The Casino on Mars

It’s useful to think of crypto as a new planet that’s being settled.

Skeptics see a desolate planet without purpose. Or worse, a haven for an unsavory casino.

Optimists see the planet’s potential: a blank slate on which we can build an upgraded financial system and internet platform.

Early settlers are a mixed bunch. Explorers drawn to the frontier. Speculators, some rough and disreputable. Innovators and researchers, attracted to what’s newly possible. Ordinary people, especially those marginalized on Earth.

Governance remains ambiguous. Some Earthly jurisdictions prohibit their citizens from visiting. Others seek a foothold in the new world.

A history of speculation and hype cycles has cast a social taboo over the new planet, leaving many to wonder: what is its future?

Today’s casino-like speculation is part of a bootstrapping process. Much like the gold rush of 1849 transformed San Francisco from a quaint village into a major port (and ultimately the heart of tech innovation), today’s speculative frenzy in crypto is attracting the settlers and catalyzing the infrastructure necessary to turn a barren planet into a thriving crypto civilization.

A new crypto planet. Bitcoiners were the first settlers here. Exchanges like Coinbase and Binance get you on and off the planet. Ethereum is the largest city, where Uniswap is the best way to get around...

Why crypto?

Settling a new planet is a lot of work. Why is it even worth doing?

A new system of property rights is most needed in places where existing systems fail. Crypto-based money like BTC, ETH, and stablecoins are used worldwide, but they are most differentially adopted by ordinary people in places like Argentina, Turkey, and Ukraine.

Many skeptics wonder when crypto’s “killer app” will arrive, but it turns out it’s already here. A form of first-world privilege is at play for those who can’t see it. Like the fish who asks, “What the hell is water,” crypto can be hard to appreciate when strong property rights, economic freedom, and monetary stability are taken for granted. Ask anyone in Argentina about crypto, and they don’t doubt its usefulness for a moment. Today, crypto money is useful at the low end and speculative at the high end. But it’s improving fast, and—in a classic case of Christensenian disruptive innovation—crypto is rapidly becoming more useful to more people.

Money is the first killer app, but it won’t be the last. Crypto money leads naturally to crypto financial services that are transparent, programmable, and openly accessible. Many lack access to banking due to high costs. Others mistrust a banking system that’s increasingly centralized. Crypto finance offers cheaper, more convenient, and more inclusive solutions. Stablecoin payments are on the rise. Loans are accessible via code rather than an elaborate bank or brokerage process. Even systemic risk can be reduced through global tracking of collateral. Looking beyond money and finance, as crypto infrastructure scales it will enable new consumer applications. We’ll see creators taking ownership in their creativity, and users taking more control over their identities.

Zooming out, the new planet is an opportunity to build anew. Crypto can do for money, finance, and digital property what the internet did for information and media. Many existing systems are brittle and sclerotic—descendants of a pre-digital era. With crypto, we’ll upgrade systems and build new systems that weren’t possible before.

As importantly, crypto is a bulwark against a world that’s increasingly centralizing. People eagerly choose sides in the war between Big Media vs Big Tech, or Big Banks vs Big Government, but like the boiled frog, we have unknowingly conceded a world in which everything is “Big”. By enabling the small and the many to coordinate, crypto is a vital counterbalance against centralized power and, ultimately a force for freedom in the world.

Speculation and crypto

Although crypto may have benefits, is all this speculation necessary? It turns out that speculation is not just necessary but also productive.

Speculative investment is integral to technological revolutions. From the telecom and internet boom to the rise of railroads, electricity, and automobiles, new tech breakthroughs are consistently entwined with speculation and asset bubbles on the way to mainstream adoption—a phenomenon that Carlota Perez has documented well. Speculation within crypto helps drive attention and awareness, investment dollars, talent inflows, infrastructure building, academic research, incumbent adoption, and more.

But speculation and crypto also have a deeper tie: speculation is the “hello world” of digital property rights. Enable people to create scarce assets, and they’ll tend to trade them around. Just give a group of kids some Pokemon cards and watch what happens. The whole point of a new system of property rights is to reliably record property transfers, so, naturally, people will experiment with them. And if this new system doesn’t yet have broad legitimacy, then the cone of possible futures is wide, so prices will be volatile, and trading activity will look speculative.

