Blockchain Vs. Crypto - Focus on real-world solutions
Blockchain Vs. Crypto - Focus on real-world solutions
DeFi VS. DeSci
Frontier technologies will unquestionably impact the future. Some more than others. One of the frontier technologies that I believe has immense potential is blockchain.
The promise of blockchain and web3 technology (if realized) will lead humanity to a more efficient and equitable future. The technology enables many real-world use cases that transcend the middle-layer (embedded incumbents) in a variety of fields. I believe this technology (paired with artificial intelligence) has the potential to dramatically reform traditional systems including real-estate, insurance, law, healthcare, banking, supply chain, governance, computing, education, academic research, along with other fields.
From time to time, as I learn about interesting real-world use cases for blockchain technology, I like to dig in and see what they are about.
Blockchain technology is often used synonymously with cryptocurrency and now web3. Although there are subtle differences, I believe that blockchain and web3 are fundamentally different things than crypto. To use a metaphor from biology, blockchain (and/or web3) is the genus and cryptocurrency is a species.
(I believe web3 is synonymous with NFTs which I consider to be another species to blockchain technologies genus).
Although I am optimistic on the potential for blockchain technology to disrupt and improve traditional, real-world systems, I am less convinced by the long-term potential for cryptocurrency, especially in its current and most popular iteration, Decentralized Finance (DeFi).
The recent news out about FTX is terrible for Crypto. Especially for retail crypto traders. Lots of people lost lots of money.
Many Crypto Twitter and LinkedIn prognosticators are discussing it now.
I appreciate Ishan B’s simple conclusions:
As well as his takeaways:
Takeaways: -Not your keys, not your crypto -Never trust CT [crypto twitter]cult figures -Decentralization -Where there's smoke there's fire
These are similar takeaways from the other recent crypto project blow-ups, such as the Wonderland Finance fiasco in January 2022, and the Terra-Luna crash from May of 2022. I agree that these events are bad for Crypto. That said, I don’t think these events are an accurate reflection of, or have much impact on, blockchain or web3 technology more generally, especially for real world (non-financial trading use-cases).
My colleague Kevin Monserrat from Consilience Group is building a unique Venture Capital marketplace, recently, he posted this graphic on LinkedIn.
Cryptocurrency only accounts for a small portion of blockchain based use cases. I believe that financial trading, lending, and borrowing are real-world solutions for blockchain technology, its just that cryptocurrency (currently) has an outsized role in the way the media, regulators, and most people think about when they think of cryptocurrency and by extension, blockchain technology.
The (outsized) obsession with cryptocurrency, due to huge amounts of money investors poured into FTX and other centralized exchanges with the intention to “get rich” through financial trading, is far from the potential promise for real world disruption associated with blockchain technology.
Not to say the role of cryptocurrency isn’t important; discussion across entities such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) related to whether or not certain cryptocurrency projects constitute a security, are important. These are the entities that will likely end up regulating the Cryptocurrency industry, at least in the United States.
Clarity on these regulations may one day enable all sorts of new and interesting fintech focused blockchain business models based on real-asset tokenization, fractionalization, and other use cases that replace traditional fiat currency with digital currency.
Questions related to the core-tenants of blockchain technology as relates to fintech, including centralized vs. decentralized exchanges, custody (not your keys-not your crypto), transparency, immutability, as well as trustless, permissionless, peer to peer payments, are critical to the future of creating a more efficient and equitable financial system, which underlies many of societies institutions.
However, by focusing too much on cryptocurrency, many of the beneficial characteristics of blockchain technology go under appreciated.
There are many other ways to use blockchain tech to solve real-world problems which don’t require financial instruments. i.e. tokens. Or, if tokens are involved, rather than being used as financial “securities” they can be deployed more like a ticket or an incentive reward rather than actual currency. Think for example about frequent flier miles, coupons, or live-event tickets, i.e. to reward brand loyalty (social tokens) or prove authenticity.
One such example that I stumbled across recently, (thanks to my friend, Gregg Scharfstein), relates to Decentralized Science (DeSci).
This article published by the DeSci foundation relates to “How Web3 Technologies Can Help Improve the Scientific Record” and does a nice job of laying out some of the key ways that blockchain technology can improve the scientific world.
According the the DeSci foundation’s website:
“The DeSci Foundation’s is an independent organization of leading scientists and innovators. We are dedicated to exploring the potential of applying new technologies, incentives, processes, and funding models to the scientific ecosystem.”
The article is the 4th in a series which focuses on how web3 technologies can be harnessed to improve the current model of scientific publishers.
The article identifies “at least 6 ways” that web3 can benefit science and scientists:
New ways to cooperate
More transparent, changeable incentive structures
Decentralized data and meta-data storage
Verified research objects
New forms of identity management
New ways of funding research
Some of the key takeaways:
Regarding #1, I wrote a little bit about New ways to cooperate in my last Ignore the Confusion post related to Decentralized Swarm Learning and the use of the Ethereum Blockchain to democratize the process of scientific collaborators working with private data.
