Mass Adoption Would Ruin Crypto. Keep It a Niche

The most significant crisis in the history of cryptocurrency undeniably occurred when FTX experienced a sudden and catastrophic crash. At the moment of its collapse, which was later revealed to be Sam Bankman-Fried’s personal fortune, FTX ranked as the third largest crypto exchange. This unexpected failure sent ripples through the industry, causing not only price drops but also the downfall of numerous other companies.

As a seasoned crypto investor, I’d like to share an alternative perspective on the current market trends. Keep in mind that the opinions expressed below are my own and may not align with those of CoinDesk or its affiliated entities.

The following is taken from The Node, CoinDesk’s daily digest of essential stories in the realm of blockchain and cryptocurrency. To receive the complete newsletter, please subscribe here.

In late 2022, I found myself questioning the future of cryptocurrencies as a whole. The exposure of one of the most consumer-friendly and trusted crypto companies’ blatant fraud fueled doubts that had been simmering beneath the surface. It seemed to confirm the prevailing belief that this entire sector was just a facade hiding deceit and fraud.

Currently, there’s a sense of optimism in the air, but concerns persist that the crypto industry might be repeating past errors, leading to another potential downturn. For long-term investors and observers in this space, this rollercoaster ride is nothing new. The bitcoin market crash of 2014, following the collapse of Mt. Gox, and subsequent recovery, have set the pattern for the crypto market’s cyclical nature.

As a researcher studying the blockchain and consumer application market, I find it intriguing yet peculiar that this maturing industry has come to accept the recurring boom-and-bust cycles as the norm. It strikes me that the mass adoption of any specific blockchain or application hinges on its token price or the industry’s stability, not constantly teetering on the brink of collapse.

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The primary challenge in expanding the use of crypto is actually the expansion of crypto itself. This rollercoaster ride between excitement during market upswings and despair during downturns, which occurs approximately every four years, is a byproduct of crypto’s quest for widespread acceptance.

Crass adoption

The economical procedure unfolds with perfect clarity, mirroring renowned economist Robert Shiller’s concept of “irrational exuberance.” The allure of transforming fundamental aspects of our monetary systems and the internet itself ignites fascination. For some, it represents an opportunity to be part of a groundbreaking movement, while others see potential profits. As popularity surges, so do prices, fueling further growth through increased investment – until a breaking point is reached.

As a blockchain analyst, I frequently observe that the very things intended to be eliminated or mitigated by the design of decentralized systems often end up causing their downfall. These elements, which are typically aimed at making cryptocurrencies more accessible and user-friendly, can ultimately hinder the core value proposition of projects such as Bitcoin.

“According to Alex Thorn, the head of research at Galaxy Digital, a potential drawback of Bitcoin’s increasing popularity is that newcomers may not be familiar with its fundamental tenets, such as decentralization, self-custody, and being a hard currency. If these novices fail to grasp and promote these essential concepts, there’s a risk that the features that underpin them could disappear from the protocols in the future.”

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Adopting crypto involves complying with legal requirements, even if they conflict with crypto’s principles. It also necessitates creating user-friendly sign-ins and access points, which may be vulnerable to exploitation. The goals of decentralization and widespread acceptance present a challenge – or even conflicting objectives. Expanding crypto too much might undermine its unique advantages. As Nathan Schneider, professor of media studies at the University of Colorado Boulder and author of “Governable Spaces,” explained, “Merely assimilating into the prevailing financial structure results in giving up many of the significant benefits this technology offers.”

University College Dublin instructor Paul Dylan-Ennis emphasizes a perspective shared by many in the crypto community: “Crypto insists on not being recognized as a niche culture, yet much of our strife arises from the obsession with ‘bringing in the next billion,’ which can erode our core principles.”

There all along

It’s quite intriguing that individuals in the blockchain industry, including developers, founders, and investors, have dedicated the past fifteen years and vast financial resources in their quest to discover a groundbreaking application for this technology. And here we are, with the potential “killer app” for blockchain already in existence.

Satoshi Nakamoto and those following in his path have created digital tools that are flexible to use and difficult for others to take away easily.

That’s it. That’s the whole point of crypto.

Keep in mind that these markets are enormous in size. However, it’s important to note that the usage of crypto for practical applications is significantly outweighed by its speculative use during times when crypto appears poised for a breakthrough. In such instances, investors pour capital into various coins or protocols, causing prices to fluctuate wildly – essentially fostering a self-perpetuating economic cycle.

And that’s fine. Gambling is a use case to a certain extent. But if people want crypto to be used productively, developers, founders and investors should be building for people who have an actual need for censorship-resistant money and tools. Almost by definition, that’s a limited audience.

This is just my opinion. Many disagree.

Other views

As a researcher studying the crypto industry, I’ve come across Molly White, the brain behind crypto-critical news services Web3IsGoingGreat and “Citation Needed.” According to her perspective, crypto has already entered the mainstream scene. In a private conversation, she stated, “There are still some individual projects that are relatively small and niche, but with figures like Brian Armstrong and Sam Bankman-Fried engaging in Congress, and heavyweight investors such as BlackRock and Fidelity introducing bitcoin ETFs, I believe the mainstream adoption of crypto has become a reality.”

SethforPrivacy, a privacy advocate, educator, and Monero expert, holds a distinct perspective. He acknowledged the sad truth that many individuals are still unaware of the significance of Bitcoin or unwilling to assume the level of personal responsibility it requires. Consequently, his efforts are devoted to enhancing Bitcoin for those who value its importance now.

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One perspective holds that decentralization is a significant factor fueling crypto’s potential expansion to a global scale.

As a crypto investor, I firmly believe that what sets Bitcoin apart and makes its global rise possible is its most distinctive cypherpunk characteristic: it doesn’t belong to any specific entity, be it states or corporations, but instead, it’s controlled by its users.

Although it’s not entirely evident what the general population is looking for, Ethereum advocate Emmanuel Awosika acknowledges that “while we hold the belief that everyone desires privacy, censorship-resistance, and safeguards against nation-state assaults, there are individuals content with a solution to a problem and boasting an excellent user experience.”

Although not all individuals require or prefer it, the importance of privacy, censorship resistance, and decentralization in cryptocurrencies cannot be overlooked. Awosika advocated for expanding the reach of cryptocurrencies to include as many people as possible.

As a researcher studying the power of decentralized tools, I’ve come to agree with Roko Mijic’s perspective that scale plays a significant role in their effectiveness. For instance, Bitcoin’s resistance to attack is evident due to its vast network of miners scattered worldwide. Trying to resist censorship within a smaller-scale crypto network would be futile since the government could potentially bring down the entire network.

As a researcher at Moonstone Research in Chicago, I, Justin Ehrenhofer, emphasized the importance of a currency being widely accepted for it to be truly valuable. Thus, I urged the cypherpunk community to concentrate on creating systems that attract non-initiates. Nevertheless, I acknowledged that with increasing adoption comes a potential loss of the original crypto ethos, as an alarming number of users opt to store their wealth in custodial exchanges.

I suppose the question is, how valuable are crypto’s core values?