This guide is meant to help you think about crypto.
If you are not "inside" crypto, it's easy to think crypto is entirely ponzi schemes or pump-and-dumping NFTs. Most projects in crypto are new and so you have likely not heard of them yet. However, obvious scams gain attention very quickly and so mostly corrupt your view.
The primary advantage of crypto is an escrow without a 3rd party. Many companies make money by holding onto assets, such as a product, a brand, or an automated service. For example, Steam makes money by having nearly all the games, being installed on every device, and having a very strong brand.
Crypto's disruptive use case ("Decentralization") is to put the thing that makes your competitor's money into shared ownership. For example, put the product listings on a blockchain that everyone can read and write to and put the games on IPFS that anyone can peer. This business model is not new: it's what open source companies have been doing for years.
The model is very simple. Your competitor is not incentivized to lose control over their money-making asset; and so they cannot compete with you.
Crypto's value-add is the ability to apply this model to more categories. For example, without crypto, you cannot create a decentralized competitor to Steam. Someone would need to hold the bank account that all the financial transactions run through.
This leads to an easy rule of thumb (created by Jacob Peddicord): If not decentralization, why crypto?
70% that programatic digital currencypdc winswins by 2050. I would update against if fiat governmentsfiatgov move to ban crypto and do not propose a Central Bank Digital Currencycbdc with a smart contract platform.
55% chance that cryptocrypto wins. My prior is that crypto is extremely difficult to pull off and many forces will fight it. However, there are far more smart, talented people working to make crypto work than there are to make Visa work. I would update against if multiple governments worked quickly to ban crypto.
60% If a country bans crypto, it will be comparably worse off than countries that don't ban crypto. This appears to be a very good way to cut your country off from the rest of the economy. I would update against this if I saw an reasonable strategy to ban crypto that didn't limit free trade.
65% If central governments ban crypto, crypto will still have more than 1 million transactions per day. I currently cannot think of an easy way to effectively ban crypto. I would update against if I learned of one.
1% Crypto winning means fiat currencies "failing"failing. I would in favor of this against this if folks with large cash reserves (BSH, Apple) move their money out of fiat.
25% Solana has more individual users than EVM by 2025. I would update against this if Glow Walletglow launches an Ethereum version; if an EIP passed that supported native encryption and decryption in wallets; if an EIP passed that made the "approve -> transferFrom" process into one step. I would update in favor if Glow Wallet is featured on Solana's community page; if Solana hired or contracted with a well-known developer experience expert; if another Solana client was funded; if Solana moved their developer support off Discord; if another Solana framework other than Anchor was created; if someone funded Anchor; if there existed a DSL for Solana; or if Solana foundation stops promoting Metaplex.
50% NFTsnfts will not be the majority of transactions in EVM or Solana by 2050. I would update against if Riot released NFT skins in league. (Note this prediction does not imply NFTs will shrink or even stop growing, only that many other use cases will grow to eat other parts of the pie.)
"What about high transaction fees?"
This is no longer much of a problem. Many current solutions offer very cheap fees under a $1.
- "Sidechains"sidechains like Polygon (EVM) and Gnosis Chain (EVM) are around $0.1 and $0.0005.
- Solana is $0.00025 or so per transaction.
- L2sl2 are in the range of $0.10 to $1 (see l2fees.info).
"What about the environmental impact?"
Very few blockchains use proof-of-work anymore. Most use proof-of-stake, and, as of writing, Ethereum will also move to proof-of-stake by the end of 2023.
"How can blockchains ever be better than a normal database?"
Blockchains aren't a "database", and not a single person in crypto uses them as such. No one can. They're an escrow service without a 3rd party.
To store data, crypto projects will use decentralized data storage, such as IPFS/Filecoin or Arweave. Or they use "nodes" that come to consensus; each node can use a traditional database, like Postgres.
"What about the poor user experience?"
This has improved quite significantly as some of the world's best product people have entered the space. See Rainbow for Ethereum, or Glow Wallet for Solana. When crypto is good, it's really, really good.
"What about all the hacks?"
Crypto is an anti-fragile dark forest. When one project gets hacked, every other project adapts to fix it's own systems. The moment you put anything on the blockchain, every vulnerability, economic arbitrage, or misuse is discovered. So the only projects that survive are quite robust and stable.
- Programatic Digital Currency: A digital currency that can interoperate with a smart contract platform that anyone can program against. The currency itself may be controlled by an existing government and is not necessarily "decentralized". A combo word for "Central Bank Digital Currencies" and "Crypto".↩
- Fiat Government: A traditional government, such as the United States.↩
- Central Bank Digital Currency: A "fiat government" (United States, China, Europe) operated currency.↩
- "Failing": if a currency fails, it goes to 0 relative to other currencies.↩
- Glow Wallet: Glow wallet is a very, very good Solana wallet, and is a good case study of core problems in Solana's ecosystem. Solana often↩
- NFTs: By NFTs, I mean how they colloquially used: tradable representations of art, music, and so on. This is different than the technical definition of a non-fungible-token.↩
- Sidechain: Sidechains are branches of a main chain that can, but do not necessarily, merge back to the main branch.↩
- L2: L2's batch many transactions into one, and therefore save on fees.↩