And after all, the real fortune is to have yourself under control. - xh3b4sd
The Powerlaw memo is all about mental models, in particular about how to think. And one of my favourite takeaways this year is the difference between inputs and outputs of complex systems. W38 described how easy it is to mistake inputs for outputs, and in the process get the understanding of any system completely backwards. I find this notion of inputs and outputs so compelling because we can describe literally any complex system as a black box that consumes inputs on one end, and produces outputs as a result. The nature of that concept is for outputs to change when the inputs start to differ. And that directional dependency may explain a lot about the intricacies of whatever is happening inside that black box, that very complex system. In other words, when you ask the wrong question, you get to the wrong answer. Flipping it on its head, suppose you found the right answer, you must have asked at least one right question, otherwise you could not have made the right conclusion. Ask yourself what was here first, the forest, or the creek?
The future of mankind has always been about technology. There is an interesting question to be asked about life in the universe. When we look for alien civilizations we are not looking for traces of life. We are looking for traces of technology. I don't know if we are still going to be here in a thousand, less a million years from now. In any event, it looks to me like humans are on a trajectory to become the tools that they build. W07 talked a lot about the rather weird fact how it can possibly be that two arguably interdependent technologies get invented at the same time. Imagine a civilization discovers only one of two extraordinarily powerful technologies. The discovered technology may increase the chances of that civilization's extinction, without its balancing counterpart. Imagine that very problem to be one of the great filters according to Fermi's paradox. The two technologies that we invented now at the same time are blockchain networks and machine learning. And I am quite convinced that public blockchains have to become the agentic substrate of artificial intelligence, if anyone wants to embed it into the digital economy for productivity increases. And if we could take away only one thing from this year of Powerlaw memos, than it would be that the future will always become more technologically advanced, which in our generations today means more digital.
This year revealed to us that everyone is trying to build Ethereum. People are running Bitcoin sidechains and tell you those are L2 rollups. People are working on L2 rollups on top of Solana and call them network extensions. Celestia set out to build a rollup centric ecosystem from the start, but the only semi successful product they have going over there is data availability, which in itself is not really valuable without some kind of moat around economic security. Well, and there is Ethereum building Ethereum. And when you get the chance to bet on one thing, why not the original? W26 discussed how everyone is building a worse version of Ethereum. Trying to replicate what somebody else is good at, is not at all bullish for that replica. Public blockchains must be decentralized, permissionless, censorship resistant and credibly neutral. And that means, any system that aims to build networks of networks must have the technology and security in order to facilitate an economy on top of itself. Bitcoin does not have the technology. Solana and Celestia do not have the security. I do not think that blockchains are winner takes all innovations. It is more likely that we will see our space to culminate and submerge over the coming years, providing one coherent crosschain user experience. The underlying economies may follow certain powerlaw distributions, and their tokens may accrue value more or less successfully. However these crazy experiments may play out, we will continue to follow along those once in a lifetime opportunities.
Earlier this year we predicted another Trump presidency in the United States as explained in W21, and in W11 we wrote that the ETH ETFs are going to be approved rather sooner than later. The Powerlaw memo nailed it twice with those predictions, and the turn of events caught a lot of people off guard. What has been unfolding towards the end of this year couldn't have been more profound for the crypto industry at large. The timeline split once when a bullet only scratched the ear of Donald Trump during his first assassination attempt. Yes, the first attempt on his life, because there have been at least two documented cases in which attackers tried to take his life throughout election campaigns. The timeline split then once more when Trump finally became president elect post election day. The see change unfolding from here promises the crypto industry to not be stifled by rogue regulators anymore, for which there existed no logic reason to begin with whatsoever. Not only are we going to see more crypto innovation taking hold in the world because of the vibe shift brought forward by the upcoming administration, but also because of the supreme court overturning the doctrine of Chevron Deference, reported in W27.
W46 discussed the concept of emotional granularity and how to train it. At its core, emotional granularity is really just about awareness. It is about the ability to perceive basically any thing, and upon perception being able to articulate what one observes cognitively. In the issue of W46 we framed a thought experiment, like a word game, that can be played alone or with others together. Simply take any thing or concept, and explain it from as many angles as possible. Doing that you will notice how many different dimensions of complexity, scope and context open up in front of your inner eye. The ability to visualize, the ability to articulate, and the knowledge about complex systems is what we are fundamentally training with emotional granularity. And now, why does any of this matter? Because, if anything, the world is full of complex systems. And only if we understand complex systems do we have a tiny little chance to understand how the future possibly looks like. And I say this. The very best people in any discipline or industry have a very high emotional granularity in their respective areas of competence.
This year was in parts all about tokenization. We covered this concept in multiple memos throughout the entire year of 2024. At its core, tokenization is to represent any asset or thing in the form of an associated token onchain. We discussed the benefits and motivations of TradFi giants like BlackRock utilizing tokenization. In W24 I wrote about a prediction that I wanted to make, which went as far as saying that one day tokenized assets will trade on the TXSE offchain, while being integrated with onchain property rights on Ethereum mainnet. All the puzzle pieces that we cover all the time here in the Powerlaw memo fit perfectly together and based on our understanding of the future it just makes so much sense for BlackRock to pursue these or similar ventures. Most notably, Stablecoins were the big winner this year, and it was just recently when we covered an all time high of over 200 billion USD in issued Stablecoins, most of which resides on Ethereum L1.
The Dencun upgrade activated blobs on the 13th of March as covered in W11. That hardfork enabled a new fee market for data availability secured by Ethereum L1. Quickly after the upgrade concluded successfully many L2 rollups switched over from calldata to blobs, causing their own gas fees to drop up to 98% on average. The events following the Dencun upgrade brought feelings of joy, confusion and fear. Fewer fees collected means less cashflow. And to this day we are still in some form of existential crisis across the entire Ethereum community, because long held assumptions get challenged when everyone is wondering what makes blockchains and their tokens valuable. Amidst all those debates we can see how people think, deceive and lie, sometimes out of ignorance, but more often out of self interest. We had to learn once more that what you read on Crypto Twitter is not all there is. And we had to learn once more that this is the dark forest out there after all. Everyone out there has only the best of you in mind, your money.
Our number this week, the last number for this year, is an all time high of weekly active addresses across the whole of the L2 ecosystem. That number is 10.6 million according to Grow The Pie data. Onchain metrics are up into the right all across the crypto industry. And I would say most metrics related to the rollup centric roadmap are no different. From my point of view our industry has made so much progress this year alone, it is impossible to cover all of the technological and cultural developments accurately. I think we are going to keep winning next year on many different dimensions. So much so that 2025 has the potential to embed this industry ever deeper into the world economy. Higher for longer!