A Look at Low-Risk Ways to Learn Crypto

There is no shortage of great students of learning in human history.

In the West, we had Aristotle saying:

“What we have to learn, we learn by doing”

While there were barely any cultural or linguistic bridges between them at the time, Eastern philosophers had also picked up on the idea that there was no substitute for experience when it comes to depth of learning. As Xun Zi said (later to be falsely attributed to Benjamin Franklin):

“Tell me and I forget, teach me and I may remember, involve me and I learn”

Fast forward to over 2200 years from when these wise old men drew their last breath and we now have a new wave of people coming to the realisation that learning by doing is the way to go. 

With no formalised preparatory paths leading into the sector (besides some hastily drafted up online courses by institutions eager to get in on the space), blockchain/web3/crypto might just be the largest vertical in the world that literally anyone can apply themselves to and be sure of giving themselves an opportunity at life-changing success. 

Well, maybe not anyone. While a lot of crypto’s early adoption has been in less privileged corners of the developing world, there is still a lot to be said for the financial barriers to being a crypto user.

 Whether it’s risking a small sum of money to go on the volatile ride of cryptocurrency investment, sacrificing gas fees of up to US$100 to buy a $221 image of a bee or having to purchase a minimum amount of governance tokens to properly participate in a DAO of your choosing, a lot of people don’t have the same infinitely bullish mindset that largely defines crypto Twitter and related spaces today. 

This presents one barrier to mainstream adoption, at least in the short-term while proof-of-work phases out (limiting transaction fees) and the volume of unmined Bitcoin continues to diminish (hopefully bringing price stability to BTC and the market as a whole). However, there might be a quick fix right under our noses with long-term implications for how novices are onboarded to crypto. 

At one point in my childhood, I was lucky enough to be educated in a remote area for a year. Having grown up in cities my entire life prior to that point, it was interesting to say the least to swap out Geography for Agriculture on my course list. We did all kinds of stuff in that class - learnt the winemaking process, proper protocols for beekeeping all the way to shearing sheep. 

However, as interesting as the class was and as much as I studied for it, I still can’t confidently assert that I know which cuts of steak come from where when I’m at a restaurant. This speaks directly to the points highlighted by Aristotle and Xun Zi above.

Yes, we did get some work experience pruning vineyards and tagging cattle or whatever, but if you took me back there now I couldn’t tell you why we do those things or give you a proper demonstration. Although it was cool to be doing it, it’s hard to be engaged when there’s no skin in the game.

Fast forward to a year later when the bulk of my rural knowledge had escaped me and I walked into my dorm to discover something unusual. Gaming was not uncommon in the dorm rooms - this encounter was at the height of Fortnite’s first season and everyone seemed onboard, which made what this guy was doing all the more unusual. 

While most in the dorm that lunchtime were gunning for the Victory Royale, this dorm mate was trying to churn a profit for his humble virtual plot of land on Farming Simulator 19.

I found it equally hilarious and bemusing. 

After a bit of observing, I asked to have a go and the sense behind it became immediately obvious. Instead of aimlessly pruning vines as I had done a year ago, I found myself having to figure out the best way to operate a harvester through a massive crop field. At the end of my ‘day’ of my work, I could see exactly how what I’d done impacted the bottom line of my friend’s land holding. It was awesome.

25 million desktop users and 90 million mobile farmers seem to agree with my assessment. 

I have no aspirations of becoming a farmer (yet). That being said, if I wanted to run my own plot of land, I would be safe in the knowledge that 6 months of playing around on the different modes that Farming Simulator offers would hold me in good stead for dealing with the economics and decisions that come with a life on the land. 

The best bit?

The estimated startup cost for a grain operation in the United States sits around US$5mn when purchasing used equipment.

Farming Simulator 22 costs ~US$90. 

I’m very aware that learning how to navigate the weird and wonderful crypto ecosystem is not exactly analogous to the world of farming and the gaiters, steel capped boots and flannels therein. But there is a lesson here.

