An easy-to-read, comprehensive deep-dive into the world of crypto and what's ahead of us
A summary-level view at the history of cryptocurrencies and blockchain technology, as well as the principles that underlie what the future will look like. Strap up, this is going to be a fun ride!
Crypto chatter has entered the mainstream consciousness like it never has before. South Park and Jimmy Fallon cracked jokes about NFT’s (see video above), big brands like Adidas and Nike are entering into the space / Facebook changed their name to Meta to reflect their focus on the “metaverse”), and celebrities all over — from the business world (Alexis Ohanian, co-founder of Reddit) to artists (Snoop Dogg) — have entered into the wild world of crypto and are quoting it as the next best thing since sliced bread (it’s a “paradigm shift of computing” — says Chris Dixon). Even big-name investment guys like Ray Dalio are saying that cryptocurrencies are too big to fail.
And you — my friend — see all of this and think to yourself: “Wow this is getting to be a big deal” but you understand absolutely nothing. Your friend groups who are into it are telling you “It’s so easy! Just download Metamask and just play around using the How to DeFi book. And while you’re at it follow my Twitter list. You’ll get it.” And so you do those steps and follow their Twitter lists, but the people they follow are also throwing around jargon like “Layer 2’s and algorithmic stable-coins, and multi-chain, and…”
“AHHHHHHHHHHHHH!” — you think to yourself. And so you give up because there’s just no simple way to digest this information and make sense of it. You also need to tend to your job, your dogs, your girlfriend. “Crypto can wait. Someday it’ll be easily explainable”, you think again.
That — my friend — is exactly what we’re trying to prevent through this post and our newsletter ahead. Believe me when I say this, because I was exactly in your shoes this year. My friend (shoutout to Jon Hanitio) was telling us to invest but I kept putting it off because I didn’t know where the f*** to start and I didn’t have the whip up my ass or initiative to learn (because I’ve never experienced it!). And if I had put in my money when he told me and where he told me to instead of investing it in indexes, I would have made almost triple my salary as a first-year Associate Consultant at Bain :)
Our hope through this post on the introduction of web3 and the following posts ahead are so that you can catch up on all of the jargon, the important trends, and the state of the industry as it stands today, and how you can best prepare to understand it in the future. The reason I say “prepare” is because web3 / crypto ALWAYS changes due to the nascency of the field, and this is why it’s important to build a sense of the history and fundamentals behind the field before we run off and invest in things or follow Twitter celebrities spouting about concepts we’re way too behind to grasp.
This post is dedicated to all you lost but courageous souls out there that are taking their first steps towards this crazy world. We’re here to tell you that crypto IS a big thing, that you are absolutely right to be paying attention to it, and that we’ll be here with you as thought coaches as you develop your own conviction and principles to think about the space. Let’s first start with a very brief summary of the history of crypto up to today:
I. The History of Money and Role of Intermediaries
The fundamental building block of cryptocurrency as a technology is that of distributed ledger technologies or now termed as blockchain technology. You’ll often hear that blockchain technology aims to offer four primary benefits: decentralization, security, transparency, and immutability. These are all buzzwords but what do they actually mean?
Decentralization: That no centralized entity has power to manipulate the system in any way
Security: That the system is secure from bad actors / hackers through safeguard mechanisms
Transparency: That everyone can see, at all times, what has happened in the system
Immutability: That once something has happened, it cannot be reverted
As you can now start to imagine — very philosophically this can be imagined to be used for use cases like: (1) a nation-state trying to account for exchanges happening within the nation and make sure that people aren’t cheating others off when they’re trying to pay off loans, etc. or (2) you’re trying to track flow of information through a system to see where a bug might have occurred (say in the supply chain of Chipotle who got their food poisoned). But the first part, exchanges, specifically in bettering a system of transactions of value, were the original founding theses behind blockchain technology.
Why is this important you might ask? First, we have to have a glimpse at the history of money and banking. This is very important because I want to prevent you from being someone that just says “oh blockchain is important because DECENTRALIZATION and PREVENTION OF CORRUPTION". It’s not that simple. Centralization can be important in certain cases and the nuances are deeper than that. I’ll make this as simple as I can (although I’ll probably make a post to go through this history in more detail).
