The State of Cryptocurrency — and why it is yet to reach global acceptance.
On June 4th, a video discussing ‘the simulation’ was posted to TikTok by infamous indie popstar ‘Grimes’. The singer rambles incoherently about earth’s ‘rendering’ power, but it isn’t until the end of the video that anything of note happens — when her boyfriend and father of her child, Tech-entrepreneur Elon Musk is heard shouting “yo, you check Bitcoin today?” — and Bitcoin, on that day, was tanking — as it is prone to do. This was only one of a number of stunts pulled by Musk to bring attention to cryptocurrencies and encourage interest as well as investment. It is no wonder that due to its volatility and the secrecy in which it is shrouded, cryptocurrency and decentralised finance at large have invited a great deal of scepticism, even from seasoned investors.
Yet there is much more to crypto than its ‘meme-value’; indeed, many may have never discovered decentralised finance without the buzz generated by the likes of Musk, but my personal interest has lead me to conclusions regarding cryptocurrency which imply that it’s importance will only continue to grow, and by extension, so will the importance of understanding it. Admittedly, my interest in crypto stems from an urge to fight boredom over numerous lockdowns due to Covid-19. For several months now, I’ve been researching cryptocurrency with the objective of developing a thorough understanding of it, and I think it’s time I share some of that knowledge. Having immersed myself in the world of crypto and decentralised finance (henceforth DeFi) — through conversations with experts in the field and my own research — I have become a firm believer in DeFi’s future role in the world of finance. Further, I believe in a future built on blockchain; a form of database which — as the name implies — stores data in blocks, that are virtually chained together. Incoming data fills a new block which is added to the chain, and this makes blockchain ideal as a ledger for transactions, and as a guarantee of the decentralization of data.
In my opinion, the reason why we’re not seeing a more widespread adoption of crypto and blockchain is twofold. Firstly, the complexity of the matter; and secondly, the culture surrounding it — neither of which are conducive to forming a comprehensive understanding. Misinformation and ill-informed investment are some of the biggest issues surrounding crypto; through this blog, I will be seeking to demystify blockchain and all associated information. Further, while having a candid discussion about the issues with cryptocurrencies and DeFi, my objective is also to make a strong, evidence-based case for the use of cryptocurrencies, blockchain, and decentralised finance at large.
The issues with Cryptocurrencies and DeFi
While I genuinely believe DeFi is the future of finance, I have encountered inumerable frustrations and difficulties in my research, and throughout my ongoing discussions about crypto — all of which I believe are holding back cryptocurrency, DeFi and blockchain from having a wider appeal. I would argue that the most glaring issue is the immense complexity of the blockchain based world; only once you overcome the hurdle of keeping up with the new projects being constantly released, and the old ones getting updated or having their launches on mainnets, can you begin to get a grasp on the state and direction of crypto. Even then, you still have to familiarise yourself with the inner workings of two complicated academic fields; computer science and finance.
But an academic background is not nearly enough to enable someone to understand — and take advantage of — the opportunities that cryptocurrencies and DeFi provide; in my own social circle — which is composed of relatively young and STEM educated individuals — far from everyone has heard of cryptocurrencies. If they have heard of crypto, then they’ve mostly heard of Bitcoin — or maybe of DogeCoin thanks to Elon Musk; but only a minority know of the second largest project in crypto — Ethereum — or the third largest, Cardano. Absolutely nobody without an active interest in crypto can tell me anything about how any of it works, other than by making vague allusions to blockchain. Even some of those who have invested money in cryptocurrencies, and gained or — more often than not — lost thousands, do not understand the algorithms which enable them to function.
Among academics, very few people can make definitive, informed statements about the economic and financial theory on which cryptocurrencies and DeFi are based — that is to say that there isn’t an established consensus among the experts yet either. This is partially because the crypto space is in a bubble, one which can often seem impenetrable. From my experience, it is very common for people to follow trends, and invest in crypto without thoroughly understanding what is really going on, in hopes that they’ll be able to buy the asset before it goes blasting off to the moon.
The case for crypto
I think decentralised finance is the way to go in the future, not only because of the merits it holds, but because the elephant in the board-room is that the political climate is shifting against big tech; parties in both America and Europe are turning their backs on it. France’s flirtation with a tech-tax has led to a call for a global minimum corporate tax rate, applying pressure to key stakeholders. Politicians mainly take issue with the fact that nobody really likes how tech-giants are not only monopolistic in their own market, but are increasingly expanding their influence to other markets too (the more general implications of this phenomenon are better left for another discussion).
Furthermore, European politicians are troubled by the fact that tech-giants pay virtually no taxes for their operations in the European market. In my view, large blockchains would basically operate similarly to big tech companies, except the aforementioned issues would not arise. After all, you can’t abuse monopoly power when the monopoly is distributed between an ever increasing number of private individuals. Taxation within the DeFi world is a bit more complicated, although any interaction with the traditional financial world will still lead to taxes being paid by operators in the DeFi world. It would be interesting to also explore the implications on censorship that a decentralised web would bring, but I feel that merits an article of its own.
Let us now consider what is meant by “blockchain”. When I mention blockchain, most people think of cryptocurrencies, like Bitcoin or Ethereum — or maybe even Dogecoin — but that’s just scratching the surface. There exist both public blockchains like Ethereum or Cardano, but also private blockchains. Almost every single central bank in the western world — and many central banks outside of the western world — are building new digital currencies on blockchain, with the promise of allowing individuals to store their money without reliance on commercial banks as intermediators, and allowing individuals to store their money in central banks themselves. Through the facilitation of such opportunities, blockchain is turning the huge bailouts of 2008 into a thing of the past. On public blockchains, we’re seeing projects such as ResearchHub, on the Ethereum blockchain, a novel and promising take on publishing research, rewarding authors for each citation on their paper. Another project worth watching is Golem, also built on the Ethereum blockchain, with the aim of decentralising computing power. These are just two examples, but they are evidence of the fact that the cryptocurrency ecosystem serves as a basis for the valuation of cryptocurrencies themselves. In future articles, I hope to dive deeper into these and many more ongoing projects in the blockchain space and show how this is what I believe gives value to cryptocurrency.
Conclusion
So how do we resolve these issues, improve computer and financial literacy, and empower the masses to use crypto for their benefit? For the widespread adoption of crypto to be possible, the general public must have trust in it. And for the general public to have trust in it, they need to understand it. There are too many sources out there that just focus on how to make money off of crypto — unfortunately, they are purely speculative. Reliance on these sources often leads to someone losing their money — and losing their interest in crypto by extension, dismissing its enormous potential. Too much focus is on the cryptocurrencies that represent a blockchain, and too little attention is paid to the blockchain platform behind it, making attacks such as “it has no inherent value” all too easy to make. With this blog, I hope to dispel some of the myths about cryptocurrency, by providing detailed and comprehensible articles on different projects, ideas and concepts in the world of DeFi.
So let’s dive in — and hope that, against the better judgement of Grimes, the simulation has the rendering power to allow us to take advantage of the opportunities DeFi can provide.
