Extreme optimism during market highs and extreme pessimism during market lows occur approximately every four years, which is the consequence of the widespread adoption pursued by cryptocurrencies. This article is sourced from Daniel Kuhn and compiled, translated, and written by Bitpush.
Title: The Consequences of Widespread Adoption Pursued by Cryptocurrencies
Summary:
Coinbase launches new smart wallet! No mnemonic required + supports gas-free transactions, can it drive the widespread adoption of Web3?
Background:
Using the popular examples of NOTCOIN and UXLINK, what does it mean for Web3 social adoption on a large scale?
Table of Contents:
1. The Rough Process of Adoption
2. Existing “Killer Apps”
3. Other Perspectives
Cryptocurrencies are best kept as a niche market. So far, the biggest crisis the cryptocurrency industry has faced is undoubtedly the rapid decline and collapse of FTX. Sam Bankman-Fried’s personal treasury was once the third-largest cryptocurrency exchange platform globally. This event had a tremendous impact on the entire industry, causing not only a sharp drop in cryptocurrency prices but also affecting numerous related companies.
At the end of 2022, it was unclear whether the concept of cryptocurrencies could make a comeback. At that time, the apparent fraudulent behavior of one of the most consumer-oriented and trusted cryptocurrency companies seemed to validate the general belief that it was all just a cover for fraud.
However, the situation seems to have improved to some extent today, although there are widespread concerns that the industry is repeating past mistakes and may face punishment again. For experienced cryptocurrency investors and observers, this has always been the norm. Since the collapse and subsequent recovery of the Bitcoin market on the Mt. Gox exchange in 2014, the cyclical fluctuations of the market have become part of daily life.
But isn’t it strange that this increasingly mature industry considers this cycle of boom and bust as normal? In my opinion, the widespread adoption of any blockchain technology or consumer application largely depends on the token price, or the industry as a whole, not always facing the risk of imminent collapse.
The biggest challenge in the development of cryptocurrencies is precisely their own growth. The extreme optimism during market highs and extreme pessimism during market lows occur approximately every four years, which is the consequence of the widespread adoption pursued by cryptocurrencies.
This process is a typical example of what economist Robert Shiller describes as “irrational exuberance.” The promise of fundamentally changing the core value orientation from money to the internet itself has sparked people’s interest. People are attracted by the idea of decentralization (or, for many, the hope of making quick profits). As popularity rises, prices also rise, further stimulating more people to invest—until a problem arises.
Almost without exception, the failures are the things that blockchain was originally intended to replace. And these things are almost always designed to make cryptocurrencies more acceptable and usable. There is a common view that the “masses” may not choose to self-custody their assets. But what is the point of assets like Bitcoin if they cannot be self-custodied?
Alex Thorn, Head of Research at investment bank Galaxy Digital, expressed, “With the increase in the number of users, one risk is that new users may not understand the core principles of Bitcoin, such as decentralization, self-custody of assets, and hard money. If these new entrants do not learn, understand, and support these core principles, the protocol features that enable these principles to be realized may not be maintained over time.”
Adopting cryptocurrencies involves complying with laws (which often conflict with the values of cryptocurrencies) and establishing user-friendly login methods (which may be subject to attacks). There is a tension between the goal of decentralization and widespread adoption. If cryptocurrencies develop too large, they may undermine their true value. Nathan Schneider, a media research professor at the University of Colorado Boulder and author of the book “Governing Space,” pointed out, “Simply being integrated into the mainstream financial system will ultimately lose many important opportunities provided by this technology.”
Paul Ennis, a lecturer at University College Dublin, expressed a similar view, saying, “Cryptocurrencies are a subculture that refuses to admit that it is a subculture. Many of the problems we face stem from discussions about ‘bringing the next billion people in,’ which has led to the gradual erosion of our values.”
It is ironic that developers, founders, and investors have spent 15 years and billions of dollars searching for a “killer app” for blockchain when it already existed. Satoshi Nakamoto and those who truly followed in his footsteps have created a digital tool that can be freely used and is difficult to take away.
This is the essence of cryptocurrencies.
This is why, although almost no one uses Bitcoin to buy coffee, many people use privacy coins like Monero (XMR) to purchase various goods on the dark web. If you observe how cryptocurrencies are connected to the real economy, you will find that they mainly play a role in specific areas, including black markets or gray markets, stablecoin remittance channels, and activities of amateur enthusiasts.
Please note that these markets are massive. However, today, when cryptocurrencies seem to be on the verge of a breakthrough, this use case seems insignificant compared to the speculative use of cryptocurrencies. Capital inflows, jumping from one currency to another, or from one protocol to another, have led to a constant rise in the digital realm, essentially forming a circular economy.
This is not inappropriate. Gambling is also an application scenario to some extent. But if people want cryptocurrencies to be used more productively, developers, founders, and investors should develop products for those who truly need censorship-resistant currencies and tools. Basically, this means that only a small portion of people will be interested.
This is just my opinion, and many people disagree.
Molly White, the author of critical cryptocurrency news Web3IsGoingGreat and “Citation Needed,” believes that cryptocurrencies have already gone mainstream. In a private message, she said, “Although there are still some smaller projects that belong to niche markets, when Brian Armstrong and Sam Bankman-Fried communicate with each other in Congress, and BlackRock and Fidelity launch Bitcoin ETFs, I believe the trend of cryptocurrency mainstreaming is irreversible.”
SethforPrivacy, a privacy advocate, educator, and senior user of Monero, holds the opposite view. He said, “Unfortunately, most people have not yet recognized the importance of Bitcoin and are not willing to take on so much personal responsibility. Therefore, we must focus our efforts on improving Bitcoin for those who truly recognize this need today.”
There is also an argument that decentralization is precisely the reason why cryptocurrencies can achieve global adoption.
Alex Gladstein, Chief Strategy Officer of the Human Rights Foundation, stated, “The only reason why Bitcoin can rise globally is because of its most cypherpunk attribute: it does not belong to anyone, it is operated by users, not controlled by governments or companies.”
However, what the general public really wants is not entirely clear. Emmanuel Awosika, a supporter of Ethereum, cited, “Although we believe that everyone wants privacy protection, censorship resistance, and the ability to resist state attacks, some people are already satisfied with products that can solve problems and provide a good user experience.”
Awosika added that not everyone needs, let alone wants, privacy protection, censorship resistance, and maximum decentralization, but “we should strive to make cryptocurrencies available to as many people as possible.”
Similarly, Roko Mijic, famous for “Roko’s basilisk,” believes that it is actually the scale that gives decentralized tools power, which is particularly evident in Bitcoin because Bitcoin miners are distributed worldwide, making it difficult to attack. “In a smaller cryptocurrency network, you cannot resist censorship because the government can easily destroy the entire network,” said Mijic.
Justin Ehrenhofer, founder of Chicago Moonstone Research, expressed the same view, pointing out that a currency is only useful when widely accepted, so “cypherpunks should focus on building systems that attract external participants.” However, he also added that with large-scale adoption, the spirit of cryptocurrencies has degraded because ordinary users keep their assets in custodial exchanges.
I believe that the real question here is how important the core value of cryptocurrencies truly is.
[Image]
Related Reports:
– What are the pain points of widespread adoption of Web3? How to establish the correct user growth methodology?
– How to achieve widespread adoption of cryptocurrencies through cross-chain bridges and chain abstraction?
– 1inch collaborates with Mastercard to launch a Web3 financial card “supporting crypto payments,” is this the future of DeFi’s widespread adoption?