"NFTs are just pointers to a server." Often true, but if that "server" is the ipfs, then you can actually (self) custody the files as well as the Non-Fungible Token. I'd been meaning to find a way to do that "at scale" and after finding no reasonable existing solution, decided to whip it up myself. Because "don't trust, verify", "Not your key, not your coins", and all that.

(If unconvinced, learn more about why NFTs are awesome from Punk6529.)

Collect NFT data from your wallets, pin ipfs content to your local node, download images, find out interesting things about your NFTs from an SQLite database.

It's basically connecting two APIs together (Opensea => IPFS), with some interesting side-effects.

I can't really code
Or really can't code.
I'll let you judge.

If you do, you'll figure it out soon if you start looking at the files. So I might as well come out now. This was all put together with the help of various LLMs who helped me translate from English to Python. And, surprisingly, it runs.

That's all I need it to do. It runs and it gets me my NFT data as intended.

It's likely quite inelegant, It's probably super inefficient. I haven't tried following good practices (even the ones I know about) but the objective was to get it running. I can now speak computer (if we keep the analogy, probably with the fluency of a 3 year old), and get it to do my bidding (just like I do my 3 year old's if he asks nicely), and that's awesome. Completely new unlock. I have no illusion that it's turned me into a dev. It hasn't. But it did allow me to go beyond using just the terminal/basic bash scripts/no code tools I never managed to do my bidding/GUI. And that's quite interesting. And while the LLMs did do a lot of the work, I did pickup quite some new skills when putting it together (learning about venv, the SQlite db, SQL queries, Python with cron, IPFS and its API...); and that's always nice.

Maybe I'll look into optimizing it, although for these sort of things I enjoy 0 -> 1 more than 1 -> 1.5; so probably not. If you, dear reader, on the other hand do enjoy perfecting things, contributions are very welcome!

I'm just sharing it because it might help someone else (1) custody their own NFTs so they can safeguard things they care about (2) realize that LLMs are pretty good at translating EN to Python and that you can get computers to do things for you if you leverage the power of that translation engine. Which I think are both worthwhile things to share.

I have cron jobs that run each of the scripts, in the right sequence, so as to achieve the ojective. It's easy, you edit your crontab everything just runs on a schedule.

Basically 5 steps: Ask Opensea for everything you hold > extract the CIDs > put it all in a database > Pin the CIDs to your IPFS node > download all the images.

This one

Uses the Opensea API to get all the NFTs I have on all the wallets I give it for all the chains I want (that Opensea supports). And lists it all in a CSV file for use later, and a txt file with a list of everything the run collected, for safekeeping.

It's here

Now that I have all the info from OpenSea, I need to extract the CIDs I will later pin to my ipfs node, whether in the "metadata" or "image" fields. Some of it is in base64 so that needs to be translated. That gets written to another csv file

Can be found here

At this step, we read the nfts.csv file and the nft_cids.csv file, join them with the unique_key we created, and turn that all into a SQLite database. Because that's easier to play with than 2 csv files. As noted below, I could have just gone and written to an SQLite database for the two steps above as well. But I didn't know about SQlite when I wrote those scripts, and didn't really feel like rewriting them because they work.

It's what this does

Since IPFS (kubo) has an RPC API, we can use that to read the db and pin very CID we encounter. There was a python client implementation I never managed to get to work so I'm just doing the API calls directly. It works and it's really easier to understand.

I find ipfs to be super confusing but I think I got it all to work. I now have about 2GB of "pinned" data (that don't show up in the "files" section of the GUI client, because that's apparently the MFS and it's something else for some reason).

I didn't go the complicated route and I recursively pin everything. I figured that way I'm doing a public service to all of the other owners of the same collections I'm holding. I mark it as "pinned" in the database so I don't try doing that again at the next run.

Like so. Because why not?

This is just so I can display them on my TV or find them easily if needed. It doesn't actually "back them up" since the authoritative server is the one referenced in the NFT metadata. And if the media at that link is taken down, there's no way I can prove I had downloaded it beforehand. That's why onchain or ipfs NFTs are vastly superior to those pointing to a company server somewhere. But sometimes NFTs are just fun and you don't care how long their media stays only. They're still a marker that something happened at sometime. And I'll still have the media for my own enjoyment if I want to. Don't overthink it. I mark it as downloaded in the DB so I don't redownload it at the next run.

• Don't write your API keys in the script file, use environment variables instead

• Use the SQLite db from the start instead of relying on csv files initially. I only learned about SQLite after I had already created the first two scripts. And I didn't want to go back and change everything. It works :)

• Make all the variables much easier to find (wallets, chains, API Keys,...) so it's easier to maintain -- but there aren't that many, it's quite manageable (and indicated in the comments of the code).

• If one thing requires that another thing be finished, build that into the script (as opposed to scheduling cron jobs naively 6 hours apart as "that should be enough") -- I found out I can use "subprocess.call" to create 1 file that will quite naively run the 5 scripts sequentially. That's more than enough for my needs and I can just create 1 cron job instead of 5, so I'm now using that :)

• Make sure everything (csv, db, logs,...) gets outputted/created inside the folder where the script it running or at least someplace more manageable than /home/hardymathieu. Because it can get a little messy. And the backup config (rsync) would be easier if there was more order.

• Find an alternative to the OpenseaAPI just in case I can't rely on it anymore one of these days. Or to get data from more chains (Gnosis would be nice). I'm not going to run a node for each (gasp) so it would likely need to be another marketplace / infra provider with convenient APIs (Blur's are currently invite-only; Alchemy could be useful but currently it's easier just with Opensea)

The language (python) is great. Supported everywhere I could think of, docs are good, large community, and hence the LLMs got plenty of training data. But managing where it runs and the conflicts between all the things you install with "pip" is an incredible PITA. See here for a great example. I have had issues with that forever.

I discovered 2 amazing things that really solve that:

• (1) colab.google.com : super easy notebooks where you can just get to writing code without worrying about the infra. Thanks Google for all the free compute. I do all of my prototyping there. It works in 99.9999% of the cases where I need it. Obviously it can't work with my ipfs node (because it's not exposed to the internet, as it shouldn't be) but for steps 1,2,3 and 5 that's where I first wrote all the code. The tweaking required when porting it over to my actual computer is absolutely minimal. Especially with the second amazing thing.

• (2) venv, and right now I think it's the best thing after sliced bread.

I'd actually learned of venv a while back, and it felt a little intimidating. It turns out, once you actually try it, it's really not. It gets you one Python environment in one folder. That's it, and that's awesome.

Just so you don't have to go and hunt down a guide on using venv, here is all you really need to know:

python -m venv /home/hardymathieu/nftipfs

That creates everything you need to run python thingies into one isolated, dedicated folder

/home/hardymathieu/nftipfs/bin/python /home/hardymathieu/nftipfs/bin/pip install YOUR_PACKAGE

And it won't conflict with anything else you might have done in any other project. It's like a little container for that project. Think of it like a PortableApp or a docker container.

(assuming they're in the same folder)

/home/hardymathieu/nftipfs/bin/python /home/hardymathieu/nftipfs/yourfile.py

To make a .py script run correctly with cron, just add this at the top of your .py file, so that bash knows how to run it.