It’s easier to explain this history starting in the form of transactions. Fundamentally, a transaction is an exchange of value between two parties. In the past, transactions had three fundamental issues to solve: (1) the standardization of a store of value in exchange for a good / service (the absence of the concept of money), and (2) a unit of account (say in $ bills) that could be separated, and (3) the belief that the form of money itself had value. Society solved this through bartering, trading rocks, and progressed to trading standardized metals (like gold) to paper currencies we have today. It was a long evolution but we made it pretty far. Still with me? Cool.
Paper currencies were issued by banks (at the time) who issued “promissory notes” in exchange for standardized coins (this was invested in the 7th century Tang China). This system seems great — but it has one massive flaw. In order for the system to work and not fall under chaos, people have to trust in the integrity of those banks and the fact that they are able to confidently capture loans. Well as you can imagine, this did not happen, and widespread bank panics happened century after century which shreds the integrity of the financial system. In the US, this led to a central banking system and later to the creation of a Federal Reserve with the principles of (1) ensuring macroeconomic stability through monetary policy and (2) being a lender of last resorts to banks in order to prevent panics.
And as you’ve probably experienced in your lifetime, these principles really weren’t upheld to the values they aspired to. There were many examples of this in the US: for example, The Great Inflation of the 60’s and 70’s showing when the Fed failed to keep inflation at a steady level due to faulty monetary policy. However, to dramatically oversimplify an explanation to one common example we all know, we saw the flaws come in front of our eyes in the 2008 financial crises when banks that were over-collateralized on mortgage derivatives during an exploding housing bubble went bankrupt, sending panic throughout the financial system, and led to a domino-effect felt worldwide with massive unemployment, stock price plunging, and financial stress skyrocketing.
I hope that you are starting to understand at least a little bit why a more transparent and less centralized system is necessary for building a resilient economy. The modern financial system is effectively a house of cards waiting to collapse at any moment. There are limited checks and balances to keep the various actors in check, and thus bankers take big risks knowing that they will always get bailed out by the Fed and the government. This was the inception of why crypto sought to exist in its modern day form. However, I do want to encourage you to think of whether or not decentralization really solves all these problems and if it is possible to build more resilience with crypto.
The harmful effects of centralized decision-making in the hands of bad, manipulative, incompetent, or incentivized actors can be seen in modern institutions beyond banking. We see this when Robinhood prevented users from buying more shares of Gamestop as Citadel (one of the primary shareholders of Robinhood) serves hedge funds as their primary customers who were shorting the stock and thus losing tremendous amounts of money during this time. We see this when institutions are hacked (even centralized ones in the crypto space like Coinbase are hacked) — leading to millions of lost value and harming users first and foremost. These were all catalysts to the narrative of blockchain technology as described in the front being so attractive as a technology to build (read more: cyberphunks).
II. Bitcoin and Ethereum (v1)
Bitcoin was the first blockchain to gain popular consciousness, founded by Satoshi Nakamoto (a pseudonym), and each block (basically a unit on the blockchain) looks something like this (credit to my legendary friend Zane Homsi for publishing another intro to web3 / crypto you can find at https://www.linkedin.com/pulse/2-everything-you-need-understand-web3-zane-homsi/ that has more of an applied vs. narrative feel of this one):
A blockchain is made up out of many blocks like the above — and the Bitcoin blockchain is meant to be a tamper-proof, decentralized way to transact digitally, with the following premise (as detailed in the Bitcoin whitepaper: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution”). Bitcoin was a technological breakthrough because
It solved the ownership problem and being able to ensure that transactions were encrypted and secure through innovations in public/private key cryptography (proof that the transaction belongs to you)
It solved the double-spend problem in digital currency (aka when a unit of digital currency is spent more than once which is usually not possible in physical manifestations as there’s proof that “only one” exists) normally requiring a centralized institution or middleman to help solve, through its “proof-of-work” consensus mechanism
It was an efficient, global way to send transactions without relying on any centralized institution or middleman (as an international student who used to have to rely on wire transfers from bank A to bank B taking days — I saw the value of crypto firsthand when I could just transfer via my wallets)
Fulfills the tenets of decentralization, security, transparency, and immutability
Let’s spend some time on consensus mechanisms and proof-of-work, as this will be important for our discussions on future trends. Essentially a consensus mechanism is the blockchain’s methodology for verifying whether a block is “true” or not, and whether to add it to the global blockchain. Bitcoin does this through a consensus mechanism called proof-of-work — although other consensus mechanisms exist as well.
