[Review] Crypto for People Who Don’t Follow Crypto
You can find said article here. This was an article by Jon Stokes, originally published as “Cryptocurrency and the Great Unbundling”. On this same article, there’s a counter-argument in the comments, titled “Why Cryptocurrency Is A Giant Fraud”.
Article Summary
Here’s a quick summary of what was discussed to serve as a basis for further discussion.
Decentralized finance (DeFi) and unbundling
Uniswap is given as an example. It is a decentralized exchange and carries out most functions of a typical centralised exchange but without intermediaries. However, Jon adds a caveat:
*Note: To be clear, there are servers, accounts, logins, and even some legal entities that Uniswap depends on in various capacities for its continued existence, but these building blocks are not configured and working together in a traditional way that even the savviest non-crypto nerds would recognize.
In this case, unbundling is described as no longer needing to rely on just a single organisation for record keeping or storing of value.
Turbulence ahead
Once version 1.0 has unbundled and reconfigured all of online content, commerce, and community, then future versions of the decentralized economy will come even faster.
So most of the decentralised internet has its key infrastructure built up now and what’s left is to actually build it. This means organisations ripe for disruption will have to start dealing with it now. The article mentions banks specifically. This is expected as the original argument was along the lines of decentralised finance.
Basically, he claims that disruptive innovation will occur because unbundling of organisations will happen. When we don’t have to rely solely on centralised organisations, we might discover new ways of working
Drawbacks
There are definitely problems that will arise. One is that what’s done is more or less permanent.
A centralized, trusted intermediary can do one thing that it’s hard to imagine being done via a decentralized, trustless network: dispute resolution.
Another is security. The custody of assets is mostly your responsibility. You can’t delegate this to anyone else. You could trust exchanges, but these are mostly centralised exchanges (and prone to hacking).
Decentralisation also introduces some risks but these are not insurmountable.
Yes, a lot of value will be wiped out, & piracy will be rampant
Right this very moment, I could open a new tab, stand up an anonymous decentralized media account, and start re-publishing all major paper paywalled articles on it, and nobody could figure out who I was or make me stop. An outlet couldn’t issue a takedown to anyone.
The example he gives is on copyright and IP. Its an interesting one because of the permanence of data on the blockchain. If someone uploads a copy of digital media on the blockchain, it’s more or less there forever.
Towards the end of this paragraph (and article) he describes it as a process of creative destruction, a necessary evil for the greater good.
The value of decentralisation
I suppose the first question we should tackle is, ‘what is the value of decentralisation anyway?’. In general, there are three:
- Easier access — it’s much harder to control the ways people can access the data available and the network resources provided. Anyone can just check block explorers for Bitcoin or Ethereum. You can even track the list of validators for Ethereum in order to access the level of decentralisation of the network, in fact you can track it on twitter. Try to figure out where Facebook’s servers are… you can’t.
- Robustness — When was the last time the Bitcoin network went down? Don’t remember? That’s because it hasn’t. Properly run blockchain networks are extremely robust. Emphasis on ‘properly’. This is because the extensive literature on blockchain network security suggests that it is really difficult to bring down the network. However it’s definitely possible with attacks such as eclipse attacks, block reorganisation attacks, and of course the 51% attack.
- Ownership — When do you truly own something? The idea is that the ability to transact and make decisions must lie solely with you. This means that nobody else should be able to embargo or block your assets. In DeFi, transactions have to be signed by your own keys which only you know. That way true ownership can be achieved rather than having to rely on a central depository
Real-life Examples
Let’s build a bit further on what are some things that might become more decentralised. In Singapore we’ve a blockchain landscape map that’s fairly comprehensive.
Blockdata also has a great one that covers multiple geographies!
There’s really a tremendous amount of blockchain companies stepping up to the game. When it comes to DeFi however, there’s an even more specific taxonomy. I’d follow Defillama’s list with over 200 Defi protocols stated.
According to Defi pulse with 113 Dapps, these are the top applications that currently exist.
- Lending: 30 Dapps
- Assets: 29 Dapps
- DEXes: 25 Dapps
- Derivatives: 23 Dapps
- Payments: 6 Dapps
The total value locked is extremely concentrated on just the top 10 Dapps (58.27B TVL, 70% of total TVL on ETH). Analysing these top 10 DApps show that there is a certain type of DApp that people tend to use:
(5) Lending: Aave, InstaDapp, Compound, Maker, Liquity
(3) DEXes: Curve, Uniswap, Sushiswap
(2) Assets: Convex finance, yearn.finance
It’s not surprising that these DApps reflect an unbundling of the finance industry. Banks provide full suite services that encompass almost all of these DApps in a single organisation. Now, in an odd way more companies are serving users. But I’m pretty sure a more robust comparison can be made.
Conclusion
Defi eating the world? Putting things in perspective, Softbank alone raised 30 billion for its vision fund 2. I suppose that’s why people are still extremely interested. Softbank could be replicated in a DAO, a decentralised autonomous organisation and many more people could take part in these investment activities. But for now, it’s a wild west and the great unbundling continues…
