Read the first part of this great post by Paul Graham on why it is so important to work on a real problem. The example of a social media network for pets completely nails it.
Many people can imagine a world in which people would theoretically want to use a cryptocurrency or token for something. However, when asked if they would do so on a daily basis themselves, or if they know someone who would, the answer is often ‘no’.
I see 3 major groups of projects emerging over the past years, all claiming to solve their own kinds of problems:
There are a bunch of cryptocurrencies/tokens that are used for one specific function, such as transferring ownership of one specific thing.
To use them for that function, you first need to exchange a government currency for it. That is a bad user experience, so you better have a good reason to make that exchange.
Decentralisation naturally comes with a worse user experience, while people generally expect something to be way better than the status quo before making the switch.
It seems like too few people are asking themselves: Would I want to own, manage and secure dozens of currencies or tokens to get by in my every day life?
The answer is probably no, so this is an adoption challenge.
Any cryptocurrency or token that exists for a single function (e.g. paying your dentist, storing a digital fingerprint of your diploma) has a massive adoption hurdle and likely isn’t really solving a problem, but creating one.
For this reason, there are people working on ways to transfer and use the same cryptocurrency across different chains. This concept is known as a sidechain, where most activity does not affect the main blockchain. If sidechains become the de-facto solution, it is likely one cryptocurrency will dominate the rest and many of the existing ones will become fully obsolete.
Decentralisation for the sake of it
Group number 2 consists of the platforms that are decentralising for the sake of it.
Just because we can decentralise something, that doesn’t mean people want it to be or that it’s truly solving a problem for enough people.
Decentralised storage is great in theory for example, sounds cool, but it is generally only worth the price for people that run into issues with the policies of large cloud companies. These companies tend to have impressive uptimes and price wars, so as it turns out, currently only a small group of people are interested in decentralised storage.
Another example is the decentralisation of Airbnb, which I’ve written another article about.
Better than X
Group number 3 consists of platforms which claim to be the Bitcoin 2.0, with far better scalability.
When you see such claims, you need to ask a few questions:
– Have they actually ran into any scaling problems to be able to make these claims?
– Are their claims based on results in optimal environments?
– What trade-offs are they making to achieve better scalability?
The answers will usually question whether it is truly better in the long term.
In group number 3 you’ll also find platforms which claim to have better smart contracts than anything that exists today. Smart contracts are programs on a blockchain that execute once certain conditions have been met.
To date, the most used smart contracts are multi-signature transactions. These transactions require approval from multiple devices or people before they can be sent.
Other than that, there has been heavy experimentation, but little success in practice. Writing secure smart contracts is still very hard and once they are out there, they can do a lot of damage if poorly written.
Instead of chasing a promise of a better technical implementation than what exists, it is important to consider whether the ‘first’ implementation was the problem for adoption, or if people simply aren’t interested in using this kind of solution (yet) because it hasn’t matured.
It’s also important to remember that any project which invents something amazing will get their work copied by dozens of other projects. Such is the nature of open source.
So for a new project to overtake existing ones, it will need a much larger network effect, not necessarily better technology. The claims of having better technology are usually marketing ploys to try to achieve that network effect.
The network effect is where many of the Blockchain > Bitcoin people are missing the point.
A blockchain is a piece of technology which can be copied an infinite amount of times, just like a bunch of developers can recreate the way Facebook looks. What you can’t copy is the network effect.
All the people that are already using it today who won’t just walk right over to something else because you claim to have better technology. The network effect is what makes these networks so powerful and valuable, a blockchain is just one piece of the puzzle which enables that, but not the sole solution by itself.
So to come back to my point at the start of the post: just because there are over 1400 cryptocurrencies, that doesn’t mean most of them are relevant to more than a handful of people.