Original author: Daniel Kuhn, CoinDesk

Original translation: BitpushNews

It's best for cryptocurrencies to maintain their niche market position.

So far, the biggest crisis the cryptocurrency industry has faced is undoubtedly the rapid decline and collapse of FTX. Sam Bankman-Fried's personal treasury was the third largest cryptocurrency trading platform in the world when it collapsed. This event had a huge impact on the entire industry, not only causing a sharp drop in cryptocurrency prices, but also affecting numerous related companies.

At the end of 2022, it was unclear whether the concept of cryptocurrency could make a comeback. At that time, the apparent fraudulent behavior of one of the most consumer-savvy and trusted cryptocurrency companies seemed to validate the prevailing view that it was all just a cover for fraud.

However, as of today, the situation seems to have improved, although there is a general concern that the industry is repeating past mistakes and may once again face consequences. For experienced cryptocurrency investors and observers, this has always been the norm: since the collapse and subsequent recovery of the Bitcoin market at the Mt. Gox exchange in 2014, the cyclical fluctuations of the market have become part of daily life.

But isn't it strange that this increasingly mature industry sees this cycle of rise and fall as normal? In my view, the widespread adoption of any blockchain technology or consumer application depends to a large extent on the token price—whether the entire industry should always be at risk of imminent collapse.

The biggest challenge in the development of cryptocurrencies is precisely their own growth. The extreme optimism during market booms and extreme pessimism during downturns, which occur about every four years, are the consequences of the pursuit of widespread adoption of cryptocurrencies.

Rough popularization process

This process is a typical example of what economist Robert Shiller describes as "irrational exuberance." The promise to fundamentally change the core values from currency to the internet itself has sparked people's interest. People are attracted to the idea of decentralization (or, for many, the hope of making quick profits). As popularity rises, so does the price, which further stimulates more investment—until a problem arises.

Almost without exception, what fails are the things that blockchain was originally designed to replace. And these things are almost always designed to make cryptocurrencies more accessible and usable by users. There is a widespread belief that the "masses" may not choose to self-custody assets. But what is the point of assets like Bitcoin if there is no self-custody?

Alex Thorn, head of research at investment bank Galaxy Digital, said, "As the number of users increases, one risk is that new users may not understand the core principles of Bitcoin, such as decentralization, self-custody, and hard money. If these new entrants do not learn, understand, and support these core principles, then over time, the protocol features that enable these principles may not be maintained."

Adopting cryptocurrencies means following the law (which often conflicts with the values of cryptocurrencies) and establishing easy-to-use login methods (which may be vulnerable to attacks). There is a tension between the goal of decentralization and widespread adoption. If cryptocurrencies develop too large, they may undermine their truly valuable functions. Nathan Schneider, a media studies professor at the University of Colorado Boulder and author of "Ours to Hack and to Own," pointed out, "Simply being integrated into the mainstream financial system will ultimately lose many of the important opportunities provided by this technology."

Paul Ennis, a lecturer at University College Dublin, expressed a similar view, saying, "Cryptocurrency is a subculture that is unwilling to admit it is a subculture. Many of the problems we face stem from the discussion of 'bringing the next billion people in,' which has led to a gradual degradation of our values."

Existing "killer apps"

There is an irony in the fact that developers, founders, and investors have spent 15 years and billions of dollars searching for the "killer app" of blockchain, when in fact it has long existed. Satoshi Nakamoto and those who truly followed in his footsteps have created a digital bearer instrument that is free to use and difficult to take away.

This is the essence of cryptocurrency.

This is also why, although almost no one uses Bitcoin to buy coffee, many people use privacy coin Monero (XMR) to purchase various goods on the dark web. If you observe how cryptocurrencies are connected to the real economy, you will find that they mainly play a role in specific areas, including black or gray markets, stablecoin remittance channels, and activities of amateur enthusiasts.

Please note that these markets are huge. However, today, when cryptocurrencies seem to be on the verge of a breakthrough, this use case seems insignificant compared to the speculative use of cryptocurrencies, where capital is constantly moving from one currency to another or from one protocol to another, leading to a continuous increase—essentially forming a circular economy.

There is nothing wrong with this. Gambling is also an application scenario to some extent. But if people hope that cryptocurrencies can be used more productively, developers, founders, and investors should develop products for those who truly need censorship-resistant currencies and tools. Basically, this means that only a small number of people will be interested.

This is just my opinion, and many people disagree.

Other viewpoints

Molly White, author of critical cryptocurrency news Web3IsGoingGreat and "Citation Needed," believes that cryptocurrencies have already gone mainstream. In a private message, she said, "Although there are still some smaller-scale projects in niche markets, when Brian Armstrong and Sam Bankman-Fried interact in Congress, and BlackRock and Fidelity launch Bitcoin ETFs, I believe the trend of cryptocurrency mainstreaming is irreversible."

SethforPrivacy, a privacy advocate, educator, and longtime user of Monero, holds the opposite view. He said, "Unfortunately, most people have not yet realized the importance of Bitcoin and are not willing to take on so much personal responsibility, so we must focus our efforts on improving Bitcoin for those who truly recognize this need today."

There is also an argument that decentralization is precisely the reason why cryptocurrencies can achieve global adoption.

Alex Gladstein, Chief Strategy Officer of the Human Rights Foundation, said, "The only reason Bitcoin can rise globally is because of its most cyberpunk attribute: it does not belong to anyone, it is operated by users, not controlled by states or companies."

However, it is not entirely clear what the general public really wants. Emmanuel Awosika, a supporter of Ethereum, illustrated, "Although we believe that everyone wants privacy protection, censorship resistance, and the ability to resist state attacks, some people are already satisfied with products that solve problems and provide a good user experience."

Awosika added that not everyone needs, let alone wants, privacy protection, censorship resistance, and maximum decentralization, "but we should strive to make as many people as possible have cryptocurrencies."

Similarly, Roko Mijic, known for "Roko’s basilisk," believes that it is actually scale that gives decentralized tools power, which is particularly evident in Bitcoin, as Bitcoin miners are spread all over the world, making it difficult to attack. "In a smaller-scale cryptocurrency network, you cannot resist censorship, because the government can easily destroy the entire network," Mijic said.

Justin Ehrenhofer, founder of Chicago Moonstone Research, also expressed a similar view, pointing out that a currency is only useful when it is widely accepted, so "cypherpunks should focus on building systems that attract outsiders to participate." However, he also added that with "widespread adoption," the spirit of cryptocurrencies has degraded, as ordinary users store their assets in custodial exchanges.

I believe the real issue here is how important the core values of cryptocurrencies really are.

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