For #2, relating to incentives, the paper argues that smart contracts provide a unique mechanism for distributing value that is transparent and does NOT depend on a central intermediary.
Regarding data storage, the article compares traditional digital object identifiers (DOIs) which are maintained by centralized authorities and expensive to Content Identifiers (CIDs), developed by the InterPlanetary File System (IPFS). The IPFS is a distributed system for storing and accessing files, websites, applications, and data. “CIDs are labels used to point to material in IPFS.” They “can be issued at will, are not subject to link rot, and are immune to content drift.”
Deploying CIDs would significantly improve interconnection between publications through immutable knowledge graphs, and lead to richer metadata to reveal new, arguably non-intuitive connections among and between research.
For Nos. 4 & 5, verified research objects and new forms of identity management, the article details blockchain’s ability to combine multi-media formats and provenance (proof of authenticity/identity).
Blockchain enables science to “trace the development of a research object over time including version management, citations, replication status,” and “allow users to share sensitive data in a privacy-preserving way, thus opening the door for widespread reusability and protecting commercialisable scientific IP.”
Simultaneously, blockchain technology “empowers pseudonymous identities that can be tied with individual contributions to science across platforms in a tamper-proof and auditable way (e.g. authorship, peer-review, scientific commentary) (6). By combining “proof-of-skill” with pseudonymity, it is possible to create a science ecosystem that simultaneously promotes open debate and reduces bias.”
Additionally, web3 can benefit science and scientists via new funding models - the article discusses Decentralized Autonomous Organizations (DAO). DAOs are member owned communities without a centralized leadership. Combined with crowdfunding initiatives, DAO’s provide the possibility for community investment without a centralized beneficiary. The idea is to use DAO structures to create co-ownership of the IP that stems from the research.
VitaDAO is pointed out as a working example of this. Vitadao is focused on disrupting traditional biopharma investment models which center around ownership of intellectual property rights. “The VitaDAO collective co-develops IP with researchers, growing a portfolio of assets represented as IP-NFTs and other tokens.”
The DeSci foundation provides the following description of how this alternative funding models work:
“For instance, funders can announce a research question or program in a node and dedicate money to its wallet. Other parties can easily add funds, pooling contributions from different sponsors efficiently. Research teams apply, their proposals get evaluated, and funding gets matched. Such a system would be faster, more efficient, and more flexible than ordinary grant schemes, allowing a quick response to new challenges (e.g. a new pandemic). Such a model has been tested successfully in the context of Gitcoin grants.”
DeSci Nodes were developed for this purpose. Essentially, blockchain tech enables the automatic creation of “escrow accounts to channel funds securely between patrons, authors, research institutes, foundations, DAOs, and for-profit R&D at scale. These accounts are open to anyone to create validation grants: peer-review grants, artefact evaluation grants, replication grants, and direct funding for conducting a vetted analysis plan. Unlike the traditional banking system, all financial transactions are recorded on-chain providing total transparency and audibility.
Coupling on-chain research objects, tamper-proof data stored on IPFS, and trustless escrow-based accounts, we can create a 1-click funding solution open to everyone, with complete efficiency, traceability, and accessibility addressing the entire space of scientific validation with surgical precision.”
The ultimate benefits include efficiencies gained through an increase in the speed of scientific validation and funding, while more equally distributing value to scientists and incentivizing them to collaborate. DeSci efforts move us “Towards a world where knowledge is openly reproducible, verifiable, and accessible - and returns value to scientists.”
This real-world example of how blockchain technology can disrupt and improve an old line business, exemplifies many of the core benefits of the blockchain. Use of the blockchain to combine different attributes of how research is funded, knowledge is verified and shared, offers benefits to scientists first and foremost by moving the ownership value to the scientists rather than third party intermediaries.
Blockchain enables smart, efficient solutions to improve many industries. Cryptocurrency trading is where most of the media focuses its attention.
Recent events have likely turned back the clock on how soon the general public will trust the emerging crypto asset class. In the mean time, the more blow-ups there are, the more likely governments are to regulate it, opening the door for traditional finance (trad-fi) to dominate finance by lobbying to create laws that enable them control the flow of digital currency.
In many ways DeFi is the poster child for crypto, blockchain and web3. Sometimes crypto, blockchain and web3 get muddled together and create a lot of confusion for the uninitiated.
Blockchain technology enables so many other real-world use cases which are more efficient and equitable than the state of the art. I find these real-world use cases exciting and potentially game-changing. To me, the potential for DeSci to disrupt scientific publishing and science based incentive models transcends the benefits of DeFi and crypto.
Even though DeSci doesn’t face the same reputational (and regulatory) challenges as DeFi, the challenge of implementing these models may not be so dissimilar to the challenges cryptocurrency faces with the trad-fi industry, disruption comes at the expense of deeply embedded players.
It will be interesting to see how these new blockchain enabled technologies progress. You can bet I will be watching and *trying* to ignore the confusion.
Enjoy!