Saga & The Edge of Glory
“Normal is an illusion. What is normal for the spider is chaos for the fly.”
There’s a running joke on crypto twitter that there’s really only 10,000 active DeFi participants making the internet money world go round. As with all jokes, there’s some truth to this theory. I saw the below chart going around a few weeks back which many people in traditional finance found a bit confounding.
An all-time high in the number of bitcoin owners (>1 bitcoin), even as the bottom fell out on prices (down ~67% from ATHs). Some made the fairly logical – but I will argue misguided – conclusion that this meant digital assets were catching on to mainstream, and widespread adoption was on the horizon, if not already here. Surely if more people were accumulating and *diamond-handing* the largest digital asset, it meant conviction was stronger than ever for the long-term success of the space. Valhalla must be right around the corner. Nay, my interpretation of this is a bit more cynical.
I submit there were more institutions who entered the space over the last 12-18 months, but there are other factors at play here as well. For one, there is unquestionably a shift underway for younger generations when it comes to financial risk-taking, which doesn’t equate to adoption. There’s also a growing cohort of HNW who have begun to treat bitcoin (and to a lesser extent eth) as a sort of ‘schmuck insurance’. They don’t really buy into the idea, don’t have the time/energy to learn about it, but want to own some because they’re tired of seeing teenagers on the internet outperform the funds they’re LPs in.
Leaving bitcoin aside for now & focusing on this idea of “mainstream crypto adoption” is what I’m interested in exploring. What does it look like? How do we get there? Will a killer application open these floodgates? Where is the match going to be lit?
In order to understand where this might come from, it behooves us to look at a recent 0 to 1 moment of widespread adoption for a new technology. From Ben Thompson, (emphasis my own)
“While Apple pretends like the Internet never existed as a distribution channel, the truth is it was a channel that wasn’t great for a lot of users: people were scared to install apps, convinced they would mess up their computers, get ripped off, or accidentally install a virus.
The App Store changed all of that: Apple effectively extended the trust it had earned with users over the years to all developers in the App Store. Users could install whatever they wanted, confident the app would not mess up their phone, rip them off, or be a virus. This by extension meant that the addressable market was far larger for app developers than the PC was, even though it would be several years before smartphones had a larger installed base than PCs.”
The introduction of the App Store was a massive tailwind for mobile adoption. When it launched, the iPhone had less than 10 million total users. Today, more than one billion users globally have an iPhone, and the penetration among US consumers (especially younger generations) is mind-blowing1.
The developer-Apple relationship was mutually beneficial at inception for obvious reasons. Users trusted Apple —> Apple ported that trust to developers in their ecosystem, who at that time faced far more difficulty driving downloads without the Apple cloak of trust.
The other important distinction from the early App Store days is since Apple controlled installation, payment processing was a natural evolution. What many critics don’t appreciate when they holler about the 30% take-rate is where it originated from. In the early App Store days, payment processing was limited to upfront purchases – i.e. buy this app for $4.99. There were no in-app purchases. The subscription-based model was not yet a thing. The 30% (at least initially) was intended to cover processing fees given the most common pricing for apps was $0.99.
But ser, we are not in the early days of the App Store launch. We have in-app purchases now. Everyone uses mobile phones. Virtual goods were but a spec in Satoshi’s eye at that time.
Indeed, times have changed, and we will continue to revisit Apple’s evolution in the context of crypto…
When Solana announced the launch of the Saga it was mostly met with a shrug and an eye roll (myself included). At worst it seemed like an experiment that lit a bunch of money on fire in the service of PR, at best another doomed attempt to differentiate from the iPhone. The graveyard of failed phones is vast. How doomed might it be? From resident Metaverse expert Matthew Ball…
“Part of the problem here is how, exactly, a competing smartphone can successfully differentiate from the iPhone given its lucrative customer base. For example, Android or a third mobile OS could try to attract mobile developers through better policies and permissions. But there are almost no companies on earth that could leave iOS outright as this would mean leaving behind two thirds of their users and 75% of revenues. Even Google typically prioritizes the iOS builds/releases of its apps, rather than those of Android, because it fears losing users of its iOS-based apps. As a result, it’s impossible to imagine developer decampment forcing iOS to change its policies or leading enough iPhone users to switch platforms.”
This is a strong statement. Impossible is a powerful word. Especially in the context of technology giants, many of which – while still massive – have come under scrutiny and attack from developers, users, regulatory agencies, and the general public. It was not that long ago Facebook messed around with changing API and monetization policies to the point where their developer ecosystem completely eroded. I don’t think a similar fate awaits Apple, BUT, I’m also not naïve enough to think it can continue pushing and pushing and pushing against every other stakeholder in its orbit without repercussions (regardless of how large it is). Obviously the hardware is fantastic, but Apple would be wise to recognize the developer community as a whole – along with the entrepreneurs who build businesses on iOS – are what make the iPhone particularly compelling.
What does this have to do with the Solana phone? Surely you aren’t saying it will displace the iPhone! Of course not. But the more I’ve thought about this launch, the more I believe it’s both a genuine and necessary step to move crypto forward. The Solana phone faces the same cold-start problem every new phone launching faces: if you don’t have enough users who actually own the phone, what developers are going to be excited about building applications for it?
