Sure, fine, maybe it’s a bubble. OK it’s definitely a bubble, but that’s a good thing, a bubble brings attention and investment in infrastructure, which breeds real innovation. Right? Look at the dot-com boom. A lot of people lost a whole lot of paper money, but it brought us a cheap worldwide fiber backbone and companies like Amazon and Google. Today’s crypto bubble is just like that. Right?
…So goes the theory, by which I mean, desperate rationalization. And it was somewhat true, for a while; but not any more. Cryptocurrencies have now ascended to speculative values that actually preclude any non-speculative uses. They have become so expensive that they are preventing innovation.
Most “crypto tokens” are, in fact, just glorified hash values stored on the Ethereum blockchain — literally nothing more than a table of numbers like “address A: 10,000. address B: 20,000,” wrapped in standard blocks of code (the ERC20 and ERC721 standards, for fungible and non-fungible tokens respectively) so that they can be easily transacted.
…Which means that every transfer of such tokens requires a transaction to be performed on the Ethereum blockchain. And as the price of ether has skyrocketed — to more than $1,000 as I write this — transaction fees have done so as well, so that the average fee for an Ethereum transaction is now around US$2.50.
(Ethereum’s variable-gas-price mechanism doesn’t really help; fees are driven by supply and demand. And of course it’s not just Ethereum. Blockstack’s DNS uses the Bitcoin blockchain as its source of truth, and Bitcoin transaction costs have also gone through the roof. SegWit transactions are cheaper / more efficient but that’s noise compared to the overall trend.)
This is fine if you’re just speculating, trading hundreds/thousands of dollars worth of tokens at a time. But it is crippling if you’re actually trying to build an app that people use for anything else.
If you’re trying to build a decentralized name / identity service … your names now cost more than many top-level Internet domains that automatically resolve in browsers. If your tokens represent ownership of virtual entities, or access to decentralized storage … suddenly just using the token at all, never mind transferring the value associated with the tokens, makes your cost structure somewhere between punitive and prohibitive.
As a result, entire categories of cryptocurrency experimentation and innovation are on hold until the bubble bursts, or until / unless Ethereum finds a way to scale such that transaction fees plummet. Oh, people can still write and deploy code. But nobody will use it. Curious would-be users will be repelled by the nontrivial expense of mere experimentation, never mind ongoing usage.
So developers won’t be able to find real-world users, and get any feedback from real-world use; they won’t discover any emergent properties; and nobody will use and then iterate on their work. That whole continent of the blockchain ecosystem is now essentially in a deep freeze, covered by glaciers.
It remains an open question whether even much, much lower fees would be viable in the long run. Proponents of micropayments don’t seem to realize that the fundamental problem with micropayments is not their cost, or the absence of supporting infrastructure; it’s the cognitive load that they induce. Parker Thompson of AngelList argues that fee-free decentralized apps are the only ones which might possibly succeed in consumer markets, and I think he’s right, but that raises the question of how you prioritize and prevent spam blockchain transactions in the absence of fees.
Today that’s a moot point, though. Don’t get me wrong; I’m not saying the sky is falling, the feepocalypse is upon us, and every decentralized application is doomed forevermore. A lot of interesting work and research has in fact been done regarding scaling Ethereum: sharding, Raiden, Plasma. Hopes for them remain justifiably high.
But until and unless they roll out, and/or the cryptocurrency markets stop being voting machines and start being weighing machines, most non-speculative token projects are doomed to indefinite hibernation. If you care about actual innovation, the inevitable popping of today’s bubble won’t mark the onset of crypto winter; rather, it will bring a crypto spring.