Some views on the crypto market: AI will become a big problem for cryptocurrencies

Author: Eric Wall Source: X, @ercwl Translation: Shan Ouba, Golden Finance

My views on the crypto market.

Bitcoin seems to be gradually becoming the asset that many people have longed for. In a world that is increasingly complex in all aspects, Bitcoin is beginning to look simple. It is simpler than fiat currency, simpler than other cryptocurrencies, and gradually has the "it is a thing that stays the same" characteristics of gold, which I think will keep it relevant. Yes, Bitcoin has flaws, poor anonymity, poor lightning network, questionable security budget, and ETFs may bring risks at the consensus level. These are all true. But Bitcoin is a household name, people understand what it is, and it is likely to continue to exist whether you like it or not. If you pay attention to cryptocurrencies, I always think this is good for you.

Sorry, no serious allocator wants to treat these assets like startups, wondering “Am I investing in a project that might be replaced, like Napoleon vs. Spotify?”, “What if Ethereum is replaced by Solana?” I still firmly believe that Bitcoin’s staying number one simplifies the narrative of our entire industry, allowing it to move away from the image of pink sheets and speculative casinos. If Bitcoin were to be eliminated and become the shiny new thing, the entire industry would be in chaos. Bitcoin’s dominance allows other assets to flourish on the sidelines because they have a competing goal and a challenge to the status quo. You can create something better, more anonymous, and more free than this trillion-dollar asset. Bitcoin’s death will only bring desolation, and your consensus puzzles and ZKPs will be reduced to libertarian technical gadgets.

Ethereum has kind of failed in this cycle. The root cause is the structure of the regulatory environment, which allows retail investors to buy into well-designed projects at the highs, only to watch the price go down all the way in the subsequent decline, because they will never understand low float market cap and only look at unit price. VCs are also unashamed to exploit this dynamic to the maximum extent possible. Disappointed crypto participants therefore make rational decisions to buy useless junk assets throughout the cycle, because at least you can buy a meme with a $1 million market cap. But this dynamic is likely to be distorted by KOLs who want to exploit in a similar way, and I am almost certain that these people who play these boring things will claim that this has already happened.

You might say, but Eric, Ethereum is not an ERC20 asset we speculate on, it is the decentralized infrastructure and ultrasonic currency we built, but the decentralized infrastructure we built is not that impressive, we still have centralized rollups, fragmentation, poor privacy, OFAC-reviewed builders, the real magic of Ethereum is "smart young people doing smart computer financial things", which makes this field highly investable because these young people look like they are creating the future, but for anyone interested in these smart young people building the future, there are now smart young people doing generative AI, which sounds smarter and easier to understand and get actual value from, rather than decentralized casino yield farms, which even Vitalik Buterin calls self-inflicted. So yes, Ethereum lost this cycle to Solana, which embraced the nihilism of it all more and decided to at least do better on the technical and community side.

That being said, it would be a mistake to conflate Ethereum’s narrative failures this cycle with the conclusion that Ethereum is now useless garbage. Ethereum has come a long way. Stablecoins are my favorite way to use fiat. I use them regularly for most of my fiat transactions, and I feel safe storing large sums of money in protocols like Compound. It’s crazy to imagine that you could do this without banks a decade ago, and the system worked so well and was secure. Even as a privileged Westerner, I’m enjoying it. Going back to life with traditional banks is unthinkable to me. Prediction markets are cool too, powered by stablecoins.

So, are we at this stage now? Looking forward, I expect AI to continue to be a bigger and bigger “problem” in the crypto market, as it competes for the same attention among builders and investors, dragging more cryptocurrencies into AI tokens, and we’ll be fed the “decentralized AI” narrative for many years. These projects will be shit, but they will continue to exist because there will always be a real and valid vision to sell, "what if ChatGPT wasn't so well behaved?" - the market will not be able to realize this vision, decentralized AI will try, but it will fail because doing good AI requires centralization, the cutting edge models will always be better, and the best we can do in uncensored AI is to fine-tune open source models to make them less woke. But this can also be solved by Erik Voorhees in Venice, and it's no different than decentralized AI projects.

One of the main reasons is that in decentralized AI networks you can't mathematically verify "proper work", so they all become redundant, meaningless overfitting, and corrupt human oracles until they start using Trusted Execution Environments (TEEs), which will evolve into the question of "is decentralized AI really decentralized?" But it will still be a big hit because the main thing the crypto market can do for AI is to provide AI startups with fast enough exit liquidity before the AI ​​apocalypse comes - if you think about it, you can't even be optimistic about AI startups if you think the path to liquidity is slower than the speed at which the world changes beyond recognition. So AI has to marry crypto, but you're still going to buy junk.