What's Wrong In The Blockchain Industry

No, I’m not going to write about what the naysayers are already saying about the blockchain. We have heard these objections ad nauseam: tokens are made out of thin air, it doesn’t do anything we can’t do already, no use cases, every token is a scam or Ponzi scheme, cryptocurrencies are not real currencies, crypto can’t become too big to fail, etc. 

Rather, I’m writing about a constructive critique in terms of weaknesses that need to be addressed if we want to see the blockchain/crypto industry prosper to greater heights. That’s why the title specifically says “IN” the blockchain industry, not “WITH” the blockchain industry.

Here are the issues that need to be fixed, in my opinion.

1/ Become Regulation Friendly 

I’m not saying the industry needs to blindly surrender to established de-facto regulation. The regulatory field is complex and nuanced. Whatever the end-game is, crypto needs to be compliant with it, and then prosper within those rules. Regulation shouldn’t be suffocating innovation. So, that doesn’t mean that the industry needs to stop lobbying for, and educating legislators about the right way to evolve some parts of the current rules or create new ones. Ideally, we need to see updated regulation that is more friendly to crypto. 

2/ User Experience Matters 

No technology has gained mainstream experience without espousing absolute simplicity and ease of use. Today, many products and services (including wallets) in the blockchain space have horrible user interfaces and user experiences. As if they were not designed with the mainstream consumer in mind. This needs to change. I am longing to see crypto products that generate a “Wow” effect from a user experience point of view. 

3/ Standards, Standards, Standards

There are two types of standards: de facto or industry ones. De facto standards just happen because of adoption success. Industry standards are developed by competing industry players that agree on common ground principles that are neutral to their competitiveness. Sadly, I do not see enough de facto standards emerging in the blockchain space (especially across chains), and I see no cross-industry initiatives at the technical level. That brings us to the next topic. 

4/ Inter-Industry Cooperation

Related to the point above on standards, the industry needs to collaborate more on important infrastructure or middleware related technologies because these are the enabling blocks for creating the ultimate applications that users will be attracted to. As it stands, there is too much competition, and not enough co-operation. In the non-technical realm, yes, there are some “blockchain associations” counting several industry members, but I firmly believe we can do better and more in this area in terms of effectiveness and results.

5/ No-Code Solutions

The reason we now have 5 billion Internet users is because it’s so easy to get in and start using it via the many on-ramps such the ones provided by social media, email applications or e-commerce. Behind the scenes, what also made this possible is the wide availability of “no-code solutions” that allow anyone via a few clicks and some common sense to create something worth attracting users to. For e.g., in the area of publishing, Wordpress or Tumblr (previously) lowered the bar for creating a personal website by enabling anyone to do that without the help of a developer. Shopify allows anyone to start selling their products online, just like that, with a few clicks. We will need similar types of no-code solutions that allow anyone to create new experiences that depend on the blockchain.

6/ Better Industry Voices

Last year, the mainstream media was too heavily focused on painting Sam Bankman-Fried as the perfect poster boy of crypto. Today, we know where that story led, and we are still overhung by that unfortunate head fake from the previously (arguably) most popular crypto cheerleader. Industries need cheerleaders to advance, just as for example Elon Musk was that special charismatic voice for the Electric Vehicles industry. There are lots of good and smart people in crypto, but we need more of their voices to be heard, and we need the mainstream media platforms to find them, respect them and amplify their voices while they give less airtime to the promoters, speculators and wannabes.

These are all strategic issues that will take time to get fixed. But we need to work on them.

European Regulators Are Potentially Getting Us Closer to Web3

European Union regulators have been scoring some important gains against the large tech companies, namely Meta, Apple, and Google.

These recent developments are significant as they hit at the core elements of these company’s business models, while benefiting users, and potentially removing some of the barriers that might have held web3 from advancing.

The Irish Data Protection Commission (DPC) and European Data Protection Board (EDPB) have piled on Facebook and Instagram prohibiting them to force user consent of data sharing for the purpose of ad-targeting. A win for data privacy and user choice. 

The European Union is now forcing Apple and Google to require alternatives to its App Stores, including payment systems. This will be done via a new interoperability obligation between messaging services, in addition to banning non consensual data collection for the purpose of targeted advertising. This development is for real, as Apple and Google are now preparing to allow the sideloading of Apps in the not too distant future.

Korean regulators have also been hawkish on anti-Google/Apple practices, and they have already enacted a law that restricts these players from charging app developers from Korea commision on in-app purchases within their stores. 

Finally, another indirectly related development pertains to the European Union requiring Apple to adopt a more universal charging cable standard at the expense of its proprietary “Lightning” cable by December 2024. Not squarely web3-ish, but a good stop to monopoly driven requirements. 

Let’s extrapolate and imagine. All these developments have implications into the future as they represent many of the required conditions for web3 to prosper. 

