On Crypto

I left crypto at the tail end of 2020. I felt the gap was too wide between the future a core group of smart, earnest, and technically impressive true believers were gesturing at, and what was really happening. 2020 was the year where Yield Farming exploded, and it seemed to confirm that crypto had accepted its main purpose as a vehicle for self-referential, mindless, speculative bullshit. It’d lost all its seriousness, and all of its promise with it.

I think some of it returned after the pandemic, especially as an aftermath of the Tornado Cash indictments, but from where I stand in 2024, the justifying vision which got so many of us interested in the space still feels washed out and incredibly faint, an ever smaller part of the discourse, and further away from being realised.

Can we stoke the fire back to life?

The wrong road out

I’m far from the first person to complain about crypto’s lack of substance and unfulfilled promises. It’s the most common diagnosis you can throw at the space.

Often, it’s breathlessly followed by the advice that the way out involves becoming more “product focused” or that teams should become “problem oriented, not solution oriented”. Everyone building in the space has heard this, and that’s been true for years.

I think it’s time to accept that if this was good advice, if it actually helped, it’d have worked by now.

There’s nothing inherently wrong with these two exhortations, of course. They’re essentially just telling you to find the shortest path that fixes an identified problem for an identified user. Unfortunately, it almost always comes bundled with certain frameworks and preconceptions about acceptable end results, business models, and types of customers you may target, most of which conflict with crypto’s established beliefs.

Implicitly, being “product focused” tells you that you should aim towards something “startup-shaped”, where the model for what a “startup” looks like is heavily anchored on examples from the past two decades. In practice, it means trying to find something with high scalability, low capex and ongoing opex, easy to use with minimal friction.

But crypto imposes heavy costs on you. If your goal is to find the shortest path to fixing an identified problem which fits the above expectations, it’s very rarely going to go through the “decentralise” and “make it trustless” boxes. Worse, crypto imposes ideological costs on you too. To be legitimate in the field, you should be maximally transparent, democratic in your decision making (often laundered as “community building”), and you should avoid every and all “rent seeking” (i.e. you should pretend to do everything altruistically, for the public good).

The combination of all of this is essentially impossible to navigate. If you’re looking for problems that look “startup-like”, and then filter them through the above ideological and technical constraints, you end up with empty set, it turns out.

I think this is an underrated reason why crypto is so disliked: the above tensions are really apparent to insiders, who are under considerable pressure (self- and externally imposed) to create things that fit within our collective expectations of “success”. If the set of real, value-additive things you can do seems empty AND everything is pushing you to “get adoption”, stupid, self-referential, speculative bullshit with obfuscated business models might suddenly seem justified.

Once the earnest people get forced into accepting these conclusions, the scammers and grifters have an easy time taking over the space.

I think crypto is still a bit stuck in all of this molasses. In the context of Vitalik’s excellent piece and the recovering crypto prices, I’m still left with the fundamental question: what now, anon?

Lessons from the past

There’s this great memo written in late ‘79 or early ‘80 by Jef Raskin (a very early Apple employee, and the person who kicked off the project that would eventually become the Macintosh) in which he tries to make some predictions about the future of Personal Computing. I like it both because Raskin gets a few (very important) trends right, and because it highlights just how ludicrous the task facing PC companies was:

On dealing with software in need of bug fixes and updates

On the cost involved in shipping a million PCs a year.

On the difficulty of even manufacturing the hardware needed to ship the software.

Even though it was written by someone deeply knowledgable and deeply bullish about the future of the industry, it also makes it clear just how easy it would have been to dismiss personal computing as unjustifiable. I can imagine it on the blog of an industry doomsayer: “Personal computing forever to remain hobbyist pipe dream!“.

And yet, all these logistical, financial, and technical constraints got figured out!

The more I’ve read and thought about the very early days of that industry, the easier it’s been to see that it only happened because of a small group of people who just found the idea neat and exciting. They figured out how to make it work only because they felt the answer to “wouldn’t it be neat…?” was straightforwardly “yes”.

“Wouldn’t it be neat to have a computer all one’s own […]?” from the first issue of byte, 1975

This is a recurring pattern: from the insiders’ perspective, an endeavour is self-evidently worth it. From the outsiders’ perspective, the statements and justifications from the insiders seem weak and cyclical.

Over the past 5 years an incredible amount of effort and energy has been spent trying to come up with justifications for crypto’s existence which assuage these outsiders’ concerns. Perhaps because we’ve been scarred by the late 2017 ICO boom’s habit of painting grand empty visions, everyone has been busy trying to come up with stories which wouldn’t look out of place in one of Stripe’s pitch decks.

