Why I’m Long Crypto, Short DLT
I've had a remarkably good year as an industry analyst - a term I prefer to call an "expert". Almost no one is an expert at crypto, to be fair. So many things change every month.
Last October, after the end of a fairly fun and intense trip with ConsenSys, during which I spent most of the time talking to financial institutions about Ethereum, it was painfully clear to me that the future of blockchain technology was not in private, approved books . On the positive side, institutional fear and resistance to public networks without permission and crypto were starting to fall apart. So I made a sharp left turn off of the so-called Enterprise Blockchain in Crypto and did some very useful contract work with crypto startups like CDG and then Binance and Paxful - two of the world's largest crypto firms.
This post is part of CoinDesk's 2020 Annual Review - a collection of posts, essays, and interviews on the year in Crypto and beyond. Ajit Tripathi, a CoinDesk columnist, is the Crypto co-host of the Breaking Banks Europe podcast. Previously, he was a fintech partner at ConsenSys and a co-founder of PwC's UK blockchain practice.
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Related: Crypto's Big Break Comes in 2021
It was a good call. Being at the intersection of “tradfi” and crypto and having worked deeply in both spaces has given me a rare perspective on the dialectic between the twin forces of the cypherpunk revolution and the resistance on Wall Street. I'm going to tell this story of megatrends with links to my articles that have proven to be particularly forward-looking this year and are likely to pass the 2021 test as well.
Long open internet, short consortium
Just before Bitcoin and Ethereum were soaring, I wrote an article challenging Chris Skinner, a close friend who is one of the world's foremost fintech experts. I argued that even though crypto was still edge, that edge was now big enough to start a snowball. Chris and I finally agreed that this blockchain was not the same "private DLT" consultants (like me once) pushed for banks and corporate clients, but rather a compelling technology and real source of technological innovation on the internet. [FYI, when Chris mentions something in fintech, it usually does.]
Long India, short crypto ban
After ConsenSys founder Joseph Lubin's famous lecture about "one million developers" at last year's Ethereum developer conference, I tweeted and asked how Ethereum would get a million developers without India, one of the world's largest developer pools in all technology areas.
It turned out that all of us in the west were all concerned about the crypto ban in India. Developers and entrepreneurs in India built some really cool crypto technologies exemplified through projects like Matic Network, Marlin Protocol, Instadapp and Razor Network (Disclosure: I. have a small investment in Razor and Marlin and I hold a small amount of Matic) . Meanwhile, some of the best investors in the field, including Arjun Balaji from Paradigm, Avichal Garg from Electric Capital, and Binance Chairman Changpeng "CZ" Zhao, had started investing in India's crypto ecosystem and were Bitcoin buyers surfaced on peer-to-peer bitcoin platforms like Paxful.
Related: Here comes the open lending era
For this reason, in my CoinDesk article, I declared the decision by the Supreme Court of India to lift the crypto ban a victory for the entire crypto ecosystem. If you are a crypto investor today and you are not investing in India, you will still regret it.
Long Polkadot, short "Eth Killers"
(Full disclosure: most of my crypto net worth (also known as pockets) is in Ethereum. I'm a small Eth 2.0 staker and don't have much polkadot or kusama yet.]
In a popular YouTube interview with SwissBorgs Alex Fazel earlier this year, I courageously declared Polkadot the likely Ethereum disruptor today. I argued that not only had Gavin Wood contributed groundbreaking ideas to Ethereum 2.0, but had seen firsthand how the Ethereum developer community was built and, in my humble opinion, "he knew exactly what he was doing".
See also: Ajit Tripathi - Banks Must Now Introduce Crypto
I see Polkadot as Eth 2.0 without the technical debt and a lot more clarity in terms of vision and technical roadmap as I run the risk of annoying my colleagues from the Ethereum classic car. If you ask dapp developers today, Polkadot lacks the wealth of developer tools ConsenSys has developed to power the Ethereum ecosystem. In a way, Polkadot lacks its own ConsenSys - a venture studio that invests in developer tools and infrastructure. This hasn't stopped Polkadot from already becoming the second most popular blockchain for decentralized finance (DeFi). If Polkadot finds its own portfolio of powerful developer tools it will be a very tight competition.
Conversely, Ethereum can maintain its lead by occasionally stepping back from open research and giving its core component - dapp and DeFi developers - more architectural clarity sooner rather than later. The Ethereum Foundation is doing very well by promoting innovation in Layer 2 protocols to allow optimizations for various non-functional parameters. Layer 2 protocols, a state-of-the-art developer toolset, and network effects could keep Ethereum ahead of the game, but it's far from over.
Long parachutes, short propeller chains
It amazes me that some of Crypto's biggest winners still don't want to joke about the internet. Without naming specific countries, entities, or individuals, there is no end to really smart, wealthy, and powerful people trying to own their own blockchains, their own stacks, their own smart contract languages, and therefore their own vertically integrated crypto ecosystems and can control to bring to market. In essence, too many proponents of crypto want to be the epicenter of decentralization. It's only funny because it's true.
