(Update: This essay has been chosen as one of the winning submissions. 🏆)
I.
This is a review of Jon Stokes’ post here. Read that first for context, and then this post.
If you have read it, you now (mostly) understand how DeFi works and have an idea about how decentralized commerce might be possible in the future. I think most of Jon’s ideas are pretty coherent and easy to grasp, but in this essay, I’ll try to explore the different ways crypto is unbundling us away from centralized architecture while also addressing some of the drawbacks that Jon has cited.
It’s not a good time right now, if you look at the price of everything.
Right now, Bitcoin is struggling at 31k. The entire market is down, and the bears are winning over the bulls. Traders are afraid to trade either way. Elon Musk’s tweets are not pumping Doge anymore. Even in this market, a solitary coin AXS is reaching all-time-highs every day, going from $3 to $20.
What is AXS?
It’s the native token of a blockchain based game called Axie Infinity. The game is basically a version of Pokemon in it’s early stages. You need three axie pets to play, which costs $1500. These axies, or virtual pets, are all NFTs.
Because of this high barrier of entry, early holders rent out their axie to beginners who can’t afford $1500, provided they play the game for a certain amount of time. This is part of a scholarship program they introduced when they realized that they had a lot of people wanting to play their game but not have enough money to do so.
Question: Now, why would anyone want to play this game?
Answer: It’s profitable to do so.
You can earn tokens worth $30 t0 $100 every day if you play it enough. This may not sound like much, but in developing countries where the living costs are low, this is nothing short of a fortune. Even those who don’t have the time to play on their own but are successfully renting out their axies in the scholarship program are making close to 10k-14k a month. That’s a lot from some obscure blockchain-based game.
Now, I do not know whether this is sustainable, whether it will continue to grow or whether it’ll disappear when something better comes along. But my point is, even this market downturn, AXS is showing just how powerful any new crypto technology is. This proves that it is possible to ignore the market entirely if you have a good product. Imagine ETH in a few years. If the price of Bitcoin crashes temporarily, but ETH is required for a few mainstream applications (Like a Decentralized Facebook, perhaps) that doesn’t work without it, what will happen?
II.
The only way blockchain apps will be used by the vast majority of people is if they are vastly better than any centralized system. Sure, open-source Twitter or blockchain dApp Facebook might exist in a few months/years, but will they be more successful than what already exists?
They will be decentralized, yes, but that alone won’t be the reason why people adopt it over Facebook or Twitter (unless the latter platforms really start to deteriorate in content policy, features, etc.)
Apps and systems built on the blockchain has to be vastly superior to existing centralized alternatives. They need to be/do something that we can’t live without, and only then will they be unstoppable.
Take Bitcoin for example.
Not controlled by any government. Cannot be printed on a whim like national currencies. Not subject to ponzi schemes like Fractional Reserve Lending. Truly decentralized. Cannot be stopped, killed or effectively banned.
Once enough people in the world realize how they’re being robbed by inflation, Bitcoin will emerge as the superior asset. That is something we, in the crypto space, now see and that is what the world is yet to understand and grasp.
In the same way, DeFi will end up changing the financial space but it will succeed with the majority only if it becomes vastly better than coordinating with banks and hedge funds. Right now, if you farm two stable coin pairs in any reputable protocol, you get a higher rate of return than what any US bank can offer without the added risk of impermanent loss. With the risk of impermanent loss, and other losses, you can farm something more profitable. It depends on your risk appetite and the project you’re willing to trust with your money.
It’s natural that DeFi is the most successful implementation of decentralized tech, because of crypto’s inherent nature of mixing tech and currency. There are games, social media, casinos, prediction markets, NFT marketplaces and many other things already built on the blockchain, but DeFi is the only place where there’s still a billion dollars locked in value, even in these market lows.
All the other things do serve a purpose in their own niches. There’s only a few places I’d want to buy an NFT from right now, but new and better markets may emerge soon.
I want to believe that the future of crypto looks bright if we factor in the inherent advantages it has. Facebook is successful because of it’s network effects. Any new crypto project will have an inherent advantage in growing exponentially, if its initial investors are incentivized to spread the word and bringing other people in(which is already the case in the case of most crypto projects having a native (non-inflationary) currency.
Open source decentralized projects will absorb and recreate every new feature, becoming unstoppable as a whole. A new feature at Snapchat, becomes a feature on Facebook only after months of testing and back-testing, (or Zuck just decides to buy the new competition because he can).
Any new feature at a decentralized, open-source social media will be a new feature of all decentralized social media everywhere. The best things will be copied and implemented without any fear of legal or social ramifications.