I think it’s been time wasted. The justification for crypto doesn’t look like the demand for Stripe.

It looks like latent demand for something, anything, that can help us escape this mess. Crypto is exciting when it takes itself seriously as a frontier, a space within which we can build escape routes from bureaucratic molasses and power structures we all disapprove of yet seem unchallengeable. It’s valuable when it recognises that cultural affinity is no longer exclusively geographically dictated, and that the systems that these new distributed groups need to govern themselves don’t yet exist. It’s essential when it accepts that it has accumulated the fundamental building blocks to solutions for problems of identity and Sybil resistance that will become evermore important.

Outsiders be damned, this seems an endeavour straightforwardly worth pursuing.

Of course, it’d be ridiculous to claim that that’s what crypto is about today. That’s no longer what it’s selling, nor is it what it’s aiming for.

Ideological baggage

One way to think about collective action is to put instances of it on an Activism <- -> Conspiracy axis.

On the left, Activism aims to be public, and open. It wants to recruit people to its cause, influence through membership numbers. Its goals are legible, visible to all, and they need to be made agreeable to most involved.

On the right, Conspiracy aims to be private, and largely closed. Its existence and its goals may never be known outside of the group, and it has a wide repository of strategies it can pursue to try and influence outcomes (very rarely by calling attention to the number of people involved).

Most startups are somewhere over here:

Technologies can also be placed on this same axis.

Crypto, as a brainchild of the Cypherpunks (and a descendant of the internet and counterculture before them), is a technology oriented towards activism. It naturally wants to emphasise openness, transparency, democratic decision making, and equality of power. Barlow’s declaration of independence of cyberspace

Of course, part of what makes crypto interesting is directly downstream of this ideological background. Humans need to coordinate to achieve great things, and having a neutral, trusted, open platform created by people who spend a lot of time thinking about engineering shelling points should make that easier.

Unfortunately, it also means crypto has historically strongly disliked anything which seems too far to the right on the above axis, even in situations where conspiring is in fact what is required.

There’s no better example of the good and the bad than ConstitutionDAO. Raising nearly $50m in a month in a crowdsourced way is unimaginably cool (who else achieves similar numbers, apart from US presidential candidates with huge fundraising teams?), but the transparency of its actions and resources doomed the DAO to failure.

I think there’s a credible claim that this is the closest crypto has gotten to its ultimate promise, in fact. How poetic then that its main actual output ended up being a worthless token that was pumped to absurd prices by degenerate gamblers after the DAO failed to achieve anything.

This kind of ideological commitment has been bad for the industry, not just because it allowed Ken Griffin to outbid us at an auction. An excessively stringent desire for transparency, democracy, and trustlessness means excessive constraints and obfuscation around decision making and available strategies.

The wider the audience of a discussion needs to be, for example, the less context can be assumed, the higher level the discussion will tend to be, and the more it will all get pushed towards the meta. It forces groups into discussions about “incentives” and “systems”, instead of one-time tactics and action. But incentives and systems are not enough to make things happen!

Most commentators credit VisiCalc as being the first piece of software which made it worth it for non-enthusiasts to buy a personal computer. Its usefulness was quickly obvious, and it allowed users to do things they simply couldn’t do any other way. Its success was resounding (for the time. It shipped ~7.6k copies in the first 6 months), and (it seems) effortless.

But the launch and sales were in fact the result of manual and effortful work from Dan Fylstra and his publishing company VisiCorp in the year leading up to launch: convincing retailers to stock it, training their staff, running demonstrations and providing support.

Conveniently, VisiCalc gives us a look into what happens when one stops all of the above in an emerging industry in favour of “scalable” growth: things fizzle. VisiCalc (the developers of the software) and VisiCorp (the publishers and architects of the distribution network outlined above) had a bad breakup in 1984. VisiCalc decided to run a large but operationally simple ad campaign to sell its product directly to users. Despite selling it more cheaply than it would have cost in store, users just didn’t bite.

To succeed, do things that don’t scale. But you can’t do things that don’t scale as a distributed and leaderless collective. That’s the remit of smaller groups, pursuing unsystematic actions, with authority and leeway granted to individuals so they can adapt to the weird intricacies of the real world.

My favourite example of this comes from the early days of NBI, the precursor of VISA, and itself an organisation designed to coordinate 3000 competing (and mutually distrusting) banks. NBI would have the job of governing the BankAmericard network in a democratic way, but almost everyone involved would have preferred to go at it alone. So the founder, Dee Hock, just phoned all of them individually: I struggle to think of crypto founders who have put in similar kinds of schlep. Maybe the founders of some centralised exchanges?