Learning by doing can be cheapened even if some of the aforementioned ‘skin-in-the-game’ is removed. Farming Simulator doesn’t force you to experience the lows of long hard days in the field the same way not buying crypto won’t teach you about the hardship of sharp downturns and the terrifying possibility of rug pulls. That said, it can teach volumes about perceptions of risk/reward ratios, exploring ecosystems & the interrelations within and most importantly, allows users to dip their toe into whatever catches their fancy to get an idea of what they want to dive deeper into. 

Animal husbandry, DAOs, timber harvesting, P2E, yield farming (pun intended). Nothing is out of reach when nothing is on the line. 

I’ll be the first to admit that a simulation will never really mimic the real thing. But there is no doubt that reducing the barriers to achieving ‘minimum viable experience’ is only a good thing when it comes to onboarding the next billion crypto users and beyond.

How does this happen?

A long standing backbone of the crypto development life cycle could be a start.

Welcome to the user testnet.

TL;DR

• Crypto still faces some pressing barriers to entry for new users. Fear of cyber attacks, lack of knowledge about the environment and poor user experience in certain domains are cited as some of the major roadblocks stopping users from putting their hard-earned cash to experiment with or invest in crypto projects. The financialisation that lies at the heart of web3 means that financial capital is on the line when things go wrong, as opposed to the social capital at stake in web2. A user testnet that removes this financial risk whilst still allowing for exploration seems a good start to bringing in new users who are keen on the potential of the space but still hesitant to put a portion of their earnings on the line. 

• Testnets have been a key tool for crypto developers for some time. In the current day, a testnet is a simulated blockchain environment that uses ‘fake’ currency to allow developers to test their applications before putting them live on mainnet blockchains like Ethereum or Solana. These are crucial for allowing developers to receive feedback, spot weaknesses in their smart contracts and see how the user experience functions without risking any project finances. 

• There are some live user-facing applications that have testnet elements, but the design of a full-scale user testnet remains a big question. P2E is the early  leader in terms of designing ways to onboard new users with limited or no financial risk. That being said, examples do exist in DeFi and the rise of learn-to-earn presents another encouraging trend for onboarding new users in a way that is both educational and potentially lucrative with limited risk. These all tend to be isolated examples, however, and users would have to intentionally seek out these kinds of applications if they wanted to test. A broader scale testnet could make these opportunities more available, but there are question marks over how this works if users want to experiment with different blockchains or learn about the ownership dynamics that constitute a good portion of web3 activity.

What is a Testnet?

It’s hard to estimate exactly how much the average crypto neophyte spends and loses  in their search for wisdom. It’s equally difficult to put a figure on how much it would cost a developer to launch a decentralised application on a live blockchain, but it can be comfortably said that this figure would be larger because of the amount of infrastructure involved.

Thanks to testnets, this is a problem developers don’t really have to worry about until they decide that their application is truly blockchain-ready. 

In essence, a testnet is a simulation of a live blockchain that allows developers to stress test their applications for code errors, vulnerabilities and beta feedback with synthetic testnet currency to ensure losses are not material. This last piece of information is most crucial in the construction of a user testnet and might even be the only aspect that is relevant for most. 

The Ethereum network, as an example, employs a range of testnets each used to accommodate different forms & sizes of dApps. The Ropsten testnet best reproduces the live Ethereum production environment with the added advantage of allowing devs to test the proof-of-work mechanism by mining testnet ETH (not available on other Ethereum testnets). The Rinkeby testnet is a proof-of-authority testnet which means it doesn’t fully replicate the live environment, but still allows builders to access testnet ETH through faucets. 

Given the financialisation that lies at the heart of web3, such faucets could play an important role in introducing new users to crypto. 

Among the current iterations of testnets, the sole purpose of faucets is to act as a sort of vending machine for fake currency that allows developers to pay the necessary fees for testing their applications on testnets (yes, gas fees still exist on testnets). 

