What do technology layoffs mean for the crypto world?

Large-scale layoffs have become the norm across the cryptocurrency industry. It seems like every day there is a new story of layoffs featuring cryptocurrency exchanges. Bitcoin (Bitcoin -0.85%) Mining companies or financial services companies involved in crypto assets.

Of course, there are two ways of looking at this situation. A half-empty glass approach and a half-full glass approach.

glass half empty

Let’s start with the glass half-empty approach. Because this has become the favorite story of the mainstream media. The story here is very simple. In 2022, the cryptocurrency market will collapse, crypto winter will begin, and companies struggling to survive will begin mass layoffs. The implicit message, of course, is that many cryptocurrency companies will not survive, or if they do, they will play a much smaller role in the current financial system.After Crypto Exchange Meltdown FTX (FTT -4.00%)regulators have little to no patience with bad actors and scammers who have somehow found a place in the cryptocurrency industry.

Image Source: Getty Images.

Of course, when it comes to cryptocurrency layoffs, many investors focus on coin base (coin 11.62%), one of the most prominent crypto companies. The company has been very transparent about the impact of the cryptocurrency market crash on its business model. Heading into 2023, many analysts thought Coinbase had completed his round of layoffs that began in June. But then, in mid-January, the company announced another 950 layoffs. This represents about 20% of the remaining workforce.

The move was particularly disappointing as it showed Coinbase did not expect retail crypto investors to return anytime soon. If Bitcoin could soon make a dramatic comeback, why cut nearly 1,000 staff? It was needed to get us back on the road to profitability. But if you search social media, you’ll find plenty of apocalyptic scenarios featuring Coinbase. In fact, just a week after these job cuts, he announced that Coinbase would cease operations in Japan.

glass half full

However, there are competing stories that furloughs may be good for the crypto industry. It may sound counterintuitive, but this approach is based on an economic theory that dates back to his 1950s (but is still taught in business schools) called “creative destruction.” This theory has been used to explain everything from the loss of Polaroid’s dominance in photography to the demise of the local newspaper: it’s one of his “throw away the old and bring in the new.” It can be summed up in one short phrase. According to some economists, the next innovation may require turning the industry upside down. Maybe that’s what’s happening with cryptocurrencies right now.

A good example here is a cryptocurrency exchange. The “old” model featured centralized exchanges such as Coinbase, while the “new” model featured decentralized exchanges such as: Uniswap (Uni 4.38%), pancake swap (cake 0.10%)When sushi swap (Sushi 0.72%)Centralized exchanges require people to do their daily work. A decentralized exchange only needs a smart contract and a piece of computer code. Simply put, you don’t hear about Uniswap cutting people. This new model is essentially a peer-to-peer trading model, exchanging crypto directly with other market participants.

Or what about all the bitcoin mining companies that are currently cutting operations and laying off staff? It may indicate thatnow ethereum (ETH -1.05%) It finally converted to a proof-of-stake cryptocurrency as a result of last year’s The Merge, but the long-term trend is towards greener, more energy-efficient blockchains with proof-of-stake verification. Heading in? This model offers a unique innovation based on cryptocurrency staking. These include innovations such as “liquid staking” that blossomed during the crypto winter.

Which scenario is more likely?

Of course, that half-glass approach might just be hopium. Maybe all of Bitcoin’s $1 million price predictions were completely ridiculous. Perhaps the crypto industry is destined for obscurity. The meme coin may be a Dutch tulip bulb from this era. Perhaps the belief that mathematicians and cryptographers can create cryptocurrencies out of nowhere will be this generation’s version of medieval alchemists who think lead can be turned into gold.

Of course, this is a pity. Because it means that the best and brightest people no longer want to work in the cryptocurrency industry. Just like no one boasts about working at Enron anymore (remember when they were the “smartest people in the room”?) – no one knows he works at FTX. I don’t brag about it. Perhaps the next wave of tech talent will find something else that interests them, such as artificial intelligence or new ways to create economic value through AI-powered chatbots. But I hope that doesn’t happen, as the blockchain and crypto companies emerging from this crypto winter will need this talent more than ever.