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Rehashed - #26“Crypto as Money” Narrative Driving Initial Adoption

Estimated reading: 6 mins

Rehashed - #26“Crypto as Money” Narrative Driving Initial Adoption

The “crypto as money” vs. “crypto as tech” narrative

There’s no doubt that the crypto space is largely narrative driven. As of last year, we were pushing the “bitcoin can be used to pay for a cup of coffee” narrative, which has since pivoted to bitcoin as a store of value and settlement layer for large transactions. Throughout the numerous narratives that come and go, there are two emerging narratives that largely inform one’s view of the crypto space.

Erik Torenberg’s recent piece addresses the two main belief systems that are prevalent in the space, where people sit in one of two buckets; the “crypto is money” camp or the “crypto is tech” camp. Depending on the eye of the beholder, crypto is seen as either a financial asset or a technological innovation. The former is based on the idea that crypto (specifically bitcoin and other cryptocurrencies) is a form of sound money, untarnished by the grip of central banks and corrupt governments. The latter group, largely consisting of technologists at heart, is predicated on the idea that big tech companies have monopolized the internet. Crypto, through distributed protocols (smart contracts platforms and dapps) will allow users to reclaim autonomy over their interactions in the new digital age. The technological innovation camp wants to see the Web 3.0 vision come to full fruition.

The problem lies in the fact that these two emerging narratives have been sending a conflicting message to new adopters. One is caught between viewing crypto as financial asset representing existing capital in the world (currency, real estate, bonds, equity, commodities, and equity) or more as a digital resource used to capture value in a decentralized distributed systems. Furthermore, the speculative nature of this nascent space has evolved into a case of “pick your winner,” fueling vicious twitter battles and the ridicule of anyone who sits in the other camp. For newcomers to the space, these polarizing narratives can be hard to parse through. It can be confusing to try and deduce what the real value proposition of crypto is - which is still being ironed out and is likely to manifest in many ways.

Nobody is using decentralised applications (yet)

In alignment with the “crypto as tech” narrative, the crypto space has been myopically focused on the utility of dapps (or lack thereof). Because it is still very early days, consumer adoption of the few dapps that have launched has been more than lackluster. The highly anticipated launch of Augur has left supporters dejected and critics even more scornful. Upon launch in July, Augur had around 265 DAUs (daily average users) that has further dwindled to less than 50 DAUs who utilise Augur’s prediction markets platform. Other dapps have displayed little traction; DEXes (decentralised exchanges) receive the highest amount of users out of the dapp categories, 3000 DAUs combined last I checked- hardly something to rejoice about.

These high expectations aren’t unwarranted considering the (USD) $20b+ funnelled into ICOs largely building dapps/issuing tokens on ethereum. However we shouldn’t be dejected by this early data. There are massive technological obstacles to overcome and a natural progression that must take place before we will see real uptake. Intel’s creation of the microprocessing chip in 1971 paved the way for the compute industry; it wasn’t until at least 30 years later that we started to see widespread adoption of Apple and Microsoft products. Taking the bitcoin whitepaper in 2008, or even the foundational work of cryptographers in the 90s, we may not see meaningful adoption of Web 3.0 technologies until we are well into the 2020s.

Although I have confidence in dapps, its still very early days- the utility is not there yet, and won’t be anytime soon. Focus should be shifted towards building basic infrastructure and overcoming UI/UX hurdles. Further development of subtle tools, such as Gravity, which allows you to assign an avatar to your ethereum address, will be crucial in spurring wider adoption. (The goal with Gravity is to associate an avatar for every ethereum address so that sending ether is as friendly as sending an email). We must direct attention to the creation of ‘picks and shovels-like’ tools that will help new users understand the value proposition of crypto and see through the broader integration of these technologies in society.

Right now this is better supported in the ‘crypto as money’ camp. Bitcoin is really the only cryptoasset that has demonstrated a secure, scalable consensus mechanism and is receiving meaningful attention and usage. We must embrace the “crypto as tech” vision but understand that “crypto as money” narrative will drive first adoption in the space, as this is where we are seeing first utility.

“Crypto as money” driving first adoption through infrastructure and natural demand

Bitcoin is at the heart of the “crypto as money” narrative. The technology behind bitcoin is revolutionary but as opposed to software, bitcoin is largely seen as money- a unit of account, store of value, medium of exchange. Bitcoin is developing a strong Lindy effect (the idea that the longer something is around, the more ingrained it becomes), and as such, has developed a robust ecosystem of infrastructure and natural demand.

