The Restaurant at the end of the Metaverse (1/2)

Your order please - Blockchain burger? Crypto chips? NFT nachos? Web3 waffle? Bitcoin biriyani?

No one could have missed the web3 tsunami that hit all shores in the past year even if they lived under a rip-van-winkle rock. Even zuck got the metaverse menu.. er.. memo. Everyone seemed to be talking about it. Nike to Nomura. Coke to Citi. Brands to banks . All buying lands, selling exclusives, exploring identities, creating ETFs, and forging loyalty on the metaverse. Some even claim to have been building and living in the metaverse since 1992 (when the term was coined in snowcrash ). You shouldn't be surprised if John did a meta-turn in his grave saying he envisioned this in his 1967 trip (in his iconic song above). Well he did get the endless flow of words right, didn't he?

Yet you would not be alone if these terms sound like millennial mumbo-jumbo. I felt that too. So I took a break from a corporate career and dove deep into this rabbit hole. And am happy to give you a cliff's notes version making sense of it all - whether the rabbit hole leads to a dreamy wonderland or an infernal dystopia.

Let us first cut through the jargons getting to the first principles of Blockchains and Crypto. No theory or endless trivia here. But some definitive history to help understand where we are today. And where this trillion dollar baby is going.

1. Blockchain

Shall we start with this magic word that suddenly made a zillion Linkedin profiles attractive in the last couple of years? I think most definitions often make this too complicated. A simple way to understand the Blockchain is as a ledger sequence of "blocks" - a data structure quite like the half-century old linked list or the database, albeit a much needed evolution. It is often structurally simpler and smaller in size (than a DB). Importantly a block, unlike other structures, is cryptographically encoded with an SHA-256 hash of the previous block. This makes each block (ledger entry) and the whole chain permanent. This feature of immutability makes it useful in a specific context - where security and trust across many users is more important than the cost of computing and maintaining the blockchain - which can be high in many cases.

Does it mean a blockchain cannot be large or complex? No, it just means there is a trade off between these set of important features of a blockchain, {immutability, security, scalability} and cost.

In other definitions if you've come across spicy things like Decentralisation and Consensus mechanism worry not. They are not essential to every blockchain. But they do make the blockchain recipe really palatable. Decentralisaion means the blocks are not owned, and created and maintained by any party or even a consortia. They can be maintained by anyone in the open market who can "prove" and vouch for the integrity of the chain - these people are usually called "miners" or "nodes", each playing a part in creating and validating the chain. With the golden version sufficiently distributed it becomes tamper proof, or even un-censorable. How do they do it without disagreeing and treading on each others' toes? A consensus mechanism enables this, with the help of some mathematical polling system to arrive at the true version while keeping it reliable and secure. Proof of work (PoW) , for example is a consensus used by Bitcoin, where the miners are rewarded for the "work" of guessing the hash sequence. This is a bit more complicated for a short blog post. This video gives a very useful picturisation if you are interested.

Evolution of the Blockchain

Most people know Bitcoin or BTC (Born: 3rd Jan 2009) and think of it as the first blockchain. It is not! In 1989, Digicash set the cryptographic base for this innovation. And in 1991 a paper by Stuart Haber and Scott Stornetta first described a chain of blocks. But Bitcoin, in this historic whitepaper , went further by solving two very important limitations - the PoW consensus mechanism ensured both security by obviating the Byzantine general's problem and solved the Double spend problem of accounting. The latter making BTC a viable digital currency and a universal phenomenon that will drive up its value from a fraction of a penny to $69,000 at its peak. Many, including top financial reports like Cathie Woods, expect a single BTC will be worth millions , as it acquires more use cases and demand, but remains forever limited in supply. Perhaps more limited than the rarest thing we can think of (A max supply of 21million BTC was created. Now after some losses only about 19 million remain).

Then came Ethereum, ETH. Created in 2013 by a 19-year old Vitalik Buterin, who was earlier involved in the BTC community. While BTC was powerful in its simplicity, it was not ready for the zillion use cases that many realised blockchains were capable of. Ethereum was conceived as a decentralised computing platform, by adding easy programmability at the block level. At the core of it is the Ethereum Virtual Machine (EVM), capable of running Smart Contracts - contracts that doesn't need to be documented and presided over by a slow and fallible justice system. Instead it is simply, programmatically enforced.

This enables business to happen at the speed of data, smartness of code and fairness of a decentralised blockchain - Ram :)

Many smart contract platforms followed - Solana, Avalanche, Cosmos, Fantom, Flow, Algorand, Cardano etc. each optimising for some combination of - scalability, security and decentralisation. This is the famous blockchain trilemma coined by Vitalik who realised it is impossible to maximise all three. Hence there is a trade-off that potentially gives rise to flavours of blockchains that best suit appropriate needs. Then some layer2 blockchains evolved, like Polygon, Optimism, Arbitrum, ZKsync etc, operating on top of the primary ones. Instead of fighting the trilemma these decided to bend reality - by cleverly managing security in other ways while trying to maximise scale and decentralisation. These made the Layer1 blockchains like Ethereum even more scalable.

