The end of the prologue and the beginning of a new chapter: Reflection and Future Prospects on the Cryptocurrency Industry

Written by: pillarbear, Four Pillars

Compiled by Yangz, Techub News

Article Summary

• The narrative game rules that drive the development of the cryptocurrency industry are starting to change, and market participants are forming a meta-awareness of the narrative game itself.
• The cryptocurrency industry urgently needs applications that can bring block space demand. The biggest advantage of cryptocurrency is its ability to give economic value to any idea and provide a trading platform. Recently, there have been some new experimental forms in the market that use attention economy and speculative characteristics, such as memecoin, social trading, and prediction market. It is possible that more diverse on-chain applications and business models will emerge in the future.
• For on-chain applications, speculation is one of the most powerful features. The social demand for speculation is constantly increasing, which can attract “degens”.
• In the long run, the goal of the industry should be to provide value beyond speculation. It is necessary to convert users attracted by speculative demand into users who truly appreciate the core value of the service, establish a sustainable Token economy, and ultimately provide social graphics and product values that go beyond speculation.

Source: Delievery at Dawn | a 4844 film

As Matt Huang, co-founder of Paradigm, said, we’re building casinos on Mars. From redefining money to reshaping the way we interact with applications, the systems and mechanisms that society has established are being reimagined to fit the new paradigm known as Crypto. It goes beyond technological innovation and embodies different cultural and social significance. For libertarians, Cryptocurrency offers a path to free markets and autonomy. For cryptopunks, it provides a censorship-resistant, permissionless value exchange network. For entrepreneurs, Cryptocurrency is the foundation for building the next generation of the internet. For traders, it’s a source of endless long dopamine and potential profits. Depending on personal perspectives, the casino built by Cryptocurrency can be vastly different. How do you see the future shaped by Cryptocurrency?

2024 is already more than half over, looking back, this year is full of vitality, highlighting the diversity of the Cryptocurrency industry. BTC has gained institutional recognition through ETFs. Ethereum (ETH) successfully implemented the Dencun upgrade, including EIP-4844. Rollup has been deployed in numerous projects and has become the mainstream solution for launching new chains. Solana has experienced a period of difficulty but has now begun an amazing revival, and the Bull Market that started last year has also sparked investors’ frenzy for memecoins and celebrity coins.

In terms of applications, we have seen significant development in the Cryptocurrency field. Over time, mainstream Decentralized Finance protocols have matured and risen steadily. At the same time, the emergence of other tracks such as SocialFi, stake, and artificial intelligence has attracted attention and speculation.

Compared with the previous Bear Market, the market has clearly recovered. However, at the same time as the recovery, the industry has also seen unprecedented polarization. As for memecoin, on the one hand, opponents call it meaningless speculation, while supporters believe it represents innovation is ‘going to the market’, and is a model of the attention economy’s emerging model. In addition, in terms of narrative, the industry is also divided into two factions, one praising the new narrative and infrastructure evolution, while the other is tired of the elitism in the field.

Since the birth of BTC in 2008, the Cryptocurrency industry has gone through a more turbulent path than any other industry, experiencing long periods of rise and fall, before it has its current appearance. When public interest shows signs of waning, the industry will dramatically make a comeback, triggering new narratives and hype. Similarly, the future development of the Cryptocurrency industry also contains countless scenarios and possibilities. This article reflects on the narrative games that have driven the development of the Cryptocurrency industry so far, explores the latest trends in the ever-changing industry landscape, and reflects on the industry’s development direction.

Narrative Game

Source: Fractal Lives

It all started with BTC. Since its birth, the Cryptocurrency industry has undergone countless developments and changes, but BTC remains the benchmark for the entire industry. As of the time of writing, BTC’s Market Cap has reached $1.2 trillion, ranking tenth among all asset classes. With the approval of the Spot ETF, BTC further solidifies its status as the “digital gold”. The reason why BTC can achieve a $1.2 trillion Market Cap is not because it is a profit-based business, but because it is seen as a scarce and legitimate asset. Even the world’s most widely used Payment Network Visa and Mastercard have a Market Cap that is less than half of BTC’s.

