As of this post, Ethereum verges on surpassing every bank in the world.
To appreciate why, it helps to understand three things: (1) what Web 3.0 is; (2) how technology like Ethereum integrates into Web 3.0 adoption; and (3) the extent to which political and economic forces have begun to accelerate the crypto adoption process.
Web 1.0 → 3.0
We are entering Web 3.0.
Web 1.0 was email, websites and search engines. Consumer roll-out began in the 1990s and took off over the following decade (the 2000s). Web 2.0 was social media, e-commerce, online banking and public records, etc. Consumer roll-out began in the 2000s and took off over the following decade (the 2010s).
Web 3.0 is all of the above, plus native internet money, i.e., cryptocurrency. Consumer roll-out began in the 2010s and is taking off now.
The Technology
Money is great — but crypto aims to be a lot more. There are three main growth areas to grok: DeFi, NFTs/the Metaverse, and DAOs.
(Before proceeding, if you need a primer on what crypto is and how it works, you can check out this piece I wrote a few years ago. We are light years ahead today, but the fundamentals remain the same.)
DeFi
DeFi is short for Decentralized Finance. Up until now, banks and other financial institutions — i.e., centralized entities — have dominated everything from holding our money to controlling who gets loans, mortgages and so forth to investment vehicles and even just straight up access to the stock market (through brokerage and/or trading apps, etc.).
Ethereum seeks to replace these institutions with protocols that enable anyone, anywhere in the world, to participate, and to do so needing nothing more than internet access and a digital wallet (discussed below).
At the moment, the “killer applications” of DeFi — i.e., the tech that will replace many of those centralized entites — are apps where users can deposit crypto and earn compound interest, like a savings account, except with more benefits.
There are two primary differences between traditional finance and DeFi: (1) DeFi users always remain in control of their own funds; and, (2) for the moment at least, yields are significantly higher. For example, whereas traditional savings accounts will get you like 0.1% or whatever, conservative DeFi yields on deposits begin at 5–10%. (Riskier exposure can get you yields of 100–200% or beyond.)
The primary benefit here is worth emphasizing: by maintaining control and interacting with DeFi directly, users reap the benefits that banks and financial institutions presently keep for themselves.
It comes as no surprise, then, that DeFi is growing exponentially. As of this post, the total value locked into DeFi across all platforms is approaching $100B. Examples of apps that you can check out include depositing/lending platforms such as Compound and Aave.
At the center of DeFi sit decentralized exchanges, which are exactly what they sound like: somewhere people can swap crypto directly with one another, without any middlemen. The foremost example is probably Uniswap.
To further research what’s up on DeFi, go to DeFi Pulse, and, for data geeks, try Dune Analytics.
The most comprehensive DeFi primer I’ve seen is Explain It To Me Like I’m 5 by Ty Young and Mason Nystrom at Messari. Linda Xie also wrote a very good beginner guide.
NFTs / The Metaverse
NFT stands for “non-fungible token.” Typically, an NFT these days will be a unique digital media file, such as artwork or music, or access to some sort of digital material, kinda like a ticket. Creators can use NFTs to distribute their work and earn a living over time because, in contrast to old school intellectual property, NFTs can be programmed to earn royalties for artists in perpetuity. Whereas a CD or painting is sold only once, NFTs can be programmed so that the creator earns a portion of any future sale or trade. Furthermore, that future interest can then be used as collateral for loans or sold to producers, etc.
Check out OpenSea, which is more or less an eBay for NFTs.
Linda provides more detail about NFTs here.
The Metaverse
The Metaverse is the online universe where NFTs are coming to life. One example is Decentraland, a virtual reality world where people own plots of virtual land that provides home to casinos or museums displaying NFTs, and so on. Just imagine the potential here — for everything from gaming to experiential and immersive entertainment. On that note, check out Decentral Games (their token is DG).
Edgier parts of the Metaverse include Aavegotchi, which combines DeFi, NFTs/the Metaverse and DAOs (below), all in one.