In the early days of Bitcoin, to think it would someday reach the legitimacy and value it has today seemed crazy—I remember because I was there. Early participants had fun. They mined, contributed, experimented, and even bought pizzas. Now, more than a decade later, BTC and other crypto assets like ETH are well on their way in the transition from speculative toys to global monetary commodities.

Speculation has also been critical to the growth of crypto as a decentralized financial system. Many financial products have so-called “utility” on one side of the transaction but require speculation to fulfill the other side. For example, a person might need a 30-year mortgage to afford their home, but there is no natural demand to lend for 30 years against a home. Instead, our modern financial system intermediates between the utility demand for a mortgage and the more abstract financial demand for yield. In crypto, an analogous financial system is being built that includes speculative traders, exchange infrastructure providers, market makers, MEV searchers, block builders, DeFi protocols, stablecoin issuers, Uniswap arbitrageurs, and the like. This new crypto financial system requires bootstrapping an N-sided market, which isn’t easy and takes time. But with each passing year, participants become more sophisticated, liquidity increases, and the onchain financial market grows more capable.

The casino’s dark side

Much crypto skepticism is unimaginative, but some is well-earned. Although the casino is a helpful bootstrap, it can also be unsavory and counterproductive.

Innovation depends on capital and labor applied to worthy experiments. Too much speculation, airdrop farming, and other shenanigans add noise to the price signal that would otherwise inform productive innovation. Even the most well-meaning entrepreneurs can be tricked by fake prices or distracted by short-term profits, ultimately slowing down the process of building what crypto actually needs.

Short-term speculation is also a zero-sum game, with sophisticated traders extracting value from newcomers and possibly burning them forever. A free market admits all kinds of participants, and there’s nothing per se wrong with short-term traders as long as they behave legally and ethically. But if we view crypto adoption as partly a social coordination game, then choosing the optimal time horizon can be a prisoner’s dilemma. We might all reach a more inspiring endgame by collectively thinking longer term.

Lastly, there are too many bad actors: scammers, rug pulls, and blackhat hackers. Imagine a roving gang of bandits who greet newcomers with a beatdown and a mugging—welcome to San Francisco crypto! Like the Wild West or the early internet, the open frontier enables innovation but also misbehavior. Good actors far outweigh the bad—for example, crypto is lucky to have some of the world’s leading whitehat security experts—but some self-regulation or regulation may be needed.

What’s taking so long?

Crypto is almost 15 years old. Shouldn’t it be mainstream already?

It turns out that settling a new planet takes time, and most people won’t move to the new planet until the infrastructure is mature and it is no longer socially taboo. The tech can only advance so fast. Social diffusion of new ideas can be erratic. And the speculative nature of the asset class leads to cyclical whiplash: one moment crypto is the future of everything, the next moment crypto is dead.

Building social consensus around crypto can be even more challenging than growing a network effect around a communication protocol or a social network. People immediately see the utility of WhatsApp or Instagram since they can communicate with a small number of friends they already know. A new system of property rights is about safely transacting with people you don’t already know or trust and therefore requires more generalized legitimacy. There’s a long way to go, but it’s remarkable that you can already transact with over 100 million people using BTC, ETH, or stablecoins today.

Looking past the casino

Many of the technologies we now take for granted were once considered impossible, useless, dangerous, and/or fraudulent.

Today, Apple is the world’s most valuable company, but when it first went public in 1980, Massachusetts barred sales of Apple stock due to its riskiness. Andy Grove, the CEO of Intel, said in 1992 that “the idea of a personal communicator in every pocket is a pipe dream driven by greed.” A Boston newspaper said of the telephone in 1865: “It is impossible to transmit the human voice over wires… and were it possible to do so, the thing would be of no practical value.”

Crypto is no different. Bitcoin has famously been proclaimed dead every single year since 2010. People frown on crypto’s perceived riskiness, volatility, and speculative nature. Skeptics argue that the technology won’t scale or is insecure; even if it worked, it would be useless.