#!/home/hardymathieu/nftipfs/bin/python 
#-*- coding: utf-8 -*-

and make it executable

$ sudo chmod +x /home/hardymathieu/nftipfs/opensea2csv.py

then add the script to crontab

To make sure you don't lose any of your hard work, and information gathered by all the daily cron jobs, use rsync and create a backup of the nfts.csv, nft_cids.csv, SQLite database, .ipfs folder you might also want to backup all the .py files, and (if they aren't in the same place) possibly the folders where you have your python venv

I think it's important we get those, because we're never going to on-board the world on-chain using Seed Phrases and Ledgers. They're scary and they're clunky to use.

I want everyone to move off of exchanges and to a self-custodial model.

I also believe that if we did manage to give everyone a key-pair we could unlock crypto's latent potential. There's the obvious $ aspect, but it would also allow everyone to have an identity (Sign In With Ethereum, Lens,...), vote on Snapshot proposals (direct democracy?), use encrypted messaging without overlords (xmtp), get NFTs of everything,...

But today I have a very hard time recommending anything to anyone because I understand the shortcomings of most solutions and I know people won't be very happy with what's available.

Here's what I'd like to see vs what I'm seeing and where the trade-offs are. I'll keep documenting as time goes by.

What I'd like to see

Summary of the list below:

• No seed-phrase

• Understanding what happens if the provider goes "poof"

• Easy transactions

• Readable transactions, attack protection

• Mobile-first

• Start simple and grow with me

• Support multiple addresses / accounts

• Customisable signing

• Cross-chain

• Social

• No-brainer on-off ramp

• (more) Useful stuff built in so I don't have to think about it too much

• Bonus: rewarding & opens channel to a CEX

More or less in order of importance

• No seed-phrase

  • That's #1. If a wallet requires a Seed Phrase I can't recommend it. It takes over 3 hours to explain what it is and how to keep it safe. Total non-starter. Everything else is somewhat negotiable, but this really isn't.

• Understanding what happens if the provider goes "poof"

  • With seed phrases, if your wallet provider ends service for whatever reason, you just put those 12 words in any other wallet and you're back. That's a nice model. But since no one knows how to secure those 12 words, it's only nice in theory.

  • With smart contract wallets or MPC solutions, you're not that independent. Which is reassuring but means you need to understand what happens if you trusted sidekick disappears.

    • For example, this is how Argent does it. This is ZenGo.

• Easy transactions

  • This means that you can pay for "gas" in whatever token you happen to have. Most people don't start by getting gas tokens. Nor should they. This really needs to be abstracted away.

  • Transaction should be batched, you shouldn't have to worry about nonces,...I know this means it will have to be a smart wallet / account abstraction wallet, and that's fine.

• Readable transactions, attack protections

  • No one understands what's written in Metamask, so it needs to be turned readable (rabby.io and joinfire.xyz are interesting) and the legitimacy of the transaction should be checked (harpie.io's RPC solution is interesting).

  • Revoke.cash - like feature or just "closing channels" so you're not long-term exposed to SC risk.

• Mobile first

  • Wallet Connect is for the web

• Start simple and grow with me

  • It's likely someone's first interaction with Crypto is going to be fairly "basic". They're going to buy or get gifted 20€ worth of something in crypto, or receive a POAP for attending a thing, or get an NFT with a "real life" purchase, or play a game and get an item, or get a Web3 social or Reddit profile. For that they need something real simple.

  • Then their (Web3) online presence will grow, they'll get more items, move more money on chain, go interchain,... and they would ideally like to keep that same "wallet" and not move everything over to someplace else. They should be able to go to the settings and "power up" their wallet.

• Support for multiple addresses / accounts (at least 3)

  • Signing is always risky, and you don't want to keep all your eggs in one basket.

  • Nobody wants to easily broadcast their crypto net-worth to the world 100% of the time.

• Customisable signing

  • If I'm sending 10€ to Gitcoin Grants from my "everyday" account, I can probably just approve with the Biometrics on my phone. But if I'm moving an NFT worth 20K€ from my vault, I probably want 2FA and a friend to validate from a remote location.

• Cross-chain

  • Ideally, it supports all the chains, everywhere. Because you never know where people want to go, and you really don't want them to be asking themselves the "custody" question more than once.

  • Since the 'ideal' seems to be really far off, an acceptable trade-off would be to have Bitcoin + all the EVM chains. Further "trading-off", I'd accept BTC+Ethereum+Ethereum Layer 2's. Yes, this leaves a lot of cool options off the table, but it does cover a pretty large swath of the crypto market and places where there's actually something to do.

    • Everyone who starts in crypto wants to buy some Bitcoin.

    • Crypto is risky enough, I'm not going to suggest wBTC or tBTC instead of BTC. I can't quite see why you'd want to add a layer of risk if you don't have to.

• Social

  • It might very soon be the best reason to open your wallet daily. Your wallet can show you the latest on Lens and Farcaster and allow you to send DMs over XMTP.

  • Push protocol for native notifications from everything you care about on-chain

  • Your "daily wallet" should come with an ENS subdomain (like Argent's and Coinbase's)

    • Argent's personal page with the ENS is genius, and this should be more broadly implemented

  • Daily wallet also comes with a free NFT PfP

• No-Brainer on/off ramp

  • I actually think MtPellerin currently has the best on-ramp experience in Crypto (haven't tried off-ramping yet). I feel this is actually solved. It should just be natively integrated into the wallet.

• (more) Useful stuff Built in so I don't have to think about it too much

  • Swaps and "table-stakes" DeFi protocols should be easily accessible from within the app (Liquid stake, lend, borrow)

  • Bridging to L2 and sidechains, and a "gas top-up" à-la-rabby"

  • delegate.cash so Vault never signs, Wallet Connect to connect to everything, Easy DCA with MtPellerin & Mean_Fi

  • CO2 offset with Klima

  • Gitcoin Grants integration

• Bonus Points

  • Rewarding: uses MEV-Share so the user and the wallet both make money on their transactions when it's possible.

  • Never custodial again: on the off-chance that DeFi can't satisfy all your needs, you should be able to open a "channel" from your wallet to an exchange (Kraken, Coinbase, Binance or whatever). You would then be able to trade on the exchange and they could "simply" take the money out of your wallet as needed and deposit as needed. No need to actually "deposit" or "withdraw" from the exchange.

What exists, and how it compares

Only focusing on the ones without seed phrases. Because I'm thinking about what I'd recommend to my mum.

• Argent.xyz . The OG, my favourite so far, I've been using it since 2020. This is the only Ethereum/EVM wallet (aside from a Ledger) I have ever recommended.

  • No seed phrase, access to ZKSync, good protection, mobile first, a lot of good things easily accessible, very smooth (as in, by far one of the most stable and pleasant app to use in Crypto).

  • But only has one account, relatively expensive to deploy on Ethereum, only Ethereum and ZKsync (for now), suffers from being a smart contract (it's not their fault, but for example there is no XMTP integration with SC wallets and other protocols also don't support SCW)

  • I know the roadmap is full of interesting things and will keep watching closely, but I also think there are some things (like Polygon PoS) they will likely never support.

    • I don't want my mum to accidentally give out her ETH address to someone sending tokens on Polygon or call me asking why she can't connect to "The Smurfs Society" game so I'm not putting it in the hands of people as a "general purpose" wallet. I'll tell them to use it in very specific circumstances and not try to have it do anything else.

• Obvious! It's got a seed-phrase but it's also got seedless recovery, so I'll allow it because it feels kind of "seedless".

  • there's no BTC, but it does support a remarkable number of EVM chains. Since it's still seed-based, there's no reason why they couldn't add Bitcoin.

