By now, there is a lot of information available outlining the potential applications or impacts of crypto. Some communities and developers are trying to create crypto-systems that are a store of value, while others are trying to create a peer-to-peer digital cash system.
From bringing financial services to the unbanked to ensuring privacy in an increasingly shrinking world to shoring up the underpinnings of the democratic process — we’ve heard it all.
Blockchain and crypto certainly have a tremendous amount of potential, or at least, a lot of high expectations to fill.
But sometimes, in all the optimism and visionary, forward-thinking, the core ingredients of what makes crypto and blockchain so unique and exciting get diminished — the technicalities get outshined by the potential.
As the debate over whether crypto is cash or whether crypto is gold rages, here is a little perspective on three qualities that are unique to crypto: decentralization, immutability, and adaptability.
In a previous post I talked about how crypto assets are new riffs on the characteristics that define traditional assets, but here we’ll dive into qualities that are more crypto-specific.
The three characteristics that make cryptoeconomics unique and valuable
There are also some asset characteristics that are unique to crypto. (These three characteristics were broken out in a recent paper I read from Grayscale Investments).
1. Decentralization: This is what helps make crypto bombproof. Of course, decentralized has the hollow ring of bureaucratic jargon, but the concept is sold. At its core, this is a foundation with so many back-ups and redundancies that it would be impossible (or at least insanely resource-intensive and hellaciously expensive) to topple. Understanding this concept of decentralization is critically important when evaluating systems within the cryptoeconomics space.
Not all blockchain systems are decentralized. And private blockchains are not always forthcoming about their governance or structure because it is a weakness both in terms of security and in terms of economics. In the short-term, it is probably easier to launch and maintain a private blockchain, but I think in the long-term, public, or permissionless blockchains or networks will hold a higher value.
There are also some systems that are launching as a kind of hybrid structure, promising to become more decentralized as the network grows more robust. We’ll see if that actually works out. The big thing about decentralized systems is that the larger they get (or in this case more globally-expansive) the more resilient they become in terms of government control or censorship, and/or attacks by criminal elements.
2. Immutability: This feature is similar to the way time works. You can’t ever go backward. This is very different than conventional data/financial systems that allow for edits. Backtracking, in some senses, provides consumer protection, allowing for things like returns and chargebacks. But, for merchants and contract negotiations, the idea of a time machine, a do-over, or a mulligan, are all very bad for business.
In a way, immutability is a function that more closely resembles cash. If you do a deal in cash, changing your mind and wanting your money back from the other party of the transaction requires a bit of finesse. Not so with a credit card, where you can walk away and then call later to cancel. Crypto, in some instances, restores confidence to markets but also requires that consumers be more vigilante or aware of the details surrounding the transaction or contract.
And then, of course, there was that time when the immutability of the ethereum blockchain was broken, causing controversy and causing questions about the underlying integrity of the concept.
3. Adaptability: OK, so this much we know: The world is changing rapidly. Maybe it’s because. The thing about blockchain-based systems is that they can be modified and adapted in a number of different ways, from on-chain protocol-level changes to layered systems and sidechains. The point is, a company, organization, community, or individual can probably find a crypto-based system or systems to meet their needs and watch as it grows and changes in the future.
While these aren’t the only pieces that define crypto, there are certainly foundational and help us understand why these systems are valuable (and/or why the legacy systems are kind of backward).
Also published on Medium.