DAOs
DAO stands for Decentralized Autonomous Organization. You might think of a DAO as combining a modern guild, company, community and investment group into one organism, governed by crypto. People use DAOs to raise money, coordinate group investments, vote on group activity and/or shepherd DeFi and NFT/Metaverse projects toward mainstream adoption, and more. DAOs can facilitate community voting, weighted per token distribution, as with shareholders of a corporation.
One interesting example of a nascent DAO is Friends With Benefits (FWB). The DAO describes itself as “the ultimate cultural membership powered by a community of our favorite Web3 artists, operators, and thinkers bound together by shared values and shared incentives.”
Another example of a DAO-in-progress is the Index Coop. They have their own token (INDEX), and something called the DeFi Pulse Index (DPI), which provides exposure to a variety of DeFi projects, as well as the Multiverse Index (MVI), which does the same for the Metaverse.
For more about DAOs, see Linda’s article here.
A Note on the Tech: Scaling and Greenness
Ethereum 1.0 has a scaling and energy consumption problem. Current throughput is limited to 15 transactions per second, which is insufficient for worldwide adoption, and the blockchain uses too much energy to be sustainable over the longer term.
Without getting too technical, interim solutions have popped up in things called “side chains.” The most prevalent side chain today is Polygon. Indeed, Polygon has been so successful that on some days it already rivals Ethereum in terms of transactional activity — and, moreover, the Polygon chain has demonstrated capacity to exceed the transactional throughput of Mastercard and Visa combined. (Polygon also has its own token, MATIC.)
Ethereum 2.0 is anticipated to roll out over the course of the next year. Bottom line on Ethereum 2.0 is that it’ll be faster, cheaper to use for you and me, and waaaaaaay greener because it relies on user pledges to secure and power the network, rather than energy consumption.
Political Stuff
I mean, is there anything more American than innovating and making money? Cynthia Loomis, the junior senator from Wyoming, is a bitcoin advocate who now sits on the United States Senate Banking Committee. Kevin McCarthy, House Minority Leader, has identified crypto as a strategic interest for the United States (since we have arguably already fallen behind China). Miami Mayor Francis Suarez has proposed paying city employees in bitcoin and acquiring bitcoin for the city’s treasury. Meanwhile, on the other side of the aisle, the second largest donation to Joe Biden’s campaign came from a crypto CEO.
Economic Stuff
It is hard to imagine a more perfect storm than what’s going down around us as you read these words. All the above innovations — from DeFi adoption to the Metaverse to scaling — just happen to coincide with the unprecedented money printing that governments worldwide have embarked on to prop up “the economy” during the pandemic.
This influx in money supply leads to a predictable consequence: inflation.
If history provides any guide, the first “beneficiaries” of inflation are financial assets — like stocks and real property. For a chilling account of how this phenomenon plays out irl, check out When Money Dies by Adam Fergusson. Bottom line there is that the same thing happened in Weimar Germany as what we are seeing now: everyone thought they were getting rich off the stock market and housing prices… until a little later when all that inflation started showing up in commodities and consumer goods.
Just like now.
What happens next? We are about to find out. We have never before experienced hyperinflation with tools like crypto to protect ourselves, however, one operating thesis is that verifiably scare assets such as crypto will continue to go up in value as the money supply increases.
How Do I Get In On It? A Wallet.
The key to crypto is understanding what a wallet is and how to use it to hold your own crypto and interact with Web 3.0. Everything else will gradually flow from that principle.
To learn more about wallet basics, you can refer to my earlier primer. A major difference between everything I wrote back then and now is that, with Web 3.0 burgeoning, wallets now function more like access points to DeFi, the Metaverse and DAOs, rather than just crypto storage mechanisms. So, now, maybe think of wallets as portals, instead — portals to Web 3.0.
The most productive way to learn about wallets, imho, is to download and play around with MetaMask — a prevalent wallet for Ethereum. Please safeguard multiple paper copies of your wallet recovery phrase (you’ll see what that is) with your life, and use only test amounts until you’re comfortable.
Once you’re up and running, learn how to send your wallet a little ETH, then surf around Web 3.0 to some of the apps above. Check out DeFi and the Metaverse. Get ready to have your mind blown. And enjoy.
The best “investment” in crypto rn is time. We are still early enough in the adoption process that knowledge alone will put you ahead of the curve.
