Why some Layer 1 blockchains need to die
“What is dead may never die” is the motto of a nautical clan from the Game of Thrones series, but it’s equally fitting for the crypto world, where many blockchains are clearly dead but somehow refuse to die.
If you doubt it, go to CoinMarketCap and you’ll see thousands of blockchains that have no viability or purpose but whose tokens still trade as if they do. Some of the most valuable chains appear to be little more than the husks from earlier eras, propped up by small tribes of bag-holders.
We all know the blockchains I’m talking about. Does anyone really see a future—or even a present—for the likes of Litecoin, Tron, or EOS? Nearly every serious crypto person, even if they won’t say it publicly, will quietly acknowledge such projects are “zombie” chains that lost out to vibrant, thriving blockchains like Ethereum or Solana.
If these zombie chains were companies, they would simply go away. That’s what happens in the traditional startup world where companies run out of money and shut down if they fail to grow. This is all part of capitalism’s “creative destruction” and a healthy thing for the economy. In the crypto world, however, the failures are able to hang around—often becoming fodder for YouTube bottom feeders, who make a living by pump-and-dumps that tarnish the industry’s reputation.
I asked Adam Goldberg, a co-founder of the VC firm Standard Crypto, about this phenomenon and whether it would be better if more blockchains died in the same way as traditional failed startups. He offered an intriguing response.
“Death looks differently in crypto. It’s a lot more silent in crypto. If you’re just a smart contract on the blockchain, you die by no one interacting with you, and if you’re a [Layer 1], you die by no one building on top of you,” he said, noting that the nature of blockchains means even dead projects do not vanish.
While this is all true, it is also a problem for the crypto industry because the persistence of zombie chains diverts money and attention away from viable projects, and slows adoption of successful blockchains. But this may not go on forever.
Albert Wenger, a longtime crypto investor at Union Square Ventures, says the current state of crypto reminds him of the early days of the internet where there were competing protocols for services like email and file transfers. In time, of course, consolidation took place, and Wenger predicts the same thing will happen in crypto—even if takes a while.
“A lot of these chains still have some real activity—they’re not complete ghost towns. The shake out will take a very long time,” he said, adding that part of this is driven by uncertainty over the upcoming Ethereum upgrade known as the “merge.”
Wenger added that the periodic downturns in the industry, such as the current crypto winter, serve to wash away the fly-by-night opportunists who show up during the boom periods. Meanwhile, he says he welcomes those who are seeking to build new blockchains—even if the market appears saturated.
“I love that people are trying—innovation comes from people trying new things. Sometimes the thing doesn’t work on its own, but sometimes the features do,” he says.
The bottom line is that the same forces of creative destruction are taking place in the crypto industry as in the conventional startup world—even if the process takes longer, and if we have to tolerate the presence of dead blockchains for a few more years.
Meanwhile, it’s also possible that some of the fading blockchains have more life in them than we think. For those skeptical about the future of Tron and Cardano, the founders of those blockchains will be speaking at Messari’s highly anticipated Mainnet conference—where Fortune is a media partner—on Sept. 21-23. More news below.
Jeff John Roberts
Koop launches with $5 million to capitalize on NFT fandom
NFT Collective Proof raises $50M in a16z-led round
Argentina’s Mendoza province now accepting crypto for taxes and fees
Reddit co-founder plans to raise $176.5M crypto fund
Prominent crypto attorneys Stephen Palley and Preston Byrne jump to a new firm
Crypto.com pulls out of huge Champions League sponsorship
Bitcoin-loving Microstrategy CEO sued for tax fraud
El Salvador’s Bitcoin bond delayed again
Matt Damon-backed crypto firm sends woman $10.5M refund instead of $100
FOMO NO MO
Who are you calling evil? The crypto VC giant a16z released a new set of legal tools for NFTs that, in a riff on Google’s one-time motto, are called “can’t be evil.” The cutesy description aside, the tools themselves will be a terrific resource for the crypto world.
The tools are a series of six Creative Commons licenses that specify what an NFT buyer can and cannot do with the work. CC licenses are hardly new—they’ve been around for more than 20 years to facilitate Internet sharing—but this appears to be the first time they’ve been distributed in the context of Web 3. Their arrival is timely given the cloud of legal uncertainty hanging over NFTs when it comes to IP rights, and represent a new frontier of law on the blockchain.
Standardized NFT-specific licenses should ideally be tracked and enforced on the blockchain to provide more certainty for users. Better licensing frameworks have the potential to make high quality licenses more readily available, clear up ambiguity around ownership, and save creators some of the burden (and expense) of creating their own licensing regimes.
THE LEDGER’S LATEST
Tezos cofounder on 3 things in crypto that will ‘age poorly’ by Taylor Locke
What’s next for Meta after the company’s metaverse lead leaves? by Marco Quiroz-Gutierrez
Coinbase says exchange will ‘evaluate any potential forks’ post-Ethereum ‘merge’ by Taylor Locke
Ticketmaster Web3 push lets event organizers release their own NFTs by Marco Quiroz-Gutierrez
Singapore eyes crypto crackdown, threatening status as industry hub by Leo Schwartz
What’s proof of stake? Ethereum’s future eco-friendly model explained by Taylor Locke
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IF YOU DON’T KNOW, CRYPTO
Have you ever been whale spotting? It’s a pretty common activity in the crypto world as market watchers keep an eye on whales—owners of large sums of crypto whose transactions can single-handedly cause the price of a given token to soar or crash. Many whales keep their identity a secret but, thanks to the public nature of blockchains, it’s possible to keep track of their activities by watching their wallets.
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