There are many indications that the bubble has burst. As we all know from history, though, a burst bubble isn’t the end of the story. It’s the start of a new one.
Blockchain has already been through two interesting epochs, and we’re on the cusp of a third. I break these epochs down into three stages: the Crypto era, the Web3 era, and the Abstraction era. As we approach the abstraction era, the role of blockchain technology will continue to morph and evolve in ways that have major implications for consumers and investors alike. As an investor in businesses leveraging the technologies and philosophies of crypto and web3, I’ve never been more excited about the opportunities ahead of us.
Epoch 1: Crypto (2009-2018)
The primary focus of Epoch 1 was cryptocurrencies, predominantly Bitcoin. During the first epoch, there was significant energy around the technological innovation represented by the blockchain. Additionally, if you were serious about crypto during this time, you held Bitcoin in a wallet you created—not on an exchange.
A defining belief of this epoch was, “Not your keys, not your coins.” That belief persists, but subsequent epochs and the future of the blockchain will challenge it in ways both great and small.
Tokens existed and trading happened during this epoch, but these were the early days. Most people getting into crypto bought into the philosophy of self-sovereignty and planned to hodl to the moon.
The idea that we might be building a new internet hadn’t fully taken hold, although some of the signs were emerging. Protocols began springing up and issuing native tokens, promising ambitious technology roadmaps and quick riches. To access the opportunities of what would come to be called Web3, many crypto holders sacrificed security for convenience and got rekt in the process.
This epoch began when the genesis block was minted in 2009 and ended with the ICO boom and bust in 2017-8.
Epoch 2: Web3 (2018-2022)
Then we entered Epoch 2, which was a period of wallets and exchanges, massive speculation, and spectacular financial collapses. This epoch was characterized by the proliferation of decentralized finance (DeFi) and non fungible tokens (NFTs), along with a boom in crypto adoption.
During this period, real business applications built on the blockchain began to emerge, though were overshadowed by the narratives centered on DeFi and NFT trading. New platforms and ecosystems emerged, with Ethereum as the poster child for programmable blockchains, Uniswap and ConsenSys’s MetaMask as leading examples of decentralized applications (dApps), and a host of centralized exchanges emblazoning sports stadiums and buying Super Bowl ads to bring the masses into Web3.
However, during this epoch, users had to jump through a ton of hoops to interact with those platforms and ecosystems, creating new risks in addition to the empty promises of sham projects.
The process we put up with is amazing, and faintly ridiculous when you break it down:
- First, sign up for an exchange account (FTX, Coinbase, Crypto.com, Binance—pick your poison)
- Connect your bank account to your exchange account
- Wait a couple days for your account to be funded
- Purchase a token (ETH, SOL, etc.)
- Install a browser wallet (MetaMask, Phantom)
- Send your token to the address on your wallet. Now, to do this, you have to click on the wallet, get the address, copy and paste it into your exchange, then press “Send” and hope you got it right—because if you didn’t, that money is gone forever. A lot of money was lost to fat finger mistakes during this step (to say nothing of exchange failures, scams, and speculation)
- Refresh over and over until the token shows up in your wallet
- Now you can use Web3: go to a website, hit “connect wallet,” sign a transaction, convert it and stake it, play a game, and so on
If you ever needed to convert that token into currency, you had to reverse this whole process: sending the token back to the exchange (after you find your wallet address in the exchange…which, by the way was never really yours, but commingled with everyone else’s), selling it, eating the fees, and then withdrawing the money—which could take days (if the exchange was allowing withdrawals at all!).
This—this clunky, unwieldy, error-prone process—this was what we all got so excited about? In some ways Epoch 2 was really built for and by the winners of Epoch 1. It was designed for people who already held crypto in a wallet at a low cost basis. It was funny money, not fiat money.
While the main focus of activity (and media attention) went to NFTs, a long tail of other use cases appeared during Epoch 2, including DeFi and play-to-earn games. It would be easy to say that the constant meltdowns and scams are what caused the end of this epoch, but it’s more than that. The process simply sucked, but it was a necessary part of a technological evolution that will bring us to an epoch of abstraction.
Epoch 3: Abstraction (2023-?)
The next evolutionary phase of blockchain technology, the third epoch, begins now. Epoch 3 is all about abstraction, and will usher in the next billion users (who will actually be the first billion, seeing as the first two epochs brought in fewer than 100 million people).
We’re already seeing this shift occur: In the previous phases, much of our energy and attention went to cryptocurrency; we assumed the exciting part about the blockchain was how it enabled self-sovereignty and decentralized finance.