  • But since it's seed-based, once could reuse the seed with TrustWallet or Exodus to get in on the Bitcoin action. I'm not as worried about seed phrase security as I am about recovery, so that could be an option. Not for my mum, but a somewhat tech savvy friend.

• Sequence: sign up as you would on Web2, supports quite a few EVM chains (Ethereum, Polygon, Arbitrum 1 & Nova, Optimism, Avalanche, and BNB Smart Chain) with more to come. It has quite a lot to like (switches network by itself, for example) but feels a lot less "noob friendly" than Argent. And I can't find what happens if they go bankrupt.

• Linen.app built on top of safe, it's interesting. it's mobile-first and on 3 chains. But it doesn't have swaps, and no wallet-connect. So it's really just kind of a dumb safe for now. But I like where it's going.

• Ambire .

  • Supports quite a few EVM chain

  • Web app is not intuitive to use, signup flow is weird, and there's no mobile offering. The $Wallet token feels like an unnecessary (but obtrusive) gimmick.

• Keeping my eye on

  • Pillar.fi . It still uses a seed-phrase (but I'm not sure why) but shouldn't for much longer. I find it clunky, the app is a little buggy, but it's promising and the thing they're building on (etherspot) is definitely interesting.

  • Braavos. Only on Starknet, but lots of cool ideas.

  • ZenGo . There are no seed-phrases and it supports quite a few chains, but no ETH L2s.

  • Solana Saga & ethOS because if we actually could use the "secure element" in our phones to hold and use the private keys, most of these problems would be solved already.

  • Exodus and TrustWallet: they're pretty good wallets, but they require managing seed phrases. If they could improve in the direction of "Obvious", or be used in conjunction with a seed managed by "Obvious".

  • Avocado by Instadapp, because the concept of "gas abstraction" and "chain abstraction" is really interesting.

So, which wallet is my mum getting?

None. Because nothing really satisfies it all. And there is really nothing for her to do on-chain right now anyways.

To everyone else, I'll keep recommending one - or several - of the above, but making sure they undersand the caveats.

And I'll keep my eyes peeled for something better. The tech primitives are here so it shouldn't take very long 🤞.

Because it seems their time has come

These two feel like the most important

• ETH scaling with Layer 2, sometimes with privacy: Arbitrum, zkSync, Starknet, Aztec, Polygon Hermez,...

  • We'll probably see relatively low-value-add L2s like we saw with Alt-L1s last cycle, where most of the TVL is the L2's own token. Those are likely not worth anyone's time.

• SmartContract Wallets, or Smart Wallets, or "the future of wallets" because "Seed-Phrases" kill adoption. Currently they're all "missing" something, but they'll get there.

  • Check out Argent.xyz for the closest thing to the ideal experience (or linen.app, Safe (gnosis), Ambire, biconomy, Sequence, zallo.io, Pillar, Braavos or this article for other examples)

This is Interesting

• Privacy Tech:

  • Aztec, Oasis, Stealth addresses

  • ZK proofs for privacy: Sismo.io

• Liquid Staking: Lido, Rocketpool, and DVT (Obol)

• Modular setup & Shared Security: EigenLayer, Celestia, Cosmos, Fuel

• Social Experiments: Optimism & Canto

• Social Networks: Lens, Farcaster, Nostr

• #RealYield: GMX et al.

• Regen: with VCM markets first (Klima)

• "pure information" assets (RWA) moving on-chain first: VCM, Indices (ie:QQQ is on Gains.Trade), Loyalty points

Proll'y Bullcrap

• AI coins

• Memechains

• A new Alt-L1 for no good reasons (written in "move", higher TPS,...)

He's got tweetstorms and podcasts appearances, but those aren’t format most people can “grok” quickly. I’ve often wished there was something I could point them to so they can quickly get the gist and have more resources at their disposal.

So I made an attempt. It took the Bankless Podcast Episode 158, ran it through Whisper TTS and then re-cut it to get as close to a short article written in Punk’s own words as possible. This isn’t exhaustive, and it’s re-ordered so it’s easier to follow along, but I tried to keep it as verbatim as possible. And I added timestamps so you can find roughly where the content is in the podcast.

Table of Content

• Why we need Crypto

  • We have built a world where network effects lead to centralisation

  • Centralisation leads to the erosions of freedom

  • Crypto could win for the same reasons

• Why such a vocal NFT lover? A Multi-Part Theory

  • It’s the first real consumer app for crypto

  • We need to move while it’s new

    • It’s a blue-ocean, not heavily regulated

    • Incentives are aligned with others

    • Regulators don’t actually want Facebook to own 50% of the economy

• It’s not Invevitable

• (NF)Advice from Punk6529: I found out by trying, and you should too

• Related content for thinking about this further

Why we need Crypto

We have built a world where network effects lead to centralisation

between 09:46 & 14:49

A world that digitizes and is structured on databases actually ends up centralizing and what people would think of as back-end technology choices that nobody in the social, political, sociological field has thought about for one second, actually end up reshaping the contours of society.

We are increasingly reliant on Trusted Third Parties. Your life is organised and intermediated by thousands of centralized Databases - Bank Accounts, Email, Uber, Airbnb, Messages, Twitter, Hotel Bookings, National Identity.

Centralisation leads to the erosions of freedom

between 25:55 & 36:20

What is happening is a progressive erosion of freedom that is happening very quietly, very much in the background, without anyone particularly thinking about it.  And it is being driven, it's the technological equivalent of “the medium as the message. And the medium in this case is large-scale, big data companies that have network effects. And then, secondarily, in some countries, governments.

And so, if you violate their terms of service, but honestly, if the CEO of Uber wakes up  and says, I don't like the look on that guy's face, you're off the platform. No due process, no what have you, because something that was decentralized in the physical world - hailing a taxi - is now fully centralized.  It is now becoming centralized with a centralized chokepoint. And sometimes the government might lean on private chokepoints.

The second bucket that has gone along with this is post 9-11, the U.S. has put an incredible amount of effort into AML and KYC. We have gone from a point where cash was viewed neutrally, to cash is now viewed with suspicion. There is no chance cash could have gotten launched today if it didn't already exist. And so the net effect is being shaped by the technology stack. The point is, this trend is showing no signs of stopping. It is not dramatically changing from day to day, but every day of the last 20 years it's going in one direction only. 

And what happens at the end, the end state of this, is you will have X firms (where X is a number between 20 and 50, or 100 max) and Y government services (where Y is less than 10), which might include CBDC, and all of those very large databases will intermediate everything. And once that choke point exists, once that honeypot exists, there is a danger it will be exploited.

36:20

And if you can shut down transactions, you shut down everything else, right?

There are no other constitutional rights in substance without freedom to transact

And this infrastructure that is getting set up bit by bit, and it's getting set up not because business leaders of America are evil, that's not why it's happening. It is an artifact of the technology that is available to us, and that technology - the internet - leads to network effects.

Crypto could win for the same reasons

 39:42 - 40:30

(...) “And so, exactly in the opposite way, if crypto survives, all crypto has to do is survive.

If crypto survives, its own network effects, its own technology architecture, its own way it shapes its social environment will be a huge counterweight to this.

The fundamental permissionlessness of the architecture will lead over time to significant, different, and in fact the opposite of what I'm worried about, social structures around it, and that's very, very good, and that's what I believed before NFTs, right? The freedom to transact stuff was a pre-NFT theory.  It does not involve any NFTs, and I think it's really important, to be honest.

