In mid 2018, venture capitalist Erik Torenberg made the distinction between “money crypto” and “tech crypto.” Money crypto referred to the part of the industry - including, notably, the Bitcoiners - that focused on crypto’s application for transferring financial value. Tech crypto, which included most of the Silicon Valley venture capital community, was the group that cared about crypto’s potential to use decentralized networks to disrupt extractive, rent-seeking business models.
These models are not mutually exclusive - it is possible to be interested in both money crypto and tech crypto at once. They are useful distinctions, however, in understanding the priorities of different parts of the community.
We’d like to propose perhaps an even more important distinction, one that has less to do with what people are spending their time on and more to do with why. It isn’t about looking down into the details of any particular cryptoasset, but up to the larger society from which they came. This is the distinction between Price Crypto and Liberty Crypto.
Price Crypto is the part of our motivation that is financial and speculative. It’s about markets and the gold rush. As we saw in 2017, Price Crypto can be enormously lucrative, and even dizzying in its excitement. Then again, the last 12 months show that it can also be devastating and dangerous.
Liberty Crypto is another beast entirely. The why of Liberty Crypto comes from the systems in which crypto operates - the world in which we live. Liberty Crypto began when Satoshi wrote “Chancellor on the brink of a second bailout…” and before that, even, when the cypherpunks imagined ways to move money and value outside of the control of banks and other centralized institutions.
Liberty Crypto is about the power of these new technologies to give individuals more sovereignty over their money, assets, networks, organizations and lives. It is a counterweight to the encroaching surveillance state that is the inevitable result when data, technology and power meet.
The fundamental difference between Price Crypto and Liberty Crypto is this: Price Crypto can make us more rich, but Liberty Crypto can make us more free. The freedom of Liberty Crypto is the freedom from being lorded over; the freedom referenced in the constitution: to form ‘a more perfect union’.
Now, 2017 was a very good year for Price Crypto - which was followed immediately by a very bad year. Such is the way of Price Crypto; boom and bust, over and over again in a never ending cycle. Liberty Crypto, on the other hand, marches steadfastly on.
Outside the price action headlines, the ETF speculation, and the ICO reckoning schadenfreude, 2018 was quietly Liberty Crypto’s best year yet.
Here’s what happened.
Part 1: Decentralized Hardware - The Infrastructure for Liberty Crypto
Why It Matters:
Liberty Crypto is fundamentally about self-sovereignty. Rather than subjecting themselves to the control of centralized institutions, individuals opt-in to voluntary networks organized around value transfer or other types of coordination. These networks require active participation, be it as miners, validators, nodes, stakers, or some other role.
Decentralized hardware is the infrastructure for participation. Historically, crypto hardware setup has been an extraordinarily high barrier to entry, in terms of time, money and complexity. This year saw major advancements in bringing that barrier down.
One of the themes that ran throughout last year was the question of miner centralization - and specifically, whether protocols should be trying to develop ASIC-resistance.
Regardless of one's stance, the growing conversation about ASIC resistance is nothing if not a Liberty Crypto debate. On one side of that debate are those who think that ASICs that outperform GPUs are both inevitable and have benefits in terms of the security of the networks they’re deployed to mine. Many of these folks do recognize that early after ASICs have been developed, there can be significant miner centralization, but suggest that this is actually an argument to make it easier for more miners to develop ASICs and remain competitive with one another. In their estimation, in other words, making it harder to develop ASICs doesn’t prevent everyone from developing them - it just prevents all but the most determined and well capitalized.
re: ASICs > GPU— Matt Odell (@matt_odell) November 27, 2018
ASICs are inevitable. ASICs are your friend. Embrace them.
1. There is no such thing as an ASIC proof PoW algo. Given enough time and financial incentive someone will figure out a way to make a purpose built rig that outperforms GPUs.
Not every community accepts this logic. In response to Bitmain announcing a new massively powerful ASIC, Monero responded that they would update the hashing algorithm every 6 months to make those ASICs obsolete. This updating has its upsides in its ASIC resistance, but also adds more work for miners to keep up to date. (FWIW, this is an example of the type of user problem we work on solving at Coinmine.)
