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Understanding Crypto Communities

Published 9.1.2024

Blockchain is said to be built from the bottom up, by the people for the people. It can be perceived as a social experiment. Being a fan or user of a blockchain project is a choice. Any public blockchain's success depends on the community in the long run. Cardano has a large and loyal community. If it continues to grow, the only possible outcome is success. However, growth is not automatically guaranteed and there must be reasons for it. There are ties and dependencies between the community and the blockchain.

Why Are People Becoming Blockchain Fans?

There are various reasons why people become fans of a particular project. For some, a single reason is enough, but it can be a mix of several reasons.

Many people perceive cryptocurrencies as a new and potentially transformative technology. They are excited about the potential of blockchain (and DeFi) to change the financial world.

When the first social networks started to appear, people asked why they should use them when they could meet their friends face to face. Nevertheless, some early adopters saw the potential in social networks and therefore used them. They discovered they could communicate with people from all over the world at a distance.

Some similarities can be observed between social networks and the blockchain project. People band together around a specific protocol that allows them to interact. People can choose one or several social networks according to their wants and needs. It is very similar to blockchain projects.

The network effect grows gradually. From the hundreds and thousands of users who adopted the protocol first, there may gradually be hundreds of millions of users. Success grows with the number of users. Blockchain projects tend to follow the same trajectory as social networks.

In the figure below, you can see the growth of users over time for several social networks. Note that there are more than a dozen of them. The oldest network, MySpace, disappeared and was replaced by others.

We can find very similar graphs for blockchain projects. In the image below you can see the two oldest projects Bitcoin and Ethereum. The crypto industry is still very young, so unfortunately there are not many good statistics and comparisons.

Other reasons for adopting a blockchain project can be ideology, admiration for technology, availability of financial infrastructure, higher privacy and security, community membership, financial opportunities and investment, etc.

Some people believe that decentralization can disrupt central banks, banking services, or even states and that cryptocurrencies can replace fiat currencies. Some people love DeFi and see it as the future of banking. Some people choose a particular project because of its technology and team. A large part of people holding cryptocurrencies can only be investors or speculators. People from poor regions use services on the blockchain because it may be the only available or fair option. Let's not forget the NFT sector, gaming, and other emerging sectors.

These are all relevant reasons to become a fan or user (mostly both) of a particular blockchain project. Of course, people are not forced to choose a single project. Just as they can use multiple social services, like Twitter to follow news and YouTube to watch videos, they can use multiple blockchain networks.

Interoperability will connect blockchains. Just as it is possible to insert a link from Twitter (formerly X) on Facebook comments, it will be possible to use multiple blockchains for one operation.

Over time, people may reconsider the reasons. Some current assumptions may be confirmed and become more likely, while others may turn out to be invalid. New narratives and uses for blockchain may emerge. The crypto industry is still in the early adopters phase. It is therefore difficult to predict which uses and trends will gain the most traction.

With the development of the DeFi sector, ZK cryptography, and increasing scalability, new possibilities for use are opening up. Among other things, the HODL narrative was created because blockchain networks do not yet scale very well and the UX needs to be polished. I'm sure that as technological capabilities improve, narratives and uses will change.

Technology is an important topic in the context of communities, so let's take a closer look at it.

Technology And Community

There are many relationships and dependencies between the community and the blockchain project. We will not describe them all in the article. However, one of the most important is the technological features of the given blockchain project.

If we consider security as an absolute necessity for every technology, then in the context of decentralization, the 2 most important properties of blockchain are decentralization and scalability.

Many people adopt the project based on its decentralization and the possibility of participating in the network consensus, which entails the possibility of receiving a reward.

Cardano is one of the most decentralized networks (in terms of block production) and inclusive in terms of consensus participation. Staking of ADA is available to literally everyone. Cardano's decentralization is attractive to some fans and may be one of the main reasons for further community growth.

However, it is important to note that decentralization is not an easily measurable property for many users. They cannot try or test it in any way. However, what users can perceive very well is the scalability and all the features associated with the use of the protocol.

Scalability is a must for adoption and this feature is becoming preferred over decentralization. Let's leave aside whether it's good or bad in this article.

The quality of decentralization is not a guarantee of success. It is naive to expect that the best-decentralized project will also be the one with the largest market capitalization. For many people, decentralization may not be a preferred feature. However, this may change over time.

The TPS narrative is getting stronger. In the next bull market, this may be one of the dominant arguments for project adoption.

In the long term, those projects that have solid decentralization and scalability will succeed. It doesn't matter if scalability is achieved on L1 or through L2. More important is UX, i.e. ease of use, reliability, transaction fees, etc.

If Cardano is to succeed and still have a large community, it needs to scale better in the foreseeable future, or at least there needs to be a road map and vision.

In addition to these two described properties, other technological aspects are important. Programmability and the ability to issue custom tokens play an increasingly important role.

Even on Bitcoin, NFTs, tokens, and the first attempts at DeFi are appearing. L2s require extensive L1 programmability.

People will adopt blockchain through applications. Most transactions will not involve the transfer of native coins (ADA, BTC, ETH, etc.), but stablecoins and tokens. It will not be unconditional transactions (push transactions from Alice to Bob), but conditional transactions made through DeFi applications.

From the statistics for the last month, you can see that there were only slightly fewer SC transactions than normal transactions on Cardano. There were also relatively many transactions with metadata.

Modern blockchains are not only transaction networks, but platforms enabling the creation of applications and their deployment. Platforms must be attractive to developers, which is a topic for a separate article.

