Jan 18th 2023

After the drama punctuated by doldrums (or is it the other way around?) of 2022, many of us glass-half-full types have been welcoming the opportunity to focus less on market moves and more on the impact that the continued development of crypto technology can have on the world. And it’s potentially a pretty big impact, nothing less than the spreading of economic opportunity and individual empowerment while rewiring finance and culture, so it certainly deserves more attention.

When we talk about focusing on technology, we generally mean ways to store and distribute information on networks with varying degrees of decentralization, which in turn will power new forms of engagement and economic activity. What is still largely overlooked is the potential that crypto technology has to support innovation in other areas of development. That impact will be felt well beyond blockchains, finance and culture.

The root of this influence lies in crypto markets. This may sound surprising given the devastating losses, bad actors, painful exploits and regulatory clampdowns defining the markets of recent months. It may also appear incongruous given the “institutionalization” of market experimentation, with banks and official organizations testing familiar forms of issuance with new types of settlement – hardly the technology boost I’m referring to.

To pull on this thread a bit more, I need to take a step back in time.

Newcomers to the manic world of crypto markets may not be aware of their origin. The first peer-to-peer crypto trades were done on what were essentially online bulletin boards – low cost, easy to spin up, with a high degree of trust required. These evolved as demand grew, but early iterations were still rudimentary, uncoordinated and making it up as they went along. Then they started to get more sophisticated, especially as professional investors got interested, and today they are a complex amalgam of services, structures and best practices designed to support a considerable flow of funds throughout the system.

They are not nearly as complicated as traditional exchanges, however. In part it’s due to simplified settlement and storage. In part it’s because while tendrils now extend into traditional finance, crypto platforms still operate largely in a niche area that regulators have yet to fence off with volumes of rules. What’s more, they are easier to spin up in a variety of configurations, such as centralized order book, decentralized liquidity pool or an as-yet-untested new structure. That relative flexibility, not enjoyed by traditional exchanges, is one of the crypto ecosystem’s superpowers.

It does introduce risks: The often-lamentable lack of transparency of platform operators, the absence of regulatory protection, hacks as well as code errors are just some that come to mind. But as familiarity grows, technological solutions improve, interfaces evolve and regulators start paying more attention, many of these can be mitigated. Innovation is about focusing on potential while implementing safeguards – and here is where the flexible structure of crypto markets comes in.

The relative ease with which blockchain-based protocols and applications can raise funds by creating tokens and distributing them to users and/or investors is by now well-known. “Initial coin offerings” (ICO) drove the hype bubble of 2017, with harsh lessons learned in the subsequent shake-out. Since then, however, tokens have often worked in tandem with equity stakes to kick-start or boost economic activity on new layer 1 blockchains, decentralized applications and creative initiatives.

Blockchain-based fundraising for blockchain-based projects: we get that. What we are overlooking, though, is the potential crypto has to support fundraising and engagement for other, unrelated technologies, and what’s more, it can do so almost anywhere given crypto market structure flexibility.