Source: Visions of Bitcoin

BTC was not initially seen as ‘digital gold’. In the early days, most people saw BTC as a new form of Electronic Money or a cheap Payment Network. In the early 2010s, it was commonly seen as a currency of the Darknet. However, over time, BTC gradually gained legitimacy and its narrative shifted from being a Medium of Exchange to a store of value. The second half of the graph, around 2018, clearly indicates a shift in public opinion, favoring BTC as an asset class rather than a Payment Network. Although the graph does not show data after 2018, the narrative of BTC as ‘digital gold’ not only persists but also continues to strengthen.

Satoshi Nakamoto’s insight into BTC is that the essence of currency comes from social consensus. The blockchain is just the implementation of social consensus encryption among participants. The value of this network depends on the evaluation of the participants. If BTC is only seen as a payment network or darknet currency, rather than a narrative of value storage, it would be very difficult to achieve the current value.

The success of BTC has set the standard for the subsequent protocols and Tokens. Like BTC, large numbers of Tokens in Cryptocurrency have both commercial and asset characteristics. In addition, the censorship resistance and permissionless nature of blockchain provide the foundation for anyone to issue Tokens and allow others to trade Tokens. In order to increase the value of Tokens, every protocol needs to gain recognition from more people and believe that its Tokens have value.

Source: X(@alphanonceStaff)

As a result, a unique ‘narrative game’ culture has emerged throughout the Cryptocurrency industry. Emerging industries typically value future potential rather than immediate user benefits. However, in the field of Cryptocurrency, this narrative-driven approach has taken the lead. Since the rise of the ICO frenzy, marketing strategies based on captivating stories have proven effective, and this remains true even today. In the Cryptocurrency field, the most influential figures have always been philosophers, researchers, and thought leaders. The tendency to idolize these individuals has become one of the industry’s most prominent features.

In addition, narrative games are particularly effective because a large number of participants in the Cryptocurrency market are investors and traders. The success of narrative games in encryption lies not only in effective marketing activities. Its biggest advantage lies in the permissionless nature and ownership model, allowing anyone to tokenize any idea and give it economic value. The narrative that a project can present is a key factor that is long convincing and long attractive, directly linked to its market value. As the Token price pumps and volume increases, traders will constantly look for the next fascinating story, and the project creates an endless cycle to provide these narratives. The Cryptocurrency industry maintains a rise in the constant cycle of emerging and disappearing narratives.

Source: X (@intuitio_)

The memecoin frenzy since the beginning of this year has exposed the nature of the narrative game in the Cryptocurrency industry. The phenomenon of these Tokens, which almost do not provide practical utility or vision, being sought after in the market, fully demonstrates that the narrative game is still the dominant force driving the development of the Crypto market.

The rise of Memecoin is not just speculation. It also reflects the elitism in pursuing complexity in Cryptocurrency, as well as criticism of the imbalance between retail investors and VC in the market. As the industry matures, truly innovative narratives become increasingly rare. Projects with subtle differences are becoming more and more touted as the next ‘Block revolution’, leading to platform oversaturation, excessive Block space, and fatigue from repetitive narratives. In addition, mainstream projects can even obtain exaggerated valuations from VC before they are launched and attempt to control prices through limited circulation supply. This situation makes it difficult for many retail investors to participate in the narrative game.

Source: X(@gainzy222)

The significance of cryptocurrency narratives and the way practitioners consume these narratives are changing. It is currently unclear how long the old tricks of creating new stories to justify a high market cap can continue. However, we cannot expect new technological innovations or business models to emerge every week.

