Crypto is totally a Lego financial system — and that’s a good thing

Terrible actors are indeed a problem. But those people didn’t stop the core tech of the crypto ecosystem to stop working

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Midjourney modified by Blockworks

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There’s been a lot of bad in crypto over the last few years. 

FTX in particular — but also Three Arrows Capital, Terra, Celsius and many, many others. However, there’s also been promising developments for the cryptocurrency pragmatists. And pragmatism is a word, in general, not attached to crypto when it comes to mainstream thinking. 

Take, for example, a recent Financial Times article, written ahead of former FTX CEO and crypto shyster Sam Bankman-Fried’s sentencing. This hot take sums it up best: 

“But what is our verdict on crypto? Have we learnt the lessons from the disastrous 2022 crash in digital assets? To judge from recent action in the crypto market, the answer appears to be no.”

While there are good points to the article, I disagree with this. There is very real antifragility in the cryptocurrency ecosystem — even in the face of an undaunting amount of bad actors. This is why, in part, the market has returned in 2024. 

Crypto’s antifragility is due to its interconnected, but never locked in, building blocks. This concept can be easily conveyed with toy bricks — Legos — in this new world of financial “composability.” This concept means the future of finance will be increasingly “composed” of many building blocks rather than being centralized. 

Think of this similar to Lego bricks — built on a foundation of consensus, blockchain, cryptocurrency and smart contracts. 

Breaking down the blocks

Various building blocks comprise the crypto world. Each piece is of its own and used to build bigger things. These can be taken apart as well, but it doesn’t mean a few blocks can’t fail or disappear. 

This is exactly why Bitcoin was proposed by Satoshi Nakamoto well over a decade ago. It was in response to the very centralized financial system that blew up catastrophically back in 2008, the impetus for the Great Recession.

It’s important to keep in mind that the FT piece focuses on centralized, non-transparent actors like FTX. No focus is on any of the novel technological aspects of the crypto ecosystem — decentralized components that work together to create a system that, since the advent of Bitcoin, has worked well. 

I’m not surprised, however, that many do not realize that crypto’s perceived centralization in light of FTX doesn’t reflect reality. A good way to think about this concept can be from a foundational building block approach:

Consensus is the way that each crypto network can secure its network in a decentralized manner. As examples, Bitcoin uses proof-of-work mining, Ethereum uses proof-of-stake and Iota uses a Direct Acyclic Graph (DAG) based consensus. The FT article mentions “consensus” only once, and in the context of identifying it as an “esoteric subject.” It’s hardly that, and one of the most important foundational concepts to grasp, especially when thinking about crypto’s decentralization. 

Blockchain enables a transparent record that requires no third party to verify. This can be public, like Litecoin’s blockchain. Or, it can be private, like HyperLedger’s Fabric. Hybrid models also exist, combining the best of a private and public blockchain. But the fact that blockchains can be separated from crypto is something important that the FT article dismisses entirely.

Cryptocurrencies are digital assets that are secured by cryptography. These digital assets are almost always built and created on top of a blockchain for transparency, but some of them are privatized like Monero. I won’t deny that there’s been a lot of stigmatism of privacy coins, but regulators have made measured moves to find ways to clamp down on this without affecting transparent cryptocurrencies. 

Smart contracts are programmable agreements for the automation of money and assets. Take, for example, the vending machine concept of the ICO token fundraising model. An investor sends a digital asset, like ether (ETH) on Ethereum, to a smart contract in return for another asset. The FT article is right, the majority of crypto transactions are stablecoins, but that disregards the importance of smart contracts and how they’re creating a new financial system that’s genuinely different from the old.

How the pieces fit

After the foundational technologies — consensus, blockchain, cryptocurrency and smart contracts — the bricks can fit in many ways within crypto infrastructure. It just depends on how developers want to build with these foundational Lego blocks. 

Take NFTs. On Ethereum, non-fungible tokens are a special type of cryptocurrency that require the use of a foundational blockchain and a smart contract. On Bitcoin, Ordinal NFTs use the smallest unit of BTC, a satoshi, a foundational blockchain and the order of satoshis from consensus proof-of-work mining. 

Another example: Ethereum’s switch from proof-of-work to proof-of-stake consensus — while certainly not an easy task — is a case of swapping out the foundational blocks. 

Any way that crypto infrastructure is built uses those foundational, sovereign building blocks to holistically create something that is resistant to failure — the very reason why centralized bad actors like SBF can’t take the whole system down with their complete and total narcissistic tendencies. This is because each building block is independent and of its own volition. The bricks are interconnected, but are also independent technologies.

In the end

Many people only see scams, hacks and fraud in the crypto world. And there’s no denying there are fraudulent and untruthful actors swimming around in this space. But crypto’s building blocks — the Legos — keep the system running unflappably. 

The industry did experience a crypto winter in 2022 and 2023. And a thaw is occurring now for a very good reason. Did any of the major foundational technologies — consensus, blockchain, cryptocurrency or smart contracts — stop working for technical reasons during this time? 

No. 

When Terra fell, did other stablecoins survive? When Three Arrows Capital collapsed, did the market cease to exist? When FTX imploded, were crypto transactions still flowing in and out of other exchanges? 

The answer for each is a resounding YES.

Terrible actors are indeed a problem. But those people didn’t stop the core tech of the crypto ecosystem to stop working. 

Charlatans will come and go, but the building blocks of this industry — the Legos — will remain.



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