart contract wallets. That’ll be reserved for enthusiast users.) Significant progress has been made since then, yet I feel we’re lagging behind in achieving this vision by 2025.

With the advent of many CEXs branching out into L2s, there’s a significant opportunity to get the best of both worlds - onchain verification with seamless UX.

A couple of days ago, I saw a mention from @randomishwalk again, someone else had mentioned “global consensus”. It’s difficult to find the motivation to keep writing about these “realistic” topics, which have such a niche audience, when 99% of the crypto sphere is completely obsessed with infra and degeneracy. But having seen the sentence “Are you building something that benefits from global consensus?” (which is basically the topic of most of my blog posts in 2022-23, alongside Governance) start a flowchart see 300,000 views, I’ve found something to write about again.

Nothing here is new I haven’t talked about before, but may help those who have seen that flowchart and are wondering if their applications require global consensus.

I’m not Vitalik and have my own opinion on the matter which may diverge from what Vitalik meant. I call it “strict global consensus” for clarity. You can achieve rough global consensus, but Ethereum (or public blockchains in general) cannot help you with them.

The best example is Ethereum itself. The network is run by thousands of nodes, and developed by a dozen different client teams. They achieve rough global consensus on exactly what Ethereum is, through highly subjective means. Ethereum itself cannot help with this process, of Ethereum existing.

The “strict” also captures that the fact that public blockchains can only do objectivity - another big theme of my blog posts this year. So, “strict global consensus” can thus be defined as - you need everyone running the network globally to agree strictly on a set of objective outputs (some set of numbers).

So, here are an example of things that do not require strict global consensus:

1. Data storage: This is a vast field with many usecases, but in almost all cases, you don’t need everyone in the world to agree on said data. There are tons of options available, from self-custody with tapes and hard drives, to choice of thousands of data storage providers, to distributed options like IPFS or BitTorrent. Indeed, blockchains themselves will prune data and rely on solutions like BitTorrent to remember pruned data.

2. Governance of any kind: governance is a largely subjective and complex endeavour. Public blockchains can help in certain aspects, but trying to shoehorn complex variables into restrictive objective outputs is dangerous.

3. Law and contracts: Likewise, law is immensely complex and subjective, and an evolving discipline. Except for the simplest and dumbest contracts, blockchains cannot help.

4. And really, pretty much everything… Strict global consensus is a very specific feature and there are very few usecases where they make sense.

Now, for where you might require strict global consensus:

1. Objective money: 15 years in, public blockchains are in the maturity phase, and this remains the dominant usecase for very good reason. An alternative store-of-value that is globally accessible and controlled by a set of global noderunners does absolutely require strict global consensus. Of course, “objective money” or value comes in various forms, and are used by other primitives like DeFi, NFTs, DAOs etc. It should be noted that subjective money - like credit - cannot be done on public blockchains.

2. Objective identity: First, I’ll point out that most of identity is subjective. While there have been efforts like attestations, at the end of the day identity and reputation are complex variables, just like we as people are complex and multifaceted. That said, you can do a limited form of identity on public blockchains - objective identity - such as ENS or POAP.

3. Evading laws, filling regulatory gaps: While for most applications public blockchains are wasteful, there are certain usecases which are not legal or there exists gaps in regulatory infrastructure. Today, USDT and USDC are the top consumer usecases for crypto outside of SoV in BTC & ETH, and both are defacto centralized. Public blockchains enabled filling in regulatory gaps. However, it’s important to note that these gaps are not permanent - a well-designed democratic USD CBDC can easily replace this usecase, and do so in a more efficient and decentralized manner. Likewise with cross-border payments in certain countries - indeed, this has gotten a lot better between certain countries. Then there’s also downright sketchy stuff, like ponzis, ranging from transparent gambling to deceptive scams. I do think there’ll eventually be regulations for stuff like memecoins and NFTs, now that the pandora’s box is open. This will see this activity move from public blockchains to CEXs - which is where most of the trading happens today anyway.

4. Other niche stuff, such as collaborative storytelling. But the dominant usecases will remain objective money, objective identity and filling regulatory gaps, as it has for 15 years now.

Of course, the real magic comes when you mix and match a bit of the above. Farcaster is a great example of this, using public blockchains for objective money and objective identity but accomplishing everything else off public blockchains. This is where innovation may come from, but for said innovation to happen, we need to think deeply about what strict global consensus actually enables.

As Vitalik says in the flowchart, there’s ton of cool tech outside of public blockchains that can help if strict global consensus is not required.

Lastly, there’ll be applications deployed on public blockchains that don’t actually require strict global consensus or public blockchains but may make sense for chasing incentives or ponzification, which is fair enough. I want to focus on applications that have long-term, sustainable usecases with potential product-market fit that leverage the unique properties of public blockchains.

Vitalik’s latest roadmap is very similar to last year’s. This is the first time a year has passed with the Ethereum roadmap remaining stable, suggesting we finally have an endgame in sight with a sustainable design. Obviously, a lot of work needs to be done over the next several years, but for the first time, it feels like we know how to scale blockchains massively without compromising on important tenets like ease of verification, open-source development, and economic security & sustainability. (Side note: other blockchain projects may compromise on these, at least in the short-medium term, just saying these are historically important tenets for Bitcoin and Ethereum communities)

However, there’s one change which I feel was a mistake. The “increase L1 gas limit” was removed because Vitalik thought it was obvious that it can be raised at any time. Judging by some comments, unfortunately it has had the opposite effect - many think the current roadmap signals abandonment of scaling Ethereum L1. This is not true, has never been true, but here I’ll quickly recap why.

vitalik.eth on Farcaster

Significant progress in the Verge; Verkle trees are coming closer to being ready for inclusion. See: https://verkle.info "Increase L1 gas limit" was removed to emphasize that the limit can be raised *at any time*; no need to wait for full SNARKs esp for small increases.

Farcaster

Over the years, Ethereum L1 has scaled with Moore’s Law, Nielsen’s Law, and improvements in client software. In July 2015, Ethereum had a gas limit of ~3M. This scaled up 5x over the next 6 years. At The Merge, the block times shortened, leading to another 10% increase. Overall, today, Ethereum L1 has 5.5x higher throughput than at launch, with 25x increase in data (EIP-2028). It’s worth noting that The Merge did increase system requirements, as will EIP-4844, which may explain a reluctance in increasing L1 gas limit. Some observations: SSDs cost half as much and are twice as fast as a couple of years ago, it’s possible to get 32 GB RAM and 2 TB SSDs in budget laptops <$500, fibre and 5G have expanded significantly, and importantly Verkle trees are now a reality.

