Author: @ohmzeus
Compiled by: Vernacular Blockchain
I recently researched how cryptocurrencies have strayed from their original vision, focusing too much on infrastructure innovation and neglecting the monetary foundations needed to deliver on the promise of financial sovereignty. This has led to a disconnect between technological achievement and sustainable value creation.
What I haven’t explored in depth is the fundamental misjudgment the industry has made in building applications. This misjudgment is at the heart of crypto’s current predicament and points to where the real value may emerge.
Application layer illusion
The cryptocurrency narrative has gone through multiple phases, but it has always promised revolutionary applications beyond finance. Smart contract platforms are positioned as the foundation of a new digital economy, with value flowing back from the application layer to the infrastructure. The "fat protocol theory" further reinforces this narrative: unlike TCP/IP in the Internet, where the value was limited and Google and Facebook made billions, blockchain protocols will capture most of the value.
This forms a mental model: the first-layer public chain (L1) gains value by supporting a diverse application ecosystem, similar to how Apple’s App Store or Microsoft’s Windows create value through third-party software.
But the fundamental misjudgment is that cryptocurrencies attempt to impose financial mechanisms in areas where financialization is not needed and fail to bring real value.
Unlike the Internet, which meets existing needs (such as business, communication, and entertainment) through digitization, cryptocurrencies attempt to inject financial mechanisms into unnecessary or unwanted activities. It is assumed that social media, games, identity management, etc. can all benefit from financialization and "on-chaining". However, the reality is quite the opposite:
Social Applications: Social platforms with tokens have difficulty gaining mainstream adoption, and user participation is mainly driven by token incentives rather than intrinsic utility.
Gaming applications: The traditional gaming community generally resists financialization, believing that it weakens rather than enhances the gaming experience.
Identity and reputation system: After the introduction of the Token economy, it is difficult to prove that it has more advantages than traditional methods.
This is not just a matter of “it’s early”; it reflects a deeper truth: finance is a tool for allocating resources, not an end in itself. Imposing financial mechanisms on social or recreational activities misunderstands the core role of finance in society.
Differences in the gaming market
The seemingly counter-example of the CS:GO skin market or in-game microtransaction system actually highlights an important difference:
These markets are optional cosmetic or collectible ecosystems alongside the game that have nothing to do with the core gameplay and are more like merchandise or memorabilia markets than changes to how the game works.
When crypto games attempt to financialize core gameplay — turning playing games into an act of making money — it fundamentally changes the player experience, often destroying the appeal of the game. The point is: games can have markets, but turning the gameplay itself into a financial activity changes its nature.
Blockchain technology and trustless encryption are two concepts that are often confused in discussions. Blockchain technology and trustlessness are not the same:
Blockchain technology: The technical capabilities used to create distributed, append-only ledgers and consensus mechanisms.
Trustless: The property that transactions can be executed without relying on a trusted third party.
Trustlessness has significant costs — in efficiency, complexity, and resource requirements. It requires clear justification and is only valid in certain scenarios.
For example, Dubai uses distributed ledger technology to manage property records, primarily for efficiency and transparency, not trustlessness. The land department remains the trusted authority, and the blockchain is just a more efficient database. This distinction is critical because it reveals where the value really lies.
The key insight is that trustlessness is only truly valuable in a few areas. Activities such as property records, identity verification, and supply chain management inherently require real-world execution or verification by a trusted entity. Using blockchain only changes the record management technology, not the reality of trust.
Cost-Benefit Analysis
This brings us to a simple cost-benefit analysis for each platform:
Does the platform actually benefit from removing the trusted intermediary?
Do the benefits outweigh the efficiency costs of achieving trustlessness?
For most non-financial applications, the answer to at least one of these questions is “no.” Either they cannot benefit from trustlessness (since external enforcement is still required), or the benefits are not enough to offset the costs.
This explains why institutional adoption of blockchain technology is primarily focused on efficiency gains rather than trustlessness. When traditional financial institutions tokenize assets on Ethereum, they use the network to achieve operational advantages or enter new markets while retaining the traditional trust model. Blockchain serves as an improved infrastructure rather than a mechanism to replace trust.
From an investment perspective, this brings challenges: the most valuable part of blockchain (the technology itself) can be adopted without necessarily bringing value to a specific chain or token. Traditional institutions can use private or public chains as infrastructure while controlling the most valuable layers - assets and monetary policy.
