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The Optimistic View Of Blockchain
By Elliot Koss, Founder of Future Mints
At the beginning of 2022, I made some bold predictions about how NFTs would begin to break through to the mainstream and unleash a new wave of utility.
By June, it was clear that I was wrong.
I had basically gone all-in with Future Mints in early 2022, so it was a big blow to see the NFT and crypto markets implode. The Russian invasion of Ukraine crippled supply chains and triggered a global recession that immediately impacted the riskiest asset classes, crypto and NFTs being first amongst them. But the bottom falling out of cryptos and NFTs at least one more time before we see broad adoption was inevitable. I simply thought we had more time before that happened.
So I spent a lot of time, in-between writing code non-stop from June through October, thinking about what I missed. And when our mint failed at the end of October, and I knew it meant I wouldn’t be able to continue building full-time, I pondered on the state of blockchain even more.
I came away both optimistic and pessimistic.
Originally, I planned to share both the optimistic and pessimistic views today, but it turned out that I had more to say than I realized. So today, you’ll get the optimistic view and next week, the pessimistic view.
The Optimistic View
Blockchain technology is going to revolutionize our world. I do not believe this is a question of if but rather when.
It’s quite simple. Data shouldn’t be hidden behind proprietary company software. It makes switching costs a massive pain, and over time, you’ll lose all of your data.
This is the promise of blockchain technology. Instead of a company storing all of your data in their own databases, which are getting hacked regularly, your data will be stored publicly, in an encrypted manner, on the blockchain. That’s what blockchain tech does at its most basic level.
And remember, not everyone will need to know how this works for it to become the status quo. In fact, 95% of people won’t, nor will they care. Doubt me? Ok, explain how email works. Or HTTPS. Or APIs. Or a relational database. Even if you can answer these questions, how many people around you can’t?
Ok, so blockchain is going to revolution our world. What does that even mean?
Let’s look at Twitter. Regardless of whether Twitter survives Elon Musk’s choices, the data that you’ve put into that the platform is locked into Twitter. There is no easy way to migrate to another platform as many people have experienced. While this is great for Twitter, it’s not great for the end user.
It’s a classic Innovator’s Dilemma. Twitter can kill their business today by adopting a blockchain in an effort to embrace a new open era of user data, but it also makes their platform lose its gated entry and easier for a competitor to steal their audience. But will they really do that? It’s a massive gamble and a huge waste of engineering resources, especially for a company that’s going to struggle to generate revenue, let alone pay for the massive debt it’s been saddled with due to the financial structuring of the acquisition costing the business $1B per year.
Twitter before Elon wouldn’t do that. No sane business manager would. But Elon has already mentioned interest in Twitter being on a blockchain. If you seeded an in-house, 2-pizza team (a la Amazon) it would be doable to attempt and exactly what I’d be doing if I was Twitter CEO.
While Twitter may or may not go this route (they have enough problems to deal with) a startup will. They’ll build a social network product that’s built on the blockchain. You’ll have the ability to use open sourced algorithms to determine what shows up in your feed. And when you want to switch, they’ll make it easy. They will also likely build a couple varieties of social networks that you can toggle between. Do you want a Twitter, Facebook, Instagram, or TikTok experience? No problem. You’ll be able to toggle between them within the same company’s platform - but all on an open platform since the data is publicly accessible. And other companies could build their own feed that builds on top of the open blockchain data.
This isn’t a question of if, it’s when. I’m not the first person to have this idea. But the reason you haven’t seen it executed yet has to do with infrastructure - which I’ll break down a tad later.
Blockchains are going to be massive and disrupt a few companies, but they’ll mainly present new ways to solve old problems that incumbents will adopt. Financial firms will likely have the least risk of being usurped, because the principles of finance won’t change, only the technology will. FTX learned this the hard way when they violated well-established securities laws.
Financial regulation for blockchain and crypto exchanges will happen over the next few years, but we’re going to see a few more massive implosions that will cost investors billions. Regulation moves slowly, and while FTX plus many other scammers and fraudsters are begging for legislative change, I expect that we won’t see real change until an even bigger meltdown occurs.