But of course, these incremental upgrades are not enough, and we need greater scale for Ethereum L1. This is where The Verge comes into play. There are two key items that will lead to significant decreases in cost of verification

1) Verkle trees & stateless clients

Verkle Trees are a new data structure to replace the Merkle Patricia Trees currently used in Ethereum. This will drastically reduces the size of proofs and enable stateless clients where nodes can verify transactions right away without needing to sync state. This alleviates by far the biggest bottleneck in Ethereum - state growth.

With it being way easier to verify transactions, L1 gas limit can now be safely increased. According to Vitalik’s The Limits to Blockchain Scalability post, this can be a ~3x increase in L1 throughput. However, that post is a bit old, and CPU, RAM and bandwidth are significantly faster now, so those bottlenecks may be hit at a higher point than 3x.

Verkle Trees are considered for inclusion in the hard fork Prague/Electra, which comes after Dencun. It’ll definitely take time for the rollout and for stateless clients to be available, but it’s looking likely Ethereum L1 will be able to scale >3x by 2025.

2) Fully SNARKed Ethereum (I’ll call it zkEthereum)

There are three components for Ethereum to become a fully validity provable chain. I’ll call it zkEthereum for the meme, purists can call it “Fully SNARKed Ethereum” or “Validity proven Ethereum”.

The first is, of course, zkEVM. Thanks to the rapid “private sector” innovation enabled by the rollup-centric roadmap, zkEVM is a reality well ahead of schedule, with at least 4 different zkEVM L2s live today. More importantly, this is a collaboration between Ethereum Foundation’s PSE and the L2 teams, and we have a full zkEVM spec for L1 available today.

Of course, the standards for L1 are much stricter as it’s securing hundreds of billions of dollars, so these zkEVM circuits need to be battle-tested. Realistically, we’re still several years away from zkEVM at the L1, or what Vitalik labels “SNARK for L1 EVM”, but the path is clear. Personally, I’d like to see an “Enshrined zkEVM bridge” first, which will let L2s plug in with the L1 zkEVM spec. This would be the best way to battle-test before upgrading L1 to zkEVM.

In addition to L1 zkEVM, we’ll also need SNARK for Verkle proofs and SNARK for the beacon chain, all combined resulting in a Fully SNARKed Ethereum, or per my meme version - zkEthereum.

Circling back to Vitalik’s Limits post, this can increase gas limits significantly - perhaps 10x-100x. Obviously, there’ll be other bottlenecks to work through, but those are relatively easy to achieve as Polygon PoS’ parallelization of EVM demonstrates.

Ethereum L1 will keep scaling alongside L2s

Ethereum L1 is scaling as fast as possible, but it’s simply a difficult and time-consuming task for a maturing public blockchain like Ethereum, where there are a dozen different client teams, all building out in the open; while at the same time burdened by securing hundreds of billions of dollars.

Ethereum L2s are here to scale today, and will achieve massive scale faster with the “The Surge” part of the roadmap - but this is relatively well understood. But also, the research into L2 tech is speeding up L1 scalability. Like I mentioned, zkEVM L2s have significantly sped up research and development to the point zkEVM on L1 will be viable years ahead of schedule.

Lastly, there’s the silly question “If Ethereum L1 can scale up 100x, why bother with L2s?”. Because any one chain is likely insufficient for the long-term global demand for blockchains. “Web2” runs on 100,000,000 servers, many of them faster than the fastest possible chain, each customized to the demands of its applications. If you believe most things should run on public blockchains (I don’t) you’ll need millions of chains interoperating in tandem. Or, if you believe that blockchains will remain a small niche (like I do), 0.01% of 100,000,000 is still 10,000 - you’re still going to need an ecosystem of chains. The only way to achieve this is through aggregating validity proofs.

For the endgame, we need to scale on all fronts and layers with validity proofs, and that’s precisely spelled out in Ethereum’s roadmap. The real beauty of it all is that even if there are hundreds or thousands of rollups doing millions of “TPS”, all of them can be verified with a single proof on your mobile phone. Wonderful,

Now, can we please go back to discussing and building applications, governance, social etc so all this scaling will actually be utilized?

The ideal way to launch a democratic DAO is to follow the cooperative model instead. There are tons of massively successful cooperatives with different models around the world to take inspiration from - right from boutique worker DAOs with a handful of people to multi-hundred billion dollar mega cooperative financial institutions. Of course, speculating on tokens is a big market in crypto, and coops don’t have tokens - possibly why they haven’t caught on. But I’ve already written an entire post about this topic, so let’s get back to tokenholder DAOs.

The most obvious way to add a democratic layer on top of or besides the tokenholders. Optimism Collective (aka OP Collective) is leading the charge on this front, and is the main reason it’s the only DAO I participate in, despite its many flaws otherwise. Optimism starts at the same base as most DAOs, with a tokenholder DAO. This becomes the Token House, and a democratic layer is added beside - the Citizens’ House.

How it’ll work, in theory: there’ll be an overlap between Token House and Citizens’ House, with different types of proposals calling for different voting standards. Here are some possibilities:

1. Token House only proposals: only the Token House votes on these.

2. Token House proposals but with Citizens’ House veto rights: Proposals Token House votes on, but under certain conditions Citizens’ House can veto these proposals, effectively acting as a check and balance.

3. Joint proposals Citizens’ House can vote on.

4. and 5) will then be the reverse of 2) and 1) leaning towards Citizens’ House.

In theory. The titanosaur in the room is - how exactly are citizens onboarded? As seen by the last 18 months in OP Collective’s efforts, this is extremely difficult with no clear solutions. The current method used is citizens nominating other citizens, and over time building a network. This is slow, unscalable, and introduces a different form of social centralization. Other methods like attestations, community participation metrics, usage metrics etc. are easily gamed. The problem is, citizens and their reputation are subjective and as I’ve mentioned for most of this year, this is the Achilles heel of public blockchains - we can only do objective outputs. There’s nothing more subjective than reputation and identity, and forcing these highly complex subjective variables into binary values is foolhardy at best, dangerous at worst. (The Black Mirror episode “Nosedive” is fun!)