Adaptation Path
As this reality becomes clear, the industry is naturally adapting:
Technology adoption without a token economy: Traditional institutions adopt blockchain technology to bypass the speculative token economy and use it as an efficient conduit for existing financial activities.
Prioritize efficiency over revolution: move away from replacing existing systems and toward making them incrementally more efficient.
Value migration: Value mainly flows to specific applications with clear practicality, rather than underlying infrastructure tokens.
Narrative evolution: The industry gradually recalibrates the expression of value creation to match technological realities.
This is actually a good thing: why let the enablers of activities extract all the value from the value creators? This rent-seeking behavior runs counter to the capitalist ideals that the crypto movement advocates. If the main value of the Internet was captured by TCP/IP, rather than the applications on it, the Internet would be very different (almost certainly worse!). The industry is not failing, but facing reality. The technology itself has value and will continue to integrate with the existing system. But the distribution of value within the ecosystem may be very different from the early narrative.
What Went Wrong: Abandoned Original Intentions
To understand the current situation, we need to trace the origins of cryptocurrency. Bitcoin is not a general computing platform or the basis for the tokenization of everything. It was created specifically for currency - a response to the 2008 financial crisis and the failure of centralized monetary policy.
Its core insight is not "everything is on the chain" but "currency should not rely on trusted intermediaries."
As the industry develops, this original intention has been diluted or even abandoned by many projects. Projects like Ethereum have expanded the technical capabilities of blockchain, but at the same time have diluted the focus of monetary innovation.
This leads to a weird disconnect in the ecosystem:
Bitcoin: retains the currency focus, but lacks programming capabilities beyond basic money transfer functionality.
Smart contract platform: provides programming capabilities, but abandons monetary innovation and turns to "blockchain everything".
This divergence may be the industry’s worst wrong turn yet. Rather than building more sophisticated functionality on top of Bitcoin’s monetary innovation, the industry has instead turned to financializing everything — a step backwards that misjudged both the problem and the solution.
The way forward: a return to money
In my opinion, the path forward is to reconnect the advanced technological capabilities of blockchain with its original purpose as a currency. Not as a universal solution to all problems, but to focus on creating better money.
Currency is particularly well suited to blockchain for the following reasons:
Trustlessness is important: Unlike other applications that require external execution, currency can operate entirely in the digital realm, with code enforcing the rules.
Digital Native: Currency exists naturally in a digital environment without the need to map digital records to physical reality.
Clear value proposition: Removing intermediaries from the monetary system delivers real efficiency and sovereignty benefits.
Natural connection with existing financial applications: The most successful crypto applications (trading, lending, etc.) are naturally related to monetary innovation.
More importantly, money is the base layer upon which everything else is built without deep involvement. Cryptocurrency reverses this natural relationship. Instead of creating money that is seamlessly integrated into economic activity, the industry is trying to rebuild all economic activity around the blockchain.
The power of traditional money lies in its properties as a utility layer. Businesses accept dollars without having to understand the Federal Reserve; exporters manage currency risk without having to rebuild operations around monetary policy; individuals store value without having to become monetary theorists. Money facilitates economic activity, not dictates it.
On-chain currencies should work the same way - through a simple interface for off-chain businesses to use, just like using traditional banking infrastructure without being part of it. Businesses, entities and individuals can remain completely off-chain while taking advantage of the specific benefits of blockchain currencies.
Instead of building some vague notion of “Web3” that attempts to financialize everything, the industry should focus on building better money. Not just as a speculative asset or inflation hedge, but as a complete monetary system that works reliably under different market conditions.
This focus is all the more compelling given the global monetary landscape. The inherent instability of the current system coupled with rising geopolitical tensions underscores the real need for a neutral alternative.
The tragedy of the current landscape is not just a misallocation of resources but a missed opportunity. Incremental improvements in financial infrastructure, while valuable, pale in comparison to the transformative potential of addressing the fundamental challenges of money.
The next phase of cryptocurrency may not be about expanding further, but about returning to its original purpose. Not solving all problems, but serving as a reliable monetary infrastructure that provides the foundation for everything else — without having to think deeply about how it works.
This is the profound innovation that cryptocurrency originally promised — not to financialize everything, but to create money worthy of being the invisible infrastructure of the global economy. Seamlessly crossing borders and institutions while maintaining the sovereignty and stability our increasingly complex world requires. A money that enables rather than dominates, serves rather than constrains, evolves rather than interferes with human activity.
Link to this article: https://www.hellobtc.com/kp/du/05/5826.html
Source: https://x.com/ohmzeus/status/1919119965858521100
