Compile/Dinghong
When summer comes, the currency circle is still in cold winter.
Since January, the collapse of cryptocurrency has caused the price of atomic currency supporting the blockchain network Cosmos to plummet by 80% and the market value to evaporate by $10 billion.
Recently, Bitcoin, the leading cryptocurrency, once fell below $18000. Although it rebounded later, it still hovered around $20000.
The market crash this year, to some extent, stems from the collective sell-off of high-risk financial assets caused by the Federal Reserve's interest rate hike, but the stimulus factors that make cryptocurrency the hottest area in the technology industry will indeed be weakened.
Although the price of cryptocurrency collapsed, supporters believed that the blockchain technology supporting digital assets could withstand the recent decline in valuation.
"Some people are shocked and others are afraid," said Ethan Buchman, co-founder of Cosmos, when talking about the collapse of the token price used to protect its network security. He tried to be calm: "But some people see the opportunity from it and bet twice on what they believe."
Joseph Lau, the co-founder of Alchemy, another blockchain company, said: "Everyone will be afraid (when the market collapses)." But he believed that the collapse of cryptocurrency does not mean that all related projects are doomed, nor does it mean that all developers in the industry will lose interest. He said that the slump does not mean that the cryptocurrency project cannot develop in the long term.
Cryptocurrency mania, will it bring bubble or revolution?
In the scientific and technological world, mania often occurs, but it never simply repeats itself. However, when the market collapsed, some people still claimed that the cryptocurrency revolution would not be affected, which inevitably reminded the technology industry of another recent past: the Internet bubble at the turn of the century and the subsequent bubble burst.
Both bubbles originate from the so-called revolutionary technologies, which can weaken the control of existing political and commercial forces over online activities, open up a decentralized network world, and return power to the general public. As for cryptocurrency, the digital currency vision originally built around Bitcoin has already extended to a campaign called Web3. Advocates believe that blockchain technology, originally used to record and track cryptocurrency assets, will give birth to a batch of new services controlled by users and eventually replace today's Internet giants.
The performance of the two bubbles in the financial market is also similar. The combined market value of all cryptocurrencies peaked in November last year, and then plummeted by about 70%, wiping out $2 trillion. Although Bitcoin, which accounts for 42% of the total market value of the remaining 900 billion US dollars, has attracted the most attention from all walks of life, there are many other digital assets in the cryptocurrency world. Similarly, the Internet bubble reached its peak at the beginning of 2000. In the following eight months, the total market value of Internet listed companies evaporated about 1.7 trillion dollars, accounting for about 60%.
Stephane Kasriel, head of business and financial technology of Meta, is responsible for the blockchain project of the company. He believes that when the dust settles, cryptocurrency mania will become a more stable and lasting technological revolution like the Internet bubble.
"Many of these technologies will go through the same hype cycle," he said. After the early enthusiasm and speculation, the bubble will burst. But he also added that, like the Internet at the beginning of this century, the underlying blockchain technology can really solve real problems for people and will be beneficial to the world for a long time.
Why did "fanaticism" come about?
But this is not a universal concept. What this technology is, and what advantages it has that today's technology does not have, are still not clear answers to these questions. So far, cryptocurrency technology is mainly used for financial speculation, criminal activities, decentralized finance (DeFi for short, which is still outside the supervision), and the creation and transaction of NFT (heterogeneous token) - NFT itself has also experienced prosperity and collapse.
"A lot of discussions about decentralization are almost copies of what we talked about in the 1990s," said Martha Bennett, who was then the head of advanced technology of British Prudential Insurance Group. But she pointed out that there was a fundamental difference between the early development of the World Wide Web and the current Web3: "In 1995, there were many practical functions - you can send and receive e-mail, you can search information online. But Web3 has nothing yet."
Bennett is currently responsible for new technology analysis at Forrester Research, a market research company. She believes that it is too early to judge whether anything durable or useful can survive. However, more and more critics in the technology industry believe that, unlike the Internet, the underlying technology of cryptocurrency has no merit.