The cryptocurrency industry has always been narrated based on technological breakthroughs and capital efficiency. Now, investors and users seem to have developed a meta-awareness of the narrative game itself. The narrative game of cryptocurrency seems to be developing in a polarized manner. On one hand, there are complaints that new innovations and narratives are not as good as before, while on the other hand, there is continuous hype around newly emerged memecoins and hot projects, only to watch them burst like bubbles. In the near future, we may see this change become more apparent.

Where are we now?

Since its inception, the narrative game of Cryptocurrency has undoubtedly played a crucial role in building the industry foundation. The Cryptocurrency industry not only needs to maintain token prices, but also requires goals and visions to prove its existence and potential, especially under the pressure of fraud, speculation, and regulation. Many people have embraced the vision of blockchain and Web3, and they are committed to promoting the development of the industry, playing an important role in shaping the current form of the industry.

However, the technical limitations of blockchain and Web3 are very obvious. For daily applications, the network speed with sufficient security and anti-censorship ability is too slow and the cost is too high. And during the Decentralized Finance and Non-fungible Token Summer, the single transaction of Money Laundering on the ETH chain often exceeds $100.

Source: Rollup.wtf

Thanks to the efforts of engineers and researchers, Blockchain technology has steadily advanced. Now, a secure and scalable Blockchain space has become a reality. Most L2 or high-performance chains have Money Laundering below 0.01 USD, and their speeds are comparable to traditional applications.

Source: The Myth of The Infrastructure Phase

Looking back, BTC has been around for 16 years and ETH for 9 years. Over these years, the cryptocurrency industry has gone through several cycles of infrastructure and application development, with both technological advancements and declines caused by greed. In the initial stages, the industry developed relatively slowly due to a lack of demand and resources for research and development. In the year 2020, during the Decentralized Finance and Non-fungible Token Summer, the demand for applications exploded, but the systems supporting this demand were inadequate. At that time, we deeply felt the need for stable and scalable infrastructure.

The crypto winter of encryption after 2022 marks a rapid development phase of the blockchain infrastructure. Rollups, data availability layers, and ZK technology have transitioned from the research phase to the commercial phase. The market actively adopts these innovative technologies. Integrated chains such as Solana attract new users with low cost and fast transactions. High-performance chains like SUI and Monad have also aroused interest and are expected to launch more long applications in the foreseeable future.

The development of infrastructure and applications is complementary. Neither is more important than the other, nor is there a need to prioritize one over the other. Applications stimulate the demand for infrastructure. Conversely, advanced infrastructure lays the foundation for new applications. The reason why YouTube was born in 2005 instead of 1995 is the widespread application of broadband infrastructure. The popularization of broadband, in turn, benefited from the success of early network companies such as Amazon and eBay.

Source: X (@Imrankhan)

Blockchain technology still has a lot of room for improvement. We look forward to seeing networks that provide a better user experience and security being more widely adopted. However, it is undeniable that the narrative of the cryptocurrency industry is too focused on following technological improvements and ideological concepts. Now is the time for the application of encryption to stimulate the development of infrastructure. Most importantly, we need applications that can meet the space requirements of blockchain.

As stated earlier, there has always been a market demand for new narratives in the Cryptocurrency industry, which is particularly strong in the Web3 environment where value accumulation is concentrated at the protocol layer. Therefore, almost out of inertia, the industry continues to show a preference for platforms and infrastructure, with relatively lagging application development and underestimated impact on users.

Source: Vitalik Buterin (EthCC 2022)

After the upgrade of ETH network earlier this year, Vitalik Buterin shared his views on the future development direction of the Cryptocurrency industry.

Today, what I want to say is that we are clearly in the deceleration phase on the right side of this S-curve. As of two weeks ago, the two major changes in Ethereum, namely the switch to Proof of Stake and the re-architecture of blobs, have become history. Further improvements are still important, but they will not have as dramatic an impact as Proof of Stake and Sharding.

The first decade of Ethereum was largely a ‘trainee’ stage, with the goal of landing Ethereum L1, and the applications were mainly used by a small group of enthusiasts. Until a few years ago, we were still setting a low standard for ourselves, that is, building applications that obviously cannot be used on a large scale, as long as they can run as prototypes and reasonably achieve decentralization.

