It’s going to take a long time to get back on track
It’s the end of summer and return to work or school for many people. Crypto has had a boring summer, no matter how you cut it. In terms of prices, we’re pretty much where we were 90 days ago, roughly. (See chart below)
However, beyond that quantitative metric, the industry malaise will continue as long as we have a hostile US regular (the SEC). Sadly, the crypto industry has a lot of headwinds to fight through. Every bit of good news is quickly tempered by regulatory realities.
The non-US market that wants to shrug off the SEC is not so immune to what happens in the US. The US is still that locomotive engine that needs to go full speed to power the rest of the industry. So, we can’t just depend on the rest of the world to pave the way on its own.
What could lift things permanently is a lot of things:
1. SEC change of regime and / or change of rhetoric
2. US Congress passing some law(s)
3. Bridges working seamlessly between L2s & from Ethereum to non EVM chains (eventually it should be just “VM”,- the blockchain as one virtual machine)
4. Many more consumer apps with a dead-easy mainstream user experience, leading to millions of committed users that use these apps daily
5. Spot ETF products for Bitcoin & Ethereum (a few of them)
6. Lower gaps between promise and reality for any new / existing blockchain projects (ie lower the hype)
7. No extraordinary bad actors for a full year (ie no significant scams or security exploits)
8. Moving the conversations away from the technical realm that currently dominates (speeds & feeds won’t matter much, but interoperability & user experience will matter). Degrees of decentralization debates are overdone.
9. Players consolidation at the L1 level which is Ground zero (there are far too many competing & non-interoperable L1’s & that works directly against much needed network effects) [related to #3 & #9]
10. Established companies adoption of blockchain / crypto not in an opportunistic way, but more fundamentally
11. Emergence of better / newer / more (human) role models in the crypto space
12. Crypto techies that can better explain the business aspects and applications of what they are building; less tinkering, more useful tech. We also need more no-code tools to put in the hands of non-tech users.
Of course, all these points are being worked on. That’s the good news.
The bad news is that it will take a while to get there as these aren’t going to be realized overnight.
The tinkering ratio of output can be improved to yield more mainstream products
I’m writing this critique with a deep and long historical perspective on Ethereum because I want Ethereum to succeed better. I’d like its ecosystem to get stronger. I’d like its apps and services to be more useful. I’d like its end-user experiences to be on par with what the mainstream consumer expects.
At a time when many other L1 blockchain infrastructures are struggling for growth, Ethereum has a chance to clean up and solidify its position as the preeminent blockchain infrastructure.
Whether changes happen or not depends to a great extent on what the Ethereum community does or doesn’t do. There is a limit to what the market can do to pick up the pieces and innovate on top of what is handed to them.
I’d like to talk about what Ethereum can do better. So, I’m going to focus on some parts that could be improved, in order to maximize Ethereum’s potential.
There is no need to extol Ethereum’s strengths, as you all know them. But sometimes your strengths create a weakness. So we can start there.
One of Ethereum’s strengths is the diversity of its ecosystem and how much development activity there is around it. It is undoubtedly the most vibrant laboratory for blockchain innovation.
However, that strength has become a weakness because there is too much TINKERING in that ecosystem.
Tinkering is not bad because it can lead to great things as you iterate. But when I said “too much tinkering”, I meant on a relative basis.
Tinkering as a ratio of output can be improved. This means that we don’t necessarily need less tinkering, but we need more tinkering that results in fully deployable and usable solutions. And not just at the technical level. We need more end-user applications with user-friendly, mainstream-appeal types of applications.
If your tinkering doesn’t produce an end result, do you know what happens?
Other chains take your half-baked ideas and they add the last mile to it, and they deliver something usable. Sounds familiar?
One of the drawbacks of too much tinkering is that we tend to forget about tuning the end-user experience.
Of course, the first level of the Ethereum ecosystem is mostly comprised of developers, and that’s a great thing. Developers typically work on infrastructure or they work on services for other developers to build applications on, or they work directly on applications.
The part that needs the most improvement is the last part, the part that touches the end user.
If Ethereum wants to be in the hands of one billion users, it needs to think more about the importance of mainstream user experiences. The mainstream user wants SIMPLICITY first, and two or three clicks to get impressed and hooked. That challenge, by the way, doesn’t only apply to the Ethereum community. It does also matter for the entire blockchain industry. I recently wrote, What The Blockchain Industry Can Learn From the Popularity of Artificial Intelligence pertaining specifically to the user experience.
Here are two related parts where Ethereum can improve.
First, the Ethereum development ecosystem needs more product managers. Product managers focus on getting the product to the market in its most usable form. Sadly, sometimes, they are the ones who realize that at one point, you need to shoot the engineers in order to get the product out. Product managers obsess about the user experience, user flows and user interactions. Product managers understand how to lay out a roadmap and prioritize features rollout accordingly.
Second, the L2 layers fragmentation is another strength-turned-weakness. L2’s have been undoubtedly beneficial to Ethereum’s scalability, but from a user perspective, the experience is not ideal, because of the switching friction. As a user, imagine if you had to switch browsers to access different parts of the web. It would be unthinkable, yet we ask Ethereum users to decide which L2 to choose from. Furthermore, we make them jump through hoops and take security risks to bridge from one network to another if they seek to move assets across L2’s.
I don’t have a solution for this fragmentation, and some believe it’s not an issue, but I do think it is. Therefore, I’m just laying out the challenge to elevate its visibility and importance. When there is less friction, there is more adoption.