Why such a vocal NFT lover? A Multi-Part Theory

42:54

I think NFTs are our best shot, or if not our best shot, an equally good shot as everything else combined, at achieving this decentralization.

It's the first real consumer app

1. Until now we were re-product market fit, Because you're just talking about the technology. But the whole discussion in the NFT space is at the quote-unquote application layer. And this is a truism in technology: When you start talking about the application, not the technology, you are at the beginning of the consumerization.

2. Unlike every previous form of cryptoassets large organizations have an incentive to get involved in the NFT space.

We need to move while it's new

It’s important we do it while people think it’s a joke. For 3 reasons.

1 - Because it’s a blue Ocean, and not Heavily regulated

01:05:20

The metaverse in a decade is going to be your all-encompassing ambient digital environment.

And if that is a centralized firm that controls that digital space, getting kicked out of  that digital space is like being cast out into the darkness.

And eventually when the hardware works, if these are backed by a centralized company, what you're going to have is not only everything we discussed so far, but biometric data, field of vision data, all streaming to one place. Once you have that honeypot, someone is going to abuse it.

And so my view is we have a moment in time. That moment in time is two to three years. It's right now.  And it is while people think this is a joke.

01:11:04

We're going to have a lot of digital objects. Our economy is not going to get less digital. It's going to get more digital.

The network effects for metaversy type stuff are not built yet.  Nobody has figured it out yet.  And so we have a period where the underlying technology or platform or API that will be  the network effect is up for grabs. So it could be, just to simplify, it's not exactly right, but to simplify, it could be  that everyone issues their digital objects to NFTs or everyone issues them as digital  collectibles on the Facebook Horizon API.

Right now, Facebook has not won this technology shift.

These things happen. Technology shifts. You have a new scramble, usually another firm wins. Here we have an opportunity to actually win a technology shift.

We have an opportunity that the default way to issue a digital object is an NFT.

Is it an open question where you can store the database of arbitrary non-financial digital  objects?

Yes.

It's an open question.  It is an opportunity.

It is an opportunity we can win, not to have like 0.1% market share as we do in like payments and banking, but 70% market share.

An in-game sword on polygon in some blockchain game, is that something that today there's a huge federal apparatus to regulate the in-game objects in riot games?

No

So is there some huge federal apparatus to check what galleries in New York are selling and make sure the buyers don't buy overpriced Andy Warhol prints?

No

You don't have a very heavy regulatory infrastructure.

So my view is, to summarize, it is possibly our first true consumer application.

2 - because the incentives are aligned with other players

01:15:44

it is possible you can tip over the large organizations to say, it is in our business interests, we will make more money issuing this digital wearable as an NFT than running  it through Facebook.

And one and two will work in tandem with each other.

3 - because regulators don’t actually want Facebook to own 50% of the economy

And it is in a part of the world that is not as threatening as to the state, right?

What here you get to say instead: “look, do you really want Facebook extracting 50% of the digital economy for the next 50 years?”

As a regulator, as a politician, does that sound like anything?

Maybe Facebook shouldn't own everything for the next 50 years, right?

It's an easier sell, right?

And possibly, possibly, question mark, possibly, we can actually have some productive relationship with the regulatory state in this regard.

It's not inevitable!

01:24:36

I don't think it's inevitable.  Nothing in life is inevitable. Bad decisions get made by society and society goes back 30 years, right?

between 56:04 & 58:21

Legislation could make crypto in general unusable. 

And so bucket one, I think there's a pathway contingent on, we don't end up with legislation  that makes crypto in general unusable.  Legislation that's going to come into place in January 1st, 2024, arguably makes crypto  unusable in the United States, right?  If you do a transaction, more than 10,000, it is a felony if you don't report, if you  do not report your counterparty's KYC information within 10 days, right?  It's absurd.  It passed the infrastructure bill last year. 

It's the transposition of the cash requirement transaction to crypto, but it is written extraordinarily aggressively.

And I don't see how you could use actually a DeFi exchange if that comes into law, right? Like you don't know what the counterparty is.

It's a little bit more survivable in NFTs because what will happen is OpenSea will KYC or something so you can sell NFTs that are more than 10 ETH.

And do the reporting for you because like if they don't do the reporting for you, everyone's going to go to jail.

I mean, doing this report to counterparty in 10 days or it's a felony is a very, very strict rule, right?

They don't need to send everyone to jail, right?

They just need people to pull back, right?

People do not like committing felonies, right?

Saying like, oh, you're committing felonies is bad for adoption.

If you buy your, you know, whatever nice generative art online, you've now committed a felony, it's very bad for adoption of crypto, right?

But it also means like when you're on the other side of an exchange where you don't know at all what the counterparty is, and you have more sense of what the counterparty is than an NFT, then you're doing it in a decentralized exchange, right?

Decentralized exchange, if this continues as is, are finished, right? 

But they will have to become completely CEDEFI, KYC, blah, blah, to be compliant.  Anyway, so everything I’m saying here is contingent on crypto does not becoming unusable.

(N.F.)Advice from Punk6529: I found out by trying, and you should too

between 15:18 & 16:18

I have this general approach to technology that when you're not sure, you should just try it. Most errors on the technology side, like most people that start missing changes in technology, is because they try and read about it and figure out by reading about it if it makes sense.

And my experience is that just doesn't work. You can't read about, in summer 2013, about Bitcoin and say, oh, does Bitcoin make sense?

You have to download a node and send someone a Bitcoin, maybe on the other side of the world. And then you do it and say, oh, wow, that was amazing. I can't believe that just happened, right? 

People use PFP avatars. Let's use a PFP avatar and see what it feels like, right?

Related content to go further

• David Heinemeier Hansson : I was wrong, we need crypto or his interview on Bankless

• Punk6529 on A16Z : https://web3-with-a16z.simplecast.com/episodes/nfts-use-cases-art-tech-adoption-mainstreaming

• The world according to Punk 6529 on RealVision (April 8 2022) and a nice Mindmap summing up that interview

• Jan 2023 Punk6529’s second appearance on RealVision

• 6529 tweetstorms registry - https://6529.io/education/tweetstorms/

• Crypto Renaissance and Crypto Revolution: Josh Rosenthal on Bankless 

• Andreesesen and Dixon on Reinventing the Internet

• 6529.io for everything Punk#6529

But, for those who don’t yet see what crypto can bring to the table, here is a bird’s eye view of some use cases that are actually working today and where we think we will see more working tomorrow. Admittedly, the second part is a lot more speculative than the first. Neither is a comprehensive list, it is just meant to give an idea of the state of play & direction of travel.

Today

(Decentralized) Finance

Decentralized Exchanges (Uniswap chief amongst them). They create liquidity for tokens without the need for a central party in a way that wasn’t possible before. It has done over 1 trillion in volume over 3 years.

Compound, Aave, Maker, allow you to lend and borrow against your assets without the need for an entity to sit in the middle and add fees and time to the process.

And if you take a look at Celsius, BlockFi and other Centralized Finance solutions that have recently collapsed, you might come out thinking that those DeFi alternatives are doing a pretty good job.

Stablecoins: sending stable value around the world in minutes for pennies is amazing. It has a lot of drawbacks compared to the traditional banking systems but also has a lot of advantages. For rich people it’s worse than banking (sometimes), but for the not so rich it often allows them to do something which was previously not doable (like getting paid by Twitter through stripe). Take a look at Circle's "State of the USDC economy" for an in-depth look.

If you want more links to “the real world” (even if we could endlessly debate that concept), take a look at goldfinch.finance or jia.xyz that lends to real businesses, helping liquidity flow across borders and accessing the developing world credit problem.

