To Mitigate Harm Amid Crypto Winter, We Need To Talk About Price
There’s a sentiment I hear a lot in the community: Ethereum isn’t an investment opportunity, it’s a movement. The statements are well-intended, and likely rooted in a distaste for money-hungry, get-rich-quick opportunism, and big money corporate sharks.
But that overlooks the impact recessions have on people’s wellbeing, something that the Ethereum community clearly cares a lot about. After all, the whole point of Web3 is to address the censorship, invasions of privacy, and exploitation of our personal information for profit that the Web 2.0 infrastructure created.
It’s difficult to gauge the human cost of Crypto Winter, in part because it is ongoing, and in part because the community is small and (to my knowledge) no one is collecting relevant data. However, there is a wealth of data (never mind common sense) that shows the immensely negative impact of financial insecurity on wellbeing. The body responds to unemployment much like it does to the loss of a loved one, but with the additional effect of robbing a person’s sense of worth. The British Journal of Psychiatry reported more than 10,000 suicides linked to the economic crisis between 2008 and 2010. (The phone number for the national suicide prevention hotline is 1-800-273-8255.) And it’s not just that financial insecurity directly causes misery; miserable people tend to make other people miserable. Case in point, there have been a number of studies linking financial insecurity with domestic violence.
Additionally, despite our best efforts to increase user base and bring about mass crypto adoption, the fall in Ether‘s price, and the price of many Ethereum-based tokens, seems to be causing a decline in confidence about the viability of the Ethereum network, public blockchain projects, and cryptocurrencies more generally. As a crypto journalist and a resident of Crypto Twitter and reddit, I can’t tell you how many articles and posts I see daily proclaiming the death of Ethereum.
This being the case, I think we need to open up the conversation and come up with some harm-reduction strategies.
I do not mean to diminish the work that has already been done in this respect. One of the first messages I heard upon entering the crytosphere was the resounding message to “never invest more than you can afford to lose.”
Further, there has been a notable move away from the ICO funding model. This is probably in part due to its decline in efficacy after consumers started to catch on that ICOs are generally bad investments, but also because a lot of crypto companies recognized the danger to consumers, care about their wellbeing, and chose to raise money through other means.
These efforts to mitigate risk are crucial, but not enough.
We need to acknowledge the fact that some of the most impressive Ethereum-related developments are built on and funded by crypto wealth, meaning that a number of keystone projects have an incredibly volatile asset as their funding source. This is a complicated problem of ethics, values, and economics, but it’s a conversation that needs more airtime.
Further, cryptocurrency is central to Ethereum’s core values. We like that it’s decentralized, global, and censorship resistant. We understand that crypto offers unprecedented opportunities for free trade to individuals, businesses, and organizations. Crypto is half the point of Ethereum, so to argue that the community should move away from Ether-based funding is probably a hard sell. We say we want increased user adoption, but if even we aren’t willing to bet on crypto, how can we expect anyone else to? And besides, doing so has taken us far. Without crypto investing, we wouldn’t have ConsenSys, or any number of its spokes, like MetaMask or Infura.
But it’s also true that funding Ethereum development efforts with Ether can increase price instability. In a recent reddit post, Bitcoin ABC’s Amaury Sechet provided an explanation for the price instability of cryptocurrencies:
“When the price of oil decrease[s], people stop drilling oil and supply diminishes. But for crypto, when the price go[es] down, the supply increase[s], because companies have to sell more to cover their [costs]. This tends to create an amplification effect. When price[s] go down, supply increase[s], and price[s] go down even more. When price[s] go up, supply decreases and the price[s] go up even more.”
The solution Sechet offers, and I am inclined to think he’s right, is that investors need to be smarter about the development efforts they choose to fund. To some extent, investing in anything is always a risk. If we already knew what was possible and how to do it, it’d be done by now. Failure is inherent to the process of discovery, and failure is all the more likely when we’re talking about a technology that seeks to fundamentally shift the way humans coordinate. This is an especially challenging task given that the technology has not yet achieved scalability or adoption and faces significant legal hurdles.
But that doesn’t mean we can’t exercise some caution. There are endless guides available that attempt to educate potential ICO investors, all sharing some similar standards to review: the qualifications of the development team, whether the project solves an actual problem, and if there is a well-articulated and achievable roadmap for success. This might seem like basic stuff, but judging by a number of projects in the ecosystem, it would seem that idealism and enthusiasm for crypto sometimes crowds out the need for practicality.
The need for better business and investment strategies is not going unnoticed. After all, the recent ConsenSys layoffs, and the company’s move toward venture capital funding, appear to be a part of bigger picture improvements to the company’s investment and business strategy. Hopefully, others in the space are taking this time to do similar work in refocusing goals and strategies, so that we might mitigate some volatility in the future.
One means to address this concern may be through a Liberal Radicalist (LR) funding model. I concede that adding experimental funding models to an already risky market may not sound entirely prudent, but hear me out. The problem with a lot of crypto projects is that they don’t solve actual problems that actual people care about. And many of the issues blockchain is best suited to address – workarounds to repressive or inadequate governments and access to financial services – are difficult to find funding for. If an organization like ConsenSys or Digital Currency Group implemented an LR funding mechanism to allow smaller donors and investors to signal the more valuable projects and decide how DCG or ConsenSys spent their wealth, perhaps that money would be spent more wisely, on problem-solving developments with real user demand.
Now, I do not profess to have all of the answers, or even know if my suggestions are correct. However, I do know that there’s a human cost to the price volatility of cryptocurrencies in general, and Ether specifically. And, I think that if we can better invest our crypto dollars, we may be able to create better technology, and decrease price volatility. If we decrease price volatility and make more practical projects, we may improve public perception and user adoption of Ethereum – and blockchain technology more generally.