Faucet funds are typically contributed by testnet users with a surplus of testnet currency (on Ethereum the majority would come from mining activity on the Ropsten testnet). All developers have is to request the funds and they are deposited in their wallets momentarily. It’s that simple. 

How should a User Testnet be Designed?

Just like Ethereum made the thoughtful decision to create different testnets for different use cases, a user testnet should account for the variety of different potential reasons new users might want to test out crypto. That being said, there are some fundamental pillars that any user testnet should be built around.

• Network Security. Historically, the volatility of crypto asset prices has been the primary deterrent for prospective adopters. At some point during the pandemic, these bearish sensibilities faded. However, when one shuttered window opens, the 51% of surveyed crypto-curious individuals who cite their lack of crypto knowledge as the primary barrier to entry will find other reasons to sacrifice on potential crypto reasons. The next most prolific is the threat of scams. 

There’s no sugar coating the fact that, by dollar volume, the year past was a record one for crypto scams. Getting burnt by scammers is as good a reason as any to avoid crypto altogether. Even if testnet currencies aren’t material and don’t represent real losses, getting scammed or worse (i.e. having your identity exposed) will disincentivise users in the onboarding process from continuing their dive down the rabbit hole.

To protect against this very real possibility, user testnets themselves should be tested on developer testnets to assure paramount network security and protect the next generation of users from the fear of scams.

1. Current Testnet Model - Users request a small amount of testnet currency that can be used however they used please. This method is limited because of the typically minimal amounts that are paid out, which is the case currently because developers only take enough to test upload their smart contracts on the testnet.

2. Utility model - This model involves having users find things they want to try out in Web3 (i.e. buying DAO tokens, NFTs, playing around with decentralised exchanges or other financial tools etc.) and then verifying what the testnet currency will be used for to receive that exact amount. This model limits the surpluses that are created in the current model and not recycled into faucets, but ultimately this is of little import because, after all, it's not real currency. It also might prove inconvenient if users want to try out a variety of different applications and have to verify it everytime. Then again, this kind of ‘use case’ verification model is pretty common in welfare systems the world over. 

3. Genesis model - Users are given a set amount of testnet currency as soon as they set up testnet wallets and go through the introductory process. Since currency is synthetic and assets can’t transfer ownership, inflation shouldn’t be an issue with a proliferation of new accounts. This avoids the inconveniences of the utility model and the minor inconveniences of requesting currency from faucets. If users need more to continue their learning, this model can operate in conjunction with the utility model where users verify future needs through a faucet portal. 

• Education. Seeing as this is the biggest barrier to adoption, any user testnet project needs to address it in some manner. There are too many possible approaches to list, but one idea might be to give users the option to go through a navigational introduction wizard when they set up their wallet and encourage any applications looking to open themselves up to testnet currency to run similar introductory processes. This method is not perfect, but it’s a very basic start. The smart money would be on some (literally any) innovator coming up with a high-value educational onboarding process that doesn’t look like the standard web2 method outlined above.

Barriers

The diversity of the aspects within the crypto ecosystem means that making any given user testnet all-encompassing and capable of providing a full introduction to web3 dynamics nigh on impossible. Even in its highest form, user testnets might find some resistance from existing trends in web3.

Multi-Chain Difficulties

Ask any rational web3 expert and they’ll tell you that the future is multi-chain and that maximalism is corrosive to the growth of the ecosystem (as Packy McCormick coined it - ‘maximalist minimalist’). 

As shown in the Ethereum example above, a testnet can be created with a simulation of its relevant mainnet. So what happens if a user wants to test out different environments? 

If the current testnet model were to be replicated 1:1 in a potential user testnet, users would be shoehorned into maximalism by virtue of the fact that their testnet wallet, and therefore their activity, would only really exist on one blockchain. 