Still, it’s a significant step forward over a pure plutocratic community. The best way is going to remain Citizens’ House onboarding citizens, but we have to find a more scalable way of doing it. One way could be using the very flawed methods listed above to create longlists of candidates, which Citizens (aka badgeholders) can then vote for, or perhaps a Council, with Token House holding veto rights. Perhaps the “Citizen” or “democracy” nomenclature is a misnomer and can never be achieved without an actual “bureau of naturalization”, so to speak - however, if we can get a representative base of maybe a few hundred to a few thousand enthusiasts onboard keeping checks and balances on tokenholders, it’s a massive step forward for governance & DAOs.

All that said, the best way to build a democratic DAO still remains following the cooperative model, and just eliminating the “Token House” altogether. But we know that’s never going to happen in crypto.

Can L1s use this mechanism? Definitely not, as they need to be neutral, and this is anything but. Indeed, many L2s also may eschew democratisation in favour of neutrality.

Lastly, I’ll also mention User rights, a third group that’s definitely worth empowering.

I have written many times about how blockchain apps only make sense when three criteria are satisfied a) peer-to-peer, b) strict global consensus, c) objective outputs.

But really, all of this can be boiled down to just b) strict global consensus. To achieve strict global consensus, you need peer-to-peer, and it can be only accomplished with objective applications anyway.

Let’s start with peer-to-peer. This paradigm has existed way before blockchain, and indeed, blockchains are just one type of peer-to-peer network. File sharing/storage, multiplayer games, messaging & social media - pretty much every application you can think of can be “decentralized” using peer-to-peer. Blockchains can be used to incentivize these, but that is the “objective money” usecase, not the application usecase. Indeed, it also adds centralization vectors, so a non-blockchain peer-to-peer network can potentially be more decentralized.

The key purpose of blockchains is to come to consensus in (near) real-time, a set of outputs that everyone running a node can agree to. Once the consensus is achieved, the blockchain’s work is done, and the data can be discarded.

Most, if not all, blockchains will prune and purge old data. Even Ethereum has a roadmap towards state expiry and history expiry. The only exception, then, is Bitcoin. Public blockchains are definitely not the solution for permanence. Indeed, most blockchains will rely on non-blockchain peer-to-peer storage/sharing solutions so old transactions are not forgotten.

Addendum: a lot of usecases are also fine with local consensus, without needing strict global consensus. For example, if the gold mining industry needs to coordinate, they don’t need to broadcast everything to the entire world - they can just come to consensus within the industry, which is the only place this information matters. Indeed, most industries already have consortiums and standards.

To be clear, we have seen applications shoehorned into public blockchains chasing incentives, and this will continue to happen, but that doesn’t mean it actually makes sense or is the best architecture for the product.

The question then, is - what new applications can benefit from strict global consensus? The two key ones that have been proven over the last decade are “objective money” and “objective identity”. Of course, this can take many forms, and be remixed in various ways. Perhaps a broader vision would be to look at non-blockchain apps, and see how or if “objective money” or “objective identity” can enhance the user experience, or at least expand user choice - these are what I’d call hybrid apps.

The simplest fit is accepting stablecoins or cryptocurrencies as payment. But it can go deeper than that. Farcaster uses public blockchains for money & identity, but everything else is off blockchains. Or it could be a multiplayer game that’s mostly peer-to-peer, or even with a centralized server for most things, but using a public blockchain to come to consensus on valuable or even non-valuable (like, narrative) outcomes. Of course, I’m not an app developer, but I hope app developers think about strict global consensus deeply and come up with new, novel usecases that leverage this unique property.

I’m grateful to see these posts get less backlash than they used to in 2021/22 - my intention has never been to be “negative” or “bearish”, but rather because I believe to get the best out of blockchains we must understand where their unique opportunities lie. We will build better applications by understanding, rather than just throwing hopium, delusion, and handwaving at the kitchen sink. I’ll continue to use a heightened tone for effect. With that out of the way…

I have often mentioned how “smart contracts” are a bit of a misnomer. But first, what is a “contract”? According to Google,

a written or spoken agreement, especially one concerning employment, sales, or tenancy, that is intended to be enforceable by law.

Simplified further, as per Britannica,

Contract, in the simplest definition, a promise enforceable by law.

Great, so how does one define law? That’s a lot more complicated, and wherein lies the problem with the smartness of “smart contracts”.

We are extraordinarily complex beings, and our societies are even more complex. It has taken over 10,000 years across billion of people and thousands of social groups with delightfully diverse desires and beliefs to get here. Law is a dynamic, shifting process that is continuously changing to keep up with the latest advancements in science, technology, and most importantly, philosophy.

I have repeated countless times that public blockchains are limited to only objective inputs and outputs, and it goes without saying law is entirely subjective.

You need millions of lawmakers over millennia working together to constantly update the law, you need billions of citizens voicing their opinion to inform lawmakers, and you need lawyers and judges to interpret said law in its endless nuances.

None of this is remotely possible on public blockchains - indeed, we can see DAOs fall back on traditional methods of organisation to compensate for the lack of objectivity. If blockchains could do subjectivity, then DAOs would actually be autonomous - but ironically, DAOs exist because these processes cannot be performed autonomously.

By restricting law to objectivity, we can only really do the dumbest possible contracts, which have clearly defined, objective conditions.

Of course, a lot of this is tongue-in-cheek, and many will argue that “smart contracts” are neither smart nor contracts and these are just semantics. Certainly true. I’ll also point out that law is not the only subjective field - it’s pretty much everything in our livelihoods, we are an endlessly subjective civilisation.

Obviously, objective applications can certainly be valuable, but it’s also imperative to remember public blockchains and crypto are not a panacea. Perhaps more importantly, forcing subjective usecases on to blockchains are not just useless, but it can also be actively dangerous in trying to force law onto public blockchains, obfuscating risks associated to users, and then letting some plutocratic cabal decide the subjective matters.

Instead, the best possible outcome is for public blockchains to be integrated into proven, democratic legal systems. It actually smartens up our dumb contracts.

