Today, a colleague of mine asked me - "When do you think the bull cycle will come back?". I didn't have an answer on the spot, so I took some time to gather my thoughts.

I think crypto has already succeeded in Level 1 and has advanced to Level 2. It is fighting the evils of Level 2, but boss level is Level 3. Here's my opinion of things that worked out, things that didn't and some hopeful solutions.

Crypto Level 1 to Level 2 to Level 3

Level 1

One thing Ethereum did really well is it allowed anybody to quickly and easily launch a new token. These tokens are assets of some form. It could be in-app currency (like Karma on Reddit), collectibles (similar to baseball cards) and gambling chips (like poker chips). With ERC20, ERC721, ERC1155 it became incredibly convenient to launch these assets. It was easy to launch these assets without Ethereum too, you could just do it using an SQL database. However, because of Ethereum, these assets immediately got access to a global 24x7 marketplace. That is valuable. This is like what Unity did for indie game developers. Because of Unity, an indie game developer could now have access to a global audience of indie gamers. A long tail of indie games suddenly had distribution and a shot at existing and potentially growing into an AA game. Similarly, because of Ethereum, a long tail of builders that are experimenting with in-app payment models, collectibles, and gambling dynamics, have a distribution channel. These builders immediately got access to a global-always-open marketplace of people interested in buying and selling these assets. These assets are immediately exposed to an open marketplace. Immediately upon launch, every asset is valued against every other token in an N^2 matrix. In that goal, Ethereum has succeeded. If the goal was to create an immediate, open marketplace for asset class experimentation - it has succeeded. It is better than the status quo of, say, a centralized exchange that is (a) susceptible to hacks and (b) requires some elaborate permission to get listed. All of those inefficiencies are gone.

Infact, it's safe to say that Ethereum has succeeded in this goal by the measure that there is continuous trading volume on uniswap, and that the prices to get a transaction included is so high. Way more than the initially envisioned 5cents for a transaction. So successful that Ethereum had to device a way to decongest the traffic. It invented L2s. Ethereum is now working on stuff like ProtoDankSharding. With that EIP in place, Ethereum will serve two purposes - be a reliable, open marketplace for the indie-assets, and be a place that supports scaling solutions without compromising security of funds (aka L2 settlements). A similar case can be made for Solana and Cosmos. So, essentially blockchains found their PMF in programmable finance.

Ofcourse, Level 1 hasn't been rosy - by many definitions. The entire product suite has been built upon an assumption called the PKI assumption. The PKI assumption is the public key infrastructure assumption. Which boils down to the users owning private and public keys, users knowing to use the keys to generate signatures, users keeping their private key private from everyone including their trusted friends and family. This is a pretty common assumption in most cryptographic constructs. Take GitHub for example. GitHub also makes a PKI assumption for a developer to be able to push code to their server. The developer who is signing up for GitHub for the first time, needs to create a ssh key using

ssh-keygen

Then the user needs to copy the public key using

cat ~/.ssh/id_rsa.pub

Then the user needs to open GitHub.com, navigate to settings, open the SSH and GPG keys tab, tap on add SSH Key, paste the copied public key abov,e and hit save.

This is the experience that every developer needs to go through to "get onboarded to GitHub". But it so happens that this is a fair assumption in the case of developers that already use keys on a regular basis. but ofcourse when the audience of crypto went beyond the early geeky users, the PKI assumption stopped being a fair assumption. I still remember doing my first several transactions on Ethereum using geth - before Mist/MEW/Metamask came to existance.

The other major problem we have is that of scams that are happening because there seems to be a market for these indie assets against fiat money too. In most systems, it would be possible to purge all such apps - the way appstores do, or the way youtube does. However, because of the tech choices and the ethos of the community - such "censoring" was infeasible. So, naturally scams started happening. Major setback.

However, it is still safe to say Ethereum succeeded in giving a global marketplace for indie assets under the PKI assumption

Level 2

I further think that these two problems will get solved.

