[Note: this is a sequel to one of the most popular article I wrote five years ago, at the height of the ICO boom: Eight Things Cryptocurrency Enthusiasts Probably Won’t Tell You.]
There is no need to carry water for venture capitalists (VCs) or other financially interested parties (coinfluencers) who promote their virtual wares. Yet as mentioned in several previous posts, throwing the baby with the bathwater is intellectually dishonest when it comes to the wild world of distributed ledgers and blockchains. If we used an evidenced-based approach, we will see that the a priori everything-is-a-scam position is untenable and often just an excuse for social media engagement farming. Web 3.0 is actually kind of great compared to 2014 when it didn’t exist beyond a blog post.
Publish October 2nd
Background
Without sounding like a broken record, it is recommended to first read through the Enthusiasts post linked at the top so we can manage expectations. For instance, virtually everything described in the original background remains pitifully unchanged. In the U.S., multiple PACs and lobbying organizations have sprouted up, but not a single self-regulating organization (SRO) has made it past the proposal phase. When asking why, there is a lot of finger pointing as to what centralized intermediary dragged their feet or refused to get on a conference call with other intermediaries. But sheesh, five years and nothing, SMH.
Furthermore, virtually all of the bad actors that have been run out of town did so only through the investigative and policing powers of law enforcement and/or regulatory body. In fact, in some cases, repeat felons such as Sifu, continue to operate in the open.
It would be very easy to make a follow-up post dunking on the coin industry. It was so easy the final newsletter I wrote pre-Covid, was over 500 pages long, most of which involved cropping headlines or tweets of dumb takes or hacks or both. Social media personalities that do that today are pretty prosaic and banal.
What is harder, and what truly curious – and critical – individuals should set themselves to do is: sift through the rancorous noise to identify utility beyond speculation and its ambulance chasing degens. It takes almost no effort or energy to chronicle that sad state of affairs, hence the plethora of anti-coin newsletters and Twitter personalities chronicling it.
Instead, this short post is a non-comprehensive attempt at categorizing areas of product market fit (PMF) as well as infrastructure market fit (typically L1s). This is not an endorsement of said projects or protocols nor was I compensated in anyway to include them (or exclude others).
(1) Hardware
Why is hardware on the list of useful stuff in the blockchain world? As mentioned in “Web3 needs critics and criticism,” one of the biggest issues with engaging with anti-coin arguments is the lack of definitions. In fact, the anti-Web3 letter signed by 25 guys and 1 gal didn’t even bother defining Web3.
So let us be explicit: cryptocurrency networks and systems involve multiple different pieces to work and work well, including cryptographic time-stamps and resilient peer-to-peer networks. Cryptocurrencies are just one part of the broader “Web3” framework that involves self-custodying and self-ownership of assets including namespaces. Participants attempting to self-custody assets without the involvement of a centralized intermediary can take a page from Swift and other financial organization by using hardware security modules. In this case, Thales, Trezor, or Ledger are existing players used in both worlds.
Key management is probably the least jazziest of topics you would want to lead with but in late 2022 we still see NFT art collectors get phished because they lack 2FA. Even the most ardent furniture-free anti-coiner can agree that hardware wallets are helpful in securing both traditional financial assets and those in the anarchic world of public chains.
(2) Tokenization
I have written about the history of tokenization and non-fungible tokens (NFTs) many times. My 2014 book (which is totally free and out-of-date) discussed early attempts at tokenizing real-world assets (RWAs) through now defunct efforts like Colored Coins, Mastercoin, and Counterparty.
Tokenization of digital (and digitized) assets has not stopped and instead morphed into several distinct communities, the most well known is perhaps the (digital) art collection world. See my presentation from March describing some specific collections.
In contrast, the problems for tokenizing physical, RWAs is multitudinal and varies depending on what the asset is. Fundamentally anything physical requires a trusted intermediary – a custodian – who sits in the middle and has a privileged (and sometimes regulated) role. Perhaps the most common or well-known tokenized RWA are USD-denominated pegged coins. For an overview on these, be sure to read my previous article: Parasitic stablecoins.
The issuers and the reserves backing the tokenized USD have changed overtime. For instance, 18 months ago, none of the major centrally issued USD pegged coins published monthly attestations and all of the issuers invested deposits into “riskier” assets, such as corporate bonds and commercial paper. Some of the issuers even lied about reserve composition, segregation of accounts, and a bunch of other no-nos. Due to regulatory and peer pressure, today, the issuers of the three largest USD pegged coins not only provide monthly attestations, but have moved to a reserve model composed of U.S. Treasuries identified through their CUSIPs.
This is not an endorsement of their model or existence. In fact, I stand firmly behind the written and oral comments I have made in the past. Yet contrary to the conspiracy theories and rumors of collapse, these tokenized RWAs continue to exist and provide utility for a spectrum of users both at centralized intermediaries and decentralized financial applications such as AMMs and lending protocols.
In contrast, other RWAs like digitized gold has been (re)invented a couple dozen times by different companies and projects over the past decade. Yet there is little to no demand for it. Digitized representation of precious metals have not found a product market fit, but we will probably still continue to see press releases of yet another digital gold bar.
