Networks everywhere are under siege
One of crypto's value propositions is that it gives people more control over their digital lives.
We’ll get to the heart of this week’s issue in a minute, but first a quick note about the dramatic market volatility this past week.
The major pullback was in part triggered by the same drivers that we’ve been covering the past several months: weird macroeconomics and mounting global geopolitical tensions.
You might have noticed that these concerns are also impacting traditional asset markets.
We can also add the back-and-forth of the election cycle to that list. For better or worse, crypto is a talking point of the upcoming election. The long-term impacts of crypto as a political platform issue are still unclear.
Lastly, another big driver of last week’s crypto market volatility is attributed to moves made by Chicago-based Jump Trading. The firm moved 17,575 ETH worth about $46 million to centralized exchanges.
The timing of the move, during the weekend and during a time of lower market liquidity, raised suspicions among market watchers that something was off.
During times of crazy volatility, the fear and greed index is a useful barometer for gauging where the market is heading.
Developing a framework to talk about crypto
OK, market movements aside, let's zoom out to the bigger picture.
If you look back over the last few issues of the newsletter, you’ll see a common thread running through them. We’ve been talking a lot about networks.
A couple of weeks ago, we covered the idea of network value. Last week we talked about how the Bitcoin network can be used strategically.
One of the reasons I’ve been thinking so much about networks or writing about networks is because it gives a good starting point when talking about crypto — and the reason that crypto exists.
It’s a good place to pick up the beginning of the story.
The hard part is making crypto relatable to everyday life.
Most people don’t care about digital assets or have no interest in digital collectibles or memecoins, etc.
So why should crypto matter to them?
One of the biggest reasons that I keep coming back to is that we live in an increasingly digital world. It’s hard to imagine the pace of digitalization slowing down, or moving backward.
A core building block of digital architecture is a network. Networks are a primary tool for people to interact, organize, and communicate in digital spaces.
Cryptocurrencies reimagine network design and add interesting dynamics such as the ability for people to transact peer-to-peer, or to build value systems native to the internet.
Thinking through how networks work and how people use digital networks to do things like protect and monetize their identity, create more equitable systems of distribution, or even own the underlying system on which value is created might be a bit dry when compared to other facets of crypto, but it’s also the most significant.
For crypto systems, network effects are like a push and a pull. If network architecture is a good starting point for the crypto story, then network effects are like the through line that keeps us turning the pages.
Networks everywhere are under siege
This brings us to an important point: Doesn’t it feel like networks everywhere are under siege?
I’m reading “Read Write Own,” by Chris Dixon. The book is all about how web3 is the next logical step for the internet. Recently, I needed a bookmark, so I grabbed a piece of paper from my desk.
I’ve been using that same paper for a few weeks now. The other day, I looked at it and realized it was a letter from a financial company that sent me a letter advising me that my info was compromised in a hack. I have a bunch of letters, emails, text messages, etc., like this.
I mentioned this before, and I’m sure it’s sure it’s something you can relate to.
One of the key drivers of crypto is that the technology helps create defensible networks. This is essentially what last week’s newsletter was all about.
We looked at the physical defensible the Bitcoin network is and why that’s so significant.
Other durable crypto networks also have components that make them defensible.
What I’m alluding to here are specific design choices such as decentralized consensus mechanisms, total value locked, and elements like the ability to self-custody private keys.
That’s not to say that crypto is perfect in any way. Look at the past 24 months. The entire crypto industry was upended by a series of network collapses.
While it probably doesn’t matter for the people who lost money in those failures, there is some nuance to why those failures happened. In many cases, the failures occurred because people in control misrepresented what they were doing, and the operations were not onchain — or verifiable or able to be vetted publicly.
One of the biggest takeaways is that the underlying crypto networks, the layer one systems like Bitcoin and Ethereum functioned the way they were supposed to during catastrophic meltdowns across the sector.
I realize most of what I’ve written here is vague, or so broad that there’s a risk that it’s not that useful.
The takeaway in all of this is that one of the main value propositions of cryptocurrencies is that they are creating a new way for people to build networks.
While there is still work to do, the goal of crypto, web3, onchain, etc., is to make digital networks work better for people.
The point of all of this often gets drowned out by the casino-like flashing lights of crypto culture, but one of the key goals of new crypto systems is to give people more control.
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