One of the buzzier protocol projects of the year, Grin - an implementation of MimbleWimble - announced something similar in the last few months. Their technical roadmap includes an intention to hard fork to change the hashing algorithm every 6 months for the first two years, to prohibit a centralized ASIC manufacturer to corner their mining market too quickly. What’s more the Grin team is encouraging a simple ASIC design to make it closer to being open sourced.
Sia made a similar if different move, specifically targeting Bitmain, rather than ASICs in general. After a year of debate, in October the protocol decided to hard fork to brick Bitmain and make it so that only miners using the Obelisk mining hardware manufactured by Sia’s parent company would be able to mine. In this, their argument wasn’t against an ASIC monopoly, but against, as they put it, a parasitic, abusive ASIC monopoly.
Difficulty Adjustment & Mining Death Spirals
The focus on mining recently has been less about ASICs and more about the viability of mining at all as prices dip below break even points.
The Mining Death Spiral narrative has been lurking for a while, but when prices crashed from $6000 to under $3500 in less than a month, many prognosticators declared that there was an inevitable downward spiral of the price going down, followed by miners shutting off rigs, following by the price falling further and so on.
While some people are scared of a "mining death spiral", I'm ecstatic that we're getting some great data that proves how beautiful Bitcoin's difficulty adjustment is and that it works as designed. Very important for long-term holder psychology.— Marty Bent (@MartyBent) November 30, 2018
Others have pointed out, however, that this is exactly what Bitcoin’s every-2-week difficulty adjustment is designed to address. In many ways, the hardest hit by massive shifts in price are the largest miners.
Indeed, in many ways, periods that are more challenging for large scale mining operations are opportunities to increase the number of mining nodes in the overall crypto network. With different motivations and different thresholds for when they shut off the equipment, individual miners and small mining operations can provide an important counterweight to the operators who have to be ruthlessly efficient to address the needs of large scale financial stakeholders.
Mesh Networks for Decentralized Internet Access
One possible point of failure for cryptocurrencies is the internet that they rely on to function. Liberty crypto would have a hard time if authoritarian powers were simply able to turn off the channels on which it runs.
2018, however, saw some interesting advances in providing internet access without relying on centralized ISPs. TxTenna is a collaboration between GoTenna and Samurai Wallet that uses mesh networks to decentralize the last mile of Bitcoin transactions. And just as of this week, Blockstream announced the second phase of its satellite program, which allows people around the world to access Bitcoin data for free, without internet. Additionally, their SatelliteAPI allows users to broadcast data worldwide using Lightning to pay. And speaking of Lightning…
Lightning Goes Live
2018 was indisputably the year of Lightning, a payments layer that leverages Bitcoin’s security but offers radically cheaper transactions. Lightning is one of the most important rails for Liberty crypto, offering fast, cheap, truly p2p payments.
After years of anticipation, multiple implementations of Lightning came to market, including versions from Lightning Labs and ACINQ in March and Blockstream in June.
These implementations were the tip of the iceberg for the excitement of the larger developer community surrounding Lightning. Companies like Fulmo held Lightning hackathons around the world while Chaincode labs organized a Bitcoin residency program around the technology.
Over the course of the year, Lightning saw growing usage - both in the context of merchant acceptance for payments via Lightning as well as applications built on top of lightning - including, notably, Satoshi’s Place - which we’ll come back to in the next section.
Lightning network visualized January 2018 vs December 2018 (source)
Maybe most importantly of all, Lightning has seen consistent growth in terms of live nodes and payment channels. Recent estimates gleaned from Lightning network explorers suggest that there are several thousand lightning node, representing more than 10k payment channels and holding more than $2m worth of Bitcoin on any given day.
Indeed, one of Lightning’s most important roles might turn out to be the way that it has helped give rise to plug-and-play nodes. The reduced capital and energy investment required to power the Lightning network makes it easier for more individuals to get involved. More participants is another win for Liberty crypto.
