The amount of wealth you can capture equals the quality of property rights you can rely upon. - xh3b4sd
What are we doing here? I mean here in this, our industry, the world of blockchains. What is this crypto thing all about? When you ask that question, then there will very likely be silence for a moment, followed by, a lot of words. This question, what crypto is about, is so hard to answer, and I thought about why that is the case. Imagine you were talking to some farmer in the 15th century, and imagine you would tell them about DNA. You would go like "here mate, look at that, that is DNA". And let's be honest, there would very likely be silence, and probably strange looks too. Whether a 15th century farmer tries to comprehend DNA, or whether the average person tries to comprehend crypto today, the reason for all the difficulties involved when trying to grasp foreign concepts, are many complex layers of abstractions standing between people and technology. In order to comprehend DNA, humans need to understand what the body is made of and maybe even how the concept of evolution work. We need to somehow agree that body tissue is made up of cells, and that cells have a membrane and a nucleus, which in turn contains the cell's blue print. And then we need to know how this blue print inside of the cell is comprised of molecules that, by some miracle, create the structure of life. At this point and several complicated sentences later, we can see how nobody can just understand DNA. Not even by today's standards. People today have some common notion of DNA, and it is all very handwavy. Most of us are very far away from being able to properly articulate what DNA really is, not to mention how it even works. And then, coming back to the point above. With all of those layers of abstractions standing between people and technical concepts like crypto, it is no wonder that our journey here will turn out to be a generational effort of bending the world to our will and promises. If you think you know what crypto is, then think again. Maybe you will end up on a 3 hour podcast getting stuck on the notion of money. Let me humour you for a moment and allow me to explain what we are doing here in this industry. Let me try to explain what crypto is, in my own words. Crypto in my mind is about property rights and verifiability. When you say those two things to normal everyday-people, then it's already over. Because what do those things have to do with anything in the lives of ordinary people? And if we want to understand any of this we have to unwind a lot of complexities once more in order to explain how life works. So here we go again. Property rights tell us who owns what. In other words, without property rights, nobody really owns anything before the law. Property rights build the very foundation for a civilized society. Property rights allow people to live in their own homes. Property rights allow everyone to earn their own money. Property rights give citizens a voice during elections and allow for something that we call free speech. Property rights make the modern life even possible to begin with. Now, if you, dear reader, read this in the comfort of your home thinking "well I have property rights already, crypto does not change any of that", then you may simply be living the cozy lie of a westerner who has never been exposed to racism, oppression, war, and all the other funny things that abused power structures tend to come up with over time. Matter of fact, most people on this planet would love to have more or stronger property rights. And I would go as far to argue that everyone in the western world would be best advised to make sure that our very own institutions get hardend and upgraded over time. Upgraded so that we can ensure the same luxuries that we were able to enjoy during our own upbringing for the generations coming after us. If you are not doing crypto for yourself, then maybe do it for your children. All of that is already a mouth full, and way more than most can chew. But ok. Here it comes. Property rights must be verifiable too, for everyone. If you "own" the title on your house, but nobody can verify that you really do, then effectively you do not own your house. It's only your property if you can prove it. The punchline here may simply be this. Blockchains tell us who owns what in a complicated world. And without making it any more complicated than that, I would love to hear from you, dear reader, in your own words, what all of this here is about.
A question was asked the other day, asking how many transactions per second Ethereum needs to execute in order to run most of the world economy onchain. Those kinds of questions come naturally to humans. It is a fair question to ask. It is just this. The quality of our questions determines the quality of knowledge that we can acquire by asking them. And I think the above is not a good question, because it is a counterfactual, just like the observer effect. As soon as you look at a thing, or do a thing, you change that very thing. So in one sense, we will never know in advance. What I do know is this though. All that we are building here with public blockchains enables new economies that will be vastly different than whatever we are doing today in the sense of "transactions" throughout the world economy. By recent estimates I think Google makes about 100 thousand requests per second globally, while Facebook does about 1 billion of them. We will need a million transactions per second across a unified Ethereum, which is an unthinkable amount of scale at today's standards. And once we have achieved that level of scale, we will fill that blockspace too. People will find creative and new ways to use all of the high quality blockspace that we can give them. We will build stuff that we cannot imagine today using global consensus, zero knowledge and machine learning technologies. Imagine 1000 L2s with 1000 TPS each. That is a million TPS right there already. And in the grand scheme of things. That does not sound like a lot to me if we talk decades from now. And then imagine being bearish ETH with that kind of understanding.
When we look back in 100 years time, I think there is a chance that prediction markets will be defined as precursor for the widely adopted use of information markets across every aspect of the economy. I say information markets and not prediction markets here deliberately. What the difference is you ask? Prediction markets have once again a very specific notion based on how those types of applications are implemented today. And I think the way we do things in what we call prediction markets today will not be the last word spoken on this frontier of innovation. Prediction markets today are actually not predicting much at all, because they facilitate extractive trading techniques, which is just all too naturally defined by MEV. The era of information markets will be defined by staking models that emphasize conviction, which in turn will be based on competence. In short, the difference between today's prediction markets and future information markets will be the difference between trading and staking. Because our societies must surface competence and integrity in order to move forward, while preventing the guaranteed erosion of the social contract over generations. I believe that we are going to facilitate this kind of healthy progress using better information markets like Uvio in the future than we have at our disposal today on an institutional level.
There was an interesting crypto report released by a16z recently. It was stating that as of this year there were more than 600 million holders of crypto currencies all over the world. Based on this report the transaction volume of stablecoins in Q2 was more than twice that of Visa. And further, this little known fact was also interesting to me. While there are hundreds of L1s, L2s and L3s across all of crypto, way more than half of all builders in this space build on top of Ethereum. Amidst all of the fierce competition in the space, the network effects around Ethereum continue to be very strong, and we like that.
In other news, the bull market just got 2 years old. The methodology to measure this is the general market bottom, which for American financial markets and crypto was printed between Q3 and Q4 in 2022, which was in fact two years ago already. None of the drama on the timeline reflects the gains that could have been had, if only the sum of our decisions wouldn't reflect this poorly on us. Well, it is what it is. So happy second bull market anniversary to all those who celebrate!