Analyzing Vitalik’s Crypto Scaling Comments in Full
Recently, Vitalik issued another set of statements that were [somewhat] controversial in nature as they contradict the beliefs and hopes of a lot of cryptocurrency enthusiasts in the space currently.
Specifically, this article is referring to the interview that Bloomberg published with Vitalik today (September 8th, 2018).
What Did Vitalik Say?
Before issuing any value judgment on Vitalik’s comments or his opinion on the cryptocurrency market in general, it is important to first make sure there is an accurate account of the statements that Vitalik actually made in said article.
In the interview, Vitalik Buterin is quoted as saying,
“‘The blockchain space is getting to the point where there’s a ceiling in sight.’”
He also on the record as saying,
“‘If you talk to the average educated person at this point, they probably have heard of blockchain at least once. There isn’t an opportunity for yet another 1,000-times growth in anything in the space anymore.’”
The article goes on to state that Vitalik insisted that the cryptocurrency market, up to this point, has thrived specifically on marketing. However, he believes that this strategy, which has been successful up to this point (if you consider the price movement and increase in awareness over that period of time), is proving to no longer be effective.
Because of this, he believes that the valuation of cryptocurrency projects are nearing their absolute peaks.
He then goes on to state that the next phase of the crypto movement will be greater real-world and real-use adoption and that this must be facilitated by those that are already in the sphere itself.
Critical Flaws in Vitalik’s Statements
This article will not mince any words here in stating that Vitalik’s statements appear to be made out of ignorance or perhaps due to an ulterior motive (but we won’t make any assumptions here).
Below are the following statements/positions that Vitalik makes in the article that informed crypto users should rationally disagree/have qualms with:
- The blockchain space is getting to the point where there’s a ceiling in sight.
- If you talk to the average educated person at this point, they probably have heard of blockchain at least once. There isn’t an opportunity for yet another 1,000-times growth in anything in the space anymore.
- Bitcoin’s growth was predicated primarily on just marketing in the first 6–7 years of its adoption path and the notion that, ‘That strategy is getting close to hitting a dead end.’
Identifying the Flaws in Vitalik’s First Premise
The first major statement/point that Vitalik makes in the argument is that the ‘blockchain space is getting to the point where there’s a ceiling in sight’.
If this is the case, then what Vitalik is essentially saying is that there will be no widespread use of blockchain technology in the financial space. For those that agree with that notion, Vitalik’s statements make absolute sense.
However, for those that disagree — this statement should come across as jarring. Especially when considering that it was issued from the project lead of the second-highest valued (per CMC data) cryptocurrency in the space.
Fundamental Issue #1
Despite the astronomical increase in price for Bitcoin and a slew of other cryptocurrency projects, the market is still microscopic in comparison to other financial markets around the world.
Just recently, all tech stocks in the U.S. alone were valued at an estimated $4 Trillion combined.
The entire crypto sphere, at the time of writing, is valued at approximately $193 billion (per CMC data).
That means that blockchain, as an industry, would only represent 5% of the value of the entire tech space in the United States, and it is more than likely that the tech space will continue to grow as technology itself becomes more prevalent in daily lives and access to the internet continues to grow around the world.
Conversely, the cryptocurrency sphere, which is in an indisputable bear market, may actually continue to shrink in value during that same time span. Thus, it isn’t implausible to suggest that blockchain may represent an even smaller proportion of the value of all traditional tech stocks in the United States when looking at the two industries side by side.
Thus, to suggest that blockchain is at or near its ‘peak’ or ‘ceiling’ in terms of growth/adoption is to suggest that there is hardly any further room for growth or that any further room for growth will hardly have an impact on the price itself.
Judging from Vitalik’s comments, it appears that he is implying the latter — which is interesting when considering that greater usage, would imply greater demand and we know that almost always correlates in a bump in price (basic supply-and-demand economic theory). This is especially true in the case of must cryptocurrencies (assuming they ever were to receive a higher demand), because of their finite supplies.
Fundamental Issue #2
This issue is more of a semantic one rather than a philosophical difference in thought — but, without actually qualifying what is meant by ‘ceiling’, there’s no way of even evaluating the veracity of Vitalik’s statements.
Does he mean that crypto is at its ‘ceiling’ in terms of the potential that it can reach? Or simply its price? Or perhaps he is referring to the level of active developers on these protocols/expansion of the overall network.
Similarly, without giving a little more detail on what is meant when he insists that it is “near” its peak, one is left to simply muse over what Vitalik truly means in these statements.
Identifying the Flaw in Vitalik’s Second Premise
Vitalik then goes on to claim that the average ‘educated’ person has ‘heard of blockchain’ and then follows that up with the statement that there are no more major growth opportunities (we’ll assume that he means investment) in the space anymore.
Fundamental Issue #1
Perhaps this is where Vitalik fails to exhibit an ability to separate his own personal experience and worldview bias from reality, but his assertion about the general knowledge and awareness of blockchain is woefully inaccurate.
