The Breakdown - Why We Should Stop Thinking of ‘Crypto’ as a Single Industry

Episode Date: February 20, 2020

The ‘crypto’ industry is having a hard time fitting everything that’s happening inside that one monolithic term. On this episode, @nlw looks at current news stories from across at least 5 different categories - DeFi, enterprise blockchain, central bank digital currencies, digital collectibles and bitcoin - to ask whether they really all belong lumped in in the same category.  The episode also looks at: Four reasons these increasingly different categories remain bunched together  Why turning other parts of the industry into an enemy is rewarded in the public sphere Why letting individual parts of the industry evolve individually is likely to bring more, not fewer resources into the space.

Welcome back to the breakdown. An everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond, with your host, NLW. The breakdown is distributed by CoinDesk. Welcome back to the breakdown. It's Thursday, February 20th, and today we are doing something a little bit different. We're going to look through the news, but in the context of a larger overarching idea, which is that crypto is not a single.

industry. When we discuss this crypto industry or the blockchain space or whatever you want to call it, we often speak about it in very monolithic terms, as though everything is a part of the same ecosystem. And arguably, for a long time that has been the case. However, the more that the industry matures, the less realistic it is to lump everything together. And so today I want to look through the news and discover that there are really at least five different subcategories that we could be discussing things in. And I want to talk a little bit about why it might matter for us to start having a better differentiation. So that's the theme of the day, why crypto is not a single industry. All right. So let's look at our first category of news. Well, we are still trying to

fully come to grips with understanding what happened with these BZX attacks earlier this week. And at this point, it's not so much about BZX, it's not so much about the particular amounts lost. It is about understanding new risk profiles in Defi. In many ways, the conversation that I've seen has been a coming of adversarial thinking to Defi. Now, adversarial thinking is something that's very intrinsic at this point to the Bitcoin community, where people within the community who wanted to succeed are constantly asking, what could go wrong, how could people attack this? What do we do if that happens?

I mean, even today in the Bitcoin community, which is a completely separate thing, as we'll get into, there is an entire conversation about minor concentrations sparked by a post on CoinDesk's new op-ed platform by Haseau. So anyways, adversarial thinking has come in a big way to defy as people start to look through every major platform, every major protocol, and ask, how could it be attacked and what the problems are. And I think in some ways this week has shown, just even based on the difference in how these attacks were carried out, that defy is a whole phenomenon unto itself, where the attack surface simply doesn't look the same as it did for crypto spot trading. It is a fundamentally

different thing based on programmable finance and the composability of finance and really needs to be taken in its own terms. So that's the defy side of things. Now, let's look at our next category of conversation. We have a whole slew of stories from the world of nominally enterprise blockchain, or maybe just a better way to put it, is blockchain's interacting with the traditional financial system. So this isn't about cryptocurrencies and digital assets. It isn't really about programmable finance per se. It's about what blockchain tech can do for the existing financial infrastructure. So example one, Paxos is going to be offering the first. first live blockchain-based settlement for U.S. equities. So basically, when equities deals are made and

sold, there's everyday settlement. So at the end of the day, the deals that have been made have to get cleared out and cash gets exchanged, the equities get exchanged, et cetera, et cetera. And this happens through clearinghouses who actually facilitate that settlement. Well, Paxos is bringing this to bear on the blockchain. Last year, they announced that their pilot with Credit Suisse had been given a no action letter from the SEC allowing them to proceed, and today they announced they're actually able to get it running. So this is inside baseball, this is infrastructure for the legacy financial world. Similar news came out of Australia, where the National Stock Exchange announced that it planned to launch a digital ledger technology program to compete with the Australian Stock Exchange,

which is itself building a blockchain-based replacement for its clearing system. Again, more of this insider financial infrastructure type of thing. One more quick bit of news in this same category came from the Bank of Korea that is looking at building a blockchain-based system to bring better record-keeping to the bond market in Korea, which is one of the largest bond markets in Asia. So again, the point here is that we have this set of news all around the digitization and the blockchainification of financial infrastructure that has practically, nothing to do with defy, right? And anything we were just talking about. And very little to do with

what we're talking about next, which is governments racing to figure out their digital currency strategies. On now to our third clearly distinct and differentiated topic, which is central bank digital currencies and moreover, the battle for the future of money and how central banks are going to deal with the emergence of new types of digital monies. So Brazil has said that they are going to launch a quote, near-instant payment system called PICS that is designed to speed the system up and reduce costs for Fiat transfers between individuals and businesses. Now, they said explicitly that this is about a response to cryptocurrencies. The president of the Central Bank of Brazil, Roberto Campos Neto, said,

