1 week ago
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Opinion by Ben Lilly, managing partner and head of research at Jlabs Digital
When it comes to Ether, or even Bitcoin, for that matter, what is the most basic reason to hold it? Before reading on, take a moment to consider the reasons beyond the more routine motivations related to hedging and speculation.
Why do you hold either cryptocurrency?
I’m asking you to take a moment to consider that question. On the most basic level, it’s not a hedge against world destruction, hyperinflation or possible asset confiscation.
While all those reasons are justifiable in their own ways, they are secondary. One holds Bitcoin (BTC) to pay for bytes of data stored on its blockchain. For Bitcoin, it’s being able to store some 1s and 0s in a block with consensus. That’s it. It’s digital private property stored in a block. It’s simpler to explain this new form of money by appreciating the basic reason we hold BTC — to pay for the data being stored in the block.
Ether (ETH), the native token of Ethereum, on the other hand, is used to pay for compute of the Ethereum Virtual Machine. Not staking, not price appreciation due to an exchange-traded fund or collateral for a loan. It’s used to pay the network to change the state of the ledger without permission.
But why is this important?
Globalization 2.0
ETH represents compute on a public, permissionless network. More than that, the network on which this currency sits is a form of consensus. Each transaction is communicated across the globe and validated.
At any given moment, the current state of the network can be seen. Each block of validation represents a snapshot of who owns what. It is property laws that transcend borders, and anyone can access that asset ownership at any time and for any purpose.
From this perspective, the network is a borderless global system of asset ownership where changes in states require payments for the compute required to make the necessary changes.
You pay for what you need.
It also acts as a network to organize around without consent, which frees economic expansion. No business agreements are needed to interact with apps. This permissionless feature enables one of the most crucial features of this new form of money — the expansion of economic activity. It is innovation in that the currency better enables economic expansion.
To further unpack this idea, let’s draw on the idea of globalization.
Globalization is the concept of an open system of trade, information and the spread of technology. It’s a way to define the belief that the world is becoming more interconnected and interdependent. Globalization, in large part, was a byproduct of businesses transacting overseas and countries looking to better facilitate international commerce.
This idea of interconnectedness and globalization stems from the creation of the United Nations in October 1945, which was the month after the formal end of World War II. The UN was an organization where countries could better cooperate and coordinate. Several alliances resulted from the UN, all with a similar goal of improving coordination and, essentially, consensus.
This group helped lay the foundation for many peace and trade agreements for the remainder of the 1900s. In the years that followed, we saw economic expansion on a global scale. The amount of exported goods rose from 8% of world GDP to more than 20% by the end of the century. Such cooperation helped create consistency in the laws of trade, defined property rights and formed consensus around global activities. This clarity fueled expansion.
This means, that if these traits can be iterated on, expansion can accelerate further. These traits exemplify why a public, permissionless network like Ethereum is a foundational piece of technology that will help usher in globalization 2.0.
Now, the creative compute enabling such an organizational network resembles a cost. For organizations like the UN and its many sister organizations, this cost is substantial. And that’s just to pay for the offices, resources and salaries.
Then there are fewer direct costs. They might include the need for meetings outside of the organization to form trade agreements and frameworks for better cooperation.
There are even costs that exist outside of governmental organizations. Businesses need to dedicate resources and attention to lobby these organizations for their own self interest. If we attempt to add up all these costs, it becomes apparent that the cost of global organization exceeds the grasp of one’s imagination.
A public ledger might help to understand where the flow of money goes in such endeavors, but that isn’t the point. The point is that a system that can better facilitate global organization and that consensus is incredibly valuable.
It can result in a major productivity unlock. To better examine this, let’s look at the most recent trend hitting crypto today.
Onchain AI agents
Truth Terminal is the current trendsetter. It’s an AI that communicates via social media and has garnered everybody’s attention. Its relation to crypto is that it got involved in a coin. This drove fervent speculation of the coin and, in turn, AI’s net worth.
Without getting into the specifics of this AI, let’s instead focus on the limitations that it revealed since it shows that we are only at the tip of the iceberg when it comes to onchain AI agents. The AI received a grant in the form of Bitcoin in order to improve its capabilities. It then used the X social media platform to recruit followers. Then it backed a coin on the Solana blockchain. In some ways, it had autonomy. Still, human intervention was required each step of the way.
A human needed to spin up a Bitcoin wallet to receive the funds, then move those funds into dollars, set up its X account, help set up an account for greater compute needs, and more.
It’s fairly limited as we start to break down how it operates. There’s a divide between the AI’s digital environment and the rest of the world. But once we examine certain tools available in crypto, we can see how some of these limitations can begin to go away, and in turn, the AI can not only embody more capabilities but start generating economic activity — autonomously.
I’m aware that some will scoff at this example because I’m using Ethereum, and that’s OK. Feel free to replace it with whatever layer 1 you are subjectively most attached to. I’m just more familiar with Ethereum-based applications. Using Ethereum, it’s not a stretch to see an AI spin up a wallet on the network that then acts as its base for communicating with the world. The XMTP protocol is a good tool for something like this, as we already use it for our onchain AI at Jlabs Digital.
The wallet itself acts as the identity, profile and platform from which the AI may speak. There can even be an identifier in the form of an Ethereum Name Service that also helps it set up a website using tooling like Eth.limo. This gives the AI an identity from which to operate, one that is verifiable.
If the AI then needs to rent more GPU, there are markets where it can go and rent greater capacity when the demand exists. Currently there are some limitations here, but those barriers are being lifted to where an AI agent can boost its capacity autonomously. At this point, the AI can scale its compute power and has a wallet, a communication protocol and even a website.
From here, it’s able to set up ways to accept payment on its website for whatever services it might sell. It may even start constructing gated channels for communicating with those who have paid for its service. It may seek out additional models to train on to improve its service offerings (not sure of one on Ethereum, but Cosmos SDK and Bittensor exist).
Meanwhile, this is happening without human intervention. It’s as if the AI can expand, grow and produce economic activity under its own volition. Many tend to view AI agents sitting onchain as a way to make payments across the internet since they can trigger spending on their own. Or conducting various arbitrage in markets (prediction, gambling, speculation). But what I’m laying out here is economic expansion.
This thought exercise can only widen as we see sectors like decentralized physical infrastructure networks (DePIN) beginning to pop up where the AI might want to analyze satellite imagery to better predict traffic patterns in a certain city and relay its recommended directions to an autonomously moving vehicle.
Suddenly, the need for things that Eigen Layer is building to facilitate actively validated services (AVSs) becomes interesting, and even the ability for an AI to spin up a layer 2 on its own in a matter of minutes starts to gain importance — especially when we realize how composable the yield can be when onchain AI agents start to populate the chain.
It’s fun to think of these possibilities if we ignore the arduous building to get there, but the possibilities of onchain AI agents are not the point here.
The point is we are moving closer to an environment where a system of permissionless consensus that’s borderless becomes ever more pressing. It’s how globalization 2.0 gets ushered in. And it’s a realization that nation-states embracing this foundational network will be able to boost productivity.
The network offers orders of magnitude less friction in organization, and each layer of friction will only eat into productivity. The infrastructure must remain permissionless, as each layer of permission represents additional costs. In a network where costs are transparent, this will represent margins available to be taken globally.
Margins that can be expressed in a network economy’s price level.
The economy of the future will facilitate globalization 2.0, and at the heart of it is a currency that pays for the compute of the system. That’s the future of money — the cost of consensus.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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