By now, we have most of the tools needed to build user-friendly applications with a cryptopunks-style encryption. We should let go and start working, there are no more excuses for developers.

Source: X (@QwQiao)

If we divide by track, Tokens like BTC as a store of value and Stable Coins as a means of payment have entered a mature stage. Stable Coins have become on-chain reserve coins and are actively adopted by unstable countries in Latin America or Africa. The DeFi sector has also emerged from the disillusionment phase, and the business of mainstream projects has tended to stabilize. Data from Token Terminal shows that MakerDAO generated $3 million in revenue in the first quarter of 2024, with an annualized rate of about $12 million. However, the Market Cap of this Token is only $20 billion, with a price-earnings ratio of about 16. Even compared to TradFi tech companies, this doesn’t seem to be an overvaluation.

On the other hand, the application of Non-fungible Tokens is still limited in some fields for a broader user base. NFTs seem to be experiencing a ‘disillusionment’ after the 2021 Bull Market. Except for a few core IPs, most NFT projects have failed to gain social favor. Additionally, despite high expectations for the gaming sector, the performance in this area is not optimistic and has been largely neglected by users. As for other sectors like artificial intelligence, DEP, and social media, they either haven’t reached the peak of hype or are still in the early stages of innovation.

The Cryptocurrency industry has passed a crucial threshold. Despite various challenges, including the Terra and Luna incidents, the collapse of FTX, severe macro environment, and regulatory pressures, Cryptocurrency continues to move forward. Even in an extreme hypothetical scenario, it becomes highly unreasonable to imagine the collapse of the entire industry. However, it is undeniable that the application of blockchain is still mainly limited to the financial and trading fields, catering to a limited user base and lacking mainstream appeal.

The current Cryptocurrency industry is at a crossroads and may continue to maintain the status quo, only gradually improving in mature areas such as Token as a store of value or Decentralized Finance. This does not mean that continuing to play a role in the currency market is meaningless, but if this continues, the Cryptocurrency industry will only be a market driven by enthusiasts, just like the poker or marijuana industries. Cryptocurrency as an Application Layer has enormous potential. Ideally, after making good use of this, we may fully usher in the adoption of mainstream applications and the emergence of new business models.

Tokenize everything

Source: Insights from ‘The Almanack of Naval Ravikant’

Traditionally, only individuals or companies with capital and labor had leverage. However, the popularity of software and media has changed this situation. Software allows individuals with very little capital to develop applications and services, leading to innovation and the emergence of numerous platforms and SaaS products. The widespread use of platforms like YouTube and Instagram can amplify personal influence, triggering the ‘Cambrian explosion’ of influencer marketing and small-scale media.

The greatest value provided by Cryptocurrency is the ability to give economic value to any idea and provide a trading platform. In traditional systems, the formation of the market requires the intervention and permission of intermediaries to maintain economic value and mutual trust. However, blockchain technology provides the foundation for tokenization, allowing users to exchange economic value with others over the Internet without trusting or obtaining permission from others, thus forming a market.

The term ‘meme’ was first proposed by Richard Dawkins in his book ‘The Selfish Gene’, and it is a concept similar to genes, which transmit genetic information through physical means. In society, a meme is a cultural unit that can represent a certain idea, trend, fashion taste, etc. Later, memes adapted to internet culture and are widely used in the current sense. Like genes, memes spread through social interaction and constantly evolve through the process of replication, modification, and reproduction.

Recently, Michael Rinko of Delphi Digital emphasized in his article ‘Attention is all you need’ that Cryptocurrency gives economic value to people’s ideas and interests, allowing users to own their interests and profit from them.

On Instagram, we follow brands and influential people. But the most I can do is to repost and share this content with fren. Our follow is 100% obtained from others.