Again to simplify things, proof-of-work works by having groups of people running a version of the blockchain on their own computers to solve extremely challenging mathematical problems. These people are called miners. You often hear about these big “crypto mining” operations with stacks and stacks of computers running in parallel. The first miner who solves this problem broadcasts it to the network of other miners, and the validated block then gets added to the global blockchain. In return, the miner gets a “reward” from these transactions. The bigger the reward, the more incentivized these miners are to pick the block you’re proposing earlier (the current version of Ethereum is also run on proof-of-work, and this is why you’re hearing so much about “expensive gas fees” — because the network is now congested with many applications and requires us to continue upping the incentives for miners to actually bother with our proposed blocks; we’ll get back to this later). Once it’s added to the blockchain, it’s virtually impossible to tamper with, as the mathematical problem involves the computation of a “hash function” based on the global blockchain that is incredibly deterministic and changes at even the slightest input difference. So if you’re a miner and propose a new version of the blockchain editing a transaction to give you more money — your proposal will be rejected. In a nut-shell: proof-of-work consensus is accomplished through distributed mathematical computation with financial incentives and a tamper-resistant foundation through cryptography.
Let’s also go back to the tenets of blockchain technology just to recap:
Bitcoin is decentralized because there are many miners trying to solve the mathematical problems and ensure validity of the blockchain (while there is the possibility of a 51% attack — this is unlikely in practice)
Bitcoin is secure because of its public/private key cryptography allowing us to verify which users were involved in what transactions in a trustless way
Bitcoin is transparent because anyone can see its global blockchain at any moment, at any day, at any time; there is always a snapshot of it and thus this also leads to its tamper-proof nature
Bitcoin is immutable because the proof-of-work consensus mechanism involving cryptographic hash functions, as well as the transparency quality, prevent bad actors from revising the history of the blockchain
I encourage you all to read about this further (especially things that you want to understand on a deeper level) but the main point is this: Bitcoin was revolutionary for being the basis of mainstream blockchain technology. However, because its original premise was founded on creating an alternative to the modern financial system, much of its roots and usability is still centered on that. The Bitcoin network is committed to keeping the ethos of Satoshi Nakamoto’s principles alive, and because of the rigidity of those principles can sometimes be seen as “lacking innovation”. BTC is the digital currency of the Bitcoin blockchain, and has been deemed as a form of “digital gold” by mainstream media due to its fixed supply. You’re not going to have the highest upside with it, but it will continue to hold value predominantly due to its nature as THE original first mover.
Great, now let’s talk about Ethereum. And also, I promise to keep things much as straightforward as I can going forward without digging TOO much into the details, but it was insanely important for me to start off with the foundations as these are going to be the mental models you have to base off from when you’re faced with more complicated things.
Ethereum was founded by Vitalik Buterin (if you want to read the founding story — I highly encourage you to pick up The Infinite Machine by Camila Russo), who saw the potential of blockchain technology to be beyond Bitcoin’s principles of financial transactions. “DeFi is not where crypto ends” is what Vitalik advocates.
To oversimplify things again, to accomplish this vision, the Ethereum team built their own blockchain with one key fundamental addition as seen below (which I’ll take the depiction of from the wonderful Zane Homsi again):
The key transformational change in the Ethereum blockchain are the conditional statements added to each block (“if this, then that…”) called smart contracts which takes the potential of decentralized blockchain technology to another level. Instead of just using to send transactions back and forth, what Ethereum’s smart contracts allows is for blocks to act as trustless, incorruptible, code-based intermediaries for transactions requiring conditions. You can start to imagine the possibilities now. For example, smart contracts enable credit, they enable marketplaces, they enable voting, and insurance. Usability of the blockchain thus increases in potential. In addition, Ethereum has also made it easy for these other applications to issue their tokens, standardizing what it calls the “ERC-20 token standard” which allows for these tokens to be used on the Ethereum blockchain — enabling stores of value and new financial mechanisms for literally anything you can imagine (coining a new subfield of economics called tokenomics). Beyond tokens it’s also standardized the exchange of unique, digital goods (non-fungible tokens or NFT’s) through the “ERC-721” standard. These smart contracts and innovations in digital exchange allows for digital applications (or dapps) to start being built. Talent and builders in the space have allowed these dapps to progress from exchanging and breeding kittens (CryptoKitties — a hugely popular dapp in 2017) to the robust ecosystem of decentralized finance (DeFi) apps, crypto games, NFT exchanges, and more.