This is a legitimate problem. By the same stroke though, if there are no avenues to engage on-chain with existing mobile devices, how is crypto going to realistically reach broad adoption? Our phones today are the gateway to the online world. We need web3 mobile apps, and functionally secure ways to do things on-chain from mobile devices without worrying about wallet and key security. Here I pause to acknowledge my ignorance on just how close we are to a new computing platform taking the torch from mobile. AR/VR is coming. AI is coming. Maybe mobile will be a relic in a few years in which case this blog will be a fun and humbling reread for its author. But to think we’ll see widespread crypto adoption and killer apps without mobile seems shortsighted and overly hopeful. To think Apple will willingly warm to crypto is equally shortsighted. We can look to its fumbling of music as a precedent.
Apple was notoriously late to the music streaming switch – from the download-to-own model to subscription streaming. A lot of that had to do with the simple fact that it had little to gain from creating this change itself; the download-to-own model was a hugely important strategic lever for Apple to get its tentacles into users.
“In music, Apple built and owned the Suez Canal and taxed everything going through”2
In the old model, switching stores meant losing all the music you had already bought, whereas today switching is at worst a sacrifice of existing playlists3. In a similar way, Apple has no incentive today to warm to crypto or the alternative payment rails it promises. It’s clear – and Apple’s internal emails suggest it’s been aware of this for some time – the company will not be able to enforce its 30% commission requirement in perpetuity. That doesn’t mean every app will begin asking for credit card information from users because a lot still benefit from the reduced friction Apple’s system allows. That is, unless its in-app payment system comes under attack. This is the much deeper threat to Apple: other companies being allowed to offer the same frictionless payment experience. Apple has always been obsessed with limitless control of the customer relationship. The mutually beneficial relationship the company had with developers at inception undoubtedly has degraded as a result.
“To bully and gaslight developers into thinking that we need to be kissing Apple’s feet for permitting us to add billions of dollars of value to their platform is not only greedy, stingy, and morally reprehensible, but deeply insulting.” - Marco Arment
The reason I bring this particular point up is to highlight something that’s difficult to quantify. Proving a negative is always an uphill battle. But how many entrepreneurs failed to pursue a business or an application because it wouldn’t be permitted in the App Store? How many ideas died without ever seeing the light of day because of restrictive mobile device policies? The App Store has unquestionably been a huge net positive and enriched the consumer experience. But its tightly guarded closed system is also stifling innovation.
The Solana phone doesn’t mean all of a sudden we’re going to see developers ditch iOS to build cryptonative apps (lol I may be boolish crypto but I’m not delusional). But it’s open source. OG internet type stuff. Anatoly highlighted on a recent discussion, “the big store marketplaces right now are so bad to web3 that 50,000 web3 users that have this device with no restrictions within the store, with how web3 apps can talk to them, is a better distribution channel for cryptonative developers than the big app stores”. He’s right.
As it stands today, we all know using crypto products and doing things on-chain is clunky. Some of us do it anyway. Stablecoins are the clearest example yet of crypto’s best use-case, with DeFi as the next credible contender. And yet, the joke of 10,000 users powering all of DeFi isn’t that off-base. At some point the user experience needs to improve and the fastest route to this improvement may very well be a world in which signing is inside the trusted element with web3 enabled natively on mobile. That may seem farfetched to a lot of people at the current moment, I don’t know? But to me this is inevitable if we’re to believe crypto fulfils its promise. The App store doesn’t work with crypto and in reality, imposes a hard tax on the internet and a soft tax on innovation. I’m genuinely excited about what the Solana phone means for moving adoption forward, even as I expect it to be a “commercial failure”(this is not what I’m rooting for obviously). It’s a huge win for crypto if this leads to a shift in approach from Apple (and Google) when it comes to digital ownership. These 1-2 minutes from Anatoly are instructive…
Now why might Apple relent on its stance? Reading the tea leaves of annual reporting, the App Store made $10-15 billion in 2021 alone. While that’s material money – even for Apple – it’s not something that can’t be replaced, especially if you believe the company is intent on moving into a new privacy-based tracking & targeting ad model (a story for another time). There’s also the brand erosion risk the company takes the longer it forces its own payment system on people & restricts third party app integration.
“What other businesses do use Apple’s payment but would be fundamentally different if they had that extra margin? And what never happened at all? What products could not be built because of the ways that Apple’s sandbox works, that now might change? How significant are the changes in payment models?”4
These are questions we’ll hopefully begin to see answered over the next few years.
I don’t necessarily mean to pick on Apple, but something Howard Lindzon said on a Spaces the other night is a sentiment I share. To paraphrase Howard, Apple is already a $2.5 TRILLION company – do we really think groundbreaking, paradigm-shifting technology gets built by companies this large? Is a $3 trillion, $4 trillion or $5 trillion Apple really the best path forward for innovation? Color me skeptical.
If I had to posit a guess, Apple’s dream would be a walled-garden oasis where developers can build anything they want (so long as it comes through the App Store), user identities are defined by their Apple ID, everything is paid for with Apple Pay & all your online experiences are those which Apple believes to be worthwhile & valuable. This is of course not what those of us in the crypto world are hoping for. It’s also why I’m increasingly coming around to how identity will act as our passport to the virtual world(s). Apple forcing the Apple ID sign-in everywhere is another great way to entrench itself, but I don’t think this is the end-state by any means.
I’m cautiously optimistic we will look back at the Saga launch as an important steppingstone to widespread adoption. Even if it acts as just a footnote, the ethos behind it matters and who knows, if it makes enough noise maybe it’ll shake the big box app store trees a little bit.
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87% of US teens use an iPhone according to recent survey
I recently switched from Apple Music to Spotify quite seamlessly fwiw