Title: The Ever-Evolving Landscape of Cryptocurrency: Challenges and Perspectives
Cryptocurrency is best suited to maintain its niche market position. The most significant crisis the cryptocurrency industry has faced so far undoubtedly was the rapid decline and collapse of FTX. Sam Bankman-Fried’s personal treasury, at the time of collapse, was the world’s third-largest cryptocurrency exchange. This event had a tremendous impact on the entire industry, not only causing a steep drop in cryptocurrency prices but also affecting numerous related businesses.
By the end of 2022, there was uncertainty about whether the concept of cryptocurrency could make a comeback — apparent fraudulent behavior by one of the most consumer-savvy and trusted cryptocurrency companies seemed to validate the widespread belief that it was all a facade to cover up fraud.
However, things seem to have taken a turn since then, although there’s a general concern that the industry is repeating past mistakes and may face consequences again. For seasoned cryptocurrency investors and observers, this has been the norm: the cyclical fluctuations in the market have become part of daily life since the Bitcoin market crashed and then recovered post the Mt. Gox exchange collapse in 2014.
But isn’t it strange that this increasingly mature industry perceives these cycles of boom and bust as normal? In my view, whether any blockchain technology or consumer application can achieve widespread adoption depends largely on its token prices — or rather, the industry as a whole — not constantly facing the risk of imminent collapse.
The biggest challenge in the development of cryptocurrency is its own growth. The extreme optimism during market highs and extreme pessimism during lows, cycling roughly every four years, is a consequence of cryptocurrency’s pursuit of widespread adoption. This aggressive pursuit is a typical example of what economist Robert Shiller describes as “irrational exuberance.” The promise to fundamentally change the core values from currency to the internet itself sparked people’s interest. People were drawn to the idea of decentralization (or, for many, the hope of rapid profits). As popularity grew, so did prices, further stimulating more investment — until a point of failure occurred.
Almost without exception, what fails are the things that blockchain was originally designed to replace. And these things are almost always designed to make cryptocurrencies easier for users to accept and use. There’s a prevalent view that the “masses” may not opt for self-custody of assets. But what’s the point of assets like Bitcoin if they’re not self-custodied?
Alex Thorn, head of research at investment bank Galaxy Digital, notes that “with the increase in user numbers, a risk is that new users may not understand the core tenets of Bitcoin, such as decentralization, self-custody of assets, hard money, and other concepts. If these new entrants do not learn, understand, and support these core principles, the protocol features that enable these principles may not be sustained over time.”
Adopting cryptocurrency means adhering to laws (often conflicting with cryptocurrency values) and establishing easy-to-use login methods (which may be susceptible to attacks). There’s a tension between the goal of decentralization and widespread adoption. If cryptocurrency grows too large, it may undermine its truly valuable functions. Nathan Schneider, media studies professor at the University of Colorado Boulder and author of “Governing Space,” points out, “Just being absorbed into the mainstream financial system would ultimately lose many of the significant opportunities this technology offers.”
Paul Ennis, lecturer at University College Dublin, also expresses a similar view, saying, “Cryptocurrency is a subculture that refuses to acknowledge itself as a subculture. Many of the problems we face stem from the discussion of ‘getting the next billion people on board,’ leading to a gradual degradation of our values.”
There’s an irony in developers, founders, and investors spending 15 years and billions of dollars searching for a blockchain’s “killer app” when it has existed all along. Satoshi Nakamoto and those who truly followed in his footsteps have created a digital bearer instrument that is free to use and difficult to take away.
This is the core of cryptocurrency.
This is why, even though almost no one uses Bitcoin to buy coffee, many use privacy coin Monero (XMR) to purchase various goods on the dark web. If you observe how cryptocurrency connects with the real economy, you’ll find it primarily active in specific areas, including the black or gray market, stablecoin remittance channels, and activities of hobbyists.
Please note that these markets are significant in size. However, today, as cryptocurrency seems to be on the brink of a breakthrough, this usage pales in comparison to the speculative use of cryptocurrency, where capital flows in, moving from one coin to another or one protocol to another, causing digital assets to surge — essentially forming a circular economy.
This is not inherently wrong. Gambling, to some extent, is also an application scenario. But if people want cryptocurrency to be used more productively, developers, founders, and investors should develop products for those who genuinely need censorship-resistant currencies and tools. Basically, this means only a small fraction of people would be interested.
This is just my perspective, and many may disagree.
Other viewpoints:
Molly White, a critical cryptocurrency journalist behind Web3IsGoingGreat and author of “Citation Needed,” believes cryptocurrency has gone mainstream. In a private message, she said, “Although there are still some smaller-scale projects in niche markets, I believe cryptocurrency’s mainstreaming trend is irreversible with figures like Brian Armstrong and Sam Bankman-Fried interacting in Congress, and with BlackRock and Fidelity launching Bitcoin ETFs.”
Privacy advocate, educator, and seasoned Monero user SethforPrivacy holds a contrary view. He stated, “Unfortunately, most people haven’t yet realized the importance of Bitcoin and are not willing to take on so much personal responsibility, so we must focus our efforts on improving Bitcoin for those who truly recognize this need today.”
There’s an argument that decentralization is precisely why cryptocurrency can achieve global adoption.
Alex Gladstein, Chief Strategy Officer of the Human Rights Foundation, stated, “The only reason Bitcoin can rise globally is because of its most cypherpunk attribute: it doesn’t belong to anyone, operated by users, not controlled by states or companies.”
However, what the general public truly desires is not entirely clear. Ethereum supporter Emmanuel Awosika illustrated, “Although we think everyone wants privacy, censorship resistance, and resistance to state attacks, some are satisfied with products that solve problems and offer a good user experience.”
Awosika added that not everyone needs, let alone wants, privacy protection, censorship resistance, and maximal decentralization, “but we should strive to get as many people into cryptocurrency as possible.”
Similarly, famous for “Roko’s basilisk,” Roko Mijic believes that it is scale that gives decentralized tools power, particularly evident in Bitcoin, as Bitcoin miners are spread worldwide, making it difficult to attack. “In a small-scale cryptocurrency network, you can’t resist censorship because the government can easily destroy the entire network,” Mijic said.
Justin Ehrenhofer, founder of Chicago Moonstone Research, also shares a similar view, pointing out that a currency is only useful when widely accepted, so “cypherpunks should focus on building systems that attract outsiders.” However, he also added that with large-scale adoption, the spirit of cryptocurrency has somewhat degraded as regular users store their assets in custodial exchanges.
The real question here, in my opinion, is how important the core values of cryptocurrency really are.