(Decentralized) Science

NFTs are also being used for IP in Decentralized Science at Molecule DAO. In the same vein, for DeSci VitaDao, LabDao, and Vibebio might also be worth a look. Peer-reviewing scientific papers was one of the first use cases identified for the internet in 1998 so don’t underestimate what all those smart people can do.

(Decentralized) Real World or Digital Assets Marketplaces

NFTs give physical properties to digital items (mainly, scarcity & programmability). In a few short years, it has become a market trading close to a hundred billion. It’s mostly art (for now). But also a restraining order.

Braintrust is a decentralized talent network, which very much looks like a co-op.

Helium has a very interesting way of making a decentralized wireless network for IoT come to life

Filecoin: buy decentralized storage for your digital stuff for cheaper than at Amazon.

Toucan.earth & KlimaDao: bringing carbon markets on-chain. Recently cited by Mark Cuban on the Bankless podcast as the best use case for crypto.

Norway: Bring transparency into who owns what in private companies

Customer / Owner Relationship Management (ORM vs CRM)

Customers are no longer fungible! Salesforce, Sayl, and Arianee all offer a way to build a community around your own or other’s digital assets.

Skeptical?

If ever the skeptic you might feel tempted to say that it’s all speculation and useless, feel free. But “someone” definitely finds it useful. And there are 30 million installs of Metamask and an estimated 100 million people dabbling in Crypto, and according to Electric Capital, there were around 23K monthly active developers in crypto in December 2022 (versus 27K engineers at Google, but then again, Uniswap is ran by 50 people and Robinhood needs over 3000 to function). People are spending money to use products, even if you find them silly or circular. So it’s not a tsunami yet, but there’s definitely something brewing.

Tomorrow, the day after, and decades later

Real World Assets (RWA): There is 0 reason why stocks and bonds and every title piece of paper, PDF or database record that proves that you own something should continue to be a digitized form of paper managed by incredibly expensive companies like clearstream and take days to settle when you want to send it over to someone else. Every single one of those is moving to a blockchain like system (and here is an example from early 2023). The EU has recently launched a DLT pilot regime to explore just that. The only reason we’re not there yet is because of inertia and the fact that when managing Trillions, it pays to make sure you know what you’re doing. But it’s definitely the direction of travel.

Regenerative Finance: internalizing climate externalities, creating global markets for global problems/solutions, financial inclusion, UBI, community market places, … The number of things currently being tried is amazing. Explore it with @owocki on the Greenpill podcast.

Decentralised Identities & Decentralised social networks, or crypto Social. Lens.xyz is a great example. So are Nostr and Farcaster.xyz. By promising that you own your relationships and that developers can’t be kept / excluded / censored from building apps on the network, they offer a great advantage over the walled gardens and predatory actions of web2 social networks. Because of the network effects, this is likely to be even more of a “winner takes all” than web2 was, but the winner won't be able to prey on you and "enshittify" your experience, because you'll be able to leave with your entire social graph intact.

Crypto gaming: some gamers love crypto, some gamers hate crypto. But the composability that web3 brings to game is likely to make it irresistible to most developers and communities. Major game studios have started building for crypto recently and it will likely take a couple of years before the games are out. Building games is hard business.

Token-gated communities & commerce: Sayl & Salesforce referenced in the “today” section already allude to that. Shopify is making web-shops “wallet aware” and turning the users into “non-fungible buyers” or “non-fungible website visitor”.

Working for a DAO: VillageDAO from Consensys

Zero-knowledge Proofs: Blockchains are very transparent today, and a bit of a privacy nightmare. The ability to prove that something is true (for example, that your are over 18) without the need to actually show your ID card (where is also written your address and name, which is useless to prove that you are 18) is what ZK proofs enable. It should enable more privacy, and is something that Aztec - amongst other - is working on.

Rethink Everything

Ultimately, what’s interesting about tomorrow is that crypto offers an opportunity for rethinking almost everything we do today, from money systems to representative democracies. Like the internet in its early days.

But the internet in its early days was missing some key pieces of infrastructure. Crypto probably is too, but it has much more than Web2 ever had. And the activity in the DAOs of today are very reminiscent of the early internet forums used for collaboration. But now they have a cap table and an internet-native bank account they can spend from.

We won’t get “there” without a lot of experiments, many of which will fail. Sometimes bubbles will form because everyone gets overly short-term enthusiastic. But it has always been part of the learning process and one should be cautious about treading on the frontier. Innovation comes from the fringe, if you are looking for safety, stability , and predictability it might be best to wait it out on the sidelines. There’s nothing wrong with that.

Even if you read, watch and listen to everything listed here, you'll only have a very superficial and theoretical understanding of the space. The only way to truly understand the power and shortcomings of crypto is to use it. That’s what it’s for, after all. Reading about driving a car won’t give you much of an idea about what driving a car is actually like. The same goes for crypto. Just like driving, “doing” crypto is a little intimidating at first, but not that hard to get the hang of.

Doing

Here is to get you started (coming soon...)

External Content

General Understanding

• Adreessen Horrowit's long list: https://a16z.com/2018/02/10/crypto-readings-resources/

• HBR Ideacast 581: https://hbr.org/podcast/2017/06/blockchain-what-you-need-to-know

Innovation Literature

• https://hbr.org/2015/12/what-is-disruptive-innovation

• JTBD https://hbr.org/podcast/2016/12/the-jobs-to-be-done-theory-of-innovation

• https://www.gartner.com/en/research/methodologies/gartner-hype-cycle

• https://www.icopilots.com/building-a-proper-innovation-portfolio-1/

Recent Reports & Theses

2023

• https://messari.io/crypto-theses-for-2023

• https://www.developerreport.com/developer-report

2022

• https://a16zcrypto.com/state-of-crypto-report-a16z-2022/

• https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf - discussed here as well https://www.youtube.com/watch?v=n3PExi_z4mc

• https://www.notboring.co/p/web3-use-cases-the-future

• https://www.notboring.co/p/web3-use-cases-today

Pieces of Crypto Thinkings - from VCs, Founders, and Thinkers

• Crypto Natives - can be a little obscure. Maybe don't start with this :)

  • Vitalik Buterin Blog: https://vitalik.ca/ – it’s all good, maybe just skip the lifestyle sections :)

  • DataAlways / Tripoli

    • on Mirror.xyz: https://dataalways.mirror.xyz/

    • on Substack: https://dataalways.substack.com/

  • Jon Charbonneau: https://joncharbonneau.substack.com/

  • Cobie: https://cobie.substack.com/

• VCs-turned-Media - Generally quite understandable

  • Packy McCormack on “Not Boring”

    • https://www.notboring.co/p/the-laboratory-for-complex-problems?s=w

    • https://www.notboring.co/p/celo-building-a-regenerative-economy

    • https://www.notboring.co/p/zero-knowledge

  • A16Z (and friends)

    • https://future.com/metaverse-infrastructure-technology-games/

    • Chris Dixon (A16Z) and Naval Ravikant on Web3 with Tim Ferris https://youtu.be/DlNDYMNJ5zQ

    • Chris Dixon (A16Z) on Mental Models for Web3: https://www.youtube.com/watch?v=jezH_7qEk50

    • Marc Andreessen & Chris Dixon of A16Z compare Crypto to early internet in “reinventing the internet” https://www.youtube.com/watch?v=RXHITeaGB8Q