• More decentralization of services

• Dismantling of central, powerful monopolies

• Less revenues for central players

• More revenue opportunities to new players

• More user data privacy and choice about its usage

• More choice of payment services (think crypto eventually as one of these choices)

All these efforts took time to materialize. The App stores change situation got started in 2016. But these are big shifts. 

Let’s hope these developments are followed in the influential US market although US regulators have not been as precise nor prescriptive as their European counterpart, even if they have imposed occasional fines. Message to US regulators: it’s not the penalties that count. It’s the required changes that accompany them. 

How to Stay Focused in Blockchain and Crypto

Another notable development about 2022 was seeing the blockchain narrative being hijacked by the mainstream media with stories about scams, failures, negative tales and an obsession with focusing on trading, cryptocurrency prices and the politics of regulation. Of course, these developments are part of the ebbs and flows of the market, but they are not the main thing. 

The main thing about crypto should be talking about where crypto fits, the variety of use cases, where it is already making an impact, and its future potential.  

The real universe of crypto, its communities and ecosystems are focused on advancing the crypto vision and making progress along so many dimensions.

To clear the fog, here’s a way to frame the activities surrounding the blockchain segment. It is a strategic framework, and doesn’t get into the technology weeds. 

Simply put, if you gave me 5 minutes to depict the blockchain’s potential, and explain the blockchain opportunity, here’s the narrative I would give. 

There are 3 key areas of opportunity for the blockchain and crypto:

• Re-imagine / enhance financial services globally with crypto as a new form of money or blockchain as new infrastructure.

• Improve or create new Web/Online experiences where consumers are at the center & earning value for their contributions.

• Enable new decision-making governance platforms for organizations / communities that want to better empower their stakeholders. 

The diagram summarizes the application areas where an end-user is affected. It doesn’t include infrastructure products (e.g. Ethereum L1/L2, Solana, etc.), nor the variety of middleware services (e.g. Chainlink).

The examples are numerous. 

In the Finance segment, there are so many opportunities for applying cryptocurrency as digital money, creating cryptocurrency-based financial products (e.g. lending, borrowing, etc.), cryptocurrency trading services, decentralized finance and its products, wallets / browser and investment funds.

In the Consumers segment, there is a vast array of use cases in embedding crypto inside Mobile Apps / Websites as native web3 use cases, or by adapting crypto into web2 models, NFT’s & derivative products, gaming, music, content, metaverse using crypto, industry-wide applications and enabling new identity and data ownership models for users.

Finally, in the Governance segment, there is so much experimentation potential with decentralized organizational models, the application of autonomous smart contracts tied to decision-making, voting / funding applications, decision-making support, and the uncharted territory of countries, states & democracies experimenting with blockchain-based governing models. 

If we re-focus the blockchain narrative along these opportunities, we can help educate the market on what’s really important, and subsequently bring back the right narratives to spur mainstream adoption.

Whither Blockchain 2.0?

2022 was a frustrating year for crypto and the blockchain. At least it was for anyone involved in it. 

At the height of the dot com crash of 2000, the ominous 9-11 event and subsequent Enron fiasco (a couple of months after) delivered the final blow on the tech sector and budding Web. It was the end of an era; the era of imperfect technology, crazy ideas, immature solutions, scams, over-valuations, unrealistic promises, poor market fits and questionable business models with too few users. Many seemingly reasonable Web ideas and promises went dormant for almost 2 years. It wasn’t until 2003/2004 that Web 2.0 rumblings started to make sense with a Web renaissance of sorts.

How we are ending 2022 reminds me a lot of how 2001 was ending. Perhaps the FTX, Terra and other spectacular failures combined to produce the equivalent of an 9-11/Enron effect and deliver a final blow to end that first blockchain era. 

Take that previous statement I made to describe the end of the Web 1.0 era, and we can squarely apply it to describe the blockchain space today. There is a frightening analogy about where we are exactly today in the blockchain sector: “imperfect technology, crazy ideas, immature solutions, scams, over-valuations, unrealistic promises, poor market fits and questionable business models with too few users.” 

We need Blockchain 2.0 to emerge in order to re-spark, re-energize and re-inspire a blockchain sector that has been put on notice that it wasn’t nearly out of the woods in terms of steady growth and mainstream acceptance.

A new era typically takes firm hold after it is finally seen in the rear-view mirror. While still metamorphosing and shaping itself, it is difficult to pin it down because transitory states are not always a good representation of the final state. 

Of course we can hang on to vision and aspiration and connect the dots. But these are not very accurate, because things almost never happen as envisioned. 

While everyone is spitballing web3 prognostications and expecting it to lift the technology sector forward, web3 will not fully materialize without another leap in blockchain technology and more around that sector.

Web3 has its own issues. It is not well defined and it doesn’t really exist (yet) despite numerous dissertations that it’s on the way. 

What is Blockchain 2.0?