Cryptocurrency is different, Cryptocurrency democratizes attention and allows us to have it. If you find yourself spending a lot of time on some topics, you can really own your attention and profit from it. This is an obvious and seemingly silly truth, but it represents a major shift in the economics of the Internet.

Memecoins take the framework of ‘attention is value’ to the extreme. They offer the purest way to buy tokens because you believe it will attract follow in the future.

Source: X(@jessewldn)

One thing that must be recognized is that memecoins themselves are not the most important. They are ultimately just a meme, and once they become uninteresting, they will quickly disappear from people’s sight. What memecoins demonstrate is the original potential of tokenization, implying the possibility of new types of applications. From identity and data to the creator economy, the ability to give economic value to attention has paved the way for unprecedented markets and applications.

This became particularly prominent in the first half of 2024. The Cryptocurrency market has become active again, quickly turning people’s attention into speculative demand applications.

• Solana’s pump.fun has become the main platform for launching memecoins, and the fees generated once reached the peak among all protocols.
• Friend.tech and Fantasy.top have integrated social trading functions associated with Twitter, generating strong speculative demand and achieving transaction fees of $65 million and a volume of over $36 million.
• ScenecoinDEGEN based on Farcaster has attracted a large number of users and activities through innovative Airdrop and community incentive measures, and has contributed to the success of the Farcaster ecosystem.
• During the U.S. presidential election, Polymarket’s activity and volume have risen significantly, with a trading volume of 100 million USD recorded in June alone.
• Hamster Kombat in the TON ecosystem achieves a user base of 100 million with its simple functionality and seamless integration with Telegram.

Although this list is not exhaustive, the release and experimentation of applications of various sizes are still ongoing. Despite the industry’s existence for 10 long years, the development of applications utilizing the unique features of Cryptocurrency has just begun. The range of unique user experiences that on-chain applications can provide is still uncertain. We should pay more attention to these initiatives as they provide meaningful experimental results on how Cryptocurrency applications can meet user needs and adapt to the market. We look forward to conducting more long experiments in the unexplored areas of Cryptocurrency social, gaming, Non-fungible Token, and prediction market.

Speculation is just a feature, not a defect

Block chain is a kind of back-end technology. In addition to chains for specific applications, most networks provide a general execution environment and database for the operation of applications. In principle, most of the applications we use daily can run on-chain. Just as software no longer touts its ability to run on mobile devices or use the cloud as a marketing keyword, encryption technology should not be used to describe application functionality. Ultimately, ‘blockchain’ or ‘cryptocurrency’ will no longer be used to describe applications, and users should be able to use applications without knowing the underlying chain or wallet.

When someone wants to launch a product or service, no one will ask why they should release it online. Because the deployment cost is lower, the speed is faster, and except for special cases, customers can enjoy greater convenience and accessibility than offline. Similarly, it can be foreseen that running applications on-chain will eventually be seen as a natural thing. As the use of decentralized markets, inter-connected application ecosystems, and Wallet becomes more common, we will no longer question why applications need to run on the Blockon-chain.

However, in the current limited blockchain environment, such assumptions are nothing but wishful thinking. The current blockchain development environment is still full of challenges, users are not only unfamiliar with Wallet, but also tend to avoid Wallet. Except for a small number of enthusiasts, most users need strong motivation to use on-chain applications. This is not just a matter of increasing adoption rates by 10% or 20%, what we need is the user experience and functionality that can only be achieved in the on-chain environment.

Source: Sound.xyz

Most users in the industry are Airdrop ‘hunters’ and traders, whose main purpose is to satisfy their speculative needs. Those who pursue the ideal of Cryptocurrency believe that this speculation violates the essence of Cryptocurrency and try to keep a distance from these practices. However, we need to re-evaluate the role these ‘degens’ play in the industry. It is no exaggeration to say that the Cryptocurrency industry is built on the basis of capital injection through speculation. Most on-chain volume is based on speculative demand, Arbitrage, or MEV profits, and this fact cannot be ignored. Infrastructure without users is worthless, and it is undoubtedly true that Degens are an important pillar of the Cryptocurrency industry.

