Cryptocurrency is best kept as a niche market. The biggest crisis faced by the cryptocurrency industry so far is undoubtedly the rapid decline and collapse of FTX. When Sam Bankman-Fried’s personal treasury collapsed, it was once the world’s third-largest cryptocurrency exchange. This event had a huge impact on the entire industry, not only causing cryptocurrency prices to plummet, but also affecting many related companies.
As of the end of 2022, it was unclear whether the concept of cryptocurrency could make a comeback – at that time, apparent fraudulent behavior by one of the companies believed to be most consumer-savvy and trusted in cryptocurrency seemed to validate the common perception that this was all just a cover-up for fraud.
However, today, the situation seems to have improved, although people are generally worried 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 after the closure of the Mt. Gox exchange in 2014, the cyclical fluctuations in the market have become a part of daily life.
But isn’t it strange that this increasingly mature industry sees this cycle of rise and fall as the norm? In my view, the widespread adoption of any blockchain technology or consumer application depends largely on its token price – and the industry as a whole – not always facing the risk of imminent collapse.
The biggest challenge for the development of cryptocurrency is precisely its own growth. The extreme optimism during market highs and extreme pessimism during lows cycle about every four years, and this is the result of the pursuit of widespread adoption of cryptocurrencies.
The brutal process of proliferation is a typical example of what economist Robert Shiller described as “irrational exuberance.” The promise to fundamentally change the core values of everything 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 rise, which further stimulates more investment – until something goes wrong.
Almost without exception, what fails is what blockchain was originally designed to replace. And these things are almost always designed to make cryptocurrencies easier for users to accept and use. There is a common belief that the “masses” may not choose to self-custody assets. But what is the point of assets like Bitcoin if they are not self-custodied?
Alex Thorn, head of research at investment bank Galaxy Digital, said, “As the number of users increases, one risk is that new users may not understand the core principles of Bitcoin, such as decentralization, self-custody, hard money, and other concepts. If these new entrants do not learn, understand, and support these core principles, then over time, the protocol features that enable these principles to be realized may not be retained.”
Adopting cryptocurrency means following the law (which often conflicts with the values of cryptocurrency) and establishing easy-to-use login methods (which may be attacked). There is a tension between the goal of decentralization and widespread adoption. If cryptocurrencies grow too large, they may lose their true value. Nathan Schneider, a media studies professor at the University of Colorado Boulder and author of “Ours to Hack and to Own,” pointed out, “Simply being absorbed into the mainstream financial system will ultimately lose many of the important opportunities provided by this technology.”
Paul Dillet-Ennis, a lecturer at the University of Dublin, also expressed a similar view, saying, “Cryptocurrency is a subculture that is unwilling to admit its existence as a subculture. Many of the problems we face are due to the discussion of ‘letting the next billion people join,’ which leads to the gradual degradation of our values.”
There is already an existing “killer app”
There is an irony in that developers, founders, and investors spent 15 years and billions of dollars looking for a “killer app” for blockchain, but it already exists. Satoshi Nakamoto and those who truly follow in his footsteps have created a digital bearer tool that is free to use and hard to take away.
This is the core of cryptocurrency.
This is why, although almost no one uses Bitcoin to buy coffee, many people use privacy coins like Monero (XMR) to buy various goods on the dark web. If you observe how cryptocurrency is connected to the real economy, you will find that it mainly plays a role in certain areas, including black or gray markets, stablecoin remittance channels, and activities of amateur enthusiasts.
Please note that these markets are huge in size. But today, when cryptocurrencies seem to be on the verge of a breakthrough, this usage pales in comparison to the speculative use of cryptocurrencies, where capital flows in, jumping from one currency to another or from one protocol to another, causing digital assets to continue to rise – 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 number of people will be interested.
This is just my opinion, and many people disagree.
Other opinions
Molly White, author of critical cryptocurrency news Web3IsGoingGreat and “Citation Needed,” believes that cryptocurrency has already gone mainstream. In a private message, she said, “Although there are still some relatively small projects in niche markets, when Brian Armstrong and Sam Bankman-Fried interact in Congress, and BlackRock and Fidelity launch Bitcoin ETFs, I think the trend of cryptocurrency mainstreaming is irreversible.”
Privacy advocate, educator, and long-time user of Monero, SethforPrivacy, holds the opposite view. He said, “Unfortunately, most people have not yet realized the importance of Bitcoin and are not willing to take on so much personal responsibility, so 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 cryptocurrency can achieve global adoption.
Alex Gladstein, Chief Strategy Officer of the Human Rights Foundation, said, “The only reason Bitcoin can rise globally is because of its most cyberpunk spirit: it belongs to no one, is operated by users, not controlled by states or companies.”
However, it is not entirely clear what the general public really wants.
Emmanuel Awosika, a supporter of Ethereum, gave an example, “While we believe that everyone wants privacy protection, censorship resistance, and the ability to resist state attacks, some people are satisfied with products that solve problems and offer a good user experience.”
Awosika added that although not everyone needs, let alone wants, privacy protection, censorship resistance, and maximum decentralization, “we should strive to enable as many people as possible to have cryptocurrencies.”
Similarly, Roko Mijic, famous for “Roko’s basilisk,” believes that scale gives decentralized tools power, a point that is particularly evident in Bitcoin, as Bitcoin miners are scattered around the world, making it difficult to attack. “In a smaller encrypted network, you cannot resist censorship, because the government can easily destroy the entire network,” Mijic said.
Justin Ehrenhofer, founder of Chicago Moonstone Research, expressed a similar view, pointing out that a currency is only useful when widely accepted, so “cyberpunks should focus on building systems that attract outsiders to participate.” However, he also added that with widespread adoption, the spirit of cryptocurrency has degraded, as ordinary users store their assets in custodial exchanges.
The real question here is how important the core values of cryptocurrency really are?