For the average American, cryptocurrency may be just a fad: at best a speculative investment vehicle, and at worst a haven for money laundering and ransom-seeking cyber-terrorists.
But in truth, blockchain technology — which underlies both cryptocurrencies and the promising, loosely regulated world of decentralized finance, or DeFi — isn’t quite so one-dimensional.
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There are, of course, enormous financial opportunities (and risks) everywhere you turn your head. But dig a little deeper than cryptocurrency price fluctuations and surface-level discussions over where the chart will go next, and you won’t be disappointed.
Dig deeper, and you’ll find that blockchain technology has birthed a never-ending Russian nesting doll of innovation and possibility: $200 million millisecond-long uncollateralized loans, decentralized autonomous organizations, or DAOs, that can rival the power of corporations, and so on.
The best investment an average person can make in this space isn’t in a particular coin or token. It’s in learning more about what’s happening and what’s possible. Here are some of the most interesting recent developments in crypto:
— Mainstreaming Bitcoin.
— The future of Ethereum: When’s “The Merge” happening?
— Edward Snowden weighs in on crypto.
— The debate on cryptocurrency’s environmental impact.
— Blockchain enables previously undoable things.
— A colorful, diverse, growing community.
Mainstreaming Bitcoin
To many investors and consumers, cryptocurrency is still a niche, alternative investment. It’s made to feel more foreign due to its inaccessibility in brokerage accounts and 401(k) plans.
Well, there’s now a far more casual, low-effort way to gain exposure to Bitcoin, all while carrying on with your normal life.
Alex Adelman, CEO and co-founder of Lolli, explains what his company does: “We’ve created the first and leading Bitcoin rewards company that gives people free Bitcoin when they shop online and in store at their favorite merchants,” Adelman said in an interview at Consensus 2022, a multi-day crypto conference held in June in Austin.
“We just launched new Card Boosts — this gives people the ability to actually earn in-store at places like CVS, Safeway and Shake Shack,” Adelman said.
Lolli, which began as a browser extension that enabled e-commerce customers to get Bitcoin back for their purchases, now has more than 1,100 online and brick-and-mortar partners. The Card Boosts feature essentially allows users to transform any credit card into a Bitcoin rewards card.
After linking their cards and before shopping at one of Lolli’s in-store partners, users simply go into the Lolli app and activate their Card Boost — then sit back and enjoy free cryptocurrency in their Lolli account.
A number of national chains are Lolli partners, including Starbucks Corp. (ticker: SBUX) (10% Bitcoin back), 7-Eleven and McDonald’s Corp. (MCD) (both 5% back). Adelman says the app has over 500,000 users.
The Future of Ethereum: When’s “The Merge” Happening?
Even those passively following cryptocurrencies may be familiar with the long-planned and highly anticipated conversion of the Ethereum blockchain from a proof-of-work to a proof-of-stake system. The move should make the popular blockchain more secure, scalable, slash gas fees (i.e., transaction costs), and reduce electricity consumption by more than 99%.
Some also expect the move to make the Ether (ETH) cryptocurrency more valuable as the rate of new ETH created may plunge by as much as 90%. The ETH that’s burned via gas fees should then exceed the pace of newly created ETH, reducing the supply and putting upward pressure on the price.
Sounds great, right? The only problem is “The Merge,” formerly known as Ethereum 2.0, has been in the works for years now.
So, when’s The Merge happening? Opinions vary.
“Definitely by the end of this year, it is happening. It will happen this year, I am 100% sure,” said Sandeep Nailwal, co-founder of Polygon, a popular Ethereum scaling service.
Patrick O’Grady, head of engineering at Ava Labs, was a bit more guarded with his outlook. “That’s a no-comment for me,” O’Grady said at the conference. Ava Labs is the company behind the widely used Avalanche smart contracts platform.
Edward Snowden Weighs In on Crypto
One of the world’s most beloved and reviled figures, Edward Snowden, was also at Consensus … via a video feed, of course. Snowden fled to Russia in 2013 after leaking the existence of highly classified spying operations carried out by the National Security Agency. He was promptly charged with three felonies relating to theft of government property and espionage.
