👼 Pure intentions

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Crypto is tribal. That’s one of its best qualities. Think about it: What would this space even be without purity tests? 

Notice that I used the word “space” and not “industry,” “asset class” or “sector.” 

Crypto has always had intense rivalries, but the nuances are mostly lost on those on the outside. It’s not their fault — the regulatory war that raged in the US over the past few years united otherwise squabbling camps against a common enemy (Gary Gensler). An “enemy of my enemy is our enemy” situation.

The thermal effect of that chumminess has largely worn off, however, and things are only destined to get uglier from here, especially if/when the market rolls over.

🃏 All or nothing

For sure, there is a crypto industry. And there is a crypto asset class. And a crypto sector. But they’re not filled with the same stuff.

With Gensler gone and the SEC headed by someone more agreeable, it’s easy to forget that a lot was hinging on the Ripple verdict, for reasons that don’t feel as pertinent now. 

The question of what exactly a so-called “crypto security” is ultimately mattered to every single person working in and around crypto, in a very different way than the Roman Storm verdict and the Samourai Wallet guilty pleas were important. 

Let’s run through a hypothetical: Pretend we believe that — even if XRP was not a security when sold to institutional backers — there exist many tokens that are clearly as centralized as XRP, or even more so. Some are more centralized in very different ways. In that case, the long-term viability of any coins we hold directly depends on whether the underlying tech (and the broader ecosystem) is truly decentralized. And for that, we need purity tests.

Perhaps we will get regulatory clarity (read: a state-sanctioned purity test) from the SEC about what makes a token a “security,” in such a way that plainly dictates what is and what isn’t a sufficiently decentralized asset on blockchain rails. 

It might even come out in the wash of the XRP and Solana ETF applications — but if regulation by enforcement was bad, then don’t be surprised if regulation by ETF application is worse.

If I had to pinpoint the vibe right now, I’d say it’s that there is an unconscious understanding that this is destined to come to a head. 

After all, why is it that institutions are gravitating towards Ethereum as they migrate onchain, rather than Solana? Could it have something to do with a perceived degree of centralization in and around Solana, one which just isn’t there with Ethereum? 

Hammer out the differences between the two networks and you’ll have devised your own purity test. Although, perhaps it has nothing to do with home validators at all.

Alongside this tension, stress has bubbled through the proof-of-work side of the crypto space. But decentralization is much easier to prove in that world. All that really matters, at a bedrock level, is whether the hash rate is distributed enough so that the blockchain can withstand a 51% attack. Anything less is centralization.

Monero has just passed such a test — but only barely. You probably saw that AI project Qubic attempted to 51% attack Monero by incentivizing its users to mine XMR. Qubic only got as far as about 28%, according to one analysis (up to 35% if considering selfish mining).

“The elephant in the room is not what this means for Qubic, but what this means for Monero,” independent researcher Shai Wyborski wrote. “Monero brands itself as a provider of military grade security, suited for sensitive, high-profile applications. They aspire to become part of the global economic infrastructure designed to provide reliability and robustness. Having been disrupted to such a thorough extent by an overall niche movement should considerably undermine their ability to do so.”

Monero is largely an old head Tornado Cash or Samourai Wallet: a network you jump in and out of to muddy the provenance for your coins, hypothetically speaking. But would the disappearance of any of those three really impact the crypto “industry,” “asset class,” or “sector”? I’d argue not; in fact, it might even be really good for business.

That said, losing those platforms and protocols and others like them would be absolutely detrimental to the “crypto space.” 

There we go again, another purity test.

— David Canellis

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• ICYMI: The SEC has delayed rulings on Solana, XRP and Truth Social ETFs until October.

• Tether has appointed Bo Hines, former head of the White House Crypto Council, as strategy advisor.

• Kraken, Coinbase, Paradigm, Digital Currency Group, the Solana Policy Institute and the National Cryptocurrency Association are teaming up to educate US lawmakers on crypto.

It’s the summer of DATs and the party is going strong. 

But when October rolls around, everyone will be looking to DAS: London to hear from these meta-defining voices on where things stand and where they’re headed.

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📅 October 13-15 | London