In short, we can say that good and high-quality applications will only be created if the platform allows it and the developers have all the necessary tools and infrastructure at their disposal. Developers build apps with the assumption that someone will use them. A prerequisite for the adoption of the platform is therefore a broad user base (i.e. the community).

Quality applications and services have the potential to attract new users. Growth must not be held back by low scalability. Therefore, not only scalability but also the quality of applications are decisive for the success of the blockchain (from the point of view of users overlooking decentralization).

It can be said that a significant factor for adoption is the team. From a user perspective, it's smart to be interested in the team and its funding. It's good to ask what is the potential for protocol improvements and the team's ability to innovate.

Some Bitcoin fans believe that something like a team must not exist due to decentralization. On the other side of the spectrum may be a team with a CEO. People may have different preferences and expectations from the project, or different understanding of what software and protocols are.

I believe that successful projects will be those with cutting-edge technology. As with decentralization, the technologically best project may not necessarily be the one with the highest market capitalization. On the other hand, properties such as scalability, security, and UX (properties that users perceive when using the protocol) are directly influenced by the quality of technology and innovation.

The reality is that all successful IT companies employ the best minds on the planet. Formal methods and a scientific approach are often used. From the perspective of the teams, the crypto industry is no different from the IT giants.

Projects with a quality team have a huge potential (not a guarantee) to succeed.

The difference must be in governance. IT giants have CEOs. Blockchain projects must have some form of governance and secured financing for maintenance and development (project treasury).

Governance is a theme that distinguishes different projects from each other. Let's take a look at it.

Governance

There are different views on governance. Many concepts are untested. Governance often only works on assumptions and only time will tell if they are valid.

Every project needs a team of developers and ideally also scientists. Every team needs some form of management, i.e. a decision-making process ideally including some form of voting.

It is a matter of opinion to what extent the team should be able to change the protocol and whether to come up with fundamental innovations will depend on future problems and user requirements. Since many projects are still in development and most of them do not yet face serious existential problems, I believe that the debate on this topic is just ahead of us.

The Bitcoin community believes that Bitcoin is essentially done and will only change conservatively. The Cardano community believes that success is linked to technological progress and innovation. These are two completely different views with different requirements for the functioning of governance.

It's the same with funding team members for protocol maintenance and development. The Bitcoin community believes that volunteer subsidies (for example from BlackRock, which will hold BTC after ETF approval) and VC funds are enough. The Cardano community believes that the ideal approach is to have a project treasury and the ability to vote on backlog priorities.

In the picture below you can see that there are over 1.45B ADA coins in the Cardano treasury.

There is no point in arguing about which approach is the best. People who become members of the community know (or should know) how the team and governance work. Both approaches have their supporters and detractors. Both are relevant and it makes sense to try them out.

There Is No Best Blockchain

There is no single blockchain project that would be the most suitable for all people in the world. Just like there isn't one car model, one social network, one operating system, one government, or one religion that fits all people in the world.

One IT rule says that there is no single best solution, but an ideal solution for a particular problem. A Linux solution is more suitable for the server. For the average senior accountant, Windows is more suitable.

Everyone has probably encountered toxicity and extreme opinions in the crypto industry. Rivalry and tribalism between communities are high. Unfortunately, often useless and pointless.

It is naive to expect all people to adopt only Bitcoin for PoW or Cardano for PoS. People are different and have different preferences and expectations. Young people gravitate towards green technologies and want to take care of the planet, so they may not like PoW. But some people like the idea that Bitcoin is secured by huge halls full of ASIC hardware. Both will find their fans.

It is healthy to debate the differences. It is unhealthy to make nonsensical arguments or spread FUD. It is pointless to judge someone for choosing a different project than you.

Some people prefer higher scalability over decentralization. Some people need DeFi and just a transaction network is not enough for them. Some people cannot mine BTC in a given location and therefore prefer to stake ADA. Some people love NFTs or need stablecoins. Some people are conservative and some love innovation.

People should understand that diversity and a competitive environment is a necessity for evolution. Even if we admit that one project is absolutely the best at the moment, why not create an even better one? Does it make sense to tie the future of humanity forever to one protocol?

It has never happened in history and let's be glad it won't happen. People have an incredible ability to improve, innovate, and make things more efficient.

Many years ago it was said that blockchain was a slow and inefficient database and that it would never scale better. Would anyone dare say that today? Does it make sense to ignore technological progress? I can assure you that in the next 10 years, the blockchain industry will look completely different.

Conclusion

A crypto community is a must for any blockchain as it is a sign of success. Community members use the protocol and contribute to the growth of the network effect. They also help newbies understand basic concepts or advise them on how to use blockchain technologies. The community is the best marketing for the project. People often go where they see other people. The large community is attractive and has the potential for further growth. However, elements of sectarianism may put some people off.

Users are important in the context of the long-term economic sustainability of the project. It is important to note that without fees, no blockchain can survive in the long term.

Community growth is not automatic. Individual projects fight for new members. People may switch between different projects for different reasons, or use more than one for different things. The drivers of adoption will be innovation and technological progress. Stagnation can pose a risk of losing users.

We can often come across the opinion that people adopt new and better money. Although it is possible to agree with this opinion, it is still true that people adopt the technology, i.e. the protocol with all its features and the existing community. Becoming a fan of a community means adopting the technology (and team) as well as the community's views (its narratives).

Cryptocurrencies are often discussed in the context of speculation or investment. It would be nice to see the transformation of the desire for profit to change the financial sector and society. This can only be achieved if the HODL approach is transformed into a USE approach. This is probably the biggest challenge for communities.

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