作者:Shlok Khemani & Michaelwy

Compiled by: TechFlow

Today’s article provides entrepreneurs with a framework to help them understand the role of blockchain and its best use cases in solving problems and creating value. If you are a startup founder developing a business that can uniquely benefit from crypto technology, we are looking forward to talking to you.

Hello!

Last week, Mechazilla wowed the world with its stunning footage of a rocket booster. This event comes at a time when artificial intelligence is already well established. NVIDIA's stock performance in recent months is reminiscent of the 2021 frenzy when companies added blockchain to their names. However, this time there is substance behind the hype. As an industry, AI is attracting a lot of attention, capital, and talent.

The blockchain (or cryptocurrency) industry, on the other hand, seems to be lost in a jargon-filled mess of meme assets. It's hard not to feel like it's a waste of time to continue working in this space. Sure, there are occasional bull runs, and prices (or markets) are an important motivator to keep working in this industry. We may be on the cusp of the future of the internet, or we may be experiencing a huge psychological experiment on what happens when individuals are able to turn anything into a market.

Maybe it's a bit of both.

Today’s post, written in collaboration with Michael from Monad, explores a critical question: Why do blockchains matter? Are they as important as space exploration or artificial intelligence as an innovation system? Are we wasting our time? To find the answers, we looked to history, specifically the history of the automotive industry.

From Ford to Toyota

Before Henry Ford founded the Ford Motor Company in 1903, cars were a luxury only available to the wealthy. Cars were often built by hand, resulting in inefficient production and a shortage of skilled workers. Ford's innovation was the introduction of the moving assembly line, where each worker performed a specific task as a car passed by. By breaking the work down into simple, repeatable actions, Ford was able to employ less skilled workers to perform many of the tasks. This greatly increased production efficiency and reduced costs, making cars affordable for the middle class.

Ford assembly line (source)

The mass adoption of automobiles changed society in many ways. Horse-drawn carriages, once the primary means of transportation, were rapidly becoming obsolete. People were able to travel greater distances for work and leisure. Countless new jobs were created, not just in the auto industry, but also in related industries such as rubber, steel, and oil. Highways changed the landscape, and modified Fords used as tractors greatly increased agricultural productivity.

The rise of Ford became a significant turning point in human history.

About 50 years later, after the end of World War II, Japanese automaker Toyota was on the verge of bankruptcy. The government rejected a request for a bailout, 1,600 workers were laid off, and founder Sakichi Toyoda resigned. The company was barely surviving on orders for vehicles from the U.S. military for the Korean War. During this time, Eiji Toyoda (the founder’s cousin) and Taiichi Ohno began to reimagine how the automobile assembly line worked. They took inspiration from American supermarkets and introduced systems such as just-in-time, lean manufacturing, and Kanban.

In Toyota factories, anton (problem display board) will light up to alert workers to abnormal conditions (source)

These improvements make Toyota's manufacturing process more efficient and cost-effective while improving the quality of its vehicles. Once on the verge of bankruptcy, Toyota has grown into one of the world's largest automakers and is known for its reliability.

Over time, the Toyota Way became the standard for operating in the auto industry and in every field—from health care and retail to chip manufacturing and software development. While Toyota’s rise wasn’t as swift or dramatic as Ford’s, it changed the world in a subtle, gradual, and profound way.

Innovation comes in many forms.

The Schumpeterian perspective, derived from the work of economist Joseph Schumpeter, sees innovation as the primary driver of economic growth. Schumpeter developed the concept of “creative destruction,” describing how new technologies and innovations disrupt and replace obsolete things, thereby driving economic progress.

Simply put, these breakthroughs have dramatically increased human productivity and unlocked enormous potential economic value. These include Henry Ford’s assembly line, the printing press, the microprocessor, the internet, and artificial intelligence.

In contrast, Coase's view, which stems from the theories of economist Ronald Coase, emphasizes transaction costs and the role of institutions in reducing these costs to facilitate economic activity. Coase believed that economic systems and institutions exist primarily to reduce transaction and coordination costs between individuals and organizations.

The Coaseian perspective emphasizes the less visible but equally important infrastructure that is critical to economic efficiency. While the economic benefits of improving these institutional frameworks may not be immediately apparent, they can be significant in the long term. Decentralized Autonomous Organizations (DAOs) are a prime example of Coasean innovation.

Toyota’s manufacturing innovations transformed the company’s fortunes first, then the economics of the auto industry, and ultimately all industries. However, the transformation was gradual, with its impact visible in retrospect rather than immediately during the transformation.

Other examples of technological progress in the Coasean sense include double-entry bookkeeping, stock exchanges, open source software, and the reusability of rocket boosters. While these innovations may not be as dramatic as Schumpeterian ones, they are equally important in improving economic efficiency and advancing human society.

So, what about cryptocurrencies?

Think about areas where cryptocurrencies have found or are about to find market fit.

First up is Bitcoin, which has grown into a trillion-dollar asset and established itself as a legitimate, institutionalized store of value. Bitcoin has most of the properties of gold—scarcity, durability, portability, divisibility, and inertness. Time will tell if it can surpass gold as the de facto store of value. If so, it will be because it is more efficient at those properties. Bitcoin also has its own ETF, and Wall Street, at least, considers it an asset worth watching.

Next up are stablecoins, which offer a cheaper and faster way to make cross-border payments than traditional routes. The market demand for stablecoins is very strong, as evidenced by the growth of the total stablecoin supply from $500 million to $168 billion.

It’s worth exploring why this happens. International fiat transfers typically involve multiple intermediaries, such as banks, governments, and service providers like Western Union. Each intermediary exists to provide a trust service and charges a fee (whether in money or time) for doing so. Blockchain, as a highly secure, transparent, and decentralized ledger, significantly reduces the cost of trust. Stablecoins are cheaper and faster because the trust level of the Ethereum blockchain is comparable to or even higher than the institutional portfolio that traditional fiat currencies rely on.

This is also true in areas such as decentralized finance (DeFi) and digital art (NFTs). In DeFi, interacting with smart contracts is more efficient than trading through intermediaries such as banks, brokerage firms, and exchanges. Before the emergence of NFTs, auction houses were the bridge of trust between collectors and artists. It was difficult for unknown artists to sell their works at high prices without the endorsement of auction houses. Ethereum provides the same (or even better) trust guarantee, and is faster and more economical.

Recently, we have witnessed the rise of various types of DePIN networks. Are these networks creating entirely new services? Not really. Mobile data, electricity, GPUs, satellite data, and digital maps do not rely on blockchains themselves. However, the way they are monetized and distributed is either inefficient or relies on centralized institutions. DePIN networks are trying to achieve more efficient coordination methods.

Fundamentally, cryptocurrency is a Coasean technology. Although from a financial perspective, cryptocurrency has indeed brought many epoch-making changes, from a broader perspective, finance is actually a means to promote human coordination and productivity, and finance itself has Coasean qualities.

Cryptocurrency will not revolutionize the world like AI or rockets, nor is it intended to. Instead, cryptocurrency plays a different role. It will help us collect data to train large language models (LLMs) and provide a means for value transfer between AI agents. It will accelerate the formation of new networks and may even help the next Elon Musk move to the United States from a third world country. But cryptocurrency alone may not subvert the social structure as we expect. It is more like paint than canvas, and it remains to be seen what kind of picture it can paint.

As technology continues to advance along an exponential trajectory, cryptocurrencies will grease the wheels of development, pave the way for innovation, and strengthen the bridges of connection.

Cryptocurrency will change the world in its own unique way.

Enjoy the Ethereum vs. Solana debate on CT,

Shlok Khamani