Finally, no, I'm not going to mention a benevolent AGI until we see some concrete evidence for that being a future possibility.

2009-2013: Payments, reserve asset, and store-of-value

The first impulse for Bitcoin was two-fold. First was digital payments or digital cash, and the second was a new reserve asset. The latter attracted anarchists, anarcho-capitalists, doomers, and “Austrian economists” (or what they misunderstand as). There were some vast delusions of grandeur by these folks about how Bitcoin will become the new global standard asset. This is about as delusional as Japanese imperial soldiers in the 1960s who were convinced the war was still ongoing and they must fight for the emperor. The world has evolved, and modern monetary policy has proven to be tremendously successful in heralding the most prosperous and innovative times in human civilization. Indeed, these incredible advancements led to Bitcoin being possible in the first place.

The bigger issue, though, is that the current global monetary systems require heavy subjective inputs, which is simply not possible with the objective-exclusive nature of public blockchains. A great example is the COVID-19 nightmare where the global economy shut down overnight. A so-called “Bitcoin standard” would have actually led to a global economic collapse where all but the wealthiest 1% would be plunged into poverty. Given the scope of the calamity, the world’s people did an admirable job coming out of it relatively unscathed - a huge improvement over pandemics of the previous centuries which took decades and even a century to recover from. It was certainly far from perfect - 2022 saw pretty high inflation and it’ll take a couple years more for things to stabilize to pre-COVID levels - but all things considered, it’s clear as a civilization we’re getting a whole lot better at this macroeconomics thing.

The other side was payments - this attracted more of the tech and internet pioneers. At the time, digital payments was still a huge potential market. However, Bitcoin had major issues - high volatility, no scalability, and hostile UX. Meanwhile, fintech iterated fast. Asia led the way, and today, there are multiple payment apps which offer free, instant transactions with perfect UX. India in particular has an ideal solution which combines a global standard (UPI) that its hundreds of apps and thousands of bank can seamlessly interoperate between. Indeed, UPI is being adopted outside of India. Crypto still has a niche for payments, but we’ll discuss that in the next section.

Towards the end of this era, it was pretty clear to most that neither a global reserve asset nor payments were realistic - but something else was, an alternative, non-sovereign store-of-value. A new-age digital Gold, so to speak. This was wildly successful, and to this day remains the #1 usecase of Bitcoin.

2013-2018: Discovering crypto applications

Around 2011-12, most of the “altcoins” being developed were “Bitcoin killers”. But a new category was emerging - what if you could use blockchains for more than just money?

At first, this resulted in application-specific blockchains. The first one I’m aware of was Namecoin. In 2014, we had BitShares, which pioneered several new technologies and features:

• Proof-of-stake with delegations

• DEXs

• Memecoins (Brownie points, anyone?) and NFTs

• Algorithmic stablecoins (bitUSD)

• User-issued assets

• Free transactions with high TPS; at the cost of high system requirements, thus with low verifiability & decentralization unlike Bitcoin

Later, the BitShares codebase was forked to Steem, which expanded blockchains to social networking. Of course, this proved to be unsustainable.

The groundbreaking innovation of this era, though, was the 2014 Ethereum Whitepaper. It listed out pretty much every application that would eventually find lasting product-market fit. The main problem with application-specific blockchains was sustaining lasting economic security. Indeed, almost all L1s from the 2012-14 era have bled in value and have very limited economic security. The only reason why they aren’t constantly attacked is there’s nothing to attack on these ghost chains.

Ethereum offered an elegant solution to this problem, letting application developers deploy on Ethereum instead of starting their own blockchain with its own security budget. This led to a huge boom in experimentation that went far beyond the scope stated in Ethereum’s 2014 whitepaper.

All of this culminated in the 2017-18 ICO mania, where everything and the kitchen sink was through at “___ but blockchain”. Turns out, 99% of it made no sense on blockchains.

In this era, Bitcoin established strong product-market fit as an alternative store-of-value. Perhaps the big story was the “blocksize wars”. In the end, the “small block” Bitcoin won, emphasizing the need for end-user verifiability. By this time, the big players also realized that Bitcoin’s #1 usecase, alternative store-of-value, didn’t actually need scalability. So, it was prudent to not compromise on decentralization and security.

2018-2021: Finding product-market fit beyond alt-SoV

While 99% of crypto projects from the ICO mania proved to be useless, there emerged niches beyond alternative store-of-value that found product-market fit. Unsurprisingly, all of these were described in the 2014 Ethereum whitepaper.

By this time, fintech payment apps had reached ubiquity in many countries, particularly in Asia where most of the world’s population lives, accelerated by the COVID-19 pandemic. However, there were still niches where stablecoins found strong demand to become the #2 most useful application for crypto. These were: 1) easy access to USD in countries with unstable currencies, and where access to USD is otherwise restricted; 2) cross-border payment to countries with poor financial infrastructure or stringent capital controls; and 3) simply as a USD store, or for sending between exchanges. There are of course smaller niches, but those are the big three.

DeFi apps proved to be useful. While they are very limited and inefficient relative to traditional finance, they have found a multi-billion dollar niche. Identity apps also found use, particularly ENS.

NFTs were always cited as a big usecase, but something the discourse in 2014-15 and the Ethereum whitepaper underestimated was the rise of collectible NFTs. While Bitcoin was the digital Gold, collectible NFTs were the fine art used by the wealthiest people as an alternative store-of-value. The overall financial impact may be relatively small, and it’s only really relevant to a few of the top 1% wealthiest people, but it’s still a lasting usecase. There were of course other niches, but ultimately most of it proved to be very small niches.

This was the era where scalability was effectively “solved”, or at least the research was. New technology like validity proofs, fraud proofs and data availability sampling promise near-infinite scale, to the point scalability was not going to be the bottleneck.

Bitcoin saw strong growth, but also severely diminished returns, as it entered its maturity phase. Ether (the asset) also came-of-age as a bonafide alternative store-of-value thanks to overhauled economics and expanded utility.

