How the cryptocurrency community used memes to spur innovation.
Updated: Jan 3
This is the second part of my cryptocurrency blogging debut. In the previous post, I diagnose the problems in cryptocurrency culture and how they're related to rug-pull schemes and increasing regulation of blockchain applications. This piece explores how crypto isn't getting past the hype, but rather using it to increase the adoption of blockchain-based utilities.
In 2013, four years after bitcoin was minted, dogecoin emerged based on an internet dog meme. It was clear even then that blockchain technology could be used for almost anything and, while it wasn’t taken seriously, its innovative potential would revolutionize or overthrow the global economy.
Blockchain was a community-driven endeavor from its inception by computer programmers who met on online forums. The open-source technology facilitated the creation of bitcoin, the first decentralized cryptocurrency, along with literally countless successors.
Dogecoin peaked last May at around $0.69, a mischievous sexual innuendo orchestrated by a community of loyal enthusiasts egged on by Elon Musk on Twitter. “Even if it is a joke to him, how many thousands and millions of people started looking that up?” said cryptocurrency blogger Derrick Strader regarding Dogecoin, which is now the most googled cryptocurrency in the U.S.
“It's sad to see, trending articles are about a guy who had twenty thousand dollars and got a loan out to buy dogecoin and then became a millionaire,” said Strader, who goes by Crypto Derrick online. “It's just upsetting because, that guy, he's one in a million. [A] majority of the people that put the money in bought it at 70 cents and it's now sitting at 25.”
Cryptocurrencies aren’t known for being as predictable as a punch line to a sex joke, but rather for their volatility, but also their utility as decentralized financial applications. DeFi refers to conducting peer-to-peer finance on the blockchain without the inclusion of an intermediary, and Ethereum has become the platform of choice for DeFi developers to build their applications.
Ethereum, like its underlying blockchain technology, is open source. Applications can be programmed on top of the Ethereum decentralized ledger which processes transactions of ether, the cryptocurrency retaining the network’s core value. Ethereum’s platform is so accessible that it was used to mint a spin-off version of dogecoin called Shiba Inu.
Now the second most googled cryptocurrency, Shiba aims to survive not just through hype alone, but by offering a decentralized exchange service where it can be traded without involving a central authority. Decentralized exchanges are just one of several DeFi applications created to reduce fees and implement fairer pricing.
“The number of people that trade on centralized exchanges like Coinbase, Binance, and FTX dwarf the users that are trading on decentralized exchanges, like Uniswap,” said David Hsu, a former Wellington Management employee who left to pursue a master’s in computer science at Northeastern University where he co-founded the first blockchain club. “There is a lot of hype and speculation and, yeah, it is going to dog coins, which you can view as negative,” said Hsu, “But, you could see a world where basically something starts as a joke, but then eventually evolves into something that's actually serious and legitimate.”
Hsu believes that the blockchain is self-correcting when it comes to centralization; Like a pendulum, it may swing too far in one extreme before users take the initiative to correct it. Centralization refers to the institutionalization of cryptocurrency intermediaries and increasingly includes existing financial gatekeepers like PayPal and Square, which aim to take a custodial role over users’ cryptocurrency. These platforms are accessible because they are already popular, but they serve as the authority over your cryptocurrency’s value and how you can spend it.
Governments have also begun incorporating blockchain into their agenda. El Salvador adopted bitcoin as an official currency and rolled out a national wallet. Meanwhile, in the United States, an acronym mafia of federal agencies is trying to regulate the cryptocurrency industry. Authorities in multiple states are taking Celsius to court for offering interest-bearing accounts to their users who held cryptocurrency on their platform without registering as a security, and the SEC is possibly negotiating a settlement with Ripple after suing the cryptocurrency development company.
“I think that what they do understand is that it is a very innovative technology. And I think it's becoming more and more evident that blockchains are going to be the future,” said Hsu. “I think the U.S. is trying to navigate that fine line between letting it run, like letting blockchain just evolve on its own with no intervention, versus coming down too hard and basically forcing a bunch of people to leave.”
There is a need for regulation in the cryptocurrency space, but that doesn’t exactly translate to demand. Many cryptocurrency evangelists embrace severing their connections to the existing financial paradigm and reject regulations that threaten to pull them back under the authorities they once hoped to flee.
However, the community has acknowledged the need for regulators to step in to address predatory ‘rug-pull’ cryptocurrencies like the Squid Game scam. Also known as ‘pump and dump,’ this was an example of how fraudulent developers capitalize on pop-culture zeitgeist and social media to drive up a coin to as high a price as possible before selling everything for a profit and leaving all other investors with a near-worthless asset.
“There is so much going on, they can’t keep up with it. They are still talking about the money aspect of it, but cryptocurrencies are becoming more than that, not just money. So, I think the regulation is still slow in keeping up with what's going on with the space,” said cryptocurrency content creator Shubh Patni, who is also a member of the NEU Blockchain club. “Now it's like it's becoming your social identity, so you would store what NFTs you have, what projects you follow, what tokens you hold,” said Patni. “Your ENS domain would reflect your values, your identity. So that's where the space is headed right now.”
ENS domains Patni is referring to are web domains for your Ethereum address, essentially a blockchain website. NFTs, which stand for non-fungible tokens, are the latest cryptocurrency craze that turns intellectual property into a speculative commodity on the blockchain. The only difference between NFTs and the world of fine art is the level of sophistication and perhaps the fact that NFTs don’t usually represent anything tangible.
It was made clear just how intangible NFTs are when an Australian man created a website that allows you to download an entire blockchain of NFTs in a single 20 terabyte download. This showed us that every NFT’s jpeg counterpart is living somewhere on the cloud, but it has also triggered a reckoning about what, for instance, gives the Bored Ape NFT its value.
“I think that there is a growing use case around using NFTs as your digital identity,” said Hsu. “The market is clearly telling us that these collectibles are valuable and that people do value them to the degree of, you know, a CryptoPunks selling for hundreds of thousands of dollars.”
The prices assigned to assets on the blockchain are highly speculative and, like any protocol for determining tangible value, feel arbitrary. Speculation is an integral part of finance and economic growth, but there is a fork in the road to cryptocurrency adoption, one side toward pursuing hype and novelty and the other toward utility and innovation.
Cryptocurrency is highly community-driven and fostering support for blockchain projects requires effective marketing. Blockchain app developers rely on generating brand appeal to popularize their projects and achieve their financial goals. Developers who meet their goals can build additional value by continuing to support and innovate their applications.
“The companies that do really good self-disclosure are going to be the companies that people invest in, and the companies that do a really bad job in self-disclosure are basically going to die out,” Hsu said regarding transparency among blockchain developers. “I do think that what hype can do is it can help sustain your company during the periods where you're building and trying to solve a complex problem. Hype unlocks you a certain amount of funding and runway.”