Economic Over Technical Improvements
When considering the attributes of candidate cryptocurrencies, you should always prefer economic over technical improvements. The obvious example is Bitcoin, which over the years I have been active in crypto (2011-Present), has lost about half its market cap to altcoins. You could sensibly make the argument that the largest altcoins by market cap have focused on solutions that facilitate adoption, and these solutions are largely based on economic incentives. Bitcoin has focused on technical innovation to the detriment of economic optimization.
Let’s look at Ethereum. I think it’s fair to say that Ethereum is a technical marvel, it’s mind blowing that you can compute arbitrary code on a peer to peer network, the applications are legion. But for all its technical hoo-rah, the value driving proposition in Ethereum has been its ability to easily tokenize value (ERC-20), and manage and distribute that value; all this founded on economic incentives based around low cost exchange. You can cheaply tokenize any value and create a market for it, there is nothing stopping you from tokenizing, say, shares in your home, or ownership of your time. Ethereum took the real world IPO scene and mixed it up with venture capital and wrapped it in a stocklike token with a bow, it became economical to trade ownership in goods and ideas in decentralized and trustless way.
Was the ERC-20 token mad rush of 2017 the point of Ethereum? No, of course not. But it’s certainly the one that has driven its adoption and price appreciation. Other applications will arise out of the ethereum platform, but cheap and seamless transfer of value will likely be key to all of them. Moving money very cheaply, or perhaps even free of charge, is a great incentive to adoption for many, many people. From this perspective, the scaling debate makes little sense. In 2017 Bitcoin near collapsed as mempool transactions slowed to a crawl, I personally experienced an eight hour transaction delay on a Bitcoin payment (with a $35 fee), others experienced much worse.
Two solutions were proposed in the scaling debate: one was to increase the block size, which was relatively simple and which other cryptos such as Dash and Bitcoin Cash have done with no ill effects; or to take years to over-engineer a technical solution (lightning). I made a bet back then that will take at least a decade to be decided, but which the growing market cap of altcoins seems to support: I wagered that Bitcoin would lose its dominant position to altcoins that offered proper economic advantages for users wishing to transact in medium of exchange tokens.
It is not just the tokenization of value that benefits from the efficient economics of a crypto asset. The efficient transfer of value within an ecosystem, such as Dash, can and has started to spawn a large network of value added services tapped into the ecosystem. These services build upon the Dash platform and have spawned in places such as Venezuela, where businesses and users are building around the ability to transact value at very low cost to create new applications of value transfer atop the network.
Dash’s treasury innovation, which allows it to fund projects in a decentralized way, directly from the blockchain, has allowed it to fund teams focused on development and user adoption literally spanning the world. Dash’s economic innovation was the redistribution of the block reward to efficiently fund its own development and growth. All this was wrapped in a technical innovation: masternodes, but the key to Dash’s growth has been economic efficiency. Did I mention sub-cent transactions?
It is important to remember that these are just two applications that can be built around optimizing the economics of a token around value. There are many other possible applications that can be built; IOTA comes to mind, for powering a decentralized economy for Internet of Things devices. It is simply a mistake to prefer these over-engineered solutions against optimizing for the efficient economics of a platform. Make no mistake, as cryptos have evolved, they have become platforms upon which to build value as opposed to simple tokens. Value will flow to low cost, open blockchains.
I think it’s hard to argue we are still in the early stages of crypto, no coin has yet reached mass adoption, and the goal of all cryptocurrencies should be mass adoption. It should not be about what we want a coin to be, that is a store of value or a medium of exchange, it is about how we make our asset useful and thus valuable to others. The goal is mass adoption. I think that economic incentives trump technical ones to achieve our ends.