So how do we get around this? I won’t even pretend to understand the technicalities deeply enough to speculate. But some answers may include creating gateways for users to jump from chain-to-chain with easy currency swaps and wallets that account for a variety of ecosystems instead of the current major-ecosystem exclusivity of wallets like Phantom (Solana) or MetaMask (Ethereum).

Conflicts with the ‘Ownership Economy’

a16z crypto partner Chris Dixon likes to use this analogy a lot. With good reason too, there’s likely no explanation for the shift across internet generations that is as comprehensive and simple in equal measure.

When it comes to testnets and simulating currencies for new users, however, the centrality of ownership to web3 is somewhat problematic. 

For example, how is a new user expected to explore the NFT purchase and ownership purchase if they can’t own it?

Two ideas, one lazy and one complex.

The lazy idea is that for ownership concepts like NFTs where testnet users would be exchanging on the same platforms as users with real skin in the game that they should just buy a small amount of ETH to buy from collections they like with a small floor price. But this kind of defeats the purpose of a no-stakes testnet.

The second option is to have NFT marketplaces designed exclusively for these testnets. Lower-grade NFTs, most likely generative, are exchanged by users within the confines of that one platform. Users still ‘own’ the NFT in the testnet simulation, but the fact that it can only be exchanged within a simulated marketplace prevents it from impacting the wider market. 

Something to consider in this case is that typical NFT market dynamics may not crossover to a controlled sandbox environment where there would be more limited market activity and the NFTs are less likely to be used as an avatar or representation of online identities as PFP’s are in crypto world at the moment.

Credit: Adam Sacks

Pioneers

DeFi - Phemex 

From my digging, Phemex offers the most complete example of a user testnet among all the typical use cases of crypto. 

Phemex adopts the standard web2 ‘Education Model’ discussed above. Upon signing up, users are directed through a setup wizard to understand how to navigate the functions of a typical exchange site the same way one would do on mainstream retail exchanges like Coinbase, Binance or Crypto.com. 

Credit: Phemex 

Phemex offers a robust playbook for how dApps can interoperate across different blockchains. When you go to deposit testnet currency to trade around in the Phemex test environment, the exchange offers links to faucets for the relevant currency. This allows users to deposit any of the currencies offered on the exchange without having to worry about the network affiliations of their wallets. 

If you want to deposit testnet Bitcoin, all you have to do is set up a Bitcoin wallet and request testnet BTC from a set of links provided by Phemex that can be deposited to the exchange and then withdrawn, swapped and traded on Phemex. 

Phemex also adopts some elements of the ‘Genesis Model’, where accounts are immediately set up with 0.5 testnet BTC and 45 testnet USDT to experiment with.

Phemex’s main limitation here is that there seems to be no simulation for staking testnet currency, a key component of DeFi that many beginners might want to explore. 

NFTs/Gaming - Caveworld

If these adorable fellas look familiar it might be from my PFP - probably time to disclose that I do have an interest in the Crypto Caveman Club. 

What drew me to this project was its completeness as a P2E project, including its openness to non-NFT owners. 

Caveworld isn’t the only project that adopts the no-own, yes-play model but I do think it does act as a role model for other P2E projects looking to go down this path - even though it hasn’t launched yet.

Say you want to learn about how P2E works without having to shell out a US$200+ for a gaming NFT. Caveworld gives you two options in this scenario:

1. Game Pass. By paying a small amount for a game pass the same way you would buy a Season Pass for games like Fortnite or Clash Royale, players can access a range of battle modes to discover the game mechanics and variety of game modes. The added advantage of the game pass is that not only can purchasers earn some monetary rewards from battle, but they also get courtside seats to observe how the P2E elements of the game work in real-time by being able to join tribes run by NFT holders. These NFT holders can distribute their rewards among tribe members as well as setting an example for how these ‘Game Pass’ tribe members might be able to make the most advantage out of having a stake in the game. 

