Revisiting cryptocurrency:
What has changed since 2018—and why I am still a skeptic

This is an excerpt of a longer article on the current state of cryptocurrency. Click here to read the full PDF.

One of the most challenging things about presenting a unified thesis on the crypto space is that crypto has 1,000 faces. “Crypto” is many different things to many different people. To some it is the future of money. To others, it is a technology that will decentralize established global systems. And, to many, it is also a way to get rich quickly.

Consistent with my 2018 review, I arrive at the conclusion that, while some of the technologies underpinning various crypto assets may prove useful over time, the vast majority of the value that has been created in this space is attributable to speculative behavior from people who see this as their chance to become a millionaire.

I still believe in everything I previously said. However, as I noted at the beginning of this piece, a lot has changed since I expressed these viewpoints. In my mind, the one aspect of the crypto ecosystem that has changed the most since 2018 is the shift in the discussion from “crypto as money” to “crypto as a technology.”

My critiques from 2018 are from a time when most were focused on crypto having two main applications: currency/payment method and a store-of-value investment. In other words, “crypto as money" —hence, “cryptocurrency.” There are still plenty out there who believe in the grand dream of non-governmental cryptocurrencies as a true replacement to global fiat currencies, and those who still firmly believe that Bitcoin’s (BTC) true value is as a store of value (“digital gold”).

However, much of the energy in the crypto ecosystem right now has become focused on other applications of crypto. In general, these new applications revolve around technology enablement (or using a crypto token) and its underlying blockchain to create various applications. These technological solutions go beyond “money.”

This is where terms like “NFT” (non-fungible tokens) and “Web3” come into play. Bitcoin and Ethereum (ETH) still dominate the market cap charts (#1 and #2 respectively), but there are now 44 crypto tokens with market caps between $2B and $20B. In general, the purpose behind all of these tokens is to build solutions/applications on top of blockchains.

Their namesake tokens are simply functional units that allow people to participate on their respective blockchains and various applications running on those blockchains. The vision for each project varies but usually involves disrupting some sort of traditional, centralized system with a system built around their tokens, blockchain, and applications.

Ethereum is the most talked-about crypto asset when it comes to these types of applications. The vision of Ethereum is that users will build decentralized applications (dapps) using the Ethereum blockchain. This is supposed to be accomplished by using “smart contracts,” which essentially just means there is programmable code living on the Ethereum blockchain. As Ethereum’s website puts it: “Smart contracts digitize agreements by turning the terms of an agreement into computer code that automatically executes when the contract terms are met.” This can be as simple as, “If this person sells this asset, automatically take 5% of the sale price and send it as a commission to the original owner at this blockchain address.” This kind of IF/THEN simple programmability is largely what people think about when they see the term “smart contracts,” but it is also important to highlight the grand vision for Ethereum involves much, much more complicated code running as dapps.

Ethereum evangelists essentially believe that almost any existing application can be recreated as a dapp on the Ethereum blockchain. In a way, dapps are simply the continuation of the decentralized vision of BTC. Just as BTC attempts to remove centralized third parties from the payments/banking system, many of these “crypto as a technology” tokens/projects are attempting to remove centralized third parties from various other types of systems by turning their functionality into automatically executed computer code.

So, what is Web3 and what are NFTs? These are concepts that rise out of the crypto as a technology-enabler mindset.

Web3 is simply a term meant to signify a decentralized internet; an internet where the applications we interact with are not owned and run by private entities like Google, Facebook, Microsoft, Amazon, Apple or Netflix but are instead distributed applications (dapps, from above) that run on various blockchains. There is a strong “take the power back” feel to this, similar to how BTC’s original goal was to “take the power back” from the established global financial system. Proponents of Web3 point out issues with the current state of the internet (dominated by mega-cap technology companies, monetization of personal data, censorship questions) and see a decentralized internet built on top of various blockchains as the solution.

NFTs are a more specific concept, and in general, they are simply a token that represents ownership of a digital asset. NFTs are a very simple smart contract. You can think of it as a digital certificate of ownership that can be passed around, as whatever digital asset it is tied to gets bought and sold. If you send me ETH to buy a digital asset, the smart contract automatically transfers the digital ownership title to you.

The classic example that gets talked about right now with NFTs is digital artwork. The NFT is the token that represents ownership of a piece of digital art; I have a thing that says I am the official owner of this picture of a monkey (see Bored Ape Yacht Club). If I want to sell that piece of art to someone else, they will transfer cryptocurrency (likely ETH) to me, and the smart contract embedded in the NFT will now recognize their blockchain address as the owner of the picture of a monkey. The idea behind the NFT is twofold: one, the smart contract built into it allows for the transfer of ownership of the digital asset, and two, at any one point in time, the record of who (which blockchain address) owns the digital asset is visible on the blockchain for anyone to see, thereby providing an easily verifiable “certificate of ownership.”

These are very simplistic definitions. It gets much more complicated from here. But as I said in my opening to this piece, I can’t address all the 1,000 faces of what crypto “is,” and there are frankly many parts of the ecosystem that I don’t claim to understand. That is the challenging part about thinking about a concept that can be as simple as “buying collectible .jpegs of monkeys for $500K” but as complicated as a vision for reshaping how global institutions operate.

Click here to read the full article, including Sam’s analysis of the current state of crypto. 

Crypto/Web3 enthusiasts are always asking us to “imagine a world where...” Well, when I imagine the world they’re describing that runs on decentralized systems, I see the possibility of anarchy without responsibility. I see a world where decision makers can hide behind anonymity. I see a world where everyone can easily verify what “is” by looking at public blockchains, but no one can describe “why” we are where we are or “how” we got here.

We are living through an experiment here. New technologies can certainly be exciting. Everyone is searching for the next big thing, the next investible idea that changes everything, just as the internet did. Crypto possesses a powerful narrative, but I question whether or not investors crave this next grand idea so badly that they are jumping in headfirst without taking the time to truly examine what is being offered.

Do you have further questions about this article and whether cryptocurrency should have a place in your portfolio? Contact an Associated Bank wealth advisor for more detailed one-on-one that can help you make the best decisions for your financial present and future.