It’s digital beanie babies

The current hype around Crypto and web3 is absolutely insane. There’s very little probability we do not look back at this craze as being even sillier than what occurred during dot-com bubble. It’s disheartening to see so much talent, effort and attention poured into projects that are either get-rich-quick schemes, scams, purely for speculation and or do not appear to provide a good solution to any problem.

Above, Mark Cuban explains how DeFi solves the age-old problem of traditional finance institutions making it difficult to provide over-collateralized loans.

I am happy to be wrong. Perhaps people like Chris Dixon (a16z) and Matt Huang (Paradigm) are genuinely allocating resources wisely and that we’ll see some really great products come from this space in the near future. However, I largely share the views of Stephen Diehl who has been writing some fantastic blog posts on the lack of utility, environmental impact and the disconnect between the crypto hype and reality.

… we see blockchain as a technology that barely works and whose use cases (if any) are vanishingly small and niche. Blockchains are a solution in search of a problem, but in the meantime we’re expected to pre-invest in “tokens” while the decades roll by with seemingly no progress on the fundamental question of “For what?”.

– Stephen Diehl

Stephen says it all perfectly and I do not think he is wrong. Along with being a tool to dodge financial regulation, I also think that crypto/web3 and AR/VR/metaverse projects are a sinister way to persuade regular people to buy and “invest” in non-performing “assets” that only exist virtually. In this cyberpunk dystopian reality that we are rushing towards, you will be encouraged to buy and collect NFT’s that give you some privileges in a virtual world, whilst the smart ones will be collecting actual assets, assets that entitle them to cashflows, equity, voting rights or similar. I note that real world currency markets for virtual items have existed for over two decades now. I am old enough to remember rare items in Ultima Online¹ selling for thousands of dollars, but now it’s going to be cool and “on the blockchain”.

Some predictions

As of 2021-11-27, here are some things that I think will happen in the crypto space over the next 0-5 years:

• Bitcoin remains the number 1 cryptocurrency by market cap.
• Solana’s market cap will overtake Ethereum’s.
• Solana replaces Ethereum as the primary token for smart contracts.
• However, there will still not be any non-trivial use case for smart contracts on a blockchain that cannot be done better using a more traditional method.
• No large corporation uses a public blockchain for anything important.
• Many large corporations will have experimented with blockchains, but they will not be used for anything non-trivial.
• 5 years from now (2026-11-27), most of the tokens in the current top 20 by market cap will not be in the top 20.
• Tether goes to 0, but other stable coins will fill the hole.
• At least 1 major exchange goes down due to fraud or other legal issues.
• >99% of current NFT’s valued over 100USD will drop either drop to <1USD or become completely illiquid.
• Some of the historically interesting NFT’s such as Crypto Punks will still be very valuable.
• In 5 years, DeFi still won’t be widely used.
• There will be more games that become quite popular that use NFT’s and other tokens to represent in-game items. However, the use of these tokens will not provide any functionality other than the players being able to trade outside of the developers platform.
• No major developer, (EA, Activision, Nintendo, etc) will use the blockchain for in-game items. They will never give up control of who owns what.
• VC’s and others that have invested heavily in the web3/crypto space will lose a lot of money, or, cash out before the investments become worthless.