Snowden now serves as president of board of the nonprofit Freedom of the Press Foundation. Regardless of one’s views on the former government contractor, he’s uniquely qualified to discuss issues of privacy and liberty.
That said, the issue of cryptocurrency as an investment inevitably came up when he spoke.
“Generally, I don’t encourage people to put their money in cryptocurrencies. … This is what distances me from, I think, a lot of people in the community,” Snowden said.
“Like, I use Bitcoin to use it. In 2013, Bitcoin is what I used to pay for the servers anonymously — or rather pseudonymously, because it wasn’t anonymous — that were the plumbing behind how I transferred these files to these reporters,” Snowden said, referring to his leaking of classified documents.
“Everybody is fragmented into tribes because of the financialization of cryptocurrency. They’re trying to make money off of cryptocurrency. They’re not thinking primarily about, ‘What are the networks that are going to serve us in the next 100 years for transferring value?'”
Snowden continued: “I am worried about a world in which identity is used against us. I am worried about a world in which our money is used against us. And what we need more than anything else is free money … not in the airdrop sense,” Snowden said, referring to a promotional tactic in crypto that gives users free tokens. “In the independence sense.”
The Debate on Cryptocurrency’s Environmental Impact
There is a vigorous ongoing debate on the environmental impact of cryptocurrency, and Bitcoin in particular. At its core, Bitcoin is simply the conversion of electricity into value. It’s the securitization of kilowatt-hours.
Proof-of-work, the method used by the Bitcoin network to verify transactions and mint new cryptocurrency, requires Bitcoin miners to prove a certain amount of computational work was completed. This disincentives a manipulation of the network by making such an attack financially demanding and unfeasible. It also requires energy to conduct the work.
The energy requirements of the Bitcoin network are undeniably large. The Cambridge Bitcoin Electricity Consumption Index pegs Bitcoin’s annual energy consumption at about 92 terawatt-hours. That’s more than what Finland consumes in a year.
Crypto advocates, however, take umbrage with such a surface-level indictment of the young asset class and see the issue as far more nuanced.
Snowden, for instance, directly addressed the “cryptocurrency is terrible for environment” idea:
“These [arguments] are referring largely to older proof-of-work algorithms, which are sort of a legacy institution,” Snowden said. While Ethereum is currently proof-of-work, The Merge directly addresses this issue, and few other prominent cryptocurrencies use the antiquated system.
“But even where proof-of-work is being used, the energy mix is being greenified, it’s improving, right? This is energy that would otherwise be wasted or landlocked. And even where it’s not, we need to understand that energy that is being produced is going to be used,” Snowden said.
Snowden’s far from the only one peeved by this issue. When asked what the public’s biggest misconception about cryptocurrency was, Consensus attendees were almost all on the same page: it was the environmental issue. Arguments ranged from the view that miner demand is encouraging the transition to renewable energy to the claim that miners only use excess energy and thus have no marginal impact on carbon emissions.
Still others take issue with the framing of the conversation itself.
“Everyone’s criticizing this new world of cryptocurrency” over energy usage, Adelman said. “They’re not looking at themselves the mirror and saying: ‘How much energy is wasted by having a physical bank? By printing literal copper and nickel coins? And what does that look like for the world if we can just remove that from the equation and have truly decentralized money?'” Adelman said.
Blockchain Enables Previously Undoable Things
Blockchain technology enables far more than just the proliferation of cryptocurrencies. Decentralization aside, features of blockchain like trustlessness, transparency and automation allow for all sorts of new entities, transactions, services and projects.
For example, blockchain is being used to record, verify and report Russian war crimes in Ukraine in an effort to rebuff disinformation, preserve the historical record and hold war criminals accountable.
The novel applications of blockchain technology don’t stop there, as evidenced by two other fascinating examples of what is now possible:
Decentralized autonomous organizations, or DAOs. DAOs are going to play a larger and larger part in the world — that much seems clear. Often described in shorthand as an alternative to a corporation, DAOs are member-owned entities that are operated and governed transparently by a set of programmed rules. Wikipedia is sometimes given as a close analogy to a DAO-like structure that many people would be familiar with.