I realize that the Ethereum ecosystem is obsessed with an extreme form of decentralization at all levels of the stack. But that also creates challenges, because as you unbundle various pieces in order to decentralize the system, you then need to re-bundle everything to properly assemble a solution. Then, you need a lot of coordination and making sure that many parts work together at the same level of readiness and response, and that’s not always so easily achieved.
This challenge was validated in Vitalik’s last essay, The Three Transitions where he advocates there are three essential capabilities that need to work together in Ethereum: L2 scaling, wallet security, and privacy. There is nothing new with these individual features as they were part of the early vision of the Ethereum blockchain. However, with increased decentralization, there are increasing degrees of complexity that compound when you start to implement these three prongs simultaneously.
Ethereum is approaching its ten-year mark on its original inception. It’s time that we polish the ongoing tinkering in its base infrastructure and services so that apps can prosper on top of it.
I’m looking forward to seeing more product managers and entrepreneurs drive the Ethereum ecosystem in addition to the base technology developers who are obsessed with technology tinkering.
The A.I. industry’s approach to user adoption could prove instructive in the area of user friendliness
In my third Fortune Crypto column, What Blockchain Can Learn from A.I., I contrast and compare how artificial intelligence burst onto the scene and is being adopted by end-users a lot faster than blockchain products have.
A primary reason is that A.I. has nailed the user experience, especially on a relative basis while blockchain products continue to miss their appeal to mainstream users.
A.I. refrained from overhyping itself prematurely, allowing ample time for development and refinement over the past decade, before it was ready for prime time. During that gestation period, developers dedicated themselves to fine-tuning the technology, tackling intricate challenges, and only now are we witnessing the true impact of A.I. on the average consumer.
In contrast, the blockchain industry continues to expose its tinkering to the public, resulting in a large gap between hype and reality. Several participants in that industry persist in promoting unproven products or exaggerated business models, exposing their experimental ventures to public scrutiny and inviting criticism or skepticism.
As a long-time blockchain enthusiast, this makes me incredibly jealous. I think A.I. can teach the blockchain a few lessons.
The article discusses the question, Will the popularity of wallets lead users to a Web3 world, or will current web apps move more quickly in that direction by first incorporating built-in wallet functionality?
It’s a bit of a trick question because both paths will be valid, in my opinion.
Having more built-in wallets inside apps is inevitable, and that trend is going to increase. In these cases, the app itself is the main attraction, and the wallet takes a second-class position to it. In these cases, there is tight integration between the app and wallet experiences.
Then what happens when you own a variety of cryptocurrencies? You will need a multi-currency wallet to hold them. That’s where the standalone wallet comes in. In that standalone category, there is more than just holding currency. These wallets also function as a bridge to “decentralized apps”, ones that use the wallet as a user login or for authentication and pseudo-identity purposes, such as for Decentralized Finance.
Today, we have an abundance of choices in standalone wallets, while there is a shortage of useful apps that use the built-in wallet in a significant and essential way.
P.S. The image above was generated by starryai with the prompt “A bridge depicted by cryptocurrency wallets.” I was pleasantly surprised that it also included the hamburger menu alluding to apps, although I didn’t give it that directive.
In this piece, I argue the crypto industry currently lacks proper disclosure practices at the level that regulators (and serious investors) will expect in the future.
“No proper disclosures” has been a refrain used by the SEC in their attempt to paint the industry’s non-compliance.
You can read it on the above link (no paywall) as a preamble to my additional commentary on this topic.
I’ve poured over 3 recent significant legislations pertaining to digital assets:
the EU’s Markets in Crypto-Assets Regulations (MiCA)
Each one of these recently published regulatory actions mentions the disclosure aspect several times and offers some guidelines for meeting them. However, none of them were detailed enough, nor specific enough about the peculiarities of digital assets and emerging (or established) projects that depend on the token’s utility.
Last month, Paradigm published an excellent essay, The Current SEC Disclosure Framework Is Unfit for Crypto. Although it is clear the current framework and practices do not squarely apply, what would proper disclosures entail? That is where we should be focused, going forward.
Of course, several cryptocurrency projects claim to be sufficiently decentralized, and beg the question: are disclosures necessary? However, being decentralized is not a cop-out for the avoidance of responsibility to disclose comprehensive information about the performance and evolution of a given project.
My counter-argument here is that even the most decentralized tokens such as Bitcoin and Ethereum could benefit from more cohesive disclosures about their evolution via performance metrics and indicators to prove their market status.
Saying that a given protocol is open, therefore anyone can see their on-chain data is not enough, and certainly not a good reason for stopping to disclose a comprehensive view about the ecosystem. The problem with blockchain related data is that information is disjointed, tough to read and not cohesive enough for human comprehension or interpretation. Granted, a flury of analysts publish their own spins on given projects, but the quality of many such reports can be improved, and they don’t replace the requirement for base level data and information.
Furthermore, given the realtime nature of the blockchain, disclosures could be continuously available, and not a one-time regularly scheduled event. And the silver lining behind this approach is that decentralized protocols could disclose their performance autonomously, as I’ve explained in that previous blog post.
Disclosures don’t only protect consumers against excessive and unchecked promotion, they also allow for better correlation between success realities of projects and their market valuations. In essence, disclosures help make token holders and institutional investors better informed and more comfortable with digital assets.
The formalization of disclosures is coming to crypto projects, whether decentralized, centralized or nascent. We should better prepare for it and embrace it.
