Mass adoption will be terrible for crypto

For years, mass adoption has been presented as the endgame of crypto. We will envision a world where we can pay for our morning coffee with stablecoins and put mortgages on the chain to be used as collateral in decentralized finance (DeFi). In a world where crypto has gone mainstream, prices are likely to reach all-time highs, but at what cost?

Concessions will inevitably be made to meet consumer expectations to realize this future.

While the proliferation of online banking may seem like it set the stage for a seamless transition to DeFi, traditional financial customers (TradFi) are accustomed to a level of inherent security that is lacking in DeFi. Unlike in traditional finance, where fees can be declared fraudulent and bad actors are banned from listing exchange-traded funds, there is no centralized authority to file a complaint or review initial coin offerings in crypto. Although this may seem intimidating, it is precisely what makes the space unique; users are given complete, supreme control over their finances, and teams can build products without permission.

The average consumer would expect to be protected from hacks and exploits and be offered chargeback protection to make the switch from TradFi. The measures required to match consumer expectations will derail future innovation and greatly reduce the immutability and decentralization of DeFi, one of its core principles. Although there are already plans to create reversible opt-in transactions to mitigate the damage of future hacks and exploits, consumer pressure will likely trigger a top-down approach, which will almost certainly be implemented with far less finesse and care for the industry than current prospects.

Related: Reversible blockchain transactions are key to fighting crime in crypto

Increased consumer pressure will mean that regulators will play a leading role in dictating crypto’s future, ensuring that chain activity meets their compliance and Know Your Customer standards. These moves would have an overall impact on smaller teams, as large companies would be able to hire new teams specifically focused on compliance or simply pay off the fines. But crypto is what it is today because of small teams; Ethereum was founded by a group of eight individuals. Small teams can innovate and make decisions at a far greater speed than larger organizations, which may be hampered by bureaucracy or disparate stakeholders. By raising the barrier to entry for smaller teams, mass regulation will hinder the very innovation DeFi is known for and effectively put an end to permissionless operations.

The recent sanctions against Tornado Cash are a good example of how quickly regulation can change the industry. After the sanctions, external procedural calls, relayors and apps moved quickly to comply – and understandably, developers can’t be expected to face jail time in the name of upholding crypto’s principles. This occurrence demonstrates the ability of regulators to hoard even the most immutable and decentralized projects. If we follow the precedent of this example, it seems impossible that crypto can scale to mass adoption without losing its core principles.

While one of the key selling points of crypto is the censorship-resistant, permissionless and decentralized values ​​that permeate the entire industry, mass adoption will undoubtedly hinder, if not outright stop, such principles. We are likely to see consolidations and concessions as companies face the reality of regulation. Soon, DeFi would seem eerily similar to the TradFi industry that users and developers were trying to escape.

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It doesn’t have to be that way.

One of the main reasons regulators are keen to go after crypto is that it has been marketed to the average consumer. The fallout from Anchor and Celsius would have been far less if the damage had been limited to smaller groups of informed users who understood the risks.

For this reason, focusing on improving crypto UX without first building anti-fragile systems is a recipe for disaster. If the user interface is intuitive enough, many will overlook the underlying mechanics and assume they are safe. On the other hand, crypto would not need to meet the expectations of the average consumer (reversibility, chargebacks, etc.) if it was built for a user base that prioritized the principles.

Crypto can be the future of finance, or it can be permissionless, decentralized and censorship-resistant, but it probably can’t be both. While the idea of ​​mass adoption as the end game has been taken for granted, perhaps we should build for a future that preserves crypto’s core principles for those who want it, while accepting that this may come at the expense of mass adoption.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.