There is a lot of debate recently about crypto either as solution to all the problems in the world (“Bitcoin fixes this”) or as the biggest Ponzi scheme. Instead, of arguing which side is correct, I want to provide an alternative lens of looking at crypto through technological progress.
All technologies remove friction
All technologies are tools for removing friction. Good and bad uses of technology are different side of the same coin and is entirely dependent on use of technology by the people.
Let’s look at progress in communication technologies as an example. Originally, languages made it possible to transmit information between people. Paper made it easier. Post and telegraph further removed friction of space and made it easier to transmit over longer distances. Invention of Telephones removed friction from the time axis and made it easier to communicate in real time. Packet switching networks removed friction from communication by not being limited just voice. Mobile phones removed friction by making it possible to communicate wherever you are. With Internet & social media, you can you can talk to anyone the world - from the richest man on earth to the guy trying to save the human species from extinction - with a push of button. The rate of innovation in digital world is ever increasing, resulting in lower and lower friction.
Technological progress removes friction from world of atoms by innovating in the world of bits.
But is that good? or we should be worried? On one hand, it makes it possible to learn anything we want, whenever we want, from the best in the world, but it also enabled doomscrolling dystopia. Technical progress in camera technologies made possible to get high definition pictures from Mars, but the same technology is leading mass depression in teens. The advancements in transportation unlocks so much economic progress, but that also contributes heavily to climate change. On and on. So, any technology can be used for both good and bad, technological progress is itself always about removing friction. But how does technology remove friction?
Code as Intermediaries
Technology removes friction by replacing previous intermediary with a more “efficient” one. Tesla removed friction by directly selling to customers and removing existing intermediaries - the car dealers. Streaming technology removed the friction of going to theaters by bringing content to where you are. Digital signatures remove friction by replacing ink with digital certificates. Exchanges remove friction from connecting buyers and sellers. All of them move physical intermediary to code.
Code is a much more efficient intermediary than institutions.
In this process however, the companies that own the code, amass a lot of power. It makes these new intermediaries not only venerable to abuse of power, but also more complacent - making the overall process less and less efficient.
Finance and Friction
Banking systems and central bank currencies like US Dollars have been one of the first intermediaries of financial world. They make it possible for me to buy goods and services from random strangers by exchanging a piece of paper - US Dollar. USD established trust between transecting parties.
Credit cards removed friction by not needing to even hold the old school piece of paper. You can show up holding a plastic card and transect in large part of the world. Cryptographic innovations like digital certificates made it possible to transect online. That means now I don’t even have to hold a physical plastic card anymore, I can remember a bunch of numbers and I can transect with a large part of the world without needing to be physically present. The flow of money is finally free from atoms.
But even when you are using a credit card, you are still dealing with tons of intermediaries - your bank, the credit card issuer network (like Visa/MasterCard), interbank settlement layers, receivers bank to name just a few. There are even more intermediaries if your transaction is international. Here is a fun fact -
All of the current financial intermediaries are essentially run via code
Centralized institutions are increasingly relying on code for removing friction. But since all that code is closed source and controlled via different centralized institutions and companies, the overall coordination is highly inefficient. This code and trust fragmentation results in not only huge fees, but it also adds significant time delay - businesses have to wait days to get your money. So much friction even in the simpler case of a transacting in your local neighborhood. Think about transecting in an unstable country. Or transecting when you are one of the 1.7 billion people left out of the traditional banking systems. These are essentially the frictions that crypto removes.
World runs on trust and code. Crypto provides programmable building blocks to create decentralized trust using open infrastructure. These three characteristics - Programmability, Openness & Decentralization - are essential in solving huge friction points across different axis.
Today, weather we are talking about what you see in your newsfeeds or the fate of your freedom - it is increasingly decided by pieces of code controlled by a few. But it doesn’t need to be that way. We know the huge the impact of creating an open Financial API. And open source movement has already proven ability of global community to consistently improve code.
The code that runs our world doesn’t need to be centralized.
On the surface, crypto as a programmable money removes friction from transecting. But once we have a universe transaction layer, we can remove a lot of friction by building on top of it. As examples of a few things that would not be possible without crypto primitives, consider Airdrops and DAOs.
Airdrop created a new customer acquisition mechanism by moving from centralized intermediaries that adds friction (ad $) to code as intermediary that provide them tokens.
DAOs are internet native global organizations. Without crypto primitives like verifiable membership, transparent governance, global treasuries etc., there is so much friction that it is impossible to create such organizations.
While no technology is perfect, progress makes technology available to more and more people. And of course, as technologies remove more and more friction, some people will find darker use cases for technology. These are issues about use of technology by people, that has always been present, but become more apparent as the friction is removed. So, the next time you find yourself in debate about crypto, remember this - crypto is a tool to remove friction - and for the first time, we the people may have a chance to decide how we use it.