2021- : Market splits into maturity and degeneracy

Indeed, starting in 2022, we have seen countless L2s and L1s go online, but nearly all of them remain barely utilized. While usage has been growing, it has lagged far behind actual increase in scale. The research consolidated in the previous era will ship in this one, and I expect in the next couple of years there’ll be near-infinite scale enabled by new technologies like validity proofs and data availability sampling that were not possible by monolithic blockchains. Conversely, this era is also the first time we’ve seen stagnation at the application layer, and it’s unclear what will saturate the imminent near-infinite scale. There’ll always be something - the question is, will it be valuable and meaningful? Or just more spam and bloat?

We’ve also seen a pretty direct split in the market. One part of it has doubled down on degeneracy. While in the past gambling was veiled in narratives, starting in 2021 there was no pretension - it was pretty straightforward ponzis all around. Indeed, this has continued on to 2023, as speculation returns to the market. The loudest narratives in crypto have continued to be about hopium, delusion, and blatant ponzis despite the reality of a maturing space.

In the background, though, there’s an industry that’s well into its maturity phase. Bitcoin and Ether have been established as large multi-hundred-billion dollar alternative stores-of-value. Over $30B in stablecoins are settled every single day, mostly across Ethereum/L2s and Tron. DeFi, identity, and NFTs continue to find a sustainable niche. While degeneracy and gambling are the loudest area of crypto today, it continues to be a multi-billion dollar market as well.

The future?

While no one can predict the future, the evolution of crypto has actually been very orderly. Everything that has found product-market fit was described in the 2014 Ethereum whitepaper and discussed in 2014-15. Somethings have been more successful than expected (collectible NFTs) while some are less so (payments, prediction markets) but overall, the industry has found strong product-market fit in a couple of niches and is entering a maturity phase.

Of course, gambling and degeneracy will always be the loudest part of crypto, and that’ll continue to be the case in waves. If that’s your thing - all power to you. If not, tune out of the noise and focus on the maturing aspects of crypto.

What I’d like to see, going forward - consolidation of product-market fits, maturity of sustainable scalability solution using validity proofs etc, more hybrid consumer applications with seamless UX with well-thought usecases with reason rather than vague delusions of grandeur and handwaving. I can hope for less noise and insanity, but let’s face it - that’s never going to happen.

Stablecoins have three broad usecases:

1. In countries with hyperinflating currencies and restricted access to USD/EUR

2. Evading capital controls cross-border, or to/from countries with poor financial infra

3. Transferring between CEXs/DeFi etc.

First, stablecoins have achieved product-market fit not due to “decentralization” in itself. This is clearly evident from a vast majority of stablecoins in active use being USDT and USDC, which are defacto centralized. Further, in terms of volumes, the market is largely split between Ethereum/L2s and Tron. Tron is relatively centralized too, but it doesn’t really matter because USDT’s centralization is the bottleneck.

What most consumers of stablecoins want is easy access to USD - that’s all.

So, the real feature of public blockchains being leveraged here is a regulatory gap - there was no method to offer your currency to foreign individuals this easily before. But as Project Dunbar has proven, the technology to enable this is quite simple, and significantly more efficient than public blockchains. There are three ways this can go:

1. The US Fed launches a CBDC and makes it easily accessible to foreign banks and individuals

2. The US Fed continues with USDT and USDC, but USDT and USDC run their own (permissioned) networks. Indeed, USDC is experimenting with their own chain.

3. Some combination of all three, with public blockchain stablecoins continuing to persist in niches

There are elegant and democratic designs possible for CBDCs, too. My favourite is using ZKPs so all transactions are private below a large amount. And even beyond that, the ZKP verifies some conditions, without anyone knowing exact details of the transaction beyond what is required for law enforcement. This would be actually be more private than physical cash. Of course, it remains to be seen if a central bank is savvy enough to implement such a solution anytime soon. I’m sure it’ll happen though - there’s a big demand for physical cash in many countries still, and CBDCs with ZKPs are the only way to replicate that I’m aware of.

Either way, privacy is a significant step forward over both current digital fiat currencies and public blockchain stablecoins. Even if bridged a private rollup, they’ll still be under the control of USDC or USDT - and it could be they’ll prohibit use on private chains.

So, a well-designed, democratic CBDC offers a great option for people who just want access to USD. It’s also more private and actually more decentralized than a blockchain stablecoin - as you have to only deal with the Federal Reserve and optionally a custodian, rather than a private stablecoin issuer, a blockchain (like Tron, which is quite centralized), optionally a custodian, and Federal Reserve/US Treasury etc.

One usecase this may not replace is transferring funds between CEXs, or for use in DeFi. Once again, I expect a well-designed CBDC to be compatible with public blockchains. However, I can see crypto traders and DeFi users lean towards blockchain stablecoins. Particularly DeFi users may opt for (relatively) decentralized stablecoins like DAI - though this is probably going to be a small niche. Criminal activity may also prefer to use decentralized stablecoins, but this too will be a small niche.

The biggest problem about all of this is the crypto industry has become very complacent about its biggest consumer usecase. Today, everyone and their grandmas are throwing money at infra plays, while very, very few are investing in stablecoins. Most consumer use of stablecoins are on USDT/Tron and USDC/USDT on Ethereum L1. Both are expensive, and Tron is fragile and relatively centralized. This makes it very easily disruptible by CBDCs or USDT/USDC launching their own networks. It’s imperative that we move consumer stablecoin usage to more sustainable solutions like Ethereum L2s, as well as expand usage and introduce more competition to the market. A lot of work also needs to be done to improve UX and custodial solutions, so people don’t just default to storing their stablecoins on Binance. The less the crypto industry pays attention to stablecoins, the more fragile the PMF eventually becomes.

This post is not just about stablecoins, of course, but generally informs blockchain applications. A lot of purported usecases for blockchains don’t actually require blockchains; and even the ones that do are neglected in favour of infra speculation. No one seems to care that all this infra obsession is completely useless if you don’t focus on applications - the hour is already late.

In some cases, applications’ features are simply better accomplished by other solutions, while in others it may just be a regulatory gap that’ll eventually get filled. It’s imperative to analyse each usecase and application, exactly what features they require, and make pragmatic choices on the best solution.

There are only a handful of applications which need to be mostly or fully onchain - most applications are better off hybrid, using only one or two elements for public blockchains, while using peer-to-peer or traditional solutions elsewhere. This can lead to an application that’s much faster, cheaper, more feature-rich, better UX, and/or yes, more decentralized.

