blockchain ramblings

Looking back over this thread, by far the biggest takeaway for me is the  singular focus on Bitcoin, and so the ignoring of the wider cryptocurrency ecosystem and the rapid development/progress that is taking place here.  For the purposes of the following, I’ll mostly be talking about Ethereum (and by extension ERC – 20 tokens that are issued on/use the Ethereum blockchain.  This doesn’t automatically discount other blockchains or projects,  but I personally see Ethereum as the current frontrunner in terms of adoption, development and general network effect.  This is in some ways in contrast to Bitcoin,  that has seen its use case rely on ossifying deliberately, in order to preserve its designation as immutable “pristine” collateral.

On Feb 21st when this thread was begun, Bitcoin represented approx. 62% of the total cryptocurrency market cap,  down from around 70% at the start of the year.  Today that number is 51.4%.  I personally believe in the near term this downward trend of “Bitcoin dominance” will continue, as the potential of other digital assets is increasingly recognised.  Unfortunately this is coupled with outlandish valuations of dead end projects or even outright scams, but hey ho,  this is the frontier be careful.

There’s a recurring theme throughout this thread, that these digital assets don’t have any function/exist purely for speculation.  I’ll definitely admit that the majority of retail investors, and certainly recent entrants to the space are absolutely just in it for the speculative ride for now, but there are real use cases for Ethereum + it’s ecosystem, and these are not just theoretical, they’re in use now and the usage is growing exponentially.

The first to talk about is  the fairly broad category of “Decentralized finance” or DeFi.  At its core,  this is an attempt to build a financial system that replaces middlemen or trusted intermediaries with code.  The advantage of which would be to reduce a:- the requirement to trust a third party to settle transactions, and b:- the cost/drag associated with this.  This can take the form of decentralised exchanges that are completely private and secure, that don’t require you to risk trusting a third party with custody of your assets and data.  Or lending/borrowing protocols, that allow peer to peer, collateralised crypto backed loans with no human intermediary.  Right now there’s $50 billion+ tied up in these lending protocols, individual decentralised exchanges are recording daily trading volumes in the multi-billions, and both are showing exponential growth. This will become even more interesting as ‘real world’ assets like real estate and equities are increasingly tokenised, and able to be used as collateral.

This brings me on to non-fungible-tokens or NFTs.  There’s been a fair amount of press recently about people paying silly money for digital art NFTs, and no doubt there’s a bit of a speculative bubble going on there, but I do believe the technology has serious real world implications.  For those that are unaware, cryptocurrencies like Bitcoin are Fungible, like dollars or pounds, so if I have 5 bitcoins and decide to send one to someone, neither of us really care which one it is, they’re all interchangeable.  NFTs are tokens (the majority of which are minted on the Ethereum blockchain) that are specifically non-fungible.  These can be used to tokenise ownership of unique assets, intellectual property, equities, real estate, even identity.  And the possibilities of where this technology intersects with DeFi is potentially ground-breaking.  It’s currently mainly being used for digital art ownership rights (and there are some really cool things like hard coding in artist resale rights among other things), but it’s a matter of time before this starts making its way into other areas.
There’s so much development going on here at a truly incredible rate,  with active progress being made to address valid issues like energy consumption.  Ethereum is to move to a “Proof of stake” consensus mechanism some time this year, that should reduce energy consumption by an order of magnitude.
In short I would encourage everyone to look beyond headlines, and try and get your head around what’s really going on here, and the implications of a potential confluence of technological developments, combined with a frustration with tradition financial institutions.  Virtual reality, ownership rights of digital assets in the online metaverse, tokenisation of real world assets, clean energy, identity verification, storing/transferring value and more are all going to be intertwined with the growth of this whole new asset class.