So you’re thinking to yourself — does that table you showed above with a simple programmable contract enable all of these applications and functionalities to exist? No — of course not! Investments in infrastructure have had to be made to power the underlying Ethereum blockchain to become more robust. I’ll focus on a couple (and again, I’ll keep it as brief as possible just to make the point so please do your own research if you’re interested) that just show how far we’ve come:
Oracles: One core flaw of smart contracts is that they are deterministic by nature — and by that I mean they need clear rules to execute in order to be fully trustless. This is intentional design. However, this deterministic nature also means that blockchains cannot inherently connect to the real world. Decentralized oracle networks like Chainlink allow you to connect to real-world data by requesting data from nodes off-chain. The key word here is decentralized, as using a centralized node defeats the entire purpose of using blockchains in the first place. These networks reach consensus with off-chain data by utilizing aggregated data from multiple trusted sources and posting that to the smart contract. One popular application of this is Chainlink’s price feeds which allow developers to retrieve the “true price” of a token at a particular moment in time. As you can imagine, this is needed to power the exchanges, staking/lending platforms, and just about any financial service on DeFi (e.g. Aave, Compound, Synthetix).
DevOps: Infrastructure like Infura power most of the dapps running today on Ethereum (and new players are emerging like the Pocket Network). For Infura specifically, the nearest analogy to what they offer is like an AWS for traditional developers. Instead of developers having to spin up their own Ethereum nodes to access the blockchain’s data they can use these provided services. Another project named Arweave provides permanent data storage (again similar to AWS) that many NFT projects use as their backend. Aleph.im is a decentralized distributed cloud platform that offers compute services, file storage, and database hosting.
Point is — blockchain infrastructure will continue to become more robust. Just like the “old” world, these foundations will be the reason for further innovations to come into the system.
OK this is amazing! We have a robust ecosystem of scalable applications with the principles of decentralization imbued within, and it’s only going to get better. We’re all in the clear right? Ethereum is the end-game? Well the answer to that — as we’ll get to is a big fat NO — and that’s because all of these applications on the Ethereum blockchain has caused transaction / gas fees to be very, very high (in the worst situations nearing $100 per transaction on the blockchain). Remember the proof-of-work consensus mechanism we talked about earlier that Ethereum also uses? When the network gets congested with transaction requests and there’s not enough miners to fit that demand, then the incentive for miners to pick your block to add to the blockchain has to be much higher. In 2020, this was a huge point of contention on whether Ethereum would be able to stay its course on the top of the blockchain leaderboards, which led to… the massive demand for block-space and the rise of Alternative Layer 1’s vs. Ethereum 2.0 and its modular blockchain architecture.
III. The Demand for Block Space: Alternative Layer 1’s and Ethereum 2.0 and its modular blockchain architecture
In 2021, as dapps continued to blossom into existence and users started to actually find value with the utility of the blockchain ecosystem, other blockchains (named Alternative Layer 1’s) like Solana, Terra, Avalanche, Harmony broke ground as they had already built blockchains that provided for scalability immediately. The key word here is immediately. You see, Ethereum had already planned to upgrade its blockchain to improve scalability (which we’ll touch on later) with their Ethereum 2.0 upgrade planned now for ~Q2 2022 introducing various measures such as sharding and the switch to a proof-of-stake consensus mechanism which provides for faster transaction speeds than that offered by proof-of-work. However, with the influx of new use-cases for blockchain technology — users demanded for workable solutions now — and smart people from these Alt-L1 teams saw the arbitrage potential to build their ecosystem with their own network effects and started building solutions to tackle this, each with their own framework and unique aspirations. For instance (and I’ll skip over overly technical details and push you to read on your own — as you should!):
Solana built their blockchain on a “proof-of-history” consensus mechanism (dig into this if you’re interested!) that in a nutshell allows you to trust the timestamp or a transaction and know whether it occurred before / after a set of other transactions. This alongside an efficient parallel runtime architecture called sealevel allows Solana to process transactions MUCH faster than other chains, especially Ethereum at low transaction fees.