Reality and evidence based analysis of applications in crypto is extremely rare, almost all thought leading about usecases and product-market fit tend to be hopium, delusion, with a big dose of handwaving and entitlement. I’ll use Vitalik’s post about applications as a baseline, as that’s one of the few - if not the only - posts with a rational look at the application ecosystem.

A primer, first. Public blockchains are centralised, unfair, and inefficient. For almost everything, they are useless, if not outrightly dangerous. Humans and our societies are extremely complex and nuanced, and expressing subjectivity is simply not possible with blockchains. However, for a couple of things, they are invaluable, and the only way to achieve them. Broadly, these are usecases that require strict global consensus, something objective money and objective identity require. With that said, let’s get right into the usecases.

#1: Alternative store-of-value

Alternative store-of-value remains far and away crypto's #1 usecase. Recent data suggests it accounts for at least 90% of the value in this industry. Today, hundreds of millions of people own crypto, mostly for this usecase. As evidenced by activity on the Bitcoin blockchain, this usecase does not require scaling, and like Gold and related assets before it, will be regulated differently in different jurisdictions, and mostly custodied by regulated custodians. Self-custody as an option is great, but it’ll continue to be a small niche.

There's plenty of choice for stores-of-value, but Bitcoin and later Ether introduces a new niche to the market. Non-sovereign commodities have been used for millennia. Over time, the demand for this class of asset has fallen, as modern monetary policy has proven tremendously effective, and is one reason for why the global economy has catapulted to unprecedented prosperity. This has also led to the rise of equities as the dominant store-of-value, combined with bonds. However, while a smaller niche now, the demand for non-sovereign store-of-value has persisted. Bitcoin and ether offer a more convenient and efficient spin on the concept, is already a trillion dollar market, and has the potential to grow to a multi-trillion dollar market.

While there’s 15 years of history, we are currently lacking data for what happens in a secular bear market. Thus far, crypto has been in a secular bull market, but no secular bull market lasts forever. The asset most similar to BTC or ETH as a store-of-value, Gold, has been in a secular bear market for over a decade, and has been down-only versus productive assets like equities for nearly half a century. So, the mettle of BTC, ETH, XRP and others need to be proven in a secular bear market. More on this later.

Alternative store-of-value absolutely requires strict global consensus and can be achieved objectively. It’s not entirely objective, of course - both BTC and ETH may need minor subjective adjustments for long-term sustainability. Eventually, I expect both BTC and ETH to have ossified and objective monetary policies, at which point this will be the ideal usecase for public blockchains.

This usecase, alternative store-of-value, then, is durable and there's no disruptive tech on the horizon. It's very likely this will continue to be the #1 usecase for crypto for the foreseeable future, accounting for >90% of the sustained value in the crypto economy.

Lastly, a much more niche subset of alternative store-of-value are collectible NFTs. If BTC is the Gold, NFTs are artworks. Each NFT may be worth a lot, but overall it’ll be a small market, with very few owners - just like art.

#2: Stablecoins

If alternative store-of-value is crypto’s foremost passive usecase, stablecoins are crypto’s dominant active usecase. Over $30B in stablecoins are transferred every day on Ethereum/L2s and Tron.

Over time, currencies and economies worldwide have become ever more stable. Yet, there are still some countries that can't get their act together and have unstable currencies. The more pragmatic of these - like Zimbabwe, El Salvador or Cambodia - have made the US Dollar defacto official currencies, with easy access. Stablecoins don’t have much of a market here.

However, there are countries which actively discourage the use of USD. This is where stablecoins shine - in places like Argentina, Venezuela and Turkey.

USD stablecoins don’t actually require strict global consensus by themselves. Where they have required it is to fill a regulatory gap. If this gap is filled - with a CBDC, or Tether/Circle launching their own network - we don’t need public blockchains. The consumers of this usecase merely need easy access to USD - that’s it.

Now, of course, there are niche usecases within stablecoins that may require strict global consensus - like evading taxes, using a decentralize stablecoin etc. - but these are tiny niches. On a related note, RWAs can have similar usecases, but I’d once again expect this to be a niche, for similar reasons - though there’s a possibility they do drive serious volume across big players.

But there’s another usecase of stablecoins that does require strict global consensus - evading capital controls, or fulfilling cross-border payments in places with poor financial infrastructure.

It should be noted neither of these are eternal problems, and both can be solved with more progressive legislation and improved infrastructure. Still, these are valid usecases in the here and now.

The third big usecase for stablecoins is moving fund between CEXs and/or DeFi - this usecase is much more durable.

Looking at Tron and Ethereum, stablecoin exchange is a multi-billion dollar business in itself. However, even at a future peak, it’ll still be less than a tenth of the value accrued by #1: alternative store-of-value.

Overall, I expect stablecoins to be the top active usecase for crypto for the foreseeable future; however, I expect it to peak in the next few years, before finding a baseline market fit.

#3: Speculation and gambling

Coming back to the thing about alternative stores-of-value and secular bear market. The line between alternate store-of-value for the purposes of storing value and for the purpose of speculation is pretty blurry, with a spectrum. There’s certainly a hardcore audience that will never sell their crypto, but there’s also many that are happy to hold with the entitlement that new highs must happen every 3-5 years. How they will behave when the new highs don’t come after 3-5 years remains to be seen. It’s possible, then, that this audience was a long-term speculator, rather than a store-of-value user - once again noting the blurred lines.

Even so, speculation and gambling are a massive usecase for crypto. It does require strict global consensus, as most jurisdictions have strict regulations for what has been a harmful and dangerous activity. That said, we’re definitely getting better at regulating this, but it’s probably going to take a decade before we reach a reasonable balance.

As such, speculation and gambling are another durable usecase for crypto. However, it’s definitely seasonal. In most times, it’s a pretty niche usecase, but for a few months every few years, it can be one of the top usecases. So, durable, but occasional. A reminder, once again, that in a secular bear market, the “most times” can go on for several years.

#3b: Cults

This is another one where the lines are blurry between #1 and #3. XRP is a great example of an enduring crypto cult, that has stood near the top for over a decade now. Clearly, this is a multi-billion dollar opportunity, though also the rare exceptions - most proto-cults will simply bleed over time.

