Paradigm Shifts - The Daily Gwei #357

Paradigm shifts don't happen very often but when they do you better be paying attention.

The term ‘paradigm shift’ is often used to describe things that are so different and so revolutionary that they are expected to change an entire industry. The term is overused within crypto and I shy away from using it most of the time but I do think that modular blockchains and zero knowledge technology are a paradigm shift and are about to change everything. Though I won’t be going through why in today’s piece (I’ve covered it previously here) and you can also watch this Bankless video with David and I discussing the concept and this other Bankless video where Ryan and David break down the whole thing.

What I wanted to focus on today was how many people in this industry (not just VCs) tend to miss these paradigm shifts because they are either pushing stale narratives to further their own agenda/investments or they simply don’t see what is happening right in front of them. When it comes to people betting on “Ethereum killers” or other layer 1 blockchains, it can be seen as a “logical” bet to make because there’s an easy narrative to sell right now. Of course, that narrative is that Ethereum’s gas fees are high so Ethereum is broken and everyone will eventually just use the other chains. Obviously, Ethereum is not broken, it’s innovating on scaling more than any other ecosystem, and still has a huge network effect across all fronts. Not to mention the social legitimacy Ethereum has that works to attract the best and brightest minds to work within its ecosystem.

Now, I want to be clear here, not all VCs/firms and investors are created equal - there are plenty out there who actually see this new paradigm and are actively investing in it (while also not spreading bad narratives about Ethereum). I also want to be clear that I don’t think there’s anything wrong with people investing in things outside of the Ethereum ecosystem - my main issue is just when people invest in something and then tear down Ethereum to push a narrative for those investments. There are plenty of legitimate things to criticize Ethereum about and I wish that people would focus on those things so that constructive debate could actually be had - though I guess it’s just easier to target the “obvious” weaknesses instead of digging down into the weeds.

I believe the next 5 years in the crypto ecosystem are going to look dramatically different to the previous 5 years. We had the 2016-2021 monolithic blockchain era (chains trying to do everything at layer 1) and I think going forward we are going to have the 2021+ modular blockchain era where hardly any new layer 1’s will come to market - we’ll just simply see new layer 2’s secured by Ethereum. Maybe you have doubts about this future - well, just look at layer 1 chains today - none of them launch as proof of work - all of them are proof of stake. The last proof of work blockchain to launch (to my knowledge) was Grin in 2019 and it’s down 99.8% from its all time high. Why is this the case? Because PoW is viewed as “outdated” technology compared to PoS and I think the same will apply to monolithic vs modular blockchains. Why spin up an entirely new layer 1 when you can just create a layer 2, outsource your security to Ethereum, and inherit all of Ethereum’s network effect and community.

I’m obviously placing all of my financial and social bets on this new modular blockchain paradigm by investing in layer 2’s, the bridges that connect them, the supporting infrastructure and, of course, I’m still stacking ETH every day. I think that Ethereum is best positioned to be the settlement and security layer for this new modular blockchain paradigm from both a technical and social standpoint - and there really isn’t anything that I would consider a close second at this point.

It’ll be fun to revisit this piece in 5 years to see if my thesis was right. In the meantime, make sure that you don’t sleep on this paradigm shift, they don’t come around very often.

Have a great weekend everyone,
Anthony Sassano

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All information presented above is for educational purposes only and should not be taken as investment advice.