There is a strong bias in favor of the status quo and against change. Sometimes, the more disruptive the change, the stronger the skepticism. Crypto touches on profound ideas around money, value, governance, and human coordination. These are not topics that we are accustomed to reconsidering, and it is natural that some people find it absurd to try. But their foundational nature is all the more reason to be open to building something better.

The presence of skepticism is not an argument against crypto, but equally, it’s not an argument for crypto. Many hyped technologies fail, and crypto may fall short of expectations. The most reliable way to figure this out is to disregard the external environment of skepticism or hype and to think independently. Try visiting the new planet. Look past the speculative activity toward what substantive builders are building and what real people are using.

Crypto speculation may sometimes be distasteful, but it’s part of the bootstrapping mechanism for one of the most important technologies of our time.

Special thanks to Vitalik Buterin, Brian Armstrong, Dan Romero, Andrew Huang, and Paradigm team members Fred Ehrsam, Dan Robinson, Charlie Noyes, Georgios Konstantopolous, Arjun Balaji, Frankie, Caitlin Pintavorn, Dave White, Doug Feagin, samczsun, Jackson Dahl, Alana Palmedo, Katie Biber, transmissions11, and Brendan Malone for discussion and feedback.

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Appendix

If we think of crypto as a new planet, what implications might that have?

Crypto Community

• Crypto is an integrated ecosystem, and we should all work together. Different cities on the new planet have more in common than not. Convincing people on Earth to settle on the new planet, or protecting the planet from ill-considered Earth regulations is more important than maximalist infighting.

• As Vitalik has observed, it may be important for crypto to think about building a full stack. The new planet won’t always be able to rely on Earthly infrastructure. There is the default internet stack: Google, Twitter, Github, credit cards… There is an independent Chinese internet stack: WeChat, Alipay, Weibo, DCEP… And crypto may need to build an independent crypto stack: like the Chinese stack, but instead going in the direction of more openness and self-sovereignty.

• It may be healthy for a new planet to have its own culture. We may not actually want crypto to disappear into the background or for the new planet to be maximally similar to Earth.

Builders

• Building a product in crypto is both a technical question (“What can be built on the new planet?”) and a social question (“Will people on the new planet want this?”).

• A good source of crypto startup ideas is to think about what early settlers on the new planet might need. The casino goers need food or lodging? Consider building that.

• Another good source of crypto startup ideas is to think about how the new planet is different and what unique products might be enabled. Gravity works differently? New products may be possible as a result.

• Some products are best thought of as building for settlers on the new planet (DeFi). Others are bridges between the new planet and Earth (CeFi). Still others might be building for Earth using technology from the new planet (Fintech using stablecoins).

• One failure mode is to build for a mainstream user far before they are ready to move to the new planet. It is better to focus on people already native to the new planet or people on the cusp of visiting.

• Conversely, another failure mode is to build too much for the early settlers and not enough for the potential waves to come.

Incumbents

• Incumbent Earth businesses have a role to play. Most naturally as a bridge between Earth and the new planet but possibly also in building native products.

• Think of crypto as an emerging market. It’s as much about adopting a new technology as it is about landing on a new planet with its own culture. Like restaurants adapting menus for different countries or businesses hiring local GMs, it is helpful to adapt your team and product to the new planet’s idiosyncrasies.

• One failure mode is to misunderstand the unique attributes of the new planet. For example, it was popular for a time for banks to be excited about “blockchain, but not Bitcoin”. That’s like putting up wallpaper to make your bank look more like the new planet. It’s still a bank on Earth and misses the point completely.

Policymakers

• Counterintuitively, crypto might end up being a boon to the US Dollar. USD stablecoins are one of the most popular currencies on the new planet, far more dominant than any other Earth currency.

• It can be tempting to see the Wild West activity on the new planet and to take overly aggressive action, like banning travel to the new planet, or heavily restricting the activity that takes place there. But this will prevent the new planet from getting past this bootstrapping phase to the innovation that is possible in the long run.

• It would be better to take a long-term view. Let there be safe harbors and permissionlessness. Punish bad actors when they commit crimes. But preserve the openness for the good actors to pursue experimentation and innovation.