#4: DeFi

DeFi is definitely a novel feature of public blockchains, giving additional utility to the #1 usecase, alternate store-of-value. However, DeFi is also very limited and inefficient, because it can only process objective outputs. Yes, you can build subjective layers on top of DeFi, but then it’s just traditional finance without the efficiencies. Still, as the #1 usecase grows, I expect DeFi too as well. It may be a niche, but potentially a substantial hundred-billion dollar niche.

#5: DAOs

DAOs only really make sense where you have a crypto protocol. Even then, because of the lack of subjective inputs, a lot of DAO’s duties are performed through traditional methods. As for real-world organisations - we have a vast variety, from public companies, to cooperatives, to non-profits, that are run in a very orderly fashion. Maybe they can use a permissioned blockchain, or even a public one for one or two elements, for some things, for better transparency or communication, but that’s about it.

The one exception could be potentially a public company or cooperative being restricted in a certain jurisdiction - but this one’s another of those temporary regulatory gap usecase.

#6: Hybrid applications

This is where things get interesting. As I have demonstrated for a couple of years now, public blockchains only make sense for usecases where strict global consensus is required, and outputs are limited to being objective. Today, blockchains are extremely inefficient; however, with the advent of validity proofs, we can get the overhead down to a point where some developers will do blockchain apps purely for the novelty of it.

More sustainably, though, are applications that are mostly traditional, but use public blockchains for one or two elements. These can be something simple like offering USD stablecoins as a payment option, to something complex like a multiplayer game that’s mostly traditional or peer-to-peer, but settles some specific valuable actions on a validium-like solution. These usecases may require high scalability - more than any single chain can offer - leveraging fractal scaling. Of course, this is the most speculative usecase because unlike the others, we simply don’t have the history. Sadly, it seems there’s very little investment in these novel, hybrid applications either; the industry still being entirely obsessed with infrastructure and speculation.

A great recent example is Farcaster - which uses public blockchains only for fees and identity, while everything else is done offchain.

I’ll also note that cryptography and stuff like zero-knowledge proofs have many usecases that go well beyond public blockchains. Likewise, most things can be decentralized peer-to-peer or simiar methods - you only need public blockchains where strict global consensus is necessary.

#7: Identity and other usecases

Now, at this point, there’s going to be a whole lot of “whatabout”. To be blunt, the usecases you’re shouting about now are either blatant ponzis or very niche. In the case of the former, it comes under #3. The latter is certainly valuable - there’ll be many niche usecases, but in gaining an overview perspective, they’re not really important to consider. Of course, things can always change, but there’s 15 years of history in crypto, and millennia of history in similar products to draw from; at least enough so we don’t just need to indulge in hopium and delusion that is crippling crypto. And no, AI is not a usecase by itself, but that’s for another time.

As for identity, I was more optimistic about this usecase a couple of years ago, but I’m not sure anymore if public blockchains are specifically the best solution. It seems possible FIDO Alliance is gradually arriving at a unified solution in a decentralized manner, but even this seems far away from broad consumer adoption. I’m sure public blockchains will play a niche role though. As for reputation and things like that - unfortunately, those are highly subjective matters that cannot reasonably be boiled down to 0s and 1s - the objectivity limitation once again. Attempts to do so come with negative consequences. Turns out, the only entities capable of judging a human being are other human beings. Until AGI, at least.

Concluding

Crypto has achieved one massive usecase - alternative store-of-value, that has single-handedly propelled the industry to a trillion dollar one, and is now entering a maturity phase. There are other significant usecases too. Sadly, most of these are either being taken for granted, or neglected, as the loudest noise continues to be about gambling and speculating on infrastructure plays. This complacence and entitlement, or hopium and delusion, sets a dangerous precedent. But, hey, I’ve done this whine a hundred times before, and nothing has changed. I’ve given up, but I’ll continue writing on and off anyway.

So, first, “decentralization” - what is it? According to Google’s Oxford dictionary, it is:

the transfer of control of an activity or organization to several local offices or authorities rather than one single one.

I could post many other variants of this, but the first thing to note is it’s a relative measure.

First, let’s get a basic reality out of the way.

The trade-off of free markets

Following centuries of history, we have overwhelming evidence that free markets are very effective, and has led to unprecedented prosperity for our collective civilisation.

However, free markets have a fundamental trade-off. Due to economies of scale, wealth concentration effects, network & consolidation effects, so on and so forth, there’s a tendency towards monopolies and oligopolies, inequality, and unfairness; not to mention a disregard for things capital cannot measure - environment, happiness, mental health etc. Markets can grow widely in early stages, but past maturity, these effects tend to kick in.

The solution to minimize these trade-offs, while retaining the benefits of free markets, is, obviously, regulations. Over the centuries, millions of economists and policy makers have worked to find a balance between the two.

Of course, things can get political and subjective here, but I believe many people in the world would agree freedom is not that anyone can do anything; but rather, a society that collectively offers equal opportunity to all. We’ll revisit this topic, but it should be obvious now that blockchains cannot find this balance due to a lack of subjectivity, and will always stray far away from equal opportunity and fairness.

Mining & staking are highly centralized - worst case, blockchains are plutocracies

Let’s start with the paragon of “decentralization” - Bitcoin. Roughly ~5% of all BTC is held by Satoshi. This would be like Elon Musk’s net worth being >100x what it is. The second largest holder, Microstrategy, would still be over an order of magnitude more than Elon Musk.

It used to be that anyone could be a Bitcoin miner. Today, it’s a highly industrialised process that can only be done by entrenched players. Not to mention, 2 mining pools effectively control the Bitcoin network. Yes, there are nuances, but it’s pretty clear Bitcoin mining has centralized over time, and it’ll only get more centralized as economies of scale ramp up, and the dwindling subsidies push all but a handful of players out of business.

Let’s look at Ethereum, then. The software is more actively developed, by a larger base of developers - but it’s still a few hundred at most. Validators are assigned by proof-of-stake, which while not as cripplingly centralizing as proof-of-work mining, is still effectively a plutocracy. Given the lack of redistributive or welfare mechanisms, it will always be highly concentrated. Let’s not even talk about the newer VC-backed L1s, which often have a few VCs, insiders, and whales effectively controlling the network.