Although, this is understandable to an extent because, in the world of Vitalik, most of his affiliates, acquaintances, and partners have more than likely heard of blockchain and may even involved with the technology directly in some way. However, to extrapolate one’s personal experience to insist that just about any educated individual has heard of blockchain, is a claim that is unsupported by a swathe of evidence.
But maybe that isn’t the reason that Vitalik made that statement. Perhaps he has grossly overestimated the general populace’s interest into the field itself. In any case, his presumptive statement about the awareness that the general public has of blockchain is pretty inaccurate on several different levels.
In fact, recent research conducted and published by the HSBC bank (done last June, so this does not include the December bang out of last year), found that approximately 60% of the consumers whom they interviewed had no clue what blockchain was on any fundamental level.
_A recent survey suggests that ordinary consumers are still largely in the dark about blockchain. According to the…_www.coindesk.com
There have been countless other articles that have been published when the last 8–12 months of Vitalik’s statements that corroborate the notion that the “average” person of any level of education has a fairly poor concept of blockchain technology. Examples of such coverage includes Gizmodo, Techinasia, and the New York Times, among a plethora of others.
Have people heard of the word ‘blockchain’? Sure. Have they heard of Bitcoin? Sure. Does this mean that they are automatically invested or that they even understand the basic premise beneath the term? Absolutely not.
In fact, the statement that the ‘average educated person’ knows what blockchain is, is so absurdly hyperbolic, it borders on comedic in tone. Yet, when considering the fact that Vitalik appears to be 100% serious in his conviction and belief about this fact in the Bloomberg interview, its a tad bit worrisome.
Fundamental Issue #2
The second issue with this premise of Vitalik’s argument lies in the implicit assumption that he makes in his argument when he follows up his claim that most educated people know about blockchain with the assertion that there is thus, little room for it to grow further than it already has.
It appears that Vitalik is almost insisting that the effort to inform more individuals about blockchain technology is a futile mission because there are few, if any individuals that can meaningfully interact with the technology that do not already know about it.
In the author’s humble opinion — Until blockchain becomes as prevalent, well-understood, and used as the internet, television, or similar innovative piece of technology in society, this argument is outrageously untrue.
It seems that Vitalik has confused the concept of hearing a word for being actively aware and educated on the subject and ready to invest. Thus, this concept that there is no more room to growth falls remarkably hollow when considering the level of ‘insider’ knowledge that he should have on the inner-workings of the blockchain sphere.
Another major qualm that individuals should have with Vitalik’s comments are his insistence that there is no more room for growth in the blockchain space and that the projects that we are seeing now are pretty much the final manifestation of blockchain technology.
To assert that, is laughably dishonest, when considering the fact that Vitalik himself has consistently stated that Ethereum (among others) are simply not ready to ‘scale’ (although there are many debates about the meaning of the concept, ‘scale’, as well as what that would entail and how it would be implemented).
There are also a number of projects with questionable, inflated valuations that appear destined to hit the proverbial ‘zero’ point at sometime in the future. While the cryptocurrency community may be at odds on which projects those are, the idea that there exists at least some projects that fit that criteria, is a pretty well-accepted concept at this point.
There are, perhaps, projects in this space that have yet to launch that may make true use of blockchain technology in a way that the world has not seen yet. Most would agree that this is most likely the case when it comes to this sphere. It’s worth reiterating that the space is only about 6 to 7 years old currently. Its growth, while astronomical at this point, is still just a ‘drop in the bucket’ compared to what this space could achieve if it reaches its full potential.
And then, of course, there’s the idea of usage. As more viable cryptocurrency projects erect themselves with a ‘Blockchain-as-a-service’ fee model, and begin to accelerate their pace of business integrations in the “real world”, it seems like a no-brainer that the valuation of the entire space will once again rise to at least the point where it was at before (which is 4x where it’s at currently at the time of writing).
Will Bitcoin rise by another 1000x? Most disagree with that premise, sure. However, there are some burgeoning projects or projects-to-be that may easily capture such a rate of growth if they can be effective in their market offering to the general public.
Only time will tell.
Those that were discouraged and disheartened by Vitalik’s statements, shouldn’t be.
And no, these are not the words of a ‘permabull’ that is here to ensure you that you will recoup any and all money that you lost on your investments from 2017. There is a solid chance that you never get that money back if you diversified too much, because there are quite a few projects that will probably never reach those all-time high prices again.
However, the space is still rife with opportunity and, more than likely, as time continues and more information is known about blockchain technology, its potential use cases, integrations, and applications in the real world, it is more than likely that business will continue to flock to blockchain technology in even greater numbers.
It needs to prove itself first though and there are a few nefarious forces in the space that must be weeded out as well before progress can truly be obtained. In the meantime, one piece of advice that Vitalik gave that was insightful is this — folks should focus on actually interacting with blockchain technology directly in one way or another.