When it comes to NFTs, I believe that we are nearing a turning point. Instead of the massive trading that we saw over the past 18 months, largely fueled by speculation, wash sales, scammers, and fraudsters, I believe that the large majority of NFTs will lose their stock-like trading appeal. This is a good thing.
Instead, NFTs will start being used for their utility, which is what originally excited me about the technology. Your home and car title will be an NFT. Your stock purchases will be tokens or possibly NFTs (not paper or digitally centralized certificates). Your car keys will be NFTs and you’ll be able to control what times your car can start (handy if you have a teenager who you don’t want driving after midnight). Credit cards will be NFTs. Tickets to movies, flights, and events will be NFTs. Your airline and credit card rewards will be tokens on the blockchain, not NFTs. But your credit card and airline ticket NFTs will determine how many tokens you receive.
Everything that’s digitally tangible will be either an NFT or a token.
Lastly, the blockchain that will be the most dominant in the coming years will be Ethereum, not Bitcoin. While many people claim that Bitcoin will be digital gold, Ethereum will eventually become the global digital currency that replaces the USD (seriously, as the US becomes less dominant, do you really think the EU, UK, China, or Russia will be global currency?). And just like no one uses the gold standard anymore, Bitcoin will lose its luster. It’ll still have value, but Ethereum will accrue the most value long term. This is because, unlike USD, there is a fixed supply of Ethereum, which means that as inflation grows, so too will the value of Ethereum. Plus, as demand increases for Ethereum, the price will also increase.
The rationale is simple. Bitcoin is nothing more than a currency. No one is building anything on top of Bitcoin, because the infrastructure doesn’t exist nor are there any plans to build it. No smart contracts. No economies. No NFTs. No sidechains. No layered chains. Nothing. This may help with stability, but stability does not fuel growth. To me, Bitcoin was a great barrier breaker, proving that blockchains and cryptocurrencies could work, but it’s more a proof of concept than a practical application. It’ll have staying power due to its early adoption as THE cryptocurrency. But like gold, more valuable and useful forms of exchange will be invented. Which is what Ethereum represents.
Ethereum is not only the pioneer in smart contracts, which underpin basically all of the coming technology that we’ll see, but it’s also the foundational layer for many other blockchains that are either built on top of Ethereum or interoperable with Ethereum.
Also, there is a dedicated working group building to improve Ethereum. This past year witnessed the Merge, which upgraded Ethereum from Proof of Work to Proof of Stake which reduced the amount of energy required to build each block of the blockchain by 99%. For those who were concerned about environmental factors, you can now find another problem to complain about. The flawless execution, despite the years of delay, showed that a blockchain could evolve.
The next major upgrade is intended to increase the number of transactions processed to 100K per second. To put that in perspective, that’s more capacity than Visa, Mastercard, and AMEX. Combined. No wonder credit card companies are building teams to begin working on the blockchain and create their own solutions.
As far as predictions go, the only one that I’ll make for 2023 is that I believe Ethereum will end the year at double its Jan 1, 2023 price, so around $2,500. I plan to steadily buy it more than any other cryptocurrency this year. Although I don’t have a timeline yet, I believe that ETH will eventually hit $10K.
And that’s the optimistic future I see. Tune in next week for the pessimistic view that puts all the rosy outlook above in perspective.
News of the Week
SBF pleaded Not Guilty. “This decision could turn into a lengthy legal battle, and he could face up to 115 years in jail if convicted on all charges. His trial date has been set for October 2, 2023.” It’s going to be a while before this saga concludes.
As volume in the NFT market continues to dwindle, NFT Inspect, a popular research tool to measure the value of an NFT and the strength of its community, is turning off its virtual lights on Jan. 17, according to a tweet by the project.
An issue with Magic Eden allowed fake NFTs to be added to high-priced collections. In a Thursday morning update the marketplace stated that they have identified “25 unverified NFTs sold across 4 collections," noting that they will refund these misled buyers.
Although crypto attacks slowed throughout December 2022, the New Year is off to a rocky start. CloneX COO Nikhil Gopalani and prominent NFT collector CryptoNovo both lost some high-value NFTs after their crypto wallets were compromised.