What are the forces that will shape the future of the crypto industry?
NB: Nothing in this post is financial advice. Investing has significant risks, and everyone must do their own research to make educated and informed decisions.
In this post, I am going to build on those predictions and propose that the focus of the crypto industry is shifting into a more practical, user-friendly innovation and development cycle, of which, DeFi (decentralized finance) is going to be the center.
Okay. Yes, that is a long sentence, and it sounds intimidating.
Let’s break it down.
This might be controversial, and I’d love to hear different opinions on these issues.
However, the way I see it is that there have been 2 issues preventing crypto from being adopted by an average person:
- Up until recently, Bitcoin was the only serious cryptocurrency, and its primary unique use is being a store of value to beat inflation. While this is obviously important and valuable, being a store of value or a way to beat inflation puts Bitcoin in the same bucket as other assets and requires people to make an active decision to replace their stocks, bonds, and gold (that they’ve known and loved for so long) with a new, volatile, hard-to-understand asset. Yes, the decentralization of Bitcoin is fundamentally different from other assets. However, if the only benefit of this decentralized asset is being digital gold, I believe that most people in western democracies won’t feel a big enough need for decentralization. If cryptocurrency’s only purpose is to be digital gold, most people won’t adopt it quickly because it doesn’t offer anything substantially better than the existing options.
- The user experience of crypto is horrible, especially if you are not technically trained or experienced. Seed phrases, gas fees, miners, long and weird-looking wallet addresses. These are just some of the biggest stumbling blocks in the way of people who want to transact using crypto but are not technically trained or inclined. This industry is new, and in many ways, it is similar to the early days of the internet. Just like the internet used to be, crypto’s complex user experience is a gigantic barrier to entry for many people, and this is after people make peace with the idea of buying/investing in “imaginary money,” which operates outside of the control of any government. Blockchain and crypto are foreign to so many people in a number of ways.
Ethereum and Decentralised Finance (DeFi) are the beginning of the solutions.
DeFi enables regular people to circumvent the large, slow, and inefficient traditional financial system. Using DeFi, people can open accounts instantly, earn significant interest, and loan/borrow money instantly. These capabilities are revolutionary by themselves, and incredibly, they are just the beginning.
DeFi is not only useful for individuals and companies who want more efficient ways of managing their money. The DeFi business model, with its reliance on smart contracts, also enables us to build the most efficient companies we’ve ever seen. Companies with less than 50 people can compete with gigantic, legacy financial institutions which have hundreds or thousands of employees. (Yes, I agree. The similarities to the internet are inspiring.)
DeFi changes the value proposition for people. Instead of only offering another way to beat inflation, crypto now offers a host of financial services which put more money in the pocket of the consumer and are impossible to replicate in the traditional finance world.
We are also seeing a number of companies and projects starting to fundamentally change the user experience to make the crypto/blockchain experience feel more familiar for people and companies.
The two examples which spring to mind are Bitclout, which has abstracted away the need for seed phrases for new users while maintaining security and decentralization, and Compound, which is offering DeFi staking and the ability to earn 4% interest to companies without requiring the companies to understand anything about crypto or DeFi.
One of the existential, albeit incredibly unlikely to materialize, risks to crypto is that it remains hard and unpleasant for most people to use. Because a financial system is essentially a giant network, we need more people to join the network so that we can truly build the financial system of the future.
These themes, DeFi, and user experience are going to shape the future of the crypto industry. There will be ups and downs along the way, and there are so many more details that could be discussed. But, the big picture is clear. More DeFi plus more users equal more money and autonomy for people. That is exciting.
The crypto industry is shifting into a more practical, user-friendly, innovation and development cycle, of which, DeFi is going to be the center.
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