Avalanche is an EVM-compatible blockchain (Ethereum Virtual Machine — meaning that Ethereum smart contracts can be deployed onto its blockchain) with its core innovation being the “Snowman consensus mechanism” which allows for miners / validators to use sub-sampled voting measures to come to consensus much quicker when observing transactions. Avalanche’s strongest future innovation (although not yet tapped into very much) is its subnets — which allows for various apps to have their own app-specific blockchains (designed for its needs) within Avalanche, each with low transaction fees and sub-second transaction speeds.
Harmony is another EVM-compatible blockchain that uses sharding (spreading out transactions across 4 shards of the blockchain) to minimize congestion of the network (hence preventing high transaction fees and increase throughput), as well as validator signature aggregation and concurrent block pipelining alongside a proof-of-stake consensus mechanism to achieve two-second finality and two-second block time on transactions
Terra is a blockchain focused primarily on its decentralized stablecoin UST (which has >$100M market cap as of time of this writing), which uses Luna as collateral to maintain UST’s peg to $1. Luna is relying on multi-chain infrastructure on the Cosmos ecosystem (more on that later) to build its ecosystem of dapps, and uses proof-of-stake in order to ensure scalability
As you can see, there are a ton of Ethereum competitors who are completely legitimate, are running with insanely experienced dev teams (many people with whom have had extensive history of research in the blockchain space, PhD’s from top universities, etc.) and have great business development teams empowering for their growth beyond just the technology (e.g. Avax-Deloitte partnership, Terra’s partnership with Chai — a South Korean payments app). Many have significant amounts of venture-capital backing (Solana raising >$300M in 2021 from investors like a16z) and robust communities and growth hitting escape velocity and getting traction from network effects.
So, you might be thinking, why are people still caring about Ethereum anymore when there are already other solutions that provide similar functionality in seemingly more elegant designs? That’s a fair point, and something that you have to decide on your own (I have my own views — which you’ll have to stick around for in future newsletters — but the main point of this article is to get you caught up). The reasons people who are bullish on Ethereum’s lasting longevity as the main smart-contract chain (again oversimplified) cite the following:
Ethereum has already built the strongest network effects: it has the most people on the ecosystem with most well-known applications (e.g. OpenSea), with widely-used standardization and tools (e.g. only recently has Harmony integrated with Chainlink)
Because of point #1, the best engineering and product talent usually start to build on Ethereum because of the available infrastructure present
Ethereum’s network has the strongest security and decentralization at the moment — which is important long-term for crypto networks (vs. other alternative L1’s who have been criticized for being funded by venture capitalists hence being “centralized” or have low validator / miner counts)
Ethereum 2.0 will release next year and will help alleviate much of Ethereum’s scalability issues with the shift to a proof-of-stake consensus and sharding among other innovations; at the end of the day, only cryptographic innovations will offer long-term scalability (as the Bankless boys would say)
Ethereum 2.0 will also achieve scalability through its vision of a functioning modular blockchain stack — powered by Layer 2 / roll-up solutions
Let us dig into what Ethereum 2.0 and its modular blockchain architecture actually entails. It means that Ethereum will be (1) switching over to sharded proof-of-stake from proof-of-work and (2) creating a modular blockchain architecture by relying on roll-up solutions (if you’ve heard of zero-knowledge rollups before — this is where I’ll be explaining it) in order to provide additional scalability. Let’s seek to understand what these two mean:
First is the proof-of-stake consensus mechanism. Similar to proof-of-work, it’s a way to validate that the right transactions are added to the blockchain in a secure, immutable way. However, instead of miners having to algorithmically solve for hashes (which has prompted the whole conversation on the environmental cost of crypto), validators / miners have to stake a certain amount of ETH to be chosen to verify (32 ETH at least to be exact). The validator in this case would verify the block, and wait for at least 128 other validators to attest to the accuracy of the verification, before the transaction gets added to the blockchain. If the validator acts in bad faith, then they risk getting “slashed” of all of their staked ETH — preventing malice from occurring (as of now 32 ETH = >$100,000 USD). The proof-of-stake mechanism requires less energy due to the fact that the validation process is much more “simple” and hence does not require the sheer amount of computing power as proof-of-work, and is touted to be more decentralized as validators can participate from anyone who has 32 ETH to stake (vs. miners in proof-of-work having to own rigs of computing power).