In May this year, 26 computer scientists and scholars jointly wrote a letter to the US Congress, warning that cryptocurrency and blockchain technology are "risky, flawed and unproven". As one of them, Bruce Schneier, a computer security expert, believes that any application running on the blockchain will be more practical, safer and cost-effective if other technologies are used. "No matter what you do, it will be better without blockchain," he said.
The popularity of cryptocurrency stems from the worship of new technologies, the rebellion against traditional social forces and the powerful earning effect. These factors collide in an era of loose money, forming an explosive effect. However, with the end of the era of easing, the cryptocurrency industry will also enter a new stage full of challenges.
Phil Libin, a computer scientist and former CEO of Impression Notes, summarized the case against cryptocurrency and Web3. He believes that the power to blow up this bubble includes: "80% greed, 20% ideology and 0% technology."
The craze for cryptocurrency in the scientific and technological circles stems from the belief that blockchain is a distributed and open database. In theory, anyone can update this database, so it will build a new foundation for online activities. The public blockchain has specially designed a "consensus mechanism" so that participants can confirm the accuracy of updates.
Supporters claim that these blockchains (and cryptocurrencies used to verify updates) will lay the foundation for a series of new services controlled by users (not companies or governments).
However, even Web3 supporters admit that the existing blockchain technology is far from supporting large-scale online services. As the core of many Web3 activities, Ethereum can only handle 30 transactions per second at most, while newer and faster networks such as Solana have not yet provided favorable proof in this regard. This technology is difficult for non professionals to use, and also faces outstanding issues in privacy, security and law.
Supporters say that this phenomenon is only because the technology is not mature and there is no fundamental defect. The Filecoin network of Protocol Labs plays a role in the decentralized market in the computer storage field. Juan Benet, CEO of the company, believes that today's blockchain is just like the cloud computing that was still in its infancy. He said that as early as the 1990s, cloud computing had aroused widespread interest in the technology industry, but it took 20 years to build it, and finally it was recognized by the industry. He predicted that cryptocurrency will also usher in similar technological maturity in the future.
However, in this process, the ideal decentralization scenario of cryptocurrency enthusiasts may come to naught, or even be no different from the technology it tries to replace.
Replacing "proof of work" with "proof of equity" is a widely publicized direction of transformation. The former is controlled by people who already own cryptocurrency, while the latter requires "miners" to compete with each other to solve the encryption problem, so as to verify new entries on the blockchain - the whole process needs to consume a lot of power. Ribin said that, by definition, the richest people in the "proof of rights" system also have the greatest power, which runs counter to the distributed power concept pursued by the cryptocurrency system.
At present, there are some new basic technologies based on blockchain development, hoping to simplify the use mode and increase the number of transaction processing, but it will also weaken its decentralized characteristics. Forrester's Bennett said that this will give birth to a group of new leading enterprises, who will control the channel of this technology in the role of "gatekeepers", which is the same as the technology giants leading the network world today.
Will Web3 fall into the hands of technology giants?
Any centralized transformation quietly carried out on Web3's distributed computing platform will repeat the previous development path of the network world. The open communication protocol on which the Internet is based was originally intended to prevent any government and organization from exercising control over it, but it left ample opportunities for private enterprises to build their own empire. In hindsight, although the basic technology originally developed promised to build a more democratic network world, it was not realized in the end.
Because of this, although the media are trying to portray the survival crisis of Web3 on Internet giants, large enterprises such as Meta are still actively involved in the blockchain field.
"It is always a combination of centralization and decentralization," Castrell said when referring to the underlying technology adopted by Meta. The company now also plans to develop a blockchain so that software developers can continuously control the digital content they want to publish on the Meta network.
Castrell said that Meta does not need to use blockchain to achieve this level, but can achieve the same effect through other technologies. However, by transferring control through the blockchain, those who do not trust Meta can be relieved to use it.