  • Electric Capital’s yearly Developer Ecosystem Report

    • 2021: https://medium.com/electric-capital/electric-capital-developer-report-2021-f37874efea6d

    • 2022: https://www.developerreport.com/developer-report

• Crypto-Media

  • Bankless - videos on Youtube are also available in their newsletter if you prefer reading

    • Crypto Renaissance from an Historian’s perspective: https://www.youtube.com/watch?v=karddOiv4ZA

    • Crypto Revolution from an Historian’s perspective: https://www.youtube.com/watch?v=0psJ5JjjNrw

    • Why Bankless is Wrong - Cosmos: https://www.youtube.com/watch?v=Vbomgw-PGRE

    • Beyond Coin Voting Governance (V Buterin): https://www.youtube.com/watch?v=apU83PaErrE&t=2s

    • Internet Reset with Reddit Founder Alexis Ohanian https://www.youtube.com/watch?v=Zimx60Rx8cM

    • Ark-Invest on investing in the future: https://www.youtube.com/watch?v=AsGubNtWeSo

• Other Things

  • On collaboration in DAOs: https://www.youtube.com/watch?v=903tHM4RA9k

  • The identity problem in Tech: https://thedefiant.io/identity-is-the-one-vulnerability-being-exploited-across-all-systems-its-the-mother-of-all-battles-santiago-siri/

  • https://hbr.org/2022/05/why-build-in-web3

• Contrarians

  • Cory Doctorow on Blockchain, Crypto Web3: https://anchor.fm/life-itself/episodes/Cory-Doctorow-on-Blockchain--Crypto--Web3-e1hmcfk/a-a7gpq18

  • Molly White: https://web3isgoinggreat.com/

Intro

When numbers go up, everyone is a genius and no one needs a thesis. It’s when numbers go down and doubt seeps in that we need to remember why we are here in the first place.

We will start by looking at the unstoppable force of digitalization and the appeal of decentralization as the major undercurrents that are powering the natural move to Web3. To understand why this natural move does not appear to be following a straight line, we will look back at theories of tech cycles and disruption. We will conclude with a reflection on prices and their power over us.  

And just so we’re clear: none of this is very original thinking. It is merely a collection of other people’s thinking on the topic of tech, disruptive innovation, and adoption. We’re just trying to be helpful by aggregating it all. It’s also not financial advice, it’s for information purposes only.

We’ll stay high-level and won’t deep dive into specific assets or examples here, but we’ll put out an accompanying piece that details some of the use cases we see today and tomorrow.

I'll save you the trouble of doing it yourself, here is ChatGPT's summary:

In the first part, I argue that digitalization is unstoppable and driven by the desire to minimize costs and maximize opportunities. I see crypto as the next logical step of the internet, allowing for the digitization of all forms of value. I also highlights the coordination advantage of crypto, including the possibility of direct democracy, rapid iteration, and global reach. I also address the criticism of crypto by highlighting the limitations of traditional financial systems, and the appeal of decentralization for those without access to traditional banking services.

I the second part I look at the reason behind the technology adoption process and why it's not a straight line. The Hype Cycle, a graphical representation by Gartner, explains the 5 phases of technology maturity and adoption over time. According to Gartner, any new technology tends to go through a 25-year adoption cycle and it is attributed to the span of a generation. The theory of disruptive innovation by Clayton Christensen describes how a smaller company with fewer resources can challenge established businesses by successfully targeting overlooked segments, delivering more suitable functionality, and then moving upmarket to deliver the performance mainstream customers require. I note that the disruptor's offer is often a lot worse than the existing state of play for most people, but to some of the market, it enables radically new use cases.

I conclude with a note on the fact that crypto is in a unique position as assets are publicly traded but that while daily prices exist, they are mostly a distraction.

The unstoppable forces: Maximum Value, Maximum Freedom

Everything that can become digital will become digital

That’s what history tells us and we have no reason to think that will stop anytime soon. One could argue that “crypto” is just the next logical step of the internet. After having digitized and then digitalized much of our “information” world*, all the value also gets digitalized. That is why “web3” is often used interchangeably with “crypto”.

This unstoppable movement to digitalization is fundamentally driven by the rational choices of economic actors looking to minimize their costs and maximize their opportunities.

Bits over Atoms

Bits are cheaper to handle and infinitely more malleable than atoms. Bits, in fact, mostly have a zero marginal cost.

A digitized invoice - in PDF format as opposed to paper - is immensely more practical to have than the printed-out version. But that is still very skeuomorphic and it doesn’t leverage all of the advantages of computers. As can be attested by the fact that we had to develop OCR (optical character recognition) software to read those PDFs to automate accounting. But when you think about what is actually useful information in an invoice, it could very well be served like a webpage or in XML, and be natively machine readable.

Much of our lives has already been transformed into bits: news, emails, music, movies,...

But much of our lives have not yet been. Because computers are amazing copying machines and we didn’t yet know how to create digital scarcity. We only knew about digital abundance.

Stocks, Bonds, Real Estate, Hotel and Concert tickets, money, etc...are all digitalized today, but are not digital. Clearstream keeps track of stocks and bonds as if they were PDF copies of the paper of the past. Real Estate records are maintained in centralized ledgers by the states in what is essentially the Excel version of the leather books they used to have. Your concert ticket is just the PDF rendition of a centralized booking database with a QR code that links to that same database for convenience. The bank issues you money by typing numbers in a computer as opposed to writing it in a big book, but the process hasn’t changed, and “clearing” the books with other banks can still happen only about twice a day because they don’t share much infrastructure.

All of those are like the PDF version of invoices: more practical than paper, but retaining much of the attributes of paper and gaining almost no “digital” characteristics.
Up until now, there were no good solutions. But crypto solves that.

Your shares can be a fungible ERC20 or ERC1404 token. So can your Euros. Your invoice can be an ERC721, also known as NFT. So can your concert ticket or hotel stay.

This makes them cheaper, more transferable, and more useful. So it will move there. And it will make the first wave of digitalization look very small in comparison. There is no telling how quickly it will happen but that has been the direction of history since the invention of the Telegraph. Until we find a better technology than blockchains to create digital scarcity, that’s where our bets will be.

Coordination Advantage

In a pre-digital world, you have shareholder general assemblies and building co-op voting and vote tallying done with everyone in a big room holding up hands or writing on little pieces of paper.

In a digitized world, because Covid struck, those assemblies are held over Zoom. But it’s the same meetings, with the same agenda, held at the same pace, and they check identity & ownership the same way as in the pre-digital world.

In a digitalized world, Decentralized Autonomous Organizations have all their token-holders vote asynchronously as often as needed.

Imagine the opportunities for direct democracy.

And seeing as though there isn’t the problem of databases that can’t speak to one another anymore, your community is de-facto global. And you can pay your contributors globally too, without ever wondering if they have access to a bank account, because now everyone does, and whether your bank will have correspondents that will manage to get money over there.

The technological primitives also allow for more rapid iteration, more ownership and upside participation for the users, new governance and economic models, and more liquid and efficient capital markets.

Crypto has no regard for the artificial nation-state barriers and existing local monopolies. It is credibly neutral and de-facto global. It offers the option of “opting out” of your local circumstances to a degree, greatly mitigating the effects of the “geographical lottery”. It is therefore likely to win (but not without challenges). It’s, in fact, hard to see a world where all this tech is NOT playing a role.