Part 2: Product Experiences - The Interface for Liberty Crypto
Why It Matters
As discussed above, liberty crypto requires self-sovereign individuals to participate in networks. The power (in other words, the resilience) of these networks comes from their size, breadth and lack of centralized points of failure. The wider the network, the more powerful a bulwark against centralized authority liberty crypto is.
Depending on how you look at it, this creates a mandate for the industry to develop better product and user experiences and interfaces that make cryptoasset network participation more simple, invitational, and manageable. After years of a hardcore, almost elitist perspective that wore difficult UX like a badge of honor, in 2018, product-focus and user-centric thinking finally infiltrated the crypto space.
Why Are We Building Coinmine?
The interface and product side of Liberty Crypto is, in a nutshell, why we began Coinmine. As you can tell from this piece, we believe that the real opportunity of crypto is liberty, sovereignty, and liberation. We think, however, that achieving these goals will take massively more participation from a radically larger network of people. Part of what’s required to achieve this are user experiences and products that are up to the quality that today’s generation of apps and social experiences have condition people to. The early adopters (which includes everyone reading this) may be motivated enough by big visions of the future to deal with frustrating, laborious, slow, bad experiences, but the network of power we need to recruit won’t. That’s the idea animating Coinmine, and that’s the idea for the part of the Liberty crypto year in review that’s about product experiences.
And with that, back to the list of trends from the past year!
Plug and Play Nodes
In many ways, Plug-and-Play nodes are exactly where decentralized hardware and user-centric product experiences meet. The are an essential development on the path to Liberty crypto, as they democratize the ability to participate in p2p networks that function beyond centralized control.
As discussed, development around Lightning has been one of the major drivers of the emergence of plug-and-play nodes, which allow users to run the nodes that make decentralized networks work without the setup hassle. The result, of course, of making it easier to run nodes is that more people do it.
A few of the projects in this space:
- Casa - Casa released their dedicated lightning node in September
- Coinmine - We announced our Coinmine One device in November, which will allow owners to run a full lightning node starting in early 2019 while simultaneously powering a PoW network.
Lightning isn’t the only driver of plug-and-play nodes, however. Another subset of these type of experiences are the *digital mining* tools that make it possible to do things like mining and interact with your lightning node from simple web interfaces.
One of the better known examples is Honeyminer, which launched in June and is a set-it-and-forget-it software that uses extra computing resources to mine a bundle of cryptos (which it then converts automatically to Bitcoin.
On the node management side, Joule is a browser extension that allows those running their own lightning nodes to take advantage of advanced functionality including the ability to manage channels, track transaction history, one click send and more. Bitcoin champion Pierre Rochard has been putting in a ton of work to help people get Lightning nodes up and running, as well.
These plug-and-play hardware nodes and digital mining experiences ultimately are hugely important in expanding the set of people who not only hold crypto but participate in network building activities. One can think about them almost as “mining on ramps” that get people comfortable with simple activities at first that can grow into deeper engagement over time.
Much of the push for UX thinking has come from wallet companies, who made a significant dent on the space in 2018. In the hardware wallet space, Ledger kicked off the year announcing a $75M raise in January. In many ways, however, 2018 was about innovation in the space between leaving crypto on exchange servers and full cold storage or hardware solutions. For many people, the complexity of physical storage solutions, or the fear of losing an item like a hardware wallet, seem scarier than the potential for an exchange to be hacked.
To address this middle space, we saw entrants like MyCrypto - a noncustodial digital wallet - who announced a $4m Series A in August. MyCrypto’s CEO Taylor Monahan has been a loud and proud advocate for better UI, exemplified by this post. Another important player in the space is Wasabi, whose privacy-focused Bitcoin wallet adds a layer of anonymity to users.
Speaking of “wallets,” the wallet that most crypto users first interact with is the native wallet of whatever service they use to buy their first coins. In the price run-up of late 2017, Coinbase was the undisputed champion of the on-ramps, with downloads of the app famously surging around Thanksgiving. In 2018, however, they got two major competitors.