Even so, Schneier and other critics still believe that the blockchain has great shortcomings, resulting in its extremely low use value. Moreover, if the decentralized network world becomes a bubble, there is no reason to recommend this technology.
If the long-term use value of the technology behind Web3 is still seriously questioned, the power released by the cryptocurrency boom will not be so uncertain. The combination of idealism and greed is as powerful as the excitement that dominated the Internet bubble. Supporters believe that there are so many people in this field that it is impossible to ignore its existence.
Avichal Garg's Electric Capital is an investment institution specialized in investing in Web3 start-ups. He said, "The rule of thumb of the Internet is that if there are 100 million people doing something, it is worth paying attention to."
Can we create "Amazon" in the Web3 era?
The core of this mania is the cryptocurrency and digital token embedded in the blockchain network. The reason why people are willing to give value to them is either that they have some attributes of currency like Bitcoin, or that the online network derived from it will one day support the new decentralized digital economy. However, this willingness has contributed to the prosperity of the cryptocurrency market.
The soaring price of these digital assets has provided financing channels for blockchain projects like Cosmos, attracted a large number of talents for the entire industry, and attracted many netizens for the first batch of consumer services established on the blockchain. This includes the so-called "play to earn" game, from which participants can earn tokens for future sale and realization.
Vinod Khosla, a venture capitalist in Silicon Valley, said that these new financial incentives have solved the problem faced by Internet consumer start-ups for many years: how to attract enough users to help new services to be launched, thus stimulating network effects, so as to continuously improve the service value with the increase in the number of users.
Supporters still believe that user demand has undergone profound changes, and this phenomenon will be more lasting than the bubble itself. Ryan Wyatt, CEO of Polygon Studios, said that cryptocurrency has changed the expectations of an entire generation of netizens. He believes that services that do not transfer any control or share any profits with users will eventually be abandoned by users.
Organizations including Cosmos and Alchemy claim that the collapse of cryptocurrency prices has not shaken the belief of their underlying network developers. Believers said that although it is difficult to predict the ultimate use of cryptocurrency and the technology behind Web3, it is not worth worrying. After all, from the social network of Facebook to the mobile Internet led by iPhone, to the cloud computing platform created by AWS, many services in today's online world also emerged long after the Internet bubble burst.
"It doesn't matter if it takes 10 years to see Amazon in the Web3 era," White said. "It will be a multi trillion dollar chain company. I think we will be very pleased."
Explanation of terms:
DeFi
Decentralized finance is a general term, which refers to a series of cryptocurrency asset projects designed to bypass centralized intermediaries (such as banks or exchanges) to provide financial services. They use a new distributed application (DApp) to provide conventional services such as lending, saving and currency transactions.
Ethereum
This is a blockchain jointly developed by Vitalik Buterin, a Russian Canadian computer scientist, and others. Web3 hopes that the blockchain is no longer just a transaction database, in which Ethereum plays a core role. This technology can hold assets, allow programmers to add buying and selling functions to smart contracts, and also provide building blocks for most financial DApps. Ethereum is a token associated with Ethereum, and it is also the cryptocurrency with the second highest transaction activity in the world.
"Certificate of Work" and "Certificate of Interests"
In the "proof of work" system, the group called miners will compete to solve the encryption problem to verify the transaction, and the winner will be rewarded in the form of cryptocurrency. Such systems, led by Bitcoin, have been widely criticized because they consume a lot of energy in the computing process. The "proof of equity" system will randomly select one from a group of people who already hold a certain cryptocurrency and "bet" (or use it as collateral) their cryptocurrency on the network to verify the transaction. This mode consumes far less energy than the "proof of work" system, but it will concentrate control in the hands of the richest cryptocurrency owners. Ethereum is shifting from "proof of work" to "proof of rights" mode, but it has been delayed several times.
