How Crypto Can Never Go To Zero

Everyone cannot stop using it. That, in six words, is how crypto can never go to zero. The journey is interesting and the destination is even more intriguing.

It is imperative to understand how blockchain technology works than how the industry works as a whole. At crypto’s base are blockchains, like Bitcoin and Ethereum, which record transactions verified by computers, a process incentivized by the issuance of cryptocurrency tokens. The Ethereum blockchain validates lines of code, which has made it possible for people to issue their tokens or build applications.

These include stablecoins, which are pegged to real-world currencies, and tokens like Uniswap, which manage decentralized finance (Defi) protocols. Major chains and a handful of Ethereum-based tokens, like stablecoins, account for about 90% of cryptocurrency value. Big businesses have been built on top of this world, including exchanges, investment funds, and lending platforms.

Eliminating crypto would require killing the underlying blockchain layers. They could either give way first, kicking the stool out from underneath everything else. Or the industry could unravel from the top down, layer by layer.

Knocking the stool out is extraordinarily difficult, and the high value of Bitcoin and Ethereum makes it even harder. To attack a blockchain and shut it down requires gaining 51% control of the computational power or value of tokens staked to verify transactions.

The more valuable the tokens, the more energy it takes to attack a proof-of-work chain, like Bitcoin, and the more money it takes to attack a proof-of-stake chain, like Ethereum.

The security of these chains—as measured by the amount someone would have to spend to attack them is in the region of $10 billion to $15 billion. It would require either a government or an extraordinarily wealthy individual to mount such an attack. And even if Elon Musk was so inclined, he seems a little busy at the moment.

It is undeniable that Alameda is at risk due to margin calls. The trading firm owned by Sam Bankman-Fried prompted the decision to use FTX customer funds to fill in the gap. Binance saw this coming and unraveled FTX which was a necessary move. Binance encourages users to show proof of reserve to other exchanges and lending platforms. This move prevents further debacle of any exchange and protects traders' trust. With so much money involved in trades, this move is beneficial to users.

Defi exchanges and lending protocols have continued to grow even as the business model of normal businesses has been shaken.

The FTX's collapse has brought to light the need for exchanges to secure the technology by adding value, securing the chain from attackers, and adding more miners.

The more people that use Defi, the more valuable Ethereum becomes. The higher the price of Ethereum, the higher the hurdle to attack the blockchain and the more confidence people will have that blockchains will endure. This works in favor when more people adopt crypto, and the more secure it becomes.

The total market cap of cryptocurrencies is currently $820bn. That is 70% below the peak a year ago, but still high compared with most of the crypto’s history. It is higher than at the start of last year, for instance, and at any point before then, including the peak of the bull market in 2017.

Many more layers—such as a major stablecoin, big businesses, or perhaps other on-chain protocols—would have to unravel to take crypto’s value forward to the levels of the next bull cycle.

Crypto’s reputation has been undermined before. It might have collapsed in value repeatedly but it has found more users throughout its lifetime thereby rebounding back even higher. Despite the collapse of FTX, more people will understand crypto derivatives much better.

The adoption of Blockchain by different sectors of the economy and the recent adoption of Bitcoin Cash by Saint Kitts & Nevis may just be big enough to propel Crypto to the moon.

Source: (https://www.economist.com/the-economist-explains/2021/12/16/what-are-stablecoins-such-as-tether)
Source: (https://www.economist.com/business/2022/11/07/elon-musks-challenge-to-management-thinking)
Source: (https://www.economist.com/leaders/2021/09/18/the-beguiling-promise-of-decentralised-finance)

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