Ethereum hackathon ETHWaterloo has recently wound up, with the highlight of the event concluding as an appearance from Ethereum mastermind Vitalik Buterin. Speaking in his former university town of Waterloo, Buterin offered his perspective on tokens, which are currently one of the most interesting aspects of the crypto ecosystem.
“It is an established fact that ninety percent of startups fail,” stated Buterin in response to questions from moderator William Mougayar regarding the heavy emphasis on tokens present within the blockchain ecosystem. “And it should also be an established fact that ninety-percent of these ERC20s on CoinMarketCap are going to go to zero.”
The sobering remarks delivered by Buterin come at a critical growth point in the cryptocurrency industry in which cryptocurrencies and crypto assets are beginning to develop a foothold in larger markets as a new asset class attached to traditional financial products such as derivatives.
“This, basically, is tokens1.0. There are some good ideas, there are a lot of very bad ideas, and there’s a lot of very, very bad ideas, and quite a few scams as well.
According to Buterin, the next phase of token development- a stage he called “Tokens 2.0”, will benefit greatly from the experimental status of tokens at the current point in time. Buterin also stated that he believes tokens will gain a certain amount of maturity after the initial “Tokens 1.0” stage is over and the hype surrounding token values and investments has subsided.
“I expect that tokens2.0 and the kinds of things that people will start building in 2018 and 2019 will generally be of substantially higher quality. Especially once we start seeing what the consequences of the first wave of tokens are in the medium-to-longer term … What is a good role for them and what is a role that doesn’t really make sense?”
Despite expressing that he is “happy” with the current amount of experimentation demonstrated by the broad spectrum of different tokens available, Buterin has also divulged that he is relatively concerned regarding tokens that are launched with sizeable token offerings.
“For example, people talk a lot about three or four projects with $200 million ICOs and so forth but there is also the long tail of much smaller projects that often do very interesting things that we often just never end up hearing about.”
The core theme of Buterin’s statements on tokens are that the entire crypto ecosystem is at a nascent stage of development, and that the token system is not yet necessarily based on fundamental economic principles.
“I think part of this actually comes from the fact that these tokens don’t have sensible valuation models. Basically, if you try to economically model the idea of tokens being valuable as a medium of exchange, you start to realize that it’s a very multi-equilibrium game. Basically, tokens maintain their value if people want to hold them.
In general, when you have a new industry and you have this early stage 1.0 period, lots of people try different things, and lots of people try lots of things that just make no sense whatsoever. After some time, the market does mature … I personally do think it is coming but there is going to be a process involved in getting there.”
While the remarks made by Buterin may be interpreted by some as harsh criticism leveled at the cryptocurrency industry as a whole, it’s true that the token market is in need of a healthy dose of realism based on fundamentals, truth, and responsibility.