In January, RobinHood announced that it would be bringing its zero-fee stock trading approach to crypto. Building huge buzz and millions of advanced signups, the app launched crypto trading in April. It was, as promised zero-fee and instantaneous, but also had some significant downsides, including limitations about which states it was available in and, more importantly, no ability to transfer coins out of the app.
In the last few months, the big onramp story has been the surge of the Cash App from Bitcoin-friendly Square. Square (and Twitter) CEO Jack Dorsey has been a vocal proponent of Bitcoin, and the Cash app introduced Bitcoin buying in August. Just last week, the Cash App overtook PayPal and Venmo to be the #1 free finance app in the Google Play store.
Because the bear market hasn’t been particularly conducive to new entrants, it’s easy to forget how big a deal it is that the biggest apps that people already know and use to interact with their money now support crypto. This is another innovation that, alongside things like plug-and-play nodes, democratizes who gets to participate in Liberty Crypto.
Rejection Of Trash Metrics
Here’s one that might seem a little out of place in the product experience/UX bucket but which is hugely important for what the industry is actually trying to build. What we measure shapes the actions we take. Crypto, to date, has been measures like price, market cap and volume. If we think about protocols as products, it’s impossible not to recognize that they design against these metrics (the rise of pre-mines a few years ago being, for example, a way to game market cap numbers).
There is a growing chorus calling out these metrics. Price is obviously not an indicator of fundamental strength but a reflection of the market moment. Market cap has huge issues based on everything from the fact that tokens are not the same as stocks (from which it borrows the metric) to the gameability of the stat to the fact that it includes lost coins. Volume is deprived of any value as a metric by the rampant wash trading that runs across the industry.
Importantly, however, we’re not just seeing critiques but alternatives emerge. Last month, for example, Coinmetrics added Realized Capital a metric that addresses lost Bitcoins to provide a more accurate picture of true supply.
We need more of these efforts. Better metrics inevitably lead to better products, while bad metrics lead to more speculation and even re-centralization.
Advancements In Privacy Tech
One of the core product features of Liberty crypto is the option for privacy. This is all the more important as questions of surveillance and the ability of nation-states to capture data or compel technology companies to provide data increases. In this light, 2018 was a tremendous year for crypto privacy. In particular, the last quarter of the year has seen major advancements. A few highlights from October alone:
- Monero activated Bulletproofs, a new cryptographic approach to verifying confidential transactions, and immediately saw significant reduction in transaction fees.
- Zcash went live with its Sapling upgrade, which was also designed to radically improve performance around shielded transactions
- Grin launched its 4th testnet, anticipated to be the last before a full mainnet release. Grin is (along with Beam) one of two prominent implementations of MimbleWimble - a privacy technology introduced pseudoanonymously last year.
The role and potential impact of major financial institutions on the crypto space remains debated. On the one hand, there are those who worry about things like rehypothecation and threats to the purity of Bitcoin’s 21m hard cap. On the other, it feels undeniable that the more big money gets involved, the more inevitable the long term strength of cryptocurrency becomes.
From the standpoint of Liberty Crypto, there is an argument to be made that when it comes to the state, business, and people, it is often the case that the two of the three who have aligned interests tend to get their way relative to the other. Recruiting the financial mainstream as an ally could provides a bulwark against overly aggressive state action.
From that vantage point, 2018 saw some announcements that suggest 2019 could be a very good year. Perhaps the most notable of these are New York Stock Exchange owner ICE launching Bakkt (although the launch was pushed from December into next year), TD Ameritrade and others backing new exchange ErisX, and Fidelity announcing Fidelity Digital Assets.
Morgan Stanley just officially announced that they consider crypto a new institutional asset class.— Pomp 🌪 (@APompliano) November 1, 2018
Every institution has to #GetOffZero and get in the game.
The virus is spreading 🚀
Part 3: Use Beyond Speculating
Why It Matters:
Ultimately, Liberty crypto isn’t just about the idea of more freedom but about the actual ability to do things outside of the control of the traditional business and political power structures. For that reason, the promise of liberty crypto ultimately has to be expressed as real action.