PICS came from a need for people to have a payment instrument that is both cheap, fast, transparent, and secure. If we think about what has happened in terms of the creation of Bitcoins, cryptocurrencies, and other encrypted assets, it comes from the need to have an instrument with such characteristics. So this will not be a cryptocurrency per se, but it is being designed in response to the force that cryptocurrencies are creating in the world. So now let's go through quickly. Let's review the context that we've had for our quote-unquote crypto industry just in one day. We've had one composable, programmable money and what that means.

We've had two security settlement and basic infrastructure for the legacy financial system that has literally nothing to do with token assets. Three, we have central banks trying to figure out how they're going to respond to new competition, competition that they've never really felt before in the same way. But let's move on to our fourth topic, which is completely different again. Fourth up on our list of stories that don't really seem to have anything to do with each other, but yet our unconsored. comfortably lumped into one quote-unquote industry is that Juventus, the soccer giant out of Italy, has become the latest sports team in what is now becoming a trend to experiment with NFT-based digital collectibles. Uventus is partnering with Sorare to create digital cards for their fans. So this is a licensing deal through which Juventus will be partnering with Sorare to create

digital cards that represent their famous soccer players like Cristiano Ronaldo in digital collectible form on the ERC 721 standard. These are fun, interesting, cool ways for fans to engage with the team. They could represent the future of sports engagement, but they have literally nothing to do. And I mean literally nothing to do with central bank digital currencies or the settlement of equities in more efficient ways. These are such fundamentally different fields that it almost feels insane to talk about them together. And so let's go to the fifth and final

of the categories of stories that we'll talk about today. In this quote-unquote crypto industry, which comes back to Bitcoin, but not just Bitcoin as a crypto asset, but Bitcoin as a hedge against what is increasingly a crazy world. For Bitcoiners, they're looking out across an economic scenario where the world's second largest economy is absolutely crippled and brought to its knees and effectively non-functioning right now because of coronavirus.

And yet in the U.S., stocks and other assets and equities are reaching all-time highs, right, on the back of a decade or more of incredibly cheap money. And this conversation about Bitcoin in the macro environment is so fundamentally different, again, from everything that we've talked about today. It's different, even though it relates to the financial markets, to this idea of blockchain as infrastructure, it's different fundamentally from the idea of NFTs sharing only this context of digital scarcity, which is one of the chief innovations of Bitcoin. So the point that I'm trying to make is that just taking a single day's snapshot, there are at least five different seemingly

on the surface unrelated categories of stories and news and conversations that are all lumped together as either the blockchain industry or the crypto industry or whatever you want to call it. So why do we discuss these things? Why do we debate about these things like they're part of the same category? Well, there are a few reasons. The first is the most obvious that they have a similar underlying technology. Inevitably, however, any new technology innovation is going to ultimately find its way to mature in different types of business or consumer-facing contexts where it no longer matters as much what the underlying and hidden inputs are in the system, but only what the end result is for the end user or the end business case. I believe we're starting to see that break where it

becomes less and less interesting to talk about them in terms of the inputs and more and more interesting to talk about these things in terms of their outputs and impact. A second part of the reason that we talk about these things in the same terms or as they're part of the same thing, is that they have historically been competing for a constrained set of resources and a constrained narrative space. So what I mean by that is that there has historically been only so much interest available to blockchain slash Bitcoin slash crypto slash Ethereum slash defy slash whatever in the basis of attention, time, money, talent, etc. And so by speaking in this way, we're actually competing to make people who are looking in from the outside think that that