You don’t have to like Bored Apes or Tether or
(3) Namespaces and time stamping
The Ethereum Name System (ENS) is technically an NFT (an NFT-based domain system) and could have gone in the previous section but because of its primary function found a different home here. Unstoppable domains maintained by an automated system is what the prevailing incumbent California-based DNS system aspires to be. 1 It is not a coincidence that in the 2014-2016 era, “domain names” (were often used in blockchain-related presentations and books because web domains simultaneously illustrated:
(1) how virtual bearer assets can be both useful and scarce (there is only one Sex.com)
(2) the human element creates frictions and are the weakest link, such as the six year long court case involving the ownership of Sex.com
Again, this is not a pitch for ICANN to move everything over to a blockchain, or to Ethereum. Rather it is a counterfactual to the narrative that “nothing useful happens” on blockchains. It is a low bar to cross because again, we empirically see how the current domain registry system is abused, some of which could be ameliorated by a neutral naming service. To top it off, ENS is seeing a surge in usage through the “sign in with Eth” initiative — as a form of online identity — which is an attempt to route around single-sign-on services owned by “Big Tech” Web2 companies. 2
Time stamping is probably the mundane use for a blockchain. From at least 2012 onwards, cryptocurrency supporters and advocates have described various ways to use blockchains for time stamping. It was show cased front and center in ICOs such as Factom and Tierion.
Why?
As mentioned in a previous post, depending on how it is defined, a candidate for the “original blockchain” was the Haber and Stornetta timestamping system published in 1990 (and thrice cited in the Bitcoin whitepaper). Therefore archaic blockchains had a useful niche before Bitcoin but were not capable of moving assets without a third party.
Not only did the anti-web3 letter failed to include a definition of Web3, the authors overly broad usage of “not useful” could encompass e-signature providers such as DocuSign and HelloSign. Coincidentally DocuSign kinda-sorta used Ethereum (although gas fees / costs drove it elsewhere). I am sure it is just a matter of time before we see letter writing campaigns to boycott these Web2 tech companies touching blockchains. Too late, more on that below.
(4) Perpetuals
Shiller paper Link to Cam Harvey
CBDA and CBDC
FMI
CSD / CCPs
DTCC Ion
How it started / How it is going
Jorge Stolfi
DTCC
Project Ion tweets versus reality
Who knows how to run an CSD better, anti-coiners or CSD operators?
BSTX:
Or maybe this all turns out like ErisX, Bakkt, tZero, and IEX. These are different, not the same.
Contour, HQLAx, Onyx
Fnality, Serum
PMF
AMM / Lending protocols (defi)
Errata
Dark Forest
Tokenization existed pre art collection
L2s
Tech companies
Google Web3
Aws
Bottom line: every large tech industry boom is plagued with snake oil salesmen/women whether Biotech or Blockchain, just gotta get used to it and call them out as an industry!
Iroha Cambodia
Norway
Distributed systems
RAFT
PBFT
IBFT
Defending incumbents and centralized TBTF infrastructure defending legacy companies
Defamed by Chris Derose and Joshua Unseth
Bad argument: the system currently works z so why change it: reductio ad absurdum, pre DTCC paper based guys transporting every day by bicycle. Before that, even less technological. Pen and paper!
[7/16, 9:43 PM] Stanley YONG: Because the case that the person uses in the argument is the “worst case” longest chain
[7/16, 9:43 PM] Stanley YONG: In many many situations it’s much much shorter and simpler
[7/16, 9:44 PM] Stanley YONG: Settlement in Singapore for example is often just four entities
[7/16, 9:44 PM] Stanley YONG: That’s one reason why Project abacus couldn’t take off
[7/16, 9:44 PM] Stanley YONG: When we went to the banks and users
[7/16, 9:44 PM] Stanley YONG: It just wasn’t a big problem – settlement in many countries is sensible and relatively simple
[7/16, 9:48 PM] Stanley YONG: This too I found to be dumb
[7/16, 9:49 PM] Stanley YONG: ““Deposits in banks aren’t even ‘customer assets’, let alone ‘assets under management’. They are unsecured loans to the bank. They are thus liabilities of the bank and fully at risk in bankruptcy.”
Frances Coppola, economist and author of Coppola Comment blog “
[7/16, 9:49 PM] Stanley YONG: Exactly why we regulate banks so likelihood of default is very Low
[7/16, 9:56 PM] Stanley YONG: The US isn’t a really good example
[7/16, 9:56 PM] Stanley YONG: For the rest of the world
Wrong a priori
Wrong a priori
Non-self-referential Things that might have a niche
Axie
Helium
StepN
Dark Forest
IPFS / Cloudflare
And there are some things like utility NFTs, or POAPs, or gaming NFTs
Horseshoe theory
RWAs: centralized stablecoins and CBDCs
Art auction traditional
Rwa
- Technically speaking, a web domain itself is simply an alias or a pointer. ↩
- Currently users are reliant to an oligopoly of technology companies that manage / own user identity through single-sign on gateways such as through Google and Microsoft email services. In these gatekeeper roles, not only are there accountability issues but abuse can and does take place. Wallet interfaces like Pip and niche browsers such as Opera and Brave support NFT domains which allows users to control who they share their data with. ↩