On first glance, it’s hard not to look at crypto “usage” and be a little disappointed. Decentralized apps haven’t yet lived up to their promise and so much of the year was consumed with focus on prices and speculation.
At the same time, dig a little deeper and 2018 showed the beginnings of use beyond speculating, and an impact beyond just our industry, that show promise for the year to come.
Understanding of Holding as Use
One of the important and less-than-intuitive questions addressed this year was: what does it actually mean to “use” crypto? Is it, for example, just about dapp numbers? One major area of progress in this context was the growing recognition that, in money networks - networks that require long-term shared belief to bootstrap to value - holding is a form of use. Indeed, holding provides an essential durability and is one of the reasons Bitcoin seems stronger in down markets as compared to other assets.
Rise of “Decentralized Finance” or DeFi
Another form of use that isn’t just about users signing into dapps has to do with open alternatives to traditional financial services. The decentralized finance or DeFi narrative has gotten stronger over the past few months, in particular in the context of the growth of crypto collateralized loans that give people access to capital without an intermediary. Investor Ryan Sean Adams noticed that Maker alone had seen more than $28m dollars in loans in the 30 days leading up to December 6th. Being able to access financial services outside of the normal systems is an important long-term part of Liberty Crypto.
Over $28m in loans issued over the past 30 days in Maker alone— Ryan Sean Adams (@RyanSAdams) December 6, 2018
Maker, Compound, Dharma
Each protocol driven, no intermediary, just code
Collateralized loans are edging closer to becoming a successful use case for smart contractshttps://t.co/E264ClEnDp
Rise of Generalized Mining
Connected to the expansion of decentralized hardware and the launch of plug and play nodes and other types of network building experiences, the last quarter in particular has seen a major growth in the narrative around “generalized mining” - which folks like the Coinfund team who coined the term use to mean the complete set of network building activities beyond simply investing. If some of the interest in generalized mining comes from investors looking for alpha in a bear market with extreme portfolio similarity across funds, the more interesting idea is the reimagining of how networks can organize and reward work and contributions. While the concepts is still nebulous, the advancement in thinking here is absolutely massive compared to the pump and dump get rich quick lunacy of this time last year.
Fantastic episode of Unchained with @jbrukh and @TusharJain_ on generalized mining! They explain what it is, why it makes sense early in a network, whether this will lead away from a P2P vision for crypto and how this affects the fat protocols thesis. https://t.co/lLOQkYTG7n— Laura Shin (@laurashin) November 13, 2018
Business Motivation for Extra Energy
One of the most oft-levied critiques of Bitcoin is that it uses an enormous amount of energy. In 2018, that argument was put to a significantly greater test. For one, there has been a prominent emergence of an anti-FUD counter narrative, led by folks like Nic Carter and Dan Held. Held’s viral Medium post and Twitter thread on the topic provided a comprehensive, multi-vector attack on the idea of Bitcoin’s energy consumption being wasteful. One of the most interesting arguments he made was that Bitcoin creates a market mechanism to capture the value of renewable energy that would otherwise be wasted.
1/ Most people think #Bitcoin’s PoW is "wasteful." I explore how everything is energy, money is energy, subjective use of energy, and PoW's costs relative to existing governance systems— Dan Hedl (@danheld) September 14, 2018
For a deeper dive, my Medium post: https://t.co/a3wJW5Y1Ni
TL;DR - check out this thread 👇
Interestingly, this was one of the findings of a more than year long study by CoinShares into the energy consumption of Bitcoin mining. In addition to finding that an estimated 77.6% of mining consumption is renewables, the study also found that, because mining operations can be set up physically proximate to where renewables like hydro are made, Bitcoin can act as a buyer of last resort for energy that would be too expensive once transported to population bases. Nic Carter visualized this, saying, “Imagine a 3D topographic map of the world with cheap energy hotspots being lower and expensive energy being higher. I imagine #Bitcoin mining being akin to a glass of water poured over the surface, settling in the nooks and crannies, and smoothing it out.”