Second is scalability through, among other things, roll-up solutions (named Layer 2’s). Some examples of existing Layer 2 solutions today and soon coming out include Arbitrum, zkSync, Optimism, Polygon Hermez, Immutable X. The application of zero-knowledge rollups, for example, will allow Ethereum users to experience low fees due to zero-knowledge enabling transactions to be performed off-chain and batched into one proof that the base layer can use to acknowledge the validity of the transactions (vs. one by one on the base layer itself which is the cause of high gas fees and slow transactions speeds). To put it simply, it’s “zero-knowledge” because the base layer (Ethereum in this case) is able to validate all the transactions it never sees in one go through one proof. With these rollups, Ethereum aims to create a modular blockchain design that separates different specialized functions for different chains. Ethereum’s base layer will act as the settlement layer, while other Layer 2’s on top of Ethereum will provide functionality in execution and data-availability. Modularity is a key concept in Clayton Christensen’s The Innovator’s Dilemma when it comes terms of disruptive companies able to move fast and execute on key functions vs. getting bogged down by the whole — and Ethereum is on the way to achieving this. Louis Liu of the Octopus Network (who we’ll be looking at in the next section) echoes this modular mindset (and takes it another level) when he states that “DeFi and Web 3.0 should not be transacted on one blockchain as it will cause congestion.”
Great. So now we have a whole spectrum of Layer 1 solutions including Ethereum, and moreover have all of these different Layer 2 solutions complementing a modular blockchain design. What’s next and what should I be looking at as someone looking to get into the space? Will it be winner take all? We’ll answer all of this in the next section.
IV. The future is multichain
My answer to the question above of whether or not “one blockchain will rule them all” is that the future will likely not exist on one blockchain. In a rapidly-innovating space that is always iterating with bright people on new ideas, the philosophy of a “modular blockchain” can extend to a “modular ecosystem”, where each blockchain serves its purpose and is a representation of the diversity of thought, talent, and culture that exist on there. Design patterns in one blockchain will inspire innovation in ways that another blockchain could not. And on a technical level, having all applications on one blockchain is likely to result in congestion (as we’ve seen already in Ethereum).
As Do Kwon, founder of Terra states: “Maybe it’s a bad idea to stick all the applications into one global computer. Maybe it just makes sense to have a multi-chain future.”
Let’s dig into this the infrastructures and the players that are going to be at the forefront of enabling this world, shall we?
The first architecture that we want to look at when thinking about a multi-chain world are the bridges that exist between different blockchains. We are in a world where there are over 100 active public blockchain, which as I mentioned above all serve unique use cases and share unique design patterns. This type of market structure necessitates interoperability between these distinct networks. Blockchain bridges (read more here: https://medium.com/1kxnetwork/blockchain-bridges-5db6afac44f8) aim to unify this increasingly fragmented landscape for users, unlocking innovation through:
Greater productivity and utility for existing crypto-assets by enabling them to travel to new places and do new things with different protocols / dapps
Greater product capabilities for existing protocols / dapps
Unlock new features and use cases for users and developers (who can integrate functionality through multiple blockchains)
Bridges can be asset-specific, chain-specific, application-specific, or generalized — but the goal is to really exchange information from one chain to the other. If you’ve used a bridge before to transfer assets, it’s sometimes a scary experience given that you have to trust the bridge to securely transfer this to the right place. I’ve had massive scares before (namely when the transfer failed on the Harmony to Ethereum bridge and I had to contact the developer team to fix it manually). Thus, one thing that’s important to look out for in the future of multi-chain is its user experience. How can we ensure that they are secure, interconnected, easy-to-use, and cost effective? Those are the answers for 2022.
