Crypto's 'killer app'

28 Jan 2022

When I wrote my blog post “On network effects of Blockchains and EVM interoperability” I proposed that it was extremely hard for a new Blockchain to catch on. While I didn’t write it, I thought that all current alternative L1s would have problems staying relevant for 2+ years, or until ETH2 finally launches and fees go down. That’s what I originally thought their use case was: lower fees and maybe faster transaction times. I could not have been more wrong. Solana and Avalanche (and maybe BSC?) are here to stay. Where did I go wrong? Is multichain here to stay and was multichain inevitable? I will look at these questions from the perspective of what I call crypto’s killer app.

A lil history

Since the days I joined the space in 2017 people have been talking about crypto’s “killer app”. An app powered by crypto that reaches 100M+ users would lead to mass adoption of crypto and lots of money for current bag holders. Looking back at 2017 now the Idea seems almost delusinal. In 2022 we are still lacking the necessary groundwork (cheap transaction, idiot proof wallet security, good wallet usability, etc.) to make mass adoption happen. I’d like to argue though that we already have the first “killer app” and it’s the reason why current alt-L1s are succeeding.

The (ugly) killer app

The ugly truth is that crypto’s killer app is the reason we’re all here: to make money. As glaring as this might sound it has very far reaching implications and helps explain why Solana and Avalanche are probably going to succeed.

In my last post, when I talked about the network effects of blockchains, I talked about them as ends-in-themselves - of course you’d want to use the DEX with the deepest liquidity for big trades - this is only partially true though, because the only reason you want the DEX with the deepest liquidity is because it helps you make the most money. Using the most decentralized blockchain is also only as valueable as the money it helps you make.

The rise of alt-L1s

If we accept that making money money is the killer app we can see how this ties into the rise of alt-L1s. Newcomers also want to “be early” to projects and make big bucks so they invest in smaller and more risky coins or project. This is the whole reason BSC has the amount of users it does, people go there to buy the latest dog-money or ponzi coin. What BSC definitly helped was lower fees compared to eth, investing $200 isn’t fun when transaction fess are $60.

Do you want some VC money?

In recent year(s) we have seen the large influx of VC money in the space. What these new projects (mainly Solana and Avalanche) have done is (i) use large parts of their VC funding as a war chest to funds devs and projects on their respective blockchain and (ii) let their VC friends help bootstrap liquidity for protocols on the network, thus starting to build network effects. These two measure serve two purposes: (i) short to mid term creating incentives for devs (grants) and users (incentive programs) and (ii) mid to long term building out the infrastructure and creating actual network effects that last once the VC cash runs out. I think this strategy will prove effective over the next few years, given that these protocols can get good dapps and projects developed on them.

Users (and devs) flock where the money is, not just where the strongest network effects lie. That’s why I think they are here to stay. As long as they can provide their users with ways to make money (ie. have a widley used Smart-contract capable chain with good projects) they should be fine.

Was multichain inevitable?

When the multichain thesis first started to prove correct a lot of people in the space we’re surprised because it seemed to go against the ideas of strong network effects people in the space had. To this day a lot of people make ETH-fees responsible for the rise of alt-L1s and while I think this is justified, from a investor point of view it would make sense to have multiple L1s. If you can equip a new L1 startup with a warchest to fund development and incentive bridging it only makes sense for people to come over and use your chain & develop applications. When these apps are developed people will likely stay if they have a bag in them i.e. see it as a way to make money. Because of that I’d like to argue that the multichain future - in retrospect - was inevitable. What I and a lot of people didn’t see coming we’re the large stimulus programs these chains run, without them I think it wouldn’t be possible to grow significant in a world where ETH is fast & cheap.

Wat is next killer app? :3

The question then naturally arises “what is the next ‘true’ killer app of crypto? Making money can’t be the only thing.” It doesn’t fit the narrative of crypto (at least from the outside) that we’re all just greedy investors taking each others money. After all crypto is supposed to make the world better and more decentralized not just find new ways to get rugged online.

For the true crypto killer app to happen a lot needs to happen first:

1. The UX needs to improve a looooooooooot
2. Very easy (and cheap) to on and off ramp
3. basically free transactions
4. idiot proof wallet security
5. basic legal clarity

If these things get fixed then and only then a true killer app can hapen that enjoys millions of users and pushes crypto over the non-investor chasm. If we image a world where these thigns are already fixed some proposed killer apps are:

• better social networks (utilizing tokens and ownership somehow uniquely)
• games (adding decentrallization & ownership)
• something completely different that we can’t yet imagine

Social media as a killer app

What we have learned from the above is that crypto people might become very good at understanding and creating strong and lasting network effects, after all in a sense that’s our bread and butter. One industry where network effects are also bread and butter is the social media industry. The reason you use Whatsapp (and please insert the messenger of your choice here) is that everyone else in your social circle is using it. The same - but in a more complex structure - applies to other social media apps like instagram and twitter. You are only using them becuase all the people you follow use them and the people you follow only use them because there are so many of you (users) on said platform, good old network effects. If someone from the crypto community comes up with a cool new social media platoform and applies his knwoledge of network effects and shared ownership and maybe governance to said platform it might turn out successful.

From a devils advocate point of view I’d like to argue that all crypto social media platoforms so far have failed and using coins as an incentive for posting/engagement/etc. seems to be near impossible to make work in a good way; I feel like the industry is lacking one main invention to make that work, idk what that is though.

Utilizing network effects in games

Games are a little more tricks because the network effects are not as straight forward as for social media networks. Firstly there are only network effects for multiplayer games and even there the network effects depend more on the content of the game rather than the size of the player base. If a crypto game reaches the mainstream and attains the title “killer app” (at least long term, of cause you can literally pay people to play your game) it won’t be because of it’s strong network effects but because of the actual content of the game itself and how enjoyable it is to play with friends. For network effects through financial incentive remember: people can only take out of the system what someone else has put in.

As closing thoughts I would like to add that thinking about every investment you take in crypto under the lense of “does this support the killer app ‘making money’” and not just for yourself but other people can maybe be a good guide.

Not financial advice though. pls don’t sue if you get rekt.