Crypto epistemic update 2021
Epistemic updates on crypto and NFTs.
L1 tokens won’t become currency
Currently, Bitcoin and Eth are just stores of value; useful for certain things like hedging inflation, but not enough to be considered money in the world of atoms. For that to happen, they’d need to also become a means of exchange and a unit of account, which seems rather unlikely given their current volatility and scalability woes.
Stable coins have a much better chance at becoming currencies
Krugman famously said the dollar has value because the men with guns — i.e. the government — say it has. Truth is people want fiat to be backed by an authority that ensures their investment in a particular currency is not gonna plunge come tomorrow. This is why you keep buying stuff online with dollars instead of bitcoin.
That being said, it is also true that online payments with legacy currencies suck nowadays: You have to remember a bunch of information like card numbers and expiration dates, perform some kind of 2FA with a secondary device and, on top of that, the process is actually quite slow. This experience cannot compare to the ease of logging in with your Metamask wallet and clicking a couple of buttons to sign a transaction.
Crypto is positioned to become the future payment gateway of the internet.
For that to happen, however, two things are needed: blockchains with enough capacity and speed to support current market volumes, and crypto tokens with the stability of government-backed fiat. Conveniently enough, there are solutions to both problems.
L2 layers have the potential to solve the scalability issues that have hindered mass crypto adoption as a means of exchange. Stable coins, like DAI, promise fiat-levels of stability while keeping common properties of crypto. I believe the future of online payments will be something close to a combination of these two technologies.
Bitcoin value won’t dump to 0
If you think about current L1 tokens purely as an economic asset then you forcefully have to believe their value will drop at some point. These tokens are perfectly reproducible, which means at some point their price must fall somewhere close to their nominal cost.
However, if you instead believe in the vision outlined in the previous section, the story is quite different. Bitcoin et al. aren’t purely financial assets but necessary instruments to support the consolidation layer for the future payments infrastructure of the internet. If that’s the case, their price will rise because the market is huge and most people haven’t been onboarded to web3, yet.
NFTs aren’t worthless
NFTs have caught a bad rap — from myself included — because of their most famous use case being speculation in the digital art market.
This is totally understandable but it also ignores many other potential benefits of this technology; use cases like digital royalties, personal access passes, brand loyalty programs or asset ownership in video games, just to name a few. NFTs are the true north star of programmable ownership.
Overall, I would say worry less about the absurd prices of CryptoPunks and follow the big money.