Best case, blockchains are technocracies

But, of course, validators are not the end-all, be-all, rather the first line of defense. So, let’s look at the last line of defense, then - end users running nodes. That sounds nice in theory, but in practice, there are only 20,000-25,000 unsubsidized, independent nodes worldwide across Ethereum, and Bitcoin combined. The barrier is high, effectively the most “decentralized” public blockchains as a plutocracy at worst, a technocracy at best - but either way, an oligarchy. Once again, let’s not even talk about some hardware intensive L1s that require you to run in a datacenter, with the expertise to do so. Fortunately, unlike industrialization of mining or wealth concentration in staking, node running can be improved.

There’s a larger reality here we cannot ignore, though. Most users of crypto - hundreds of millions - either use it as a store-of-value, speculative vehicle, or to store/exchange stablecoins, and do so on or via centralized exchanges. The CEX world has consolidated around a few big players, and in some of the most useful usecases such as stablecoins in countries with unstable currencies, Binance has established a near monopoly. These CEXs have an outsized influence, as they should - given they represent a vast majority of crypto users.

There’s also the social layer that upgrades the protocols, coordinates forks etc. - it is also a technocracy.

So, this is the reality, then - Bitcoin and Ethereum are effectively controlled by a handful of entities, no matter which way you look at it.

Now, let’s consider DAOs and applications built on top of Ethereum. They too have very centralized token distributions, where a small handful of whales effectively control the applications. You get the point, so now it’s time for a comparison.

If decentralization is relative, blockchains are extremely centralized

The largest democracy in the world is Republic of India. It has 12 public sector banks, 22 private sector banks, 40+ foreign banks, 1,500 urban cooperative banks, and nearly 100,000 rural cooperative banks. All of these banks have multiple state regulatory bodies, which answer to multiple federal regulatory bodies, who are ultimately answerable to the will of 1.43 billion people. Not to mention, there are a 100 other democratic nations around the world. This is decentralization in its truest sense.

Obviously, obviously, a public blockchain is not comparable to a democratic nation. But that’s the whole point - crypto people do compare them, and often the democratic government is demonized as “centralized” whereas blockchains are deified as the “decentralized” ideal. So, please, let’s not do that. Blockchains do not have subjective systems, no legal protections, no welfare systems, so on and so forth - they are absolutely in no way comparable.

DAOs are a worse version of public organisations

Another common misnomer is how blockchains can “fight big tech” or “fight web2”. To the contrary, it is blockchain applications that have tended towards monopolies and oligopolies. The public ownership structures are also basically the same between crypto orgs and trad orgs, at best. Indeed, the traditional world has seen much more decentralized and democratic structures like cooperatives.

But unlike traditional big tech, there are no antitrust regulations, so they will remain monopolies and continue to consolidate. As a recent example, Apple has been forced into many compromises this year - moving to USB-C, opening up apps for sideloading, moving iMessage to RCS etc. The best-known mechanism today to “fight big tech” is through antitrust and regulatory bodies in democracies. Meanwhile, in crypto, we can moan about Lido’s >85% marketshare in LSDs all we want, but their tokenholders don’t care.

Blockchains are fundamentally centralizing oligarchies, but that’s OK

So, blockchains are a centralizing force, effectively oligarchies, which result in monopolies, oligopolies, and tremendous wealth concentration - as indeed anyone would expect for a pure free market with no antitrust, fairness, or democratic mechanisms. It’s almost as if billions of people around the world have been refining these over the centuries.

Yet, this is perfectly fine for the niche blockchains are aiming towards, and indeed, trying to “fix” those trade-offs will compromise the unique property of blockchains. For example, yeah, sure, Ethereum’s social layer can decide to take action against Lido in some way - but this makes Ethereum no different to an antitrust government body. Now, it should be noted that there can be organisations or communities that use blockchains as one tool in many, but I’m talking specifically about public blockchains here.

So, IMO, blockchains should accept and embrace its trade-offs, while focusing on what makes it unique.

Blockchains are amazing at neutrality, transparency, and accessibility

Blockchains may be centralized, but they have unique properties - a global system that is neutral, transparent, and accessible.

Let’s consider Norway, for example. It is one of the wealthiest countries on the planet, with a sovereign wealth fund worth $260K/capita. It also has one of the highest taxation rates, but few leave because of the strong civil rights, comprehensive welfare systems, and of course - being ranked #2 by HDI and near the top of the (flawed-but-representative) World Happiness Index. Of course, it’s impossible to satisfy everyone, so Norwegians are free to move to any of the diverse countries across the Schengen Area, yet few do. Crypto has very little to offer anyone in Norway, outside of being a speculative hedge.

Of course, few are lucky to be born in Norway, or indeed, the other dozens of developed democratic nations. Over the last century, the world has made tremendous progress, and continues to do so. But there are still countries with unstable currencies, broken economies, and poor financial infrastructure; or undemocratic governments.

This is where crypto is invaluable - filling in the gaps where traditional incumbents are failing or lagging, or have inadequate regulations. But it’s also important to note 99.99% of the things people think of “crypto fixes this” do in fact have 0% to do with crypto. So, it’s important to analyse where blockchains can actually help - mostly objective money & objective identity. And gambling. Mostly gambling.

I have a lot more to say, like the lack of transaction reversibility, but this is too long already, so let’s wrap things up.

Concluding

If we want to make the most of blockchains, we must understand and accept its trade-offs, and focus on its unique properties.

The key trade-off is a lack of subjectivity, but here’s a thought... As previously mentioned, a vast majority of crypto users do so on regulated exchanges. This gets us the best of both worlds - the regulations of tradfi, and the neutrality of blockchains. Public blockchains are already an integral part of traditional finance, and the synergies will continue.

The solution, as is often the case, is not to pander to false dichotomies. Traditional incumbents are very flawed, and the solution for them is to keep getting better at it, as they have for centuries. There’s no alternative anyway, as blockchains cannot do 99% of the things due to a lack of subjectivity. Meanwhile, blockchains can also keep getting better and integrated in traditional venues, to the point it becomes one whole that’s better than what came before.

Lastly, choice is great. To each their own. I don’t have the confidence to self-custody, like 99% of the world’s population, so I’m perfectly happy to assess and choose one of many regulated entities. If you prefer self-custody and accept the risks, that’s great too!