Cryptocurrency frenzy
If there’s one thing we’ve learned from the recent history of the internet, it’s that seemingly esoteric decisions about software architecture can unleash profound global forces once the technology moves into wider circulation.
[Steven Johnson for New York Times]
The overwhelming frenzy that we are currently seeing in crypto space by no means was born from the thin air as some people prefer to think. There are a couple of seeds that have explosive long-term applications. Blockchain gave us the first way to create digital scarcity and transmit value over the internet securely. Tokenization gave us the next generation of internet protocols which now have a way to be monetized. First time in history we have a way to achieve consensus amongst humans that does not require central authority and organise the networks of the future which are more peer to peer based.[1] It would be extremely short-sighted not to take into account such precursors for the restructuring of the digital economy that we are about to witness in the next decade.
Quite comfortably the toolbox to create virtually anything for new crypto-economy is encapsulated in a distributed network called Ethereum and its programming language Solidity. Vitalik Buterin and Ethereum founding team have created the most forward-looking projects in the crypto space to date, that in the long run will prove its significance as a cornerstone in the crypto-economy. Ethereum is also interesting for its part as an ignition in the second speculation wave by being a perfect ICO platform. ICO — new way to raise money for open source protocols from all around the world, another punch to inefficient and closed VC ecosystem, but more than anything else, an ideal vehicle for get rich quick schemes. Ethereum community had no bad intentions, but fueled by the greed of newcomers and some shady crypto veterans it happened to be at the center of crypto frenzy. Can we justify current prices of ETH? Unfortunately, no. Are we seeing any mainstream application of Ethereum expect speculations and ICOs? No, we aren’t. Why should we? Building real things is hard, developers merely cannot build enough things to keep up with irrational exuberance of the market to justify token prices. Such dissonance between reality and expectations will grow until the market will not correct itself through boom and bust cycles that we’ve seen quite a few times.
Even more so, recognizing an important trend turns out to be much easier than figuring out how to make a profit out of it. For instance, most of the money to be made from big trends is made indirectly. During the industrial revolution, not railroads themselves that made the most money during the railroad boom, but the companies on either side, like Carnegie’s steelworks, which made the rails, and Standard Oil, which used railroads to get oil to the East Coast, where it could be shipped to Europe.
Where will the money be accumulated in crypto space? It’s literally a trillion dollars question, that we can only speculate on. Is it going to be an emerging type of governance tokens for the stable merit of exchange (e.g. MKR DAO or Basecoin) or most secure and immutable store of value like Bitcoin? Maybe, there is even a chance for Ethereum itself to absorb the dollar value in it protocol if developers will figure out different [1] monetary policy for ETH usage by other’s emerging projects on Ethereum VM.
In summary, Ethereum is one of the most significant developments of the emerging crypto economy and tech community as well as the general public got a sense of it’s potential. However, as with any other technology which can reshape our socio-economic relationships, people think that a new world just around the corner, but it’s not. It might take years before Ethereum and all token economy will be able to justify its current market cap.
[1] Thank you to Naval Ravikant @naval for his unique talent to put so many ideas into so simple and sharp sentences. As well as Laura Shin @laurashin for her tremendous work to put together the best podcast in crypto space.
[2] Different does not mean fair, but one that will direct monetary value to Ethereum, rendering other projects built on Ethereum VM less valuable in dollar terms. For instance, by decreasing the supply of ETH through token burning mechanisms ones ETH used in transactions by another project.