These are the places where decentralization has an inherent advantage.
III.
Jon addresses some of the drawbacks of the crypto revolution. One of these is piracy. Jon goes on to say that anyone with a Bitclout profile can copy and post all the New York times posts daily and there’s nothing anyone can do about it since it will exist on the blockchain forever and the user behind it is untraceable. He says that this is how most privacy will come down.
I do not think that will be the case. Citing the example of news piracy, I know for a fact that no one will do that. Why?
Because there is no need to. Modded apps of the New York times and all major online publications (The Guardian, Wall Street Journal, etc.) exist and they allow anyone to read anything on the sites for free. No paywalls. Nothing. All you need is an Android phone or an android emulator running on your machine. If you know where to look, you’ll find a pirated free version of your thing on the internet. Sure, there are always risks of doing this. Installing modded apps could compromise your system, or it could steal sensitive information, but that’s the price all pirates have been used to paying. On the places where such apps are available, people usually know what app is malicious thanks to comments by early downloaders. There are verified and trustworthy uploaders too.
The fact that these things exist, is or is not common knowledge, depending on your income and privilege. If you’re well off and used to paying for Netflix, Amazon and NYT, you won’t venture out to the wild pirate seas and search for forbidden treasures.
This is also the reason why smart creators(be it musicians, authors, etc.) aren’t much worried about piracy. Some even torrent their own stuff to get them out of there. In the same way, I don’t think the NYT or The Guardian would care about their apps being modded and distributed like this.
Why?
Because the people paying for them won’t pirate it. Their potential paying customers aren’t on sites looking to get them for free. They have too much to lose, they have little time to waste, and the whole process is too inconvenient compared to the cost of the services they’re looking for.
This is why Netflix is still in business despite every new movie and show getting a pirate release almost immediately.
Crypto might make the former process more efficient, remove the barriers that already exist, but at point, I’m sure the ones who are used to paying will keep on paying if there’s even a slightly more value in doing so.
Decentralized systems will have their drawbacks too. The open-source nature of decentralized smart contracts results in code that is public and readily replicated. Hackers and bad actors will have an incentive to rip off others in this space while we’re young and learning. This is why one DeFi protocol being exploited by a flash loan attack, leads to more DeFi protocols being exploited, because they’re sharing the same compromised code. The fix is easy: better hiring and writing secure code. We’ll eventually get there.
Another drawback that can exist is the tokenization of everything.
Will we be enjoy living in a future where there are no ads, but each video we watch costs a few (micro) tokens, and a part of that goes to the creator? Or will we long to return to the golden age of YouTube where everything to watch was free?
Will we enjoy paying a subscription fee in tokens to all the people we follow? Or will we long for Twitter and Facebook, and hope to return at a time when censorship saved us from being exposed to uncomfortable people and ideas. Will we long for a time when our data was farmed, or will we be happy farming our money digitally, providing liquidity to the decentralized banks of the future?
Because this space is relatively new, there are very little projects you can trust. There are no DeFi protocols that have existed for over 5 years. There is no team that has consistently remained successful since it’s inception. Even popular projects, valued at billions of dollars, have no proper product out yet (looking at you, ADA).
IV.
But despite these drawbacks, we are at the frontier of a technology that has the power to change the world. Sure, half the currencies in the top 100 right now might not exist in a few years, but that doesn’t matter. What matters is that the best things will hold on and the greatest things in this space have not even been imagined yet.
Before the dot com bubble crashed, websites with nothing but a domain name were valued at millions of dollars. The crash wiped them out. But it didn’t wipe out Amazon. Google, Facebook, TikTok, Netflix- all these are things that most people around us can’t live without. They didn’t exist 20 years ago.
Similar breakthroughs are waiting to happen in the crypto space. Decentralized apps, once they’re vastly superior than centralized authoritarian systems, will flourish. People won’t be able to live without them and that is when the internet will change as a whole.
It’ll be a glorious future. There will be many hurdles along the way. Banks, governments and billionaires will try to kill us. But as long as people with dreams and and sufficient skills exist in this space, nothing can stop our inevitable rise.
Founders will dream, creators will create and the early adopters will cheer on knowing that we are at the edge of creating a brand new world. A world where everyone can own something without the need of intermediaries. A world where your data remains yours, and the truly egregious practices of today become a thing of the past. A world where the entire population of the digital race lives as one, transacting as sovereign individuals, building a better future that authorities can’t control. Middle men will be shown the middle finger. Censorship will be a thing of the past, and freedom will become the de-facto standard.
We are just getting started.
If you liked this and want to read my essays in your inbox, sign up here-
Abhisek Basu 