Blockchain 2.0 is not a better blockchain, and it’s not about better technology. The 2.0 moniker here depicts a new era where the ensemble of iterative technologies will be easier to adopt, spur more widespread usage, invoke all-around positive awareness, and yield use cases that the common user finds appealing enough to try out and be loyal to.

Blockchain 2.0 will put the users at the center, not just developers. Maybe Blockchain 1.0 placed too much emphasis and expectations on developers, and rightfully so. It was the way to start in order to build-out the infrastructure and tools around it. 

What does Blockchain 2.0 look like? 

I don’t know what it will look like. But I have an idea about the conditions that will need to exist in order to pave the way for it. For Blockchain 2.0 to start unraveling, we will need orders of magnitude improvements along 5 dimensions: 

Behavioral, Regulatory, Design, Adoption and Technology. 

• Behavioral: The mainstream public needs to be more receptive about blockchain technology, and not see it with disdain as something that is not necessary nor needed.

• Regulatory: Governments and regulatory bodies need to stop blowing strong headwinds in the face of blockchain tech and cryptocurrencies, most importantly in the United States. US regulators and legislators are standard bearers. The impact of their actions (or inactions) is felt around the world.  

• Design: Putting users at the center with a user design experience mindset is not only necessary, it is essential. User experiences matter. Users don’t want a user manual to dive into the world of blockchain, web3 or crypto-enabled apps. 

• Adoption: With good design, more users will be active participants, and not just spectators or speculators. We need to see killer use cases that everyone talks about (viral element), and ones that reach a critical mass of users. 

• Technology: There is too much fragmentation currently across the range of blockchain infrastructure choices, so we will need to see a healthy consolidation at the top. Developers want less, not more choices. They need more robust options without having to jump through hoops to cross different technology stacks, because ultimately end-users don’t really care about the intricacies of the underlying technology.

All these dimensions are interrelated, and they will need to align for us to see a full effect. 

In terms of candidate technologies and solutions, almost anything that currently exists is up for grabs and re-invention. New leaders will emerge out of this period of doldrums, just as new tech giants emerged from the rubbles of Web 1.0 (e.g. Google, Facebook, Twitter). 

Let’s face it, there is a lot of immaturity and tinkering in blockchain technology, and the industry needs to do better than tinkering. The use cases for regular users just have to get better. Just to name one sector that holds a lot of promise, I’m holding my breath for more innovation in cryptocurrency wallets, or maybe a browser/wallet combination of sorts. Also, I’d like to see more apps (web or mobile) with embedded wallets as part of the experience. Of course, the App stores policies are a gatekeeper, but that is going to change over time.

Will it take one, two or three years for the blockchain sector to start shedding old 1.0 constraints and decisively enter a 2.0 phase? I hesitate to pin down a timing prediction. 

The blockchain and cryptocurrencies sectors have been beaten down in 2022. But they are not dead. 

Exchanges Don’t Matter

Although recent media coverage was saturated with stories about exchanges (in light of the FTX disaster), let's be reminded where the real innovations in crypto are: they exist way beyond the exchanges sector. 

In fact, I will go as far as saying that maybe there were little financial or technological innovation in exchanges. Grossly seen, they just mimicked a part-bank / part-brokerage service, while doing poorly in aspects such as risk management and customer service among many of their weaknesses. Exchanges focused mostly on a single aspect of the blockchain: speed of settlement in the transfer of money. And that was done without even giving users direct ownership of their accounts.

Exchanges were a low-level proxy to the blockchain, and one could argue that, with the passage of time, perhaps in retrospect they could have been just a temporary bridge to on-boarding users who didn’t want the hassles of self-custody wallets. 

In reality, there is nothing you can’t do with a self-custodial wallet on a Decentralized Exchange (DEX) when compared to what you can do on a Central Exchange (CEX). Actually, you can do a lot more on a DEX than you can on a CEX. And DEXes hold no risk caused by over-leveraged assets. Users get automatically liquidated when certain risk thresholds are reached. So, failures are micro-managed and never systemic.

True that some exchanges started offering additional financial services (e.g. staking, loans) and some NFT support, but all of these extras tended to follow the innovations on DEXes or elsewhere in the blockchain world. And still, no matter what exchanges offered, users didn’t hold ultimate ownership of their assets. 

If you want to see real financial services innovation, go and check out the DeFi side of the market. Granted, DeFi has some issues it needs to solve, but as DeFi sorts out some of its shortcomings, mainstream adoption will accelerate. 

https://twitter.com/wmougayar/status/1592486136198619136

When you take the long term view, it’s conceivable that one day we realize that exchanges didn’t really matter. They were a temporary passage towards a more comprehensive path : the decentralization of finance. 

And when you add the advent of web3, the democratization of the current web will actually happen via web3 apps. There is a whole new generation of web/mobile apps that are being built right now that will include a good dose of decentralized finance. 

The real future of crypto and the blockchain will arrive when it gets anchored with users, not speculators.