When predicting how the cryptocurrency economy will evolve, many people have looked to the start of the internet itself. They imagine certain standards or protocols becoming dominant, with value accruing in the application layers.
But cryptocurrencies are different.
Amos Meiri is an angel investor in the crypto space, the Co-Founder of the Colored Coins protocol (2012), Colu.com, a board member at Horizen and a strategic adviser to the Algorand foundation.
Value is captured within a coin’s economy rather than just its code and the way an application is monetized. In addition, value (measured by price and market cap) keeps moving from Layer one (L1), like Bitcoin and Ethereum, to Layer two (L2) and application protocols that are being built on top of L1, like Cosmos, Hiro and Uniswap.
With full interoperability, and with blockchain agnostic protocols such as The Graph, L1 blockchains may become just rails with fees attached. Most value will move into agnostic protocols and use-specific blockchains.
To understand where value is being captured and on what layer it is being created, it’s useful to review the evolution of L1 and L2 over the last decade.
One coin to rule them all (2011–2015)
That was the approach of Bitcoiners in the early days, myself among them. There was one blockchain and one platform to power all digital asset use cases and applications.