What will the fourth wave of cryptocurrency be powered by, and who personifies the next target market? ITT we’ll see how value capture in cryptocurrency occurs in a wave pattern of ever decreasing amplitude and increasing length, modulo psychographics. I’ll lightly examine several previous waves to establish market trends, and then conclude with a discussion about two possible next generation waves: DAOs and “crypto think tanks”.
There’s little doubt that subscribers to the metzdowd cryptography mailing list who invested in Bitcoin in the early days of the network were cryptocurrency’s “first wave”. At the very beginnings of cryptocurrency, these people found themselves right at the center of a metaphorical glacier of disruptive technology being plunked into an ocean of financial value. Some of them — very few in number — witnessed this extremely high amplitude wave of value appear before them, and were able to capture a great deal of it. Satoshi Nakamoto and Hal Finney personify this group.
By and large, cryptocurrency’s second wave was captured by Libertarians, hard money enthusiasts and Dread Pirate Roberts ideologues who began pushing the idea of using this new technological marvel called Bitcoin as an alternative to inflationary economics and central banking. This move attracted far greater numbers of people to the Bitcoin space than had been previously subscribed to an obscure cryptography mailing list. These newly attracted people witnessed a wave of financial value almost as large in amplitude as the original. N.B. value captured per investor declined relative to the first wave, while the number of investors multiplied. I.e. the amplitude of the wave of financial value decreased, and its length increased with the growing of the addressable cryptocurrency market. The likes of Stephen Pair and Jon Matonis personify this wave.
With WSB/defi — the third wave — many more holdouts were introduced to cryptocurrency by way of NFTs and convoluted gambling instruments, far more than were previously attracted by sound money economics or an interest in cryptography. But — as evidenced by Ethereum’s gradual decline in bitcoin-denominated value over time — these people too were unable to capture as much financial value as did previous participants. Wave amplitude continued to decline while wave length increased.
Unless “digital gold”, or NFTs and the increasingly convoluted gambling vehicles WSB/defi introduced to the Bitcoin space are the end of the road for cryptocurrency, there must exist the potential for a fourth wave. As per previous waves, the participants in the next wave won’t profit as much as the early Bitcoin cryptographers, or sound money Libertarians, or defi people. But the sheer number of new participants will overwhelm the number of participants in previous waves.
Importantly, in each wave, successful coins greatly extend cryptocurrency’s reach into the reservoir of cryptocurrency holdouts, while the potential for value capture on a per user/investor basis slowly declines. In light of this, what might the next generation of cryptocurrency offerings look like? One idea floating around is that “DAOs” are the next big thing in cryptocurrency.
The term DAO dates back to around a decade ago, when sound money Libertarians began opining about how Bitcoin financially motivates its holders to promote and develop Bitcoin, e.g.
(Takes bong rip) It’s almost as if Bitcoin is a self-sustaining organization.
DAOs took on much greater significance when several Ethereum founders and early ETH investors, and the proprietors of “Slock.it” deployed a smart contract on Ethereum designed as a decentralized investment fund, attracting tens of millions of dollars in investment capital. This proved global ETH holders could pseudonymously pool their funds together and start buying real estate, or funding startups, which showed Ethereum had capabilities well beyond that of Bitcoin.
AFAICT, this “decentralized investment fund” angle still encompasses much of the investment potential underlying the DAO narrative. Which is basically the idea pseudonymous investors could grow a real world business empire built on cryptographic voting systems and decentralized communications protocols. It appeals to greed, fundamentally. In addition, it offers ample opportunity for hype:
“Futarchic IOT hyperledgers powered by eco-friendly quadratic sharding schemes make blockchain smart property Web 3.0–capable!”
For better or worse, said Slock.it DAO imploded in a public spectacle after being exploited by hackers, and the world has really never seen a decentralized investment fund rise to any significant level of prominence. But until and unless we get a real world demonstration of a real world business being run more profitably than traditional businesses as a pseudonymously-governed cryptocurrency-funded entity which exists only in cyberspace, DAOs will likely remain attached at the hip to defi — a bastard child of the third wave of crypto with little to no buzz factor.
Another idea for the fourth wave of cryptocurrency — one not oft discussed — is based on the underlying theory that cryptocurrency valuation is 100% driven by narrative. For example, in light of WSB/defi, and “digital gold” taking the world by storm, if humans could ask an AI what it would do to maximize cryptocurrency value, it would almost certainly tell us to 1) pump out memes and 2) pair those memes with software capable of pumping out still more memes. The king of memes could become the king of coins.
The past market cycle has been rather revealing in this regard. Clearly it wasn’t “the tech” calling untold millions of people to invest their savings into Dogecoin. Claiming to be investing in Dogecoin for the technology is about as facetious as /r/wallstreetbets claiming to be investing in GME because they “like the stock”. Why would other coins be different? Is Ethereum really worth hundreds of billions of dollars because that many people want to do that many billions of dollars worth of transactions? Might the overwhelming majority of cryptocurrency valuation be speculation driven by narrative?
Based on recent events, an AGI would almost assuredly tell us to lose the pretense of the “technology” underlying cryptocurrency being what matters to valuation. The emperor having no clothes doesn’t mean competing emperors shouldn’t just show up naked: all cryptocurrencies without exception are speculative stores of value primarily by real world usage — including the ones which claim otherwise.
This “meme tank” theory of next gen valuation — a play on Washington “think tanks” — is also in keeping with the historical trend. Meme dissemination as a first class use case would necessarily grow the addressable market for cryptocurrency many fold, while at the same time each new cryptocurrency investor attracted from such a narrative could expect to earn less than historical cryptocurrency investors. It’s adoption over merit, and greed above all.
At the highest levels, the modern day zeitgeist is driven by primary source data: scientific results, philosophy, economic theory, etc. The more credible, the more cited it becomes, the more primary source data becomes a part of the social lexicon. As an alternative to marketing themselves as DAOs, next generation coins could instead strive to make themselves a pillar of science and social theory. The best of the lot could become the canonical cryptocurrency think tank: a “meme tank”. Decred would do well to plot the various axes of a next generation crypto think tank, and tackle the future with its eyes open to the possibilities.
No comments:
Post a Comment