If you’re not a deep thinker, you’re not going to enjoy reading the rest of this article about MATIC (CCC:MATIC-USD).
By that, I’m talking about the folks who only want to hear one of two narratives: a bullish argument to satisfy your confirmation bias or a bearish argument to satisfy your confirmation bias that a cabal of conspirators is out to take down your asset of choice, in this case, MATIC.
If you fall into this latter camp, I’ll spare you the time. Based on the developments that I’m seeing within the broader cryptocurrency complex, I’m skeptical about MATIC, as I am with other crypto coins and tokens.
Essentially, I’m on record that investors should have been taking some profits off the table earlier — much earlier.
True, you may perceive this fallout in MATIC and other digital assets as the time to load the boat. But imagine, if you had sold earlier, you would have had more funds to load the boat with.
A Quick Breakdown of MATIC
Anyways, that’s a different discussion for a different day. Here, we’re talking exclusively about MATIC-USD, which has the potential to revolutionize blockchain technology. According to Coinmarketcap.com, MATIC, which its developers will rebrand as Polygon, uses the core component Polygon SDK to facilitate a “modular, flexible framework that supports building multiple types of applications.”
But you might ask, isn’t the blockchain inherently modular and flexible? Yes, to certain degrees.
For instance, the original cryptocurrency Bitcoin (CCC:BTC-USD) sparked the revolution by proving that decentralized peer-to-peer transactions were not only possible but economically viable. But inefficiencies within the BTC network could not handle the overwhelming interest for the coin.
Quickly, other blockchain alternatives, such as Ethereum (CCC:ETH-USD) popped up. While ETH became wildly successful, it too became cumbersome, leading to onerous transaction costs. What the industry needed was a “full-fledged multi-chain system.”
If Bitcoin is a single-lane highway and Ethereum is a multi-lane highway, then Polygon is a network of several multi-lane highways. You can see why this would initially attract investors to MATIC. AThat’s also the reason why sober buyers are abandoning ship.
Ask the Basic Question
I’m a car guy but I don’t know anything about cars. I’m a connoisseur of the driving experience. While I assess metrics like horsepower, torque, compression ratios, whatever, I invariably go to the bottom line. Does any of this techno-wizardry make this particular vehicle launch to 60 miles per hour from a standstill in under (insert benchmark here)?
It’s a similar angle with MATIC. How is its blockchain wizardry superior to any other blockchain wizard?
Surely, MATIC advocates will state that the underlying platform makes the blockchain more efficient, thereby democratizing technologically based applications. However, this isn’t the only protocol that facilitates the so-called internet of blockchains. As is the case with seemingly every other groundbreaking development in this space, competition is never far behind.
This brings up a more uncomfortable concept: the very decentralization that Polygon espouses limits its ability for financial success, making MATIC a very speculative vehicle.
Again, we must ask basic questions. If Bitcoin is a laggard piece of crap — and it is from a blockchain performance perspective — why is it still relevant? Because the very volume that exposed its laggardness is what makes the underlying BTC token so valuable, from a speculation perspective as well as a network contributor.
Take away the volume and rational actors go away, looking for a more profitable venture for their efforts and time.
Look at it this way. I’m a SoCal guy. Everyone here knows that you couldn’t build enough multi-lane freeways from San Diego to Los Angeles. Why? Because this is an extremely desirable route. So even if the route is inefficient (it is), people will drive it.
I can tell you that no one is building expanded freeways from San Diego to El Centro. And that’s the risk with MATIC.
It’s a faster way to El Centro that no one is asking for.
You Need Inefficiencies in a Decentralized Protocol
If you’re getting angry about what I’m saying above, you really should have taken my advice earlier. But let me attempt to spare you time writing to my editor: I’m not impugning the technical architecture of Polygon, merely questioning the economics of it.
On the off chance that you’re angry about El Centro, I love El Centro. I’ve been there many times, although to be fair only once on purpose.
The point really isn’t about El Centro or even MATIC-USD. It’s that you should always ask fundamental questions about blockchain-based assets and separate the technology from the economics.
Again, Polygon makes blockchain engagement more efficient through its brilliant architecture (I guess), but that’s not the right question. In fact, you should be asking the opposite question. Because when you really think about it, you need a certain degree of inefficiency to make any blockchain-based venture economically or commercially viable.
Right now, many folks are up in arms about how inefficient Ethereum has become due to the influx of traffic. That inefficiency is also what makes mining ETH and verifying transactions in the system profitable. If Ethereum becomes too efficient, that disincentivizes blockchain engagement. And engagement is everything — absolutely everything — when it comes to decentralized ventures.
This dynamic speaks to the reason why Harvard Business Review was skeptical about the hype train associated with blockchain ventures like Polygon. In its words, blockchain is a foundational technology, but it might take decades for blockchain to become mainstream because it necessarily involves uprooting prior foundations.
What the wildness in MATIC has clarified for me is the foundational principles of economics will never go away. Under the present centralized paradigm, people buy efficiencies for their technology, irrespective of their immediate need. In a decentralized paradigm, people bid for efficiencies as needs rise and other people provide them.
Make the process too efficient (as I stated earlier) and the bidding process dies, as likely will the target blockchain for lack of engagement.
Blockchain May Not Be That Great
Finally, before you dive into MATIC or any other token, consider this: the blockchain may not be all that great.
As a 2019 article in Wired.com detailed, the technology has had trouble moving beyond its peer-to-peer payment solution profile. Frankly, as the article points out, mainstream (and centralized) platforms are much more intuitive and capable. Plus, if you have a problem, customer service is just a phone call or email away.
What are you going to do in a decentralized platform? Reach out to a node network in Viljandi, Estonia?
Because this is the internet, let me reiterate this again: I’m not impugning Polygon’s innovative framework. I’m just skeptical about its commercial viability.
I’m concerned that naïve investors are assuming that a decentralized protocol takes the best of both worlds. In reality, decentralization entirely changes the paradigm of our current trust model (i.e. dependence on central administrators such as banks and government bodies to handle our business).
My contention is that we as a society are not ready for decentralization, at least not to the extent that Polygon bulls envision. But the opportunity is that MATIC trades on the greater fool theory, and in this manic environment, there are many who are at least still fooled by blockchain’s wizardry.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.