Thank you, SBF

It was about time someone got the fraud exposure train rolling. Is Binance next?

It can be hard to be an optimistic fan of cryptocurrency-powered blockchains these days.

I am – in the long term. The pain isn’t over.

Optimism is likely to get harder still in the coming months. I’ve been saying it for years and wouldn’t change a word, not even one published five years ago.

Crypto needs its moment

When the Internet emerged in the 90’s, things were really stupid for a while.

Given that crypto-powered blockchains are — like the original Web 1.0 — emerging, novel, global data networks, it all feels familiar.

Between the embarrassing silliness and outright corruption, the folly that surrounds this potentially world-changing tech may not quite be history repeating itself, but it sure as heck rhymes.

Just like Web 1.0, crypto needs to get to rock bottom to change and become useful, so let’s get it sorted because the long-term potential is still super interesting.

But is this the rock bottom moment for crypto? I don’t think so.

Pretty likely there are still some nasty surprises for the crypto-verse hiding in the books (or Slack messages?) of some well-thought-of players.

By ‘players’ I mean crypto funds and exchanges and trading companies primarily.

Specifically, I’ll remain skeptical of Binance and BNB for a good while yet, I have no case to make as to why, others do.

Who knows what will survive and what will turn out to be a scam, but more of these players will likely fold and more grifters will get weeded out before the technology of crypto-powered public blockchains become truly useful and have widespread utility.

It might take a few more years.

Believe it or not, after the dotcom crash, there were a lot of people calling the entire Internet a failed experiment in 2001.

Why crypto will likely matter … eventually.

More and more of our economic activity is entirely digital.

Those of us used to old style banking and payment systems tend to think in terms of “how we’ve always done it.” But weaknesses appear when we start to do things — things which involve the exchange of value — that have never been done before.

One eventual value of cryptocurrency is enabling digital contracts and machine-to-machine transactions.

As we increasingly use computing power provided by someone else to play a game, or buy something to enhance our experience within that game, or pay for AI-as-a-Service (AaaS?) whatever.

The baggage of credit card or even ACH bank transfers will make less and less sense vs. embedding a digital token transaction into the digital services agreement.

One machine pays another machine, in machine currency, once the exchange of value is confirmed. All done computer to computer.

As the digital economy grows, with computers providing services for hire to human users (AI assistants) or computing for hire to other computer systems via API, so too will the role for crypto-powered blockchains which do the value exchange and the P&L accounting using a cryptocurrency.

Just like with the Internet in the early dotcom days, for all of the nonsense surrounding digital assets, smart people are attracted for a reason.

Cryptocurrency-powered blockchain technology, perhaps in the form of Ether and/or a few others with similar functionality, will likely have real utility when machine-to-machine transactions become commonplace.

But — it will likely take a few more tumbles to get to rock bottom.

I don’t know about you, but the idea that you can create an — essentially unregulated — crypto exchange and then that exchange can create its own — again unregulated — cryptocurrency and use that to offer users leverage and discounts on its own exchange feels like a scam.

Scratch that. It really feels like a scam.

FTX apparently did this with its FTT token, Binance seems like it might be doing the same thing with its BNB. I’m sure there are others.

We will see what plays out in court with FTX, and we’ll see if any public authorities come after Binance this year.

I think they will, but I am wrong as often as the next person.

But that doesn’t mean all this crypto stuff isn’t valuable. On the contrary, it means it is, or at least, might be. Money is flowing in because people sense emerging value.

We didn’t need, didn’t want, indeed couldn’t imagine Apple Pay in 1995.

In 1995 we hadn’t yet imagined the smart phone, few had cell phones and those were basically clumsy radios weighing as much as a hammer. We still used cash and checks for all kinds of point-of-sale transactions (a credit card at the grocery store or a fast-food joint was still novel most places.)

The nature of transactions was different. Do we really think it won’t be different again in 2025? Or 2035?

Sure, there are some who argue the other direction is more likely — we might be purchasing groceries with bullets and firewood in 2035 at the rate we’re going.

But I’m an optimist.

Trends are relatively easy to predict — timing is the hard part.

We couldn’t see the smartphone emerging in 1995. It didn’t show up until 12 years later and didn’t get real traction until a few years after that and didn’t really prove out its displacement of many existing tools until years after that.

But the Internet — that was here and already generating plenty of excitement in 1995. It’s just that no one could quite predict exactly how it would really be useful. There were just too many questions and too many aspects of technology that hadn’t been refined sufficiently (or invented.)

After all, it was hard to predict a smartphone when digital wireless networks didn’t exist and access to the Internet was primarily through dial-up modem.

So here we are, nearly 30 years later and the world, as seen through the lens of tech, is completely different. We buy groceries and sandwiches with our phones. Who’d woulda thunk it?

The point is, it takes a while, but enough people see the potential of digital financial tech that it would be shortsighted to say it won’t ever matter. It just doesn’t matter (much) yet.

So when will we know if it’s time to invest or run away?

Oh, wouldn’t if be nice if we could know?

But I would say three big things need to happen before digital currency powered applications take off.

  1. The tech needs to fully scale.

Ether passed a big milestone in September 2022 with it’s move to proof-of-stake. While other digital tokens had this important feature sooner, Ether is the most widely known and accepted, so it matters that it has now joined the ranks of crypto that do not have an energy hog problem.

But that’s only the first step. Several additional planned improvements in the Ethereum network over the next few years will address the speed and volume of transactions, and a few other scaling challenges. Plans are laid out and people are working on them. But it will take time.

2. Regulators need to get a framework in place.

You trust — largely because of SEC oversight — that If you deposited money at Charles Schwab (the brokerage) that Charles Schwab (the guy) would not then take your money without telling you, deposit in another trading company he owned, and use it to make risky bets. Bets where he gains if they work, you lose if they don’t.

It looks like — from what we know now — that’s what Sam Bankman did at FTX/Alameda.

Nothing in crypto is ever going to work until there is serious regulatory oversight.

3. A clear set of use cases where traditional databases and payment systems are clearly inferior must emerge.

These might be in gaming, in various machine-to-machine transactions like a machine buying processing power or storage or whatever according to dynamic demand from another machine or … who knows? Right now we can imagine these things, but they’re not real for the most part.

Mostly because 1 and 2 haven’t happened yet.

Ironically, it’s about trust.

Crypto hangs its hat on its ability to do “trustless” transactions. The blockchain will verify that no one cheats. But the blockchain can’t police the misdeeds of thieves standing at the gates between fiat currency and crypto.

Those guys need oversight. For that we still need to trust in law and regulation.

So, how long will it take to get regulation settled and the technology fully scalable? And what to do in the meantime?

It seems to me that owning a little crypto and maybe a little stock in an — apparently — well behaved company like Coinbase isn’t a terrible idea. If for nothing else but to keep one’s attention on it.

But it doesn’t seem like a place for anything but the very small, very most speculative part of any portfolio yet. Most crypto blockchain tokens will still go to zero and more exchanges and funds will go under.

Sure, I might be wrong and it might all soar to the moon from here. But it seems to me a another crash is on the way, as there are still SO many billions being handled through various crypto channels in opaque ways.

In the end though, rather than crypto adapting to the world of traditional finance, my guess is that certain needs will naturally find crypto and will find that it solves problems for them. And crypto-powered blockchains will take root as part of a normally functioning new digital economy.

Once regulated and fully able to scale.

How long? Five more years feels about right. But then again, as Yogi Berra put it:

It’s tough to make predictions, especially about the future.

Source : bsc.medium

Leave a Reply

Your email address will not be published. Required fields are marked *