During the 2021 Non-fungible Token Summer, many companies and brands joked about entering the Crypto industry, which excited everyone. However, the ultimate success was not Disney, but Pudgy Penguins. Crypto has reached a level where it can rise independently. Rather than external entities entering the Crypto industry, it may be more likely to achieve mainstream adoption through the outward expansion of successful products within the industry. Ultimately, Degens are the early adopters and core user base of all on-chain applications, meeting their needs should be the first step in validating product-market fit.

Source: eToro

The preference for speculation is not limited to Cryptocurrency, it is a social phenomenon. The deepening economic inequality and the shortened attention span influenced by social media have prompted people to continuously increase their risk tolerance for investment assets. In the 1970s, the average holding period for Americans was 5 years, but by 2020, this number had dropped to 10 months.

It is biased to blame the younger generation of Z for being not focused enough or too gambling just because of their high risk preference. In today’s long majority of major countries, it has become more difficult for the younger generation to live a better life than their parents. Due to the clear recognition that labor income cannot exceed capital income, many investors invest with the concept of ‘nothing to lose’. Their chips may be small, but if they do not actively bet, the chance of survival at the gambling table will become increasingly slim.

Although the current situation is undoubtedly dystopian, the high volatility of Tokens is also seen by many as an opportunity to turn the tide. It has been proven that speculative assets like memecoins are the main means of attracting new users to the Cryptocurrency industry. Driven by the memecoin frenzy in the Solana ecosystem, Phantom Wallet ranks third in the utility rankings on the US App Store, with a monthly user count of 7 million. Users attracted by speculative demand will unconsciously understand digital ownership, Wallets, and the market while using the app, thereby integrating into the culture and potentially converting into organic traffic.

Source: X(@0xJim)

While most on-chain applications have attracted a large following in the short term due to their unique user experience and speculative demand, their rough design and strong speculative nature often result in a short lifecycle. However, it is hasty to conclude from this point alone that on-chain applications cannot achieve structural retention.

The reasons for the relatively short lifecycle of on-chain applications include: the majority of users are composed of degens and traders, who have very low loyalty to the product; compared to infrastructure development, very little time and resources are allocated to product development; most products excessively follow short-term speculation rather than long-term utility.

Finally, what I want to say is that if speculation is the only use of Cryptocurrency, then I will not contribute to this industry. However, in order to realize the vision of Web3 for Cryptocurrency, and make general applications such as games and social platforms more accessible, we need to consider not only the goals, but also the feasible paths to achieve them. Given the current industry and social environment, the demand for speculation seems to be the most powerful tool that Cryptocurrency can utilize.

However, in the long run, it is necessary to convert the users attracted by speculative demand into those who truly appreciate the core value of the service, thereby establishing a meaningful funnel and promoting interactions beyond speculation. In addition, it is necessary to develop a Tokenissuance and distribution framework that can withstand short-term price and demand fluctuations, ultimately providing a social graph and product value that surpasses speculation.

The End of the Prelude

Source: “Bitcoin Is Dead”

The fluctuations in people’s emotions are even more dramatic than the fluctuations in token prices. When the price falls, everyone will sentence the market to death. Since its birth, BTC has been ‘dead’ every year. I believe that the cryptocurrency industry has developed to a level where it can operate and grow without external intervention. However, the next two to three years will be a critical period to determine whether the industry can achieve the Web3 vision and become mainstream. If the degree of fit between important products and the market cannot be verified within this period, then there will be no excuse.

The first universal blockchain Ethereum has been launched for 10 years. Despite extensive research and development of Ethereum over these years, and the industry has experienced ups and downs, it has only recently developed into a technology that is reliable for practical users. While token prices and narrative games have been driving the industry, now more than ever, it is important to follow the products and their impact on actual users.