The appeal of decentralisation

Before we dive into it, let’s address a common criticism. Much of the comments thus far have revolved around “why would I need that”, or “I can use Paypal/my bank/Transferwise to send money”. And yes, you probably can. But there are billions of people that don’t enjoy your level of freedom or legal certainty and (relative) currency stability. There is also nothing that absolutely guarantees that you will continue to enjoy those privileges forever.

If globalization was the bringing together of the world’s countries and conglomerates, decentralization is the bringing together of the world’s people. There is a reason why you hear so much about “community” in Web3.

While critics speak of “atomization” (everyone going back to his own little individual self), the careful observer will notice that Web3 is full of communities around shared projects. People meet and collaborate at an incredible rate.

What the critics call “atomization” is probably just lamenting that individuals are opting into shared communities as opposed to being forcefully enrolled into the communities of old (religions and nation-states, for example).

The reliability of math and the option to “(build and) choose your own tribe” are offering a compelling alternative (substitution) for the diminishing trust in existing institutions (see Messari’s first part of the #1 thesis for 2022).

Versus "The State"

In a Volatile, Uncertain, Complex, and Ambiguous (VUCA) world, having assets that are “out of this world” offers some comfort as a “fallback” in case the proverbial sh*t were to hit the fan. Portable digital private property that can’t be stopped and is accepted worldwide is already a compelling enough reason to stash some money on a blockchain as opposed to under your mattress. If your local institutions turn unfriendly and you can make it out, a 12 words seed phrase is a lot easier to carry than a backpack full of gold or bills. If the company your work for is “in the clouds”, unincorporated, and pays you in a globally accepted asset, you are much less likely to be at the mercy of your local dictator.

In that regard, Bitcoin is a property right. It’s a little unsure what it might be worth but it’s unlikely to be worth 0. And you’re pretty much guaranteed (at least today) to find a buyer anywhere in the world. It’s the most portable and non-seizable property that exists (if you self-custody).

States are in the business of creating public goods** but don’t create private property. They often help safeguard it but have also been known to seize it. So it makes sense to look to non-state actors for safeguarding digital scarcity.

As it is unlikely that the 184 governments of the world will be able to collude to ban self-sovereign blockchains (seeing as though they have never managed to coherently collude on anything thus far), it makes for an interesting new “balance” in the new world order.

Versus "Centralized Big-Tech"

Centralized “Big-Tech'' has obviously gone too far. We don’t need anything else to make the case than to tell you to look at the EU commission and the USA Congress’s take on Facebook, Google, and Apple.

Regulators have tried forcing centralized tech companies to make data portable from one system to another, to make them acknowledge that they are custodians of your data but do not actually own it and that you should be free to do with your data as you please.

It’s pretty obvious that it’s not working. When you can export your data there is nowhere to re-import it to. You pretty much have 0 visibility in real-time on who has what data about you, and getting data to be removed from processing is no walk in the park.

Having to beg your bank to share your identity with another provider, or having to ask Facebook to know who your friends are, does not make one feel like they have much agency.

Developers who built on the Twitter open APIs or Zynga who built on Facebook early-on know too well how a platform shutting off 3rd party access to APIs can kill a startup.

Whether you're broadcasting or in the audience, owning your relationships is crucial.

And the takeaway from the attempts at regulating big tech is that between the legacy tech and the entrenched interests, it’s better to leapfrog them than to try and bend them to do something they weren’t built for.

Web3/Crypto are built around the ideals of "protocols" (like SMTP or TCP/IP which we have used for decades) that allow for you to own your social graph, reveal truths about yourself without revealing information (zero-knowledge proofs), allows for portable identity and reputations systems to be built, and for all of that to be in your control. Including the ability to delegate that control if it’s too much work, and to take it back if you’re not happy with the service.

The Great Constants: Tech Cycles and Disruption Theory

Thus far in this article, we have seen that:

• There is an economic incentive to digitalize everything; to minimize costs and maximize opportunities.

• There is also a political incentive to guarantee oneself maximum freedom and option, be it freedom from state or tech “tyranny”.

So why is there not a straight line from here to there? The answer is an interesting mix of human psychology and market forces. Let’s start with frameworks that attempt to explain what we’re seeing, and why it looks like things we’ve seen before.

Gartner's Hype Cycle

The Hype Cycle is the graphical representation of how technologies mature and get adopted through 5 phases, over time, while being more or less “visible” to those not actively working on it.

It is undeniably a simplification but it provides an interesting “grid” through which to interpret the world. This is how the story goes: a new technology comes to the fore, is widely presented in the media and popular culture, and we collectively get to thinking it is going to solve everything. But it doesn’t actually do much yet. Once the “overinflated” promises don’t immediately materialize (and some outright scams blow up in everyone’s faces), we collectively lose patience and hope. But some true believers stick through it and keep building even when no one is paying attention. After a while, their solutions come out and they are actually usable, and good. It doesn’t solve everything but it solves a lot of things. They get adopted by the majority and become the new normal.

Some technologies go through this really quickly. Others take decades. Some get a lot more attention than others in public media while some are important in some very niche media only. Some tech dies along the way and never actually makes it to the plateau of productivity. But pretty much all the “tech” you’ve ever encountered has gone through this cycle: your car, your TV, your phone landline, your personal computer, your grandparents’ cassette player, your smartphone, streaming, fintech,...

Blockchain, Crypto, Metaverse, DeFi,... are all going more or less quickly through this cycle too. Here is what Gartner published in mid-2021.

It’s been said (but the quote is attributed to many people) that "any new technology tends to go through a 25-year adoption cycle". This makes sense since that is about the span of a generation. The people who adopted “a” tech early just grow old with it and their kids consider it to be a normal part of their lives.

There is however a bit of a variation in that timeframe because some technology is more “fundamental” than others, and as technology advantages compound, you can build on the previous tech to spread the new tech. Web2 didn’t have Web2 to help it propagate. Web3 does.

But there are some constants too like the rate at which humans learn and are willing to try new things.

Theory of disruptive innovation

The Hype-Cycle is a useful simplification for thinking about the trajectory one technology takes. But how do technologies and businesses evolve relative to each other?

To answer that question, we can turn first to Clayton Christensen’s theory of disruptive innovation. Let’s quote the HBR article’s quick recap of the idea:

“Disruption” describes a process whereby a smaller company with fewer resources is able to successfully challenge established incumbent businesses. Specifically, as incumbents focus on improving their products and services for their most demanding (and usually most profitable) customers, they exceed the needs of some segments and ignore the needs of others. Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a foothold by delivering more-suitable functionality—frequently at a lower price. Incumbents, chasing higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then move upmarket, delivering the performance that incumbents’ mainstream customers require, while preserving the advantages that drove their early success. When mainstream customers start adopting the entrants’ offerings in volume, disruption has occurred.

As is clear from the quote, the disruptor’s offer is often a lot worse than the existing state of play for most people. To the mainstream, it will often look like a toy. Just like digital cameras took crappy pictures initially. Or how clunky it is to make a transaction on Ethereum and need to pay gas fees to a network.

But to some of the market, this new “toy” makes something previously inaccessible accessible. Or it enables radically new use cases. This is very much in line with Gandhi's famous quote: “First they ignore you, then they laugh at you, then they fight you, then you win.”

Digital Cameras allowed you to take crappy pictures, but you could now take pictures of absolutely everything all the time. Sending tokenized US Dollars on the blockchain is a lot less convenient than using Venmo but there are now 7.5 billion people who don’t have Venmo that can finally get some USD, when it was previously unthinkable.

