Translator’s Note: This article is divided into two parts, the upper part expounds the concept of the “price-innovation” cycle of cryptocurrency and its basic logic, and analyzes three cycles through data analysis (2009-2012, 2012-2016, 2016-2019) encryption activities.
The next section summarizes the current state of cryptocurrency in 2022 into 5 key points, introducing the opportunities and challenges we are currently facing in the middle of the fourth “price innovation” cycle of cryptocurrency.
Cryptocurrency “price-innovation” cycle
Industry players who have been involved in the cryptocurrency market for a long time believe that the market is cyclical, alternating between periods of high activity and ” crypto winter “.
So far, three cycles have passed. The first cycle peaked in 2011, the second in 2013, and the third in 2017.
These cycles may seem confusing, but they actually have basic logic, which can be roughly described as:
1) An increase in the price of Bitcoin and other crypto assets;
2) Generate new interest and social media activity;
3) Attract more people to participate and contribute new ideas and codes;
4) Facilitate the creation of new projects and start-up companies;
5) Further introduce product releases to motivate more users, which will eventually end in the next cycle.
Whether it is from industry rumors or real data, this view is supported. In hundreds of conversations with various cryptocurrency entrepreneurs, we always hear stories like this:
“I heard about cryptocurrencies in 2011, 2013, 2017, and during these times the price of cryptocurrencies skyrocketed and everyone was talking about it. At first, I thought it was about money, but when I started reading a series of Whitepapers and blog posts, but learned the potential of this technology, and in the end, I fell in love with it.”
Recently, we were working on an a16z internal project to see if the data would show a similar pattern.
Led by cryptocurrency data scientist Eddy Lazzarin , we analyzed 10 years of data, including comments on Reddit cryptocurrency subreddits, commits to crypto-related repositories on Github , and funding data from Pitchbook (more methodology below). ). The results are shown in the next chart.
The first cycle: 2009-2012
The first cryptocurrency cycle peaked in 2011. Until then, even cryptocurrency enthusiasts thought Bitcoin was just a fun experiment, unlikely to yield real value.
After this, entrepreneurs realize that it is possible to create a business in the cryptocurrency market. Many of today’s large exchanges, miner groups, and wallets were founded at this time.
BTC price, developer activity, startup activity, and social media activity from October 2010 to July 2012
Watch how developer, social media and entrepreneurial activity has sustained following the price drop. As we will see later, this is an ongoing pattern that fosters long-term steady growth in fundamental innovation.
Second cycle: 2012-2016
The second cycle peaked in late 2013, probably the first time most outsiders heard about Bitcoin . This cycle has brought about a dozen times as many developers and startups to the cryptocurrency industry.
At the same time, it is also when many important projects are created and funded, with Ethereum being the most prominent, and its performance in the third cycle of 2017 is very exciting. The key feature of the cryptocurrency cycle is that the seeds that each individual sown will thrive and drive the next cycle.
BTC price, developer activity, startup activity, and social media activity from July 2012 to January 2016
The third cycle: 2016-2019
The third cycle, which peaked in 2017, was when the widespread impact of the cryptocurrency market gained mainstream attention. Once again, this cycle has greatly increased the number of developers and startups, up to a dozen times or so. The cryptocurrency market has also changed from a fringe industry to a true startup industry.
BTC price, developer activity, startup activity, and social media activity from January 2016 to October 2019
Going back to the present moment, when you look back at the three cycles in combination, all the key metrics, while ups and downs, continued to grow.
Integrate the above three charts
The icons in the top row are examples of high-quality projects that are launched in each cycle. The 2017 cycle saw the birth of many exciting projects ranging from payments , finance , gaming , infrastructure and web applications . There are many projects here that will be released in the near future, likely to drive the fourth cryptocurrency cycle.
The compound annual growth rate of the four indicators of BTC price, social media activity, developer activity, and entrepreneurial activity
As chaotic as the cryptocurrency cycle looks, over the long term, they have seen steady growth in new ideas, codes, projects, and entrepreneurial activity, which are important drivers of software innovation. In the coming years, technologists and entrepreneurs will continue to push cryptocurrency forward. We look forward to their results.
Startup activity refers to the total number of all companies on Pitchbook that were founded after January 1, 2019 and raised their first round of funding in the cryptocurrency/blockchain vertical. The data only covers a few rounds of financing in a specific year and month. Among them, some companies that have nothing to do with cryptocurrencies and blockchain were manually screened out. Data is exported directly from the Pitchbook .
Developer activity is the sum of the ” favorites ” of all crypto-related repositories listed by github.com/electric-capital/crypto-ecosystems as of February 4, 2020 . These categories are cited without modification. Data is collected directly from GitHub ‘s API .
Social media activity refers to the collection of all comments on Reddit ‘s 91 cryptocurrency-related subreddits. These subsections are identified by querying the raw data multiple times using encrypted related keywords, followed by manual verification of the review data. Data is collected directly from PushShift.io.
As shown, all data are presented by month and year, not cumulative.
The first three charts reflect only each individual period and are meant to illustrate trends within a specific period; the fourth chart shows the general trend from 2009 to 2019.
2022 State of Cryptocurrency Report
Source | a16zcrypto.com
Authors | Daren Matsuoka, Eddy Lazzarin, Chris Dixon, Robert Hackett
Since