These are smart people, and in an unregulated, short-term environment, it has historically been possible to start your own vertically integrated crypto ecosystems extremely profitably. As Vitalik has famously described in his “Trilemma”, each blockchain is optimized for a number of problems at the expense of another. This has resulted in simple distributed ledgers being created to improve transaction throughput (Ripple), CS professors creating throughput optimized chains (Avalanche and Algorand), engineers creating complex scalable calculation chains (Solana), and centralized notaries for exchanging Transaction data (Corda). The latter problem "one size does not fit all" is solved by Polkadot with Parachains and Ethereum 2.0 with Sharding and (perhaps) sidechains.
Too many crypto champions want to be the epicenter of decentralization. It's only funny because it's true.
Internet history doesn't repeat itself, but it does rhyme. At some point I will no longer see a chaotic multi-blockchain world. I see a "parachute" and "mainnet" world - blockchains that are based on a common set of standards and rules, whatever their name, will be connected. The Internet of Value will be built on organized chaos and proprietary "My Blockchain is Better Than Your" architectures like corporate DLTs and Hedera Hashgraph will be dropped due to a lack of connectivity and developer adoption.
Long correlation, short diversification
My day job at Binance was building Fiat drive-on ramps - something I was particularly well suited to through my training at banks and PwC. This gave me an inside look at how quickly mainstream (fiat) fintech attitudes were changing. In 2017 I had seen British “high street” banks reject bank accounts for Coinbase firsthand (which they certainly regret), and in 2020 e-money institutions and banks suddenly became very interested, with all the major ones Collaborate with crypto exchanges.
This pleasant surprise led me to write a number of articles describing how COVID-19 changed regulators' attitudes towards crypto, how the fiat and crypto worlds began to converge, and why this convergence of fiat and crypto was good, in short will be running for crypto, but in the long run a mixed blessing, why central banks need to reduce fear and adopt central bank digital currencies for retail customers and, last but not least, why banks need to adopt crypto now to stay competitive in a digital world and money and smart wallets.
Long Satoshi, short Saylor
If you are an executive of a bank, hedge fund or money manager today and you have no crypto strategy, you are making your board very unhappy indeed. A worrying conclusion, which I didn't mention before, is that the entry of funds and corporate bonds increases the correlation with other risks to assets like stocks and removes one of Bitcoin's greatest value proposition for institutions - diversification.
Bitcoin, like Apple, is a multi-hundred billion dollar brand, but as Professor Scott Galloway argues in his brilliant book Post Corona, we live in the age of products where the product must do justice to the brand's narrative. The narrative about Bitcoin has changed almost every year, and the digital gold narrative eventually sticks to the likes of Michael Saylor and Jack Dorsey, also due to the relentless pressure of money by Western governments.
See also: Ajit Tripathi - Bitcoin is good for PayPal, but is PayPal good for Bitcoin?
At some point, the novelty value of crypto assets will wear off for PayPal and CashApp customers, the bear market will kick in, average consumers will lose money, and CashApp's bitcoin-driven loyalty numbers will go down, as is the case with Tinder, Facebook and Instagram and everything others that are new and gamified.
The only way Dorsey can achieve his vision for Bitcoin is by investing in the technology that will move the "GODL" narrative back to Satoshi's original "P2P Internet Cash" narrative. The world needs internet money that enables censorship-resistant instant cross-border consumer payments. It doesn't take digital gold or gamified money if it's a commodity that is cornered by some early institutional whales, or if it becomes more and more correlated to the stock market over time.
Long dapps, short fat logs
In the past, the crypto game book consisted of competing with Bitcoin and printing undifferentiated “Burning Man” money. It does this by starting its own blockchain with protocol tokens, which increases the number with marketing, procurement management, community building and building a loyal following of consumers who couldn't be less interested in the technology or the benefits.
Part of this is because dapps haven't really been useful until now. DeFi dapps like Aave and Uniswap have changed all that. These dapps are now extremely useful for crypto-enabled users as the average monthly users and volumes continue to increase. Crypto is no longer just made up of coins, marketing, and fat logs. Additionally, there hasn't been a real Web3 real economy as yet, but it's now going online with non-fungible token and gaming token marketplaces like Gemini's Nifty Gateway.
This sharp increase in the utility of dapps is a turning point and a sneak preview of the future that lies ahead. The next bull run isn't one of the Bitcoin or Fat protocols. When blockchains converge towards a "parachute" or "sharded" future, the next bull run in 2025 will belong to decentralized applications and take place on the dot.com scale. I wrote about it in my sub-stack: "Why should you watch out for DeFi?"
I hope when I retire all of these blogs and articles will appear in a beautiful historical chronicle from Web3. If no one else wants to print them in book form, I might pay a couple of ETH or DOT to print them and buy all of the copies :-). Yes, paper books will unfortunately outlive at least my generation.
Why I'm Long Crypto, Short DLT
Why I'm Long Crypto, Short DLT
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BTCUSD = X.
ETHUSD = X.
GC = F.
ZG = F.
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