Beyond bridges, there are multi-chain ecosystem players that seek to build infrastructure to support the development of multi-chain networks, namely Cosmos, Polkadot, and the Octopus Network. The Cosmos ecosystem (who was the first to work on a modular network of blockchains), built the Inter-Blockchain Communication (IBC) protocol to allow different blockchains to talk to each other within its ecosystem. It’s already powering Terra and the Binance Smart Chain today, and will likely connect to Ethereum soon.
Another example of a multi-chain ecosystem player is Octopus Network — which aims to create an interoperable ecosystem of specialized app-blockchains (appchains) that utilize the Octopus Network for security via smart contracts (smart-contracts as a service). The apps, deployed on the Near Protocol (which serves as its hub), are then able to access other bridges through the IBC or Near’s Rainbow Bridge — allowing it to easily tap into a multi-chain ecosystem.
If it’s not already clear — we are moving towards a world where the “Internet of Blockchains” exists. This is amazing because it’s something we never thought would have happened even 1-2 years back where only one blockchain was deemed “the best”, but the development has already been astounding, leading to potentially new paradigm shifts and use cases to be developed.
V. What to look at for 2022 — my short thesis (not investment advice)
If you’ve made it to the end of this — congratulations! You’re at least caught up with the high level trends of the crypto world right now. There’s much more that I haven’t covered in detail (the rise of NFT’s, DeFi, macroeconomics / policy and its effects on crypto, etc.) in depth but I hope that this sparks your curiosity and interest more than just “crypto bro talk” happening around you, and makes you appreciate the level of innovation, talent, and “against the machine” mindset that is needed to succeed in this space. Ultimately, I’m a believer that web3 / crypto is going to continue to thrive long-term, though it is impossible to tell how or when. For 2022, this is where I’ll spend most of my time in terms of further research:
Blockchain infrastructure: This is one of the least discussed verticals because no one really sees this on the front-end, but is one of the most important. It’s incredibly necessary in enabling users to onboard in more effective ways and for developers to keep pushing the boundaries of progress. I’ll be keeping my eyes out for players in this space — especially Pocket Network and Arweave.
Ethereum modular blockchain architecture: I’m excited to see how Ethereum will continue to shape itself, as well as the economics of value capture in the different layers that will help scale Ethereum. What will this look like and how will abstraction occur in a world where most users of crypto will want an easy onboarding process to quickly use applications? I’ll be eagerly looking at Polygon, zk-Sync, Arbitrum, and Optimism’s networks to see how their ecosystem continues to grow.
Crypto gaming: Gaming was my first love specifically in MMORPG’s (playing Maplestory and World of Warcraft growing up). As discussed in the podcast with Amy Wu / Bankless — gaming is a notoriously difficult segment to build true trust in due to gamers being extremely difficult to please. However, when you have them, they’re loyal. Games will have to balance between the hype of play-to-earn and having actual great mechanics enabled by blockchain — which will be the differentiator in 2022. I’ll be looking at DeFi Kingdoms, the Sandbox, and Illuvium especially (at least for now).
UI/UX and capturing users as early in the funnel as possible: I hugely believe that protocols that are able to capture users as early in their crypto journey as possible will be the winners of tomorrow in terms of building trust in a currently hard-to-navigate environment. One of my favorite protocols right now is Rabbithole, which offers a learn-to-earn mechanism for getting people onboarded onto crypto, and Rainbow, a joyful Ethereum-based wallet with amazing user experience.
Multi-chain infrastructure: As mentioned above, the crypto world will be multi-chain and those who enable this will capture a lot of value. I’ll be looking at Octopus Network (using the NEAR Protocol as its hub) and Cosmos.
DAOs and effective governance: Remember how we started off our crypto journey talking about the ineffective decisions made by the Fed? I am looking forward to seeing how DAOs (or decentralized, autonomous organizations) govern themselves, mobilize capital effectively, and strive to make good decisions. It’ll be interesting to see whether decentralized decision-making is actually more powerful and beneficial to society than that of centralized decision-making. My commitment in 2022 is to join a DAO and commit to helping build it up.
Hope you all learned a thing or two! Thank you for reading :)