A software engineer’s take on crypto currencies

Hi everyone, thanks for clicking this post. Yesterday a friend of mine working in the banking industry asked me this question:

Do you think there will be a period in the cryptocurrency market similar to the tech bubble of the 1990s, where many coins collapse but eventually new, more socially useful cryptocurrencies emerge?

And honestly, it's a very good question. I answered his question shortly but decided to make a post on this question and what I think of the cryptocurrency space as a software engineer.

Market caps & crypto currency value

I think for a crypto currency to become more than just speculation it'll need to become more than just a coin / token. There's a lot of speculation going on about the value of some currencies, some people thinking a currency could hit 100x / 1000x the current value. If Ether were to go 10x (not calculating the burnt Ether) the market cap would be 3.6 TRILLION dollars. Worth more than the biggest valued company: Microsoft.

For that to actually happen, web3 needs to function more and more as an actual web platform, rather than a place for speculation. If we were to (for example) recreate a (in)famous social media site into web3. Let's say X. Currently on the Ethereum network you'll need to pay at least 2$ for a simple interaction with a contract. That means that a normal user would need to pay 2$ to sign up for a social media website. That's not global adoption ready, is it? If I continue on this topic, imagine having to pay 2$ to be able to create a post.

Other solutions like Polygon get closer to something a user might pay. Paying 0.002$ for the same interaction as before on Ethereum. Still, this is very expensive compared to (I guess the equivalent, storage not calculated) Cloudflare workers. Having to spend only 30 cents per 1 million requests or 0.0000003$ per interaction.

I'm not necessarily saying that crypto currencies won't be anything as long as the transaction fees are this high. What I'm trying to say is that you have to think about the normal people, and about "normal" implementations of the blockchain and the EVM. I'll be pointing out the extreme here, but someone from South Sudan (with a GDP of 455$) won't spend 0.002$ to perform an action on a website, and certainly not 2$.

Technological use

Next point I find very important is the technological use of the smart contracts. There's a lot of things you can already do using smart contracts, but there are some restraints. In my opinion one of the most important restraints is everything being transparent.

Private variables are cool, you can keep secret details away from the public within the smart contract. But private variables aren't really private. In EVM, all data, regardless of its visibility specified in code, is transparent. You might be wondering, or already typing a comment saying "this transparency is why the Blockchain is so great", and I fully understand what you mean. But let's go back to the social media example running on the Blockchain. You have a stalker. You block the stalker, but your posts are still available for the stalker to read on the Blockchain. You didn't just spend 2$ on blocking some random creep, it literally doesn't work.

There is so much data being held privately, not just by the big companies, but also by you. You save posts you see in your social media feed, like posts, comment on them. Imagine anyone being able to find all your interactions ("transactions") and seeing all the details within a few clicks.

And now you might we thinking "ahh, but they don't know who I am anyway. It's supposed to be transparent and anonymous". And yet again, yes, I understand! But we're talking social media here. You make friends, follow family members and one way or the other there will be a sudden interest from someone on what you're doing online. Everything is PUBLIC! And talking about anonymity, that's my next header..

Anonymity

Oh no, not this part. Anonymity is a very important part of Blockchain, no one knows who is which address until you make your own identity known. You could be a drug lord or a 15 year old trying to "get rich quick", anyone could use it. In a way that's the nice part about the Blockchain technologies, but it also brings a lot of bad with it.

The average person only knows how people make a lot of money or lose a lot of money because of some kind of hack. This anonymity gives hackers the opportunity to do what they do. It's like committing a bank robbery but no one saw anything and no one knows who were the robbers. It's currently frankly the wild west.

Because of this anonymity governments and government agencies have no other option than to limit the usage of crypto currency, or fully ban it in general. Will this help further & future adoption of crypto currency and therefore web3? No it won't.

Accessibility

One of the last topics I want to write about. Accessibility is very important. Not just accessibility, cryptocurrencies and the blockchain is accessibly alright. It's about the ease of accessibility. We're all a little lazy, now imagine someone that has never done anything with crypto before that needs to use crypto currencies to access a service they want to use. This service decided that the web3 space was developed enough and moved their services to web3. This lady will first of all need to find a good wallet, a wallet that they can trust and which they can use for web3 in general. Some wallets are very use friendly but don't even allow people to use web3 services or websites. Then, they'll need to get the funds to be able to afford transaction costs & fees to be able to interact with the website. This usually means going through a centralised exchange, having to kyc verification… I lost you didn't I? This is too much work for a normal user! A normal user would just fill in x.com, and boom create account.

Of course the having to go through kyc to be able to buy crypto currencies is mandatory by the governments, and you can be angry at the government for this. But did you forget about how this is the wild west? Of course they would like to know your identity. Of course they would like to know where the crypto currency came from. After reading around, you can see the amount of posts about hacks, hackers making millions by taking crypto currencies from other users. Are you shocked about the kyc verification? "Yes it is annoying, but as long as you don't do anything bad, you have nothing to hide", but that's not the point that I'm trying to make here. It's not accessible. You wouldn't tell your mother to create a crypto wallet, do an identification check, and on top of that make them spend 2$, just to create an account at a social media site, would you?

Conclusion (written by ChatGPT)

In conclusion, the future of cryptocurrencies and their role within web3 hinges significantly on moving beyond mere speculative assets to becoming integral components of practical, everyday applications. The potential for cryptocurrencies to achieve valuations that surpass those of the world's largest companies is tantalizing yet requires substantial technological and societal shifts. Market caps of cryptocurrencies like Ether reaching into the trillions suggest massive adoption, but this is currently hampered by high transaction fees and scalability issues. Platforms like Polygon are making strides towards reducing these costs, yet they still remain prohibitive for global, mainstream adoption.

Furthermore, the technological utility of smart contracts is promising but is currently restricted by issues such as data transparency and privacy concerns. The immutable and transparent nature of blockchain is both a strength and a limitation, particularly in applications like social media where privacy and selective visibility are crucial.

The anonymity provided by blockchain technology presents a dual-edged sword; while it empowers users with privacy and protection from censorship, it also facilitates illicit activities and complicates the regulatory framework needed to foster widespread acceptance and integration into global financial systems.

Lastly, accessibility remains a significant barrier. The ideal of decentralized, open-access technology contrasts starkly with the complex reality of cryptocurrency transactions, which involve steep learning curves and often high financial costs due to transaction fees. This complexity is exacerbated by regulatory requirements like KYC, which, while necessary for security and compliance, add further layers of complication for new users.

For cryptocurrencies to truly succeed and for web3 to become a foundational element of the internet, these challenges need to be addressed in a manner that balances innovation with usability, inclusivity, and security. The pathway forward involves not only technological advancements but also a reimagining of user interfaces and regulatory frameworks to cultivate an environment where cryptocurrencies can fulfill their promise as transformative tools for the digital age.

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TL;DR: For cryptocurrencies like Ether to become more than speculative assets and integrate into everyday applications such as social media, significant technological and societal advancements are needed. Achieving high market caps would require not only massive adoption but also overcoming current limitations like high transaction fees, privacy concerns in smart contracts, and the complexity of blockchain's anonymity. Moreover, improving ease of accessibility and simplifying the user experience, while maintaining necessary security measures like KYC, is crucial for wider acceptance and practical use of cryptocurrencies and web3 technologies.