Moneychanging, Moneylending. Part II: Commerce and Credit

How commerce in crypto was born in the darkness, died, and a speculation on how DeFi could resurrect it

7 min readOct 12, 2020

If you didn't, go read Part I

Commerce is the foundation of modern society and globalization. If money is a store of value, a unit of account, and a medium of exchange, it is with the ultimate finality of buying something.

Cryptocurrencies have experienced three distinct phases of commerce so far. The Black Markets, the “We Accept Bitcoin” and the current “Death and Rebirth”.

2011–2013: The Black Markets

If you had no experience of using Tor to access Silk Road, I would urge you to read this 2011 article. It’s one of the first mainstream articles mentioning bitcoin, but it focuses more on Silk Road.

The Silk Road was a free marketplace. Like Amazon but, mainly, for drugs. It offered a completely new experience from what was available before, as you could simply buy online drugs that were previously not available to you or available in high-risk situations only.

Earlier Version of Silk Road
A later version of the website

Silk Road was enabled by bitcoin and presented the first commercial scalable use for cryptocurrencies, forging a generation of early bitcoiners. But lack of understanding of BTC’s privacy for this transaction and lack of a truly decentralized stack led to the seizure of the website and crashed the price of bitcoin. Some of the alleged founders of the website were arrested later.

Word on the street is that drug buying and selling today is done in a more decentralized way (at the individual level) directly through message apps and delivered locally. Crypto has very limited involvement in that, people just use centralized digital payment services like Venmo. The delivery/communication was decentralized, so the payment can be centralized and pose less risk.

2013–2017: “We Accept Bitcoin!”

The second phase was what I call the “we accept Bitcoin phase”: initial usage to buy real stuff, evidenced by “We Accept Bitcoin” stickers on coffee shops, taxis, and other providers of goods and services.

VCs happily poured money in something they saw as crypto beyond the despised “speculation” and the off-limit black markets. A future enabled by cheap, borderless payments was being built, and those building rails for the adoption of crypto by commerce would be the big winners.

Those turned out to be poor investments — the money was really in speculation.

Despite some reminiscence of that still existing, the financialization of bitcoin made it too expensive to transact in smaller quantities, and improvements of centralized digital payments systems made paying with crypto a clunkier solution by comparison.

2018–Present: Death and Rebirth

What can you buy with crypto today? And more importantly, what is strictly better to or only possible to buy with crypto today, as an eight of purple kush was back in the Silk Road days?

The last time I used crypto to buy anything other than money (crypto or fiat) was to pay for a VPN that I didn’t want to use my credit card. But it was hardly the only way to pay, it was clunkier and took more time than using my credit card. Before that, I honestly can’t remember anything recently.

It’s hard to find an obvious answer. The mainstream narrative now is that crypto as a solution for commercial arrangements is dead. But the mainstream has a very poor track record of narratives in this space, so let’s not give it too much credit.

I will also consider very briefly the hyperbitcoinization argument. I think it’s a teapot in the sky kind of argument. Cute but worthless, as it provides no evidence that it is happening until you can verify that it happened.

Digital Goods

I’m not a gamer and I have no understanding of it but some people seem to be paying hefty amounts for skins and other stuff, but I see no reason why this can’t be done through the traditional rails, given most games are tied to a centralized company. Crypto may be one option, but unless it is a strictly better option, it doesn’t answer our question.

NFTs (Non-Fungible Tokens) were all the rage for approximately 48 hours during the DeFi hype, and I criticized them on at least occasions (here and here), but giving a second thought they may be some merit to them.

Demand seems to exist, and while I do not truly understand it and suspect it’s very tied to flipping (like we do with coins) there may be some fundamental demand.

Also, it seems to be a case where is much easier and safe to just pay with crypto than to provide a credit card and a crypto wallet for the NFT be sent to, so it’s really a case where it *is* a better way to do commerce.

CryptoPunks is an interesting case. It’s much less for the artistic value, much more for the historical and scarcity value (they pioneered NFTs and there’s only 10,000 of them).

I’ve always thought that Bitcoin could be understood as some form of art. There’s a fixed amount of it and there’s technical beauty in the solution found for it to exist. So this kind of resonates with me.


So NFTs are an answer. It seems to be too niched still — but that hasn’t stopped the internet from proving wrong people that made the same point before.

Digital Services

Remember that every last crazy internet idea from the ’90s became true by the 2010s? The commonplace is to say that every crazy idea of decentralized service from 2017 (Decentralized Uber, Decentralized Airbnb, etc) will eventually become true as well.

Decentralization for the sake of decentralization is silly and unpractical, so I tend to believe that the kind of services that will emerge in this networked sense will be autonomous in some fashion, or with human interaction in only a small part of the chain, in such a way that *not* being decentralized would be the impractical answer. Like a central government determining the price of truffle oil bottles kind of impractical answer.

Services available today to be paid in crypto are mostly 1-on-1 or ad hoc arrangements. You hire a dev who lives in Estonia and pay him in Dai, Bitcoin, or USDC.

The exception are DeFi protocol DAOs paying the DAO employees in crypto, so maybe there’s the early use case. Still niched, but having a semi-autonomous organization paying salary every 2 weeks to someone is something that is not possible without cryptocurrencies.

Enter DeFi (again): Credit

The NFT and DAO examples are already within DeFi, but there’s very little Fi in them. My current belief is that DeFi may be the catalyst for broader commercial adoption of crypto, way before the Decentralized Ubers emerge and way more consistently than everyone becoming a large consumer of digital goods.

What do you need to buy on credit? A car for you, a house for your family, supplies and machinery for your company? You can also buy food and cheaper items too, we do it on credit cards every day.

The utilization of finance to acquire goods and services through credit extension may be one direction where DeFi and commerce would find a natural fit.

If you have recurring on-chain payments for some reason, there’s a possibility for someone to give you credit (conversely, to buy your debt) and acquire a programmable claim on these future cash flows, with fewer intermediaries and with a smaller risk of default — hence, at a better price.

To move forward with crypto beyond our current bubble size we need a commercial use for it. For it to have commercial use it has necessarily to be a much better alternative than the incumbents, and this is getting hard by the minute.

Maybe there are some areas where this is true, like NFTs and DAO salaries. But to grow beyond this niche we need to tie it to credit: i.e people will want to be paid in crypto because it can buy them more things now at better conditions since they can trade their already contracted stream of cashflows with a creditor, who faces fewer intermediaries and a lower risk of default.

The moment people go “Wait, I can get my salary in the bank and get a loan for a Corolla, or I can get it in USDC and get a loan for a Tesla with the same downpayment and monthly?” we reach escape velocity.

Credit to companies may work similarly. In turn, commerce would indeed adapt to accept crypto, because commerce always adapts to what the consumer prefers, since the Silk Road (the original one).

The programmability of money can extend into more complex contracts, and better oracles can make more sophisticated versions of the simple contract I described more useful.

There’s a possible discussion here on which solutions are preferred by creditors, buyers, and sellers. It’s reasonable to believe that the equilibrium tends to use more centralized stablecoins like USDC or USDT vs. more decentralized or less stable options because the likes of USDC can give additional recourse in the case of disputes — hence, improving the credit price.

Who are the winners?

In this sense, smart contract platforms (currently: basically Ethereum) and stablecoins would be the medium for these exchanges to occur. Protocols to handle the moneychanging and moneylending involved with all of this will also rise.

And where does that leave Bitcoin?

That’s a subject for another post.