While DAOs may sound inoffensive on the surface, “there are definitely areas where there’s tension,” Ethereum co-founder Vitalik Buterin said in a June 2021 interview with podcaster Lex Fridman.
“The concept of corporate taxes, for example — that would disappear as a revenue stream if theoretically corporations just all get replaced by DAOs,” Buterin said. In 2021, Buterin donated $1.2 billion in Shiba Inu (SHIB) to a DAO created to fund COVID relief efforts in India at a time when the delta variant was ravaging the country of 1.4 billion people.
Aaron Wright is CEO of Tribute Labs, which makes technology that helps power DAOs. “At Tribute Labs, we have 13 DAOs. … They all can enter into real-world contracts, they can acquire property, they can hire people, all the basic foundational pieces are all there,” Wright said in a panel at Consensus.
“I don’t know if DAOs will kind of conquer everything, I don’t think the world is that binary, frankly. I think it’s the same conversation with the internet and media — it’s not like The New York Times went out of business, it just kind of morphed,” Wright said.
DAOs, like many things in the world of blockchain, became popular far more quickly than regulations could emerge to govern them. But the fact that there are debates over what DAOs will conquer and thought experiments about their role in the eradication of corporate taxes indicate that governments will eventually be forced to reckon with these new organizations.
Flash loans. The capabilities of blockchain and DeFi get even wonkier than DAOs. DeFi allows you to “build interesting abstractions that you couldn’t really build in the financial world,” Ava Labs’ O’Grady said at the Concurrence conference, offering up his favorite example: flash loans.
“You can borrow infinite money, basically, from some DeFi protocol like Aave and then do something on the (block)chain and then your transaction will revert if you don’t pay the money back at the end. Let’s say Joe Shmoe walks into his stockbroker and says, ‘I wanna borrow $200 million for 10 seconds.’ They’re gonna be like, ‘What are you talking about?’ Like, ‘No,'” O’Grady said.
In crypto, however, this is possible. The prime use case for a flash loan arises when there’s an arbitrage opportunity — the same coin, for example, trading at different prices on two different exchanges. Let’s say you notice this opportunity, but you only have $100 to your name. Flash loans allow you to exploit the opportunity anyway.
“The fee to borrow $200 million for one block may only be like $100 or something like that. So you can do some massive arbitrage trade as some single person. If it’s profitable, you pay it back. If not, you don’t, and the transaction reverts as if it never happened,” O’Grady said.
“A transaction may take a millisecond to process. So you’re borrowing $200 million for a millisecond … so it’s like an uncollateralized $200 million loan that you just pay a fee on if you make money,” O’Grady said.
While flash loans are an incredible product that is totally foreign to traditional finance, there is one logistical hurdle preventing any old person from becoming an overnight arbitrageur: Flash loans require technical proficiency to code and implement.
A Colorful, Diverse, Growing Community
The crypto community is full of passionate, smart, eccentric people — all on full display at the June conference. The cultural quirks, in particular, are hard to capture in words, except perhaps by way of example: a guy prowling the Austin Convention Center floors in Jedi garb, brandishing a plastic light saber; a dentist who “aped into” Bored Apes non-fungible tokens, or NFTs, and made hundreds of thousands of dollars; a DeFi platform advertising 30% yields earning scoffs from passers-by; rumblings about “Dickbutt” NFTs, which even after the market sell-off can still fetch thousands of dollars.
There’s certainly a lot of regulation to come, much of it welcomed by the crypto community. But the world of crypto and DeFi is indeed a community, and its members are as passionate and devout as ever. Cryptocurrency may be suffering a bear market, but the crypto community isn’t.
The average person has been able to buy crypto via public-facing exchanges for at least a decade. It isn’t brand new anymore, and that idea may intimidate outsiders into avoiding the area altogether. But aside from crypto’s emphasis on community and its near-universal annoyance with the bad environmental image, there’s another widely held belief: It’s still very, very early.
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