Whilst the decentralised utopia was doing this, the corporate world was not going to be left behind, and birthed the concept of permissioned, centralised blockchains (Surprise! Surprise!). Hyperledger (2015), Corda (2016), Quorum, Oracle etc. attempted to cater to an industry eager to partake of this magic, but without compromising on control and exclusivity. Many enterprise applications have been attempted in the past 7 years typically yielding less returns than expected. It is arguable if private blockchains will ever be viable or as useful as public blockchains. As with open-source applications and public cloud, organisations may eventually start embracing public blockchains slowly as both awareness and the tech improve. VeChain, Ripple, Cardano etc have seen large enterprise use cases in supply chains and fintech.

While internet took over three decades to see some maturity, blockchains have exploded within a decade. Chainlink acting as a data oracle bridging the decentralised world with the rest; Monero, ZCash catering to anonymity and security; Helium Network creating a decentralised global IOT/5G network; Stablecoins (Tether, Circle, Paxos etc) and wrapped tokens acting to facilitate currency exchange and fungibility; Automated market makers (AMMs) and Decentralised Exchanges (DEXs) efficiently enabling markets without intermediaries; The list is exploding faster than any technology did in the past, creating multiple billion dollar disruptions in, arguably, the first 5 years. Talking nothing of the metaverse and NFT phenomena that has even global brand and top creators jumping into.

We should explore these and some of the successful blockchains - their disruptive potential, market impact and valuations - in a subsequent post. Also address some recent good, although premature criticisms and misconceptions from the likes of Moxie , so we have a good balanced view. Now, let us look at what Crypto is all about.

2. Crypto (short for cryptocurrency)

Even if we don't realise, much of the money today is already digital - only 10% of the $60 Trillion money supply is physical cash. But this digital money is centrally controlled and mutable and easily be tampered with.

Crypto is digital money built on a blockchain. It is usually decentralised as well. As of this writing, only three centralised blockchain currencies exist - Sand Dollar, eNaira, and Dcash. Finally, CBDCs can be on a block chain or a simple digital ledger (like Digital Yuan). Clear as mud? Don't worry, I have seen most people get confused and get it wrong. Simply put, Digital currency can be -

• On blockchain + decentralised - Crypto (currency)
• On blockchain + centralised - crypto CBDC
• On non-blockchain DLT + centralised - digital CBDC

Bitcoin was the first cryptocurrency. The first (genesis) block-zero of BTC cryptically indicates it's purpose by quoting a newspaper headline during the 2008-2009 financial crisis. Satoshi Nakomoto, the creator and in whose name the whitepaper was published, is a pseudonym making this masterpiece very unique and truly decentralised. Ironically this is what makes it really work

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” - BTC Genesis Block

BTC was created to enable a better financial backbone. One that is decentralised and cannot be manipulated by a financial system which has allegedly robbed people off of trillions of dollars - when ordinary taxpayer money was used to bail out the crisis created by rampant greed of financial industry and opaque risk-ridden systems created by the elite.

Trivia: Satoshi owns close to a million BTCs (which were the first created till other miners joined). At peak valuation it would have made this person/group the 15th richest in the world with $69 billion just in Bitcoins. And yet, not a single BTC has ever been used/transferred from Satoshi making it a safe bet that this person is either no more, or is truly well intentioned!)

Since BTC many cryptocurrencies have been created - Litecoin, Bitcoin cash, Nano, Dash, Monero, Ripple, Stellar, etc. With much of code open-source in this domain, it takes a reasonably good techie a few hours to create another cryptocurrency - unfortunately some "bad" techies have gotten hold of this too! Thus were born the memecoins and sh#tcoins - these were created to parody (like Dogecoin) or often just as scams. There have probably been over a 100,000 cryptos created, and people in this space know well that over 99% of these are junk. This, rightly, has neither dampened investments nor thousands of youngsters quitting their bulge-bracket jobs to join the brave new world. After all, a 1000 good crypto projects in just the last few years is better than what the internet achieved pre-2000!

With secure, limited supply currencies it looks like we are ready to solve the problems of debt and inflation cycles created by profligate governments, right? Almost. Some of these networks still need scaling for better adoption. And more importantly easy ramp-ins and secure bridges to enable everyday transactions. Lightning network does that for Bitcoin, which allowed El salvador to make BTC an official currency; Young pioneers like Jack Mallers of Strike will soon be giving the fee-hungry, internet-era payment networks a run for the money (pun intended)!

Hope this was useful. At the least in making it clear that the crypto and blockchain space is much more than just currencies and fads..

I took a massive leap of faith into the web3/crypto world last year for many reasons - belief in Chaordic/decentralised structures and Complex systems; the disruptive technology of smart contracts; the social impact of property rights. But what has kept me going through the ups and (significant) downs has been the community spirit in this world. In that spirit I am happy to connect, collaborate and add more content based on your questions.

Coming in part 2:

• Defining Web3, Metaverse and tracing their evolution
• Last big trends/fads - the Decentralised-finance (DeFi), NFTs
• The big opportunities and use cases that promise to make web3 an unstoppable force - community ownership, creator economy, property rights
• Anything else you want to know!