Firstly, the PKI assumption. Many wallets are already better than the GitHub flow shown above. We have wallets that have a fairly streamlined onboarding flow. With advancements in recovering wallets with account abstraction, MPC wallets and social recovery - I feel confident one of these solutions will click. There is a lot of good work by great teams happening here. It's likely not very far from being solved.

While we're at the topic of wallets, it is outrageous that we normalized browser plugins. No user installs a browser plugin for financial applications before they come to crypto. I will go on to say, even mobile wallets are not done right today. I would rather prefer if everyone has a hardware wallet. Above all else, it's secure. I feel it's an acceptable friction to join this marketplace. Just like you probably want to buy a mouse or joystick to play games on Unity. And more importantly, I don't think there should be a need to sign transactions so often that a harware wallet requirement becomes a hurdle. A weekly or monthly usecase seems decent for my personal usecases. However, I do understand not everyone will be willing to buy a hardware wallet before even getting started. For this reason I believe a mobile wallet makes sense. However, I want to see a mobile wallet app that just has 1 button - buy eth with your credit card. And at all times it shows the balances of each asset. No swapping UX inside the app. The only way to swap imho should be by going to uniswap and connecting a wallet through walletconnect. The 0x address needn't be shown anywhere at all. Maybe there's a button after the user has more than $50 in their wallet to backup their wallet. Just a super simple wallet without the frills. As simple as apple wallet.

Secondly, scams. I think all we need is a public registry. I'm sure people are willing to maintain lists for safe projects. Any transaction with an asset that is not on the subscribed safe list, is alerted with a big red banner saying "this may be a scammy project". Scam by default. Those who are willing to go past that, are chosing their fate and probably understand a little more than the average person. And, this isn't something that's new. We've been doing this on HTTPS for several years now. Any https website that isn't on a CA (safe list), welcomes you with a red banner saying "this is website is unsafe". This is implemented in the browser. Again, scam by default.

Level 3

If we solve these two problems, I think it's a win for programmable block chains. However it still wouldn't be a win for crypto yet - "Computer technology is on the verge of providing the ability for individuals and groups to communicate and interact with each other in a totally anonymous manner. Two persons may exchange messages, conduct business, and negotiate electronic contracts without ever knowing the True Name, or legal identity, of the other. Interactions over networks will be untraceable, via extensive re-routing of encrypted packets and tamper-proof boxes which implement cryptographic protocols with nearly perfect assurance against any tampering. Reputations will be of central importance, far more important in dealings than even the credit ratings of today. These developments will alter completely the nature of government regulation, the ability to tax and control economic interactions, the ability to keep information secret, and will even alter the nature of trust and reputation. ".

There still needs to be innovation on pseudonymization, reputations.

There is probably still room for some innovation on L2s. ZK rollups vs optimistic rollups. Decentralized rollup vs centralized sequencer/prover. Privacy preserving vs all public. These questions are still up for innovation. However I don't think there is appetite for hundreds of general purpose chains. There might be several hundred or thousands of app-chains though. Unfortunately at the time of this writing there are probably more L1s/L2s than users right now. I am confident in this claim. The day someone points to me a proof that this is false, I will run a script to spin up the balance number as OP stack chains. Maybe a dozen general purpose chains might make sense at equilibrium - each making a different tradeoff. Just like Solana, Ethereum, Cosmos, Bitcoin make different tradeoffs. There's room for a few more L2/L1s, probably.

However, the next level is to go beyond exchange of assets to trustworthy transfer of assets and thereby trustworthy business without doxxing see (See Reclaim Protocol). Reputations will be of central importance, far more important in dealings than even the credit ratings of today. I think a large part of this battle is going to be fought with the ammunitions of zero knowledge proofs. That is going to be Level 3. I think when Level 3 starts to get PMF, we might see the next big wave of interest in crypto.