2. Free-to-Play. This option is more limited than the Game Pass but still offers a pathway to learning about how P2E works and the battle dynamics of the game. These users don’t sacrifice any money and therefore don’t receive any battle rewards, but they still get to see how NFT holders can benefit from the ecosystem if that is something they want to pursue going forward.

Earn-to-Learn Protocols - Rabbithole.gg 

The rise of earn-to-learn is paving the way to user testnets that also allows users to build up small crypto holdings for use in live environments. It’s a direct stream from active learning to real participation.

To use Rabbithole, users connect their wallets and are then guided through skill-building projects across the board of crypto applications (below). 

As users progress through these skill-building modules, they are invited to participate in ‘Quests’. This is where the fun comes in and blurs the line behind testnets and live environments.

Now that the knowledge barrier has been hurdled, users might be asked to complete tasks like ‘Register an ENS name’, ‘Deposit USDT in a staking pool’, ‘Borrow crypto on X protocol’ etc. By completing these quests, users can earn through a prize pool drawn at the end of the quest period.

The downside of this is that for most quests, users have to swap some of their fiat holdings into cryptocurrency which means that the ‘Quest’ element doesn’t entirely fulfill the definition of a testnet. Regardless, it provides a path that generates higher upside with the same risk as doing these tasks normally - for a noob, this is an excellent path to take if you want to generate a small amount of skin-in-the-game.

So What?

The variety of applications in the crypto world means it is a space for all comers. 

Whether you work in finance, politics, bricklaying or zookeeping, there is something to be gained and definitely a lot to be learnt by getting into the space. By making this learning experience active and involved whilst removing a lot of the risk barriers that are commonly cited as dealbreakers for those flirting with the idea of diving head-first into the space, there is no doubt that a user testnet would provide a soft entry. 

One subsection of the population who this particularly stands to benefit though is those with lower disposable incomes. Whether or not you are an evangelist for the underlying technology, it can’t be said that crypto hasn’t largely been a speculative game dating back to its genesis. 

Speculation is built for those who can afford to lose everything that they stake (when done responsibly). For large swathes of the global population, this will rarely ever be true. 

As I covered in my last piece, the developing world accounts for a significant amount of global crypto traffic. There are manifold reasons for this, but it likely boils down to the benefits on offer through decentralised technology being more apparent in these regions - even if the disposable income necessary to properly learn and invest in these projects is not always there.

By making crypto more accessible through user testnets, these adoption index numbers can continue to shoot up around the world, with the largest gains possibly still coming from those countries that already have relatively high per capita engagement with crypto.

Another segment of users that I have rarely ever seen discussed in crypto is that of the <18s. Low disposable income and relatively large amounts of surplus time to explore new domains makes the kids an audience for whom the incremental value of such a testnet would be extremely high.

 It’s true that you could find any number of examples from the crypto ecosystem of ambitious young people who have done amazing things before being legal to buy a beer. However, a large portion of these young’uns would have heard about crypto but likely never taken the step to go down the rabbithole because of low levels of disposable income to risk on their learning.

By creating a simulated environment to bring these people under the crypto umbrella, web3 can succeed in fostering the next generation of crypto thinkers, builders and investors by providing them with the resources to inform themselves while gaining simulated experience. Win-win. 

Closing Thoughts

There is no doubt that with the rise of layer 2 rollups, the phasing out of proof-of-work and the proliferation of new P2E modes that crypto is only getting more accessible to the masses as time passes. 

However, the inherent financialisation of crypto products & services, whilst offering unprecedented opportunities for wealth creation, means that there is always a risk barrier for prospective users. A user testnet that simulates the main elements of web3 participation is a good step towards going around this barrier.

 In the same manner that Farming Simulator readied my friend for a life on the farm at a fraction of the cost, the user testnet could be the best move for preparing people for lives in web3. 

from Hacker News https://ift.tt/NpKeVzM