Bitcoin is a lot more volatile than the Euro, so why would we use it? Well, maybe it’s not much use to us, but in Argentina the IMF WEO reported a 3-year cumulative rate of inflation of 216% as of December 2021 and a forecast annual rate of inflation of 48% for 2022 and 42% for 2023. And in Lebanon, The IMF WEO reported a 3-year cumulative rate of inflation of 173% as of December 2020, but noted that “for Lebanon, data and projections for 2021-27 are omitted due to an unusually high degree of uncertainty. Venezuela remains hyperinflationary with the 3-year cumulative inflation rate in excess of 2,330,000% in December 2021 and a forecast annual inflation rate of 500% and 500% for 2022 and 2023, respectively. If those are the economies you live in, Bitcoin’s volatility is much less of a concern. And the fact that it’s a clunky experience to get your hands on some tokenized US Dollars won’t deter you very much.

Crypto was meant, amongst other things, to increase financial inclusion and offer robust services in a low-trust environment. That is definitely an overlooked segment.

A16Z's Innovation Cycles

The Hype Cycle presents how technology usually goes from discovery to acceptance. And the theory of disruptive innovation explains how most radical changes in industries start in the low end of the market with sub-par products to previously under-served participants.

To complement the understanding, it is useful to also call on one venture capitalist’s look at what is happening to the crypto ecosystem in particular.

A16Z’s vantage point is interesting: Marc Andressen and Ben Horrowitz were there for the birth of the internet with the first major browser, Netscape. They then started investing in tech companies and were one of the first ones to invest in blockchain & crypto companies. They have described the inability to natively move value over the internet as its “original sin”. And they see crypto as the best way to remedy that and take the internet to its logical conclusion of being the network for everything.

When it comes to crypto, they have theorized the existence of identifiable innovation cycles.

In their view, the increase in prices brings more interest to the space, which leads to new ideas and new projects being funded, and the cycle to start over. They call it “the price-innovation cycle”. And even though it all seems very chaotic and volatile, it is possible to discern this underlying logic. And the feedback loop, over time, fuels long-term growth.

And to those who would not find it sufficient - and although there are plenty of examples, wish to display their lack of research by asking repeatedly “where are the use cases?” - we can say this: To a large degree, that question is entirely irrelevant. When Tim Brenner-Lee invented the WorldWideWeb he had no idea what you’d be able to do with your phone in 2022. And those that venture into making predictions (like Ray Kurzweil, who claims an 86% accuracy rate with his predictions going back to the 90s) are often laughed at because they sound outlandish when made.

Much like with the internet and the GPS, a system of permissionless innovation and composability will enable unpredictable use cases. What we are able to predict today is but an extension of what already exists because we are very bad at thinking exponentially and in compounding returns. The next 7 years of building with blockchain and smart contracts will undoubtedly bring more use cases than the first seven. Because, like interest, innovation compounds. We obviously need to be able to see a road from “here” to “there” without resorting to “magical thinking”, but we believe there are more than enough examples to do so (see these articles for examples).

Web(2) was called a bubble because it had lots of users and no business model (money). Web(3) gets called a bubble because it has lots of business models (and money) but no users. It’s reasonable to assume that, wherever you start, one tends to attract the other. It’s uncertain, but it isn’t unreasonable.

Prices are distracting

Software eats the world. Self-sovereign, permissionless, and decentralized economies offer an alternative to yesteryear’s institutions. Decentralized Autonomous Organizations are speedrunning governance and offering new tools for collaboration on a planetary scale. The spread of those new paradigms follows a historically pretty well-charted path in how they are perceived and adopted. Even the peculiarities specific to crypto are theorized by now.

But oh, my! the prices, look at the prices! It moved! Did you see it move? Oh my god, it’s moving so much today!

Yes. It moved. If you read any of the points above you will have understood that we are very much at the beginning of everything. Crypto people say “we are early”. Yes, it is early. And we don’t see a lot of pension funds investing massively in crypto and crypto companies, what we see are Venture Capitalists and individuals. That is because at this stage blockchains and blockchain apps are (de)centralized liquid high-growth tech startups (or at least that’s the best analogy). They are crowdfunded and funded with venture capital. Just like most other entrepreneurial endeavors.

“De” is between parenthesis because the operations aren’t always quite decentralized, sometimes the ownership is not either, but it is definitely accessible in a decentralized way (ie: uniswap). And is often on the way to decentralization.

The difference with so many of the high growth-tech startups of the past is that they are

(1) available for anyone to invest in, whereas it used to be only Venture Capitalists (VC) who could invest

(2) liquid, meaning you can pretty much trade any of them at any time; whereas VC positions used to be somewhat illiquid and almost never publicly traded.

This is great because it is giving a lot of people the possibility to invest into high-growth tech startups, but the nature of the investment - it’s early and risky - means that it is also the first thing to be sold for cash by those who want to take fewer risks when times become more uncertain.

The fact that that price point exists is leading people to believe that it’s important and they should be looking at it. Whereas if they are investing like VCs, with a 5 to 10-year time horizon, they really shouldn’t. Because the price will likely move for a whole host of reasons that has nothing to do with the intrinsic value of the undertaking
This is the psychology of a market cycle. It exists everywhere, and it looks a lot like the Gartner Hype Cycle, except it happens much faster and not necessarily in parallel with technology development. There is usually a trigger, but it can be many different things.

Karen Bennett, writer at cheatsheet.com, has the created the amazing chart (above) showing the psychology of a market cycle. It describes the most common emotions people experience as the market fluctuates. These human emotions drive our financial markets much more than the market fundamentals.

You must absolutely avoid repeating this behaviour until you're broke.

Looking at crypto prices makes it hard to resist the temptation, because those numbers feel meaningful, when in fact - in the short term - they aren’t.

What is important is to have an investment thesis, a time horizon, and the conviction to hold your portfolio through it all to resist the mind(‘s) tricks. Many called Facebook crazy when it acquired Instagram for 1 Billion, and between 1999 and 2001 Amazon’s stock plummeted 92%. And that was in the public markets.

In 2018 the price of most Cryptos crashed hard, while the rest of the market was doing pretty well. At the time there wasn’t much you could “do” with crypto. No “market-fit”, so to say. Since November 2021, it is crashing because there may have been a bit of a bubble, but there were bubbles everywhere, and because everything else is crashing too.

But the situation is undoubtedly different. You can do things in and with crypto. It’s visible, if anything, because regulators are stepping in. You can’t say Crypto is useless and unscalable and at the same time want the regulators to limit the use of stablecoins to € 200m a day in transactions. If regulators feel it should be limited, it’s because they know it might be very appealing.

So beware of the prices, they don’t tell the full story. If you agree with our arguments in “unstoppable force”, understand the naturally slow uptake, and learn to recognize the market cycles for startups, you may get to enjoy the rewards when it finally works out.

Take it from Gartner, from July 2021

* While digitization is the act of getting material into zeros and ones, digitalization is about creating native digital assets. So, whereas an e-book is a digitized book, Wikipedia is a digitalized (or digital) encyclopedia. The process by which Wikipedia came to be is unfathomable in a physical world. If you had to reprint Wikipedia every time someone made an edit, you would very quickly run out of paper.

** From Khanacademy: A public good has two key characteristics: it is nonexcludable and nonrivalrous. These characteristics make it difficult for market producers to sell the good to individual consumers. Nonexcludable means that it is costly or impossible for one user to exclude others from using a good. Nonrivalrous means that when one person uses a good, it does not prevent others from using it.