Restated: to succeed, move towards the Conspiracy end of the axis.

Tools for Conspiracy

It feels like conspiracy is at odds with the end goals of crypto, but I think that’s backwards. Instead, we appear to have landed on a set of ideological beliefs partly out of necessity, and these are now restraining us.

Establishing trust on the internet is incredibly hard: it’s an adversarial environment and very often distributes information without much accompanying context. This is one of the problems that crypto recognises and wants to deal with, and its one of the reasons it leans so far into transparency and “systems”: if you can observe everything, including all the immutable rules that you will subject yourself to as well as what everyone else is doing, you can independently verify you won’t get screwed.

In other words: crypto sees the trust problem the internet created, has noticed that most of our institutions rely on trust networks which can no longer be assumed, and decided the way out was to build new, trustless systems.

But after a decade, I think we should confront ourselves to the idea that trustlessness implies ineffectiveness, and we should perhaps try to go the other way and build tools and technologies which help establish trust, instead. Crypto should move away from building tools for activism, and towards building tools for conspiracy.

Our goal should be to give small groups the ability to find each other, acquire resources, coordinate, and act without needing the approval of others (and in fact without even needing to make their existence known). This would require building ways for gradual, scoped information sharing while remaining on neutral and trusted coordination environments.

Think of ConstitutionDAO being able to showcase how many contributors they’ve gathered if that is beneficial, but have the total amount raised be known only to a few core DAO members. Contributions could be completely anonymous (until and unless a particular donator wants to prove that they have in fact contributed), and yet the pot of money still governed by very specific rules. One could even imagine that knowledge of the DAO itself could be restricted to certain on-chain communities.

When the auction comes around, DAO leadership can choose how to bid to maximise odds of success. Post auction, they can publicly prove that the amount they paid is the only amount which has been withdrawn.

All of this without touching any middle men save the auction house.

This, to me, is a version of crypto I’m excited about: small groups able to make use of neutral platforms and tools to pursue their own goals without having to ask for anyone’s permission, nor involving anyone they don’t want to involve.

I want to see an outsider candidate win an election after having raised funds without relying on traditional financial infrastructure, where donors are anonymous to the outside world, and where they created common knowledge of their preference in the lead up to the election without any of them having to bear the cost of publicly raising their hand first.

I want to see open source AI research orgs get funding and govern the AIs they develop, even if the New York Times or national governments object to their goals.

I want to see crypto give breathing room to efforts which would otherwise be quashed by unfair regulatory burden, until they have the resources and legitimacy to shift regulations.

The incredible news is that these are things we know how to build. As Vitalik highlights in his post, zk proofs give us seemingly magical ways to have both the advantages of public blockchains and user privacy, and they’re already in real (though very niche) use.

Making things happen

But the building blocks being available isn’t enough, as we’ve seen above. Making this happen will require taking on schlep in a way very few in the industry seem willing to.

Dee Hock and BankAmericard give us an example of how to bootstrap a network: ship 65k unsolicited cards in Fresno, California, and then cajole and coerce every merchant you can in the area to accept them.

The Fresno drop is a useful example in part because I can’t imagine something like this being legal, in our day and age. Make of that what you will.

In 1975, MITS released the Altair, which convinced many that their vague hopes and dreams about a personal computer was finally actually going to happen. It would be neat to have a computer all one’s own, and now you could.

But it was all for hobbyists until the early 80s, when PCs started being good enough and useful enough to be of use. VisiCalc’s release in 1979 is almost always painted as the turning point.

Comparisons to previous eras and other industries are always fraught, but they can allow you some level of insight if you’re cautious. With the context I have in crypto and given my attempt at understanding the early days of personal computing, I think we’ve had our Altair moment (sometime in 2014), but we’ve yet to have our VisiCalc moment. It’s no big surprise it’s taken a bit longer to happen: VisiCalc had the advantage of each individual buyer of their product being able to quickly see the value it’d bring to their life or work, independent of how many of their colleagues or friends used it. This is obviously not true of Crypto, but I think our own inflection point is within reach.

I'm a co-founder of Aztec, and created the Polaris Fellowship. I angel invest in ideological founders. I occasionally host essays on this site.

I'm most interested in talent, trust, privacy, and the future.

I'm also currently thinking about cryptography, the process of becoming, the history of technology, and the culture of technology.

You can follow me on Twitter.
© 2024, Arnaud Schenk