There is more infrastructure in place to support the “crypto as money” narrative. The multitude of exchanges to buy and sell crypto, custodial solutions, and retailers accepting bitcoin, all support the narrative of crypto as a financial asset. These service providers greatly reduce the operational barriers associated with crypto. Exchanges offer user friendly gateways to buy and sell, often with a wide range of fiat currency pairs, which creates little friction for newcomers. Alongside exchanges, there are several dedicated third party custodial solutions, which means that newcomers do not need to go through the hazardous process of managing their own private keys.

Secondly, in tumultuous geo-political climates, there is natural demand for sound money. In Venezuela alone, annual inflation is now approximated to be 200,000%, with the IMF projecting a potential increase to 1,000,000% by end-2018 - not unlike the hyperinflation that transpired in Germany during the 1920’s and Zimbabwe in the 2000’s. Bitcoin is becoming a safe haven of choice for those who wish to protect their assets against hyperinflation.

Charts attributed to DIAR Newsletter

Hyperinflationary economies such as Venezuela and Argentina are driving greater demand for bitcoin as citizens look for stores of value that will retain purchasing power. Since the Venezuelan bolivar first became hyperinflationary in late 2016, the weekly volume on LocalBitcoins has grown from $230,000 to about (USD) $3.1 million today (+1250%).

Where does that leave us?

Getting crypto newcomers to use dapps is like asking a first-time driver to drive a manual car without bunny-hopping. A user must buy ethereum through a broker dealer or exchange, transfer to an in-browser wallet such as metamask and navigate an application that is likely to have very poor UI, all whilst ensuring that no funds were sent to the wrong addresses and private keys were not compromised along the way. Maturer infrastructure and services built around the “crypto as money” narrative reduces friction for newcomers entering the space.

Lastly, those who sit firmly in the “crypto as money” or “crypto as tech” camp should be encouraged to be more open-minded. Bitcoin diehards should embrace the “crypto as tech” vision as a potential reality and the entire space would do well to have more patience and faith in the development of dapps. We should adopt a dual-narrative outlook; crypto is both money and tech and we would all benefit from embracing an ecosystem where sound digital money and smart contract platforms co-exist.

In the News

The  New York State Office of the Attorney General (the “OAG”) released an illuminating report on the inner-workings of crypto exchanges. New York is a notoriously tough market for crypto businesses to enter, requiring a bitlicense for lawful operation. Aside from highlighting potentially alarming activities carried out by some of the most popular exchanges (some of which were subsequently refuted by Coinbase), the OAG referred Kraken, Binance and Gate.io (who chose not to respond to the voluntary information request) to the state’s Department of Financial Services for potential bitlicense violations. Jesse Powell, Kraken’s CEO, who has vocally expressed his frustration with New York regulators in the past, responded via twitter. He has a point; implying that a business might be breaking the law simply because the business did not respond voluntarily seems to be a little presumptuous from the OAG. The long-term effects of the report findings are uncertain but hopefully it will encourage exchanges to review internal processes to ensure that market manipulation and other unsavory behavior is minimized without incurring the heavy hand of NYDFS. Some believe that the negative spotlight on crypto exchanges uncovered by the report may result in regulators blocking U.S. investors from using a number of crypto exchanges in the next 90 days. Regardless, the regulatory narrative continues to unfold, which is inevitably good for the maturity of the crypto space.

Hackers are exploiting a software vulnerability leaked from the U.S. NSA to hijack computers and mine cryptocurrency. “Crypto-jacking” cases have surged 459% this year over last, with around 85% of all illicit cryptocurrency mining targeting Monero.

The Van Eck ETF proposal decision now extended for another 180 days, with the ability to issue a 60 day extension following that.

PNC Bank, a top ten bank in the United States, has joined RippleNet. PNC customers will be able to receive real-time cross-border payments. Note that XRP is not utilised in the operation of RippleNet.  In other news, xRapid (which uses the XRP token as a bridge asset to move money between fiat currencies internationally) is expected to officially launch soon. Sagar Sarbhai, who heads regulatory relations for the Asia Pacific and Middle East Regions at Ripple, expects that the company will release details on the xRapid’s launch in “the next one month or so.” XRP’s rally led the coin to (momentarily) pass Ethereum and claim the No.2 spot in market capitalisation.

 

Upcoming Dates

Oct 12 - Blockworks Conference, Auckland

 

As always, thanks for joining - see you next week for Rehashed.

Freddie Archibald

 

View previous issue: Rehashed - #25 Assessing Crypto through Techno-Economic Paradigms

View next issue: Rehashed #27 Cryptoassets: Risk On or Risk Off?


About the author:

Capital markets to crypto convert. From Christchurch →  Boston → New York, Freddie became intrigued by the potential of the digital asset economy after plucking a book on Bitcoin off a New York library bookshelf in 2016. Her parents are thrilled that she is chasing magic money on the internet.

 

Disclaimer:  The above references an opinion and is for informational purposes only. The opinions expressed by the author do not represent the opinion of BitPrime.

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