space is about the thing that we care most about and we're invested in. There is to some extent in the short term a zero-sum game between companies who want to build around the Bitcoin protocol and want to get people to care about that versus companies who want to build around defy and want people to care about that. Now, that zero-sum game is, I think, a constraint that is very time-bound. But it is a real thing. and so it's understandable, at least in some ways, that that fight has been happening. This relates to point three about why these conversations, why these topics have been lumped together, which is that from the outside looking in, there's only so much headspace that any outside observer has,

and so they have been lumped together. There hasn't been necessarily a big, clear differentiation between the nuanced parts of this space, and realistically, we're still in a context where we're dealing with memes and narrative that have resulted from that competition that have impacts today. Look at the way that governments talk about blockchain, not Bitcoin, just as one example of that. There has been this pressure from the outside in that everything that we're doing here in this crypto industry,

quote unquote, even though it feels so differentiated, has been lumped together. A fourth and final issue, though, is that the public spaces where we discuss crypto and this industry and everything around it, Reward enemy making. If you look at people who have been able to rapidly grow their following on social media, it tends not to be on the basis of just adding value or being a really good steward of an idea. It tends more often to be picking a tribe, figuring out the memes that

get that tribe excited, and going to war with other tribes. And this is not a Bitcoin-only, this is certainly not a crypto-only phenomenon. This is very much about the structure of the algorithms that drive social media, be it Twitter or Reddit or whatever. But it is a real factor that does shape our industry to this day. So what's the takeaway on all this? Why did I decide to do an entire episode about this? Well, one, it was a way to tie together five disconnected news stories on a day that there wasn't really clearly a banner headline news story. So take that for what you will. But two, it is something that I actually think about a lot, that a lot of our time and energy and attention is spent on these never-ending debates about whether people should care about this thing versus that thing

and whether they can coexist when it might be better to spend that time on, well, literally anything else. However, this isn't a morality lesson. And like I said, I do think that the public spheres in which we engage reward this sort of combativeness, right? So what are you going to do about it? I also think that there is a sort of self-defense mechanism that these communities go through where by having this contest internally, they actually strengthen their defenses when it comes to external challenges and other attack surfaces. So I don't even want to mitigate that there is some value in the fight. However, I do believe that by recognizing that this industry is maturing into several

subcategories that either are already in the case perhaps of Bitcoin or will potentially be in the future, their own categories unto themselves, we actually do ourselves as service as it relates to those external forces and people coming in. I believe that there is going to be more attention focused on this industry going forward. I think that the way that governments are responding to Libra is exemplary of that. I think that every time Bitcoin is pronounced dead, but then continues to be the best performing asset in the world, it brings more attention. And I think that it would be better if we're able to better help people navigate to where they are naturally interested, right? There is that resource competition. Of course, we want our thing, our area of this world,

to define the rest of it. And I also think that there's good arguments that these things aren't mutually exclusive and that you should be rooting for multiple at the same time. However, I also think that when it comes to new people coming in and new institutions coming in and new resources is coming in, they are going to have intrinsic biases towards different parts of this industry that get them interested. I don't think that forcing all of them to go through a gauntlet of my thing is the only real thing here is going to be helpful as compared to just letting them go find where their interests match their resource allocations, right? Let the money that wants to go into settlement solutions for traditional equities go find it and then from there get them

into Bitcoin. I don't think that we lose much by that. In fact, I think that we do better by allowing money to find where it's most interested in getting their hooks in somehow. That's my little rant for today. Mostly, like I said, it was just a way to connect the news on a day where there was a lot of disconnected news. But it is something, as I said, that I've thought about a lot. And I want to know what you guys think now. So hit me up on Twitter at NLW. Let me know if you also see what I'm seeing where the crypto industry, quote unquote, is actually fragmenting into a number of sub-industries all trying to mature, you know, in an interrelated, perhaps, but ultimately independent way. Anyways, guys, thanks for listening. I appreciate you. And I will catch you tomorrow with another

episode of The Breakdown. Peace.