There are two ways to think about the coming evolution of blockchain technology: as akin to the mobile evolution, or as akin to the cloud revolution. With the mobile evolution, users could only benefit if they had access to a mobile device, some level of technical skill, and a willingness to make behavioral changes. Hardcore crypto types might say that so far, we’ve aligned with the mobile revolution.
The cloud revolution, on the other hand, was a natural evolution of technology and the internet: Everyone’s on the cloud now, often without even realizing it. The end user doesn’t know or care how the cloud works, and you don’t need a new device, new technical skills, or new behavior to use the cloud. The cloud simply operates in the background, streamlining your experience.
In Epoch 3, the exciting thing won’t be currency; it will be the underlying technology: The blockchain itself. The fact that we can do things in a fast, secure, decentralized, and resilient way is the true game-changer for the future, and its effects are going to be widespread and largely invisible to the end user. Going forward, most people who use crypto to buy something may not even know it.
It’s already happening: On OpenSea, you can now buy an NFT with dollars. In fact, that’s becoming their primary call to action. A third-party service cuts all those clunky steps from Epoch 2 so that the end user can make their purchase with a single click, rather than laboring through the whole complex process themselves. That’s the abstraction era in action.
Another example is Reddit, whose “Collectible Avatars” (notably not called NFTs) have been downloaded by 4.3 million people since September, more than the entire 2.5 million wallets with NFTs prior to September, according to Nansen.
“It’s not about NFTs. It’s about the use case. A ticket, access, experience, loyalty. The tech and Web3 terms need to fade into the background,” says Mathew Sweezey, Co-founder of Salesforce’s Web3 Studio.
Think of it this way: No provider boasts to their prospective end user about the cloud—the end user doesn’t care where information is stored or what the technological underpinning looks like. They just want a great UI and the knowledge that their information is stored securely. We’re seeing the same type of evolution with blockchain technology.
The future of the blockchain is one in which the next billion crypto users won’t hold Bitcoin, Ethereum, or any other fungible tokens. They’ll use fiat to purchase goods and services, and that fiat might be exchanged for tokens somewhere on the back end.
For example, if I’m going to Italy, I don’t start gathering up a bunch of Euros ahead of my trip. When I get there and sit down in a restaurant, all I care about is eating my pasta and drinking my wine. I’ll pay with a credit card and my dollars will get converted to Euros. If the back-end technology uses the Solana blockchain to do the conversion and it converts my fiat to USDC and then to EUROC, saving the merchant forex fees, fantastic.
I don’t need to know how the technology works: I’m still paying with dollars and the restaurant is still getting paid in Euros. The blockchain technology that enables this seamless transaction doesn’t need my attention, it just works.
Put simply, the blockchain is going to become infrastructure. Just as no one really talks about “the cloud” anymore, we won’t talk about “the blockchain” either. We won’t need to know or care which blockchain our purchases are stored on. Starbucks announced they will begin issuing customers “stamps” in their Odyssey loyalty program on Polygon, yet no one ordering a PSL will ever need MATIC or care.
Some readers might be hearkening back to Epoch 1 and saying, “Not your keys, not your coins.” There’s still a pervasive belief that if you’re not self-custodying your assets on a hardware wallet, you’re subject to the same centralization risk that’s been at the center of catastrophe after catastrophe.
Here’s what I have to say to that fear: In the late ‘90s, there were about 30 million AOL users. Currently, MetaMask has about 30 million users. The technology is changing and it will continue to change—and improve. In MetaMask, you already have the option to export your keys if you want to go and play in another sandbox.
That option won’t disappear in the abstraction era. You’ll be able to export your assets and take them with you, including into self-custody. Most users probably won’t, because most users probably won’t care.
Predicting the Future
This future has implications for investors as well as consumers. During Epoch 2 and its Web3 focus, venture capital often looked like investing in crypto. In the abstraction era, we’ll be investing in great businesses and technologies, instead—most of those will just happen to be built on the blockchain.
Many funds used to call themselves “cloud” funds or invest in “mobile;” now, those categories are native to almost any new technology. Similarly, in five years or so, there won’t be a distinction that a fund is a “Web3” fund, because where the technologies or philosophies of cryptocurrency or Web3 make sense, they will be used by the best businesses, and everyone will benefit. Abstraction is coming, so any companies building into the ecosystem of “connect wallet” should take caution and figure out how to make it easier to onboard new users. Huge companies like Stripe and Coinbase are investing heavily in their APIs, and startups like Peaze, Axel, and Biconomy are making it incredibly easy to web3ify any business. The next billion crypto users are coming, and they won’t even know it.