Review: Cryptocurrency and the Great Unbundling

Jon Stokes gives a jargon free, bird's-eye view of what are the long term implications of crypto considering all that has been achieved so far.

When one starts explaining the premise of crypto, it is tempting to present phrases like “crumbling institutions”, “what is money” or really dig deep into the notion of “truth”. While these are valid philosophical explorations, and one has to undertake them in order to truly understand what cryptocurrencies and the metaverse have to offer and what they stand for, it’s not what a normie is looking for. And in that regard, Jon provides a succinct, easy to grasp primer on cryptocurrencies and DeFi without getting too technical or sounding like a cult leader. To prove this, there were no mentions of the terms cryptographic guarantees and loyalty.

An important concept to understand here is how Web3 is taking legacy institutions and processes and rethinking them in a decentralised fashion, which he describes as the unbundling. The concept of unbundling itself isn’t new, every disruptive tech initiative starts by attempting to unbundle something, but the idea is important here. While he uses the example of Uniswap’s working to illustrate this I would also like to add a minor correction here. He says:

Uniswap is a cryptocurrency exchange, like Coinbase.

Coinbase is a centralised exchange where one can exchange USD for any of the crypto assets listed such as BTC, ETH, DOT etc. Uniswap on the other hand is a decentralised exchange where you need some ETH to begin with; this ETH can then be swapped for other tokens or added to liquidity pools. This is an important distinction to make I feel, which would’ve improved the reader’s understanding further had it been there in a more explicit fashion.

He then goes on to explain how Uniswap works, which is done quite well, covers the basics and definitely makes the reader appreciate the decentralised nature of crypto ventures. Outside finance applications, more examples are presented like a pseudonymous online school that helps you learn and earn through microtasks, a decentralised marketplace, blockchain based Twitter and a municipality where governance is on-chain; token owners influence decision making. The best part is like Jon says, these things sound like sci-fi, but they’re very real. There’s (learn and earn), Foundation (marketplace), Bitclout (social media) and Estonia (on-chain governance).

Reimagining e-commerce

The main segment of his bull thesis is an example of an e-tailer broken down into its constituent elements and right away makes a few clarifications about anything how anything “decentralised” doesn’t mean you end up having a system without any intermediaries; rather this time you have a set of intermediaries whose involvement does not concern you because they are decentralised themselves and therefore trustless. The network is the only intermediary basically. So all the key operations that require human intervention like verifying reviews, vendors etc can also be taken up by competing pseudonymous entities who are incentivised to ensure smooth functioning of the marketplace therefore keeping all parties happy.

What could’ve also been mentioned is what CRUD is - Create, Read, Update and Delete operations on a database’s records. This is nitpicking yes, but since we’re explaining to normies, I felt like bringing this up.

Possible pitfalls

Jon recognises the possible scenario where crypto doesn’t get the kind of traction we expect even though a crypto driven future seems inevitable given the social, economic and political circumstances of the present. If all that happens is, Bitcoin gains wide acceptance, the bank is now in your wallet as opposed to you being at the mercy of the banks, it’s still a significant achievement. Everything else that happens is an added bonus to this economic upheaval.

Also since cryptocurrencies bestow so much power on us, their custody can also turn into a headache with respect to safeguarding private keys. Unlike the traditional finance realm, there aren’s many guardrails, lose your private keys once and you can kiss your wealth/reputation (Bitclout maybe) goodbye. One can live dangerously by not trusting any third party service or in this day and age there are many products and services that helps us safeguard our assets; but then we have complete freedom between choosing how much risk we’re ready to take on, nothing is mandatory as he rightly emphasises.

As for dispute resolution, something which has easy to access solutions in the centralised realm, we slowly have decentralised alternatives coming up too, with new ideas like tokenised SKUs that helps in tracking orders and resolving disputes - quite relevant to the e-commerce example too. Jur, Kleros are some implementations of a decentralised judiciary protocol where people can stake tokens, hear both sides of an argument and form a consensus on the outcome.

With anonymity and decentralisation, privacy could run rampant, we have already seen that for more than a decade with P2P networks and torrents but Jon says this is creative destruction and I am inclined to agree. Businesses running on paywalled content could get hammered but then with the paywalls coming down, content creators could align themselves with better values like authenticity as opposed to clout chasing. We are seeing the growing resentment towards the mainstream media and their glaring biases behind the tall claims of objective reporting. As a result email newsletters (paid and free) from your favourite thought leaders and creators are getting significant attention if not more than a New York Times op-ed.

Final thoughts and conclusion

I will first pull up a couple of tweets:

Every asset will be digitally represented on chain with verifiable ownership history. With applications governed by tokens, participants in that decentralised system are usually aligned in their goals and incentives because their success depends on the success of the project.

The main takeaway intuitively is this, the world as we know is divvied up between various institutions and players large and small, each fighting the other subtly or otherwise, to gain whatever control over some group of people. Now what crypto does, is starting over by introducing digital native abstractions for anything and everything that matters. These abstractions are owned and governed by all people who have a stake in these systems, not just a few pontiffs sitting in their ivory towers dissociated from reality.