Viral User Experiences
While our definition of “usage” may be getting smarter, there were a few notable viral flares this year as well. Satoshis.place was a collaborative digital canvas built on Lightning. Based on Reddit’s “Place” experiment that went viral in 2017, Satoshi’s place allowed people take over pixels for one satoshi each, using the lightning network to handle the transactions. Thousands and thousands of people joined the fun, garnering both media attention and esteem for the capabilities of lightning. Another notable game-based viral experience was FOMO3D - effectively a transparent Ponzi scheme as a game. The app saw massive uptake and it wasn’t long before people were explaining why the implications were much larger than just speculative, illegal games. Indeed, the ability of these experiences to be released and attract huge user interest - outside the purview of normal organizational forms, is emblematic of Liberty Crypto’s disruption.
Speaking of larger implications, one continuing narrative question throughout the year was whether countries in the grip of currency inflation would see a flight to Bitcoin or other cryptos. This year, there has been no bigger focus than Venezuela. Experiencing massive devaluation in its currency, the crypto community has been carefully watching indicators such as trade listings on LocalBitcoins - a market for physical Bitcoin transactions. Venezuela is also currently in the midst of a number of direct crypto giving experiments, including a Coinbase initiative through GiveCrypto and AirTM’s $100k crypto airdrop. Indeed, the activity around Venezuela has gotten prominent enough that it’s even got a body of criticism now.
There are real questions about the efficacy of crypto in a context like Venezuela, and important challenges on how to make cryptocurrencies viable in the places that need them most. Jill Carlson jokingly added “slide about Venezeula” to her joke about the 6 standard slides of every crypto thought leader speech. Still, the fact that we’ve moved from talking theoretically to real, no bullshit, money-backed experiments is a massive sign of progress for liberty crypto.
Crypto keynote 101:— Jill Carlson (@_jillruth) December 18, 2018
1. How many of you know what bitcoin is?
3. Cram an overview of distributed systems & public key crypto into 2 min
4. “It’s like the early days of the internet”
6. “It’s changing everything from health care records to identity”
Conclusion: Previewing The Year Ahead
So if that was 2018, how is next year looking ? As for price crypto, who knows. It’s possible that the launch of all these new institutional players triggers a better market. But it’s also possible that a global debt crisis depresses the industry further. So…Bitcoin to $1 million?
When it comes to Liberty Crypto, however, things seem a little more directionally clear. At the risk of looking like fools a year from now, allow us a few predictions:
First, it feels almost for sure that Lightning will continue to expand its footprint, with Lightning commerce becoming both easier and more accepted by a variety of merchants, driving Bitcoin acceptance along with it.
Second, we anticipate a meaningful increase in the number and variety of people participating in network building activities including mining, staking, running Lightning nodes, and more. Both the narrative of generalized mining and the availability of decentralized hardware and UX-minded software point in this direction. Specific events that are exciting the market such as the launch of Handshake and the beginning of Grin mining should accelerate this.
Third, related to the idea of participation, we anticipate the conversation about and participation in protocol governance models to increase. As people have the tools to more easily participate in staking, voting and other governance activities, we anticipate that they’ll begin exerting their political power.
Fourth, as those same folks get more comfortable with the tools of decentralized network building and governance processes to drive protocols forward, we think we’ll see many more experiments with different types of decentralized organizations that align people around goals in new ways.
Fifth and finally, we think that all of this participation can’t come soon enough, as we are poised for the opening salvos in what promises to be a multi-year battle between liberty crypto and state power crypto.
Crypto’s opportunity to create more freedom and promote individual sovereignty is not a foregone conclusion. One need look no further than the Venezuelan government forcing citizens to accept pension payments in the unproven Petro, or China’s interest in using digital cash to surveil its citizens, to see that states are recognizing the opportunities of state-backed digital currencies as further tools of control.
Still, we can’t help but believe that the arc of crypto bends towards liberty. The way we help achieve that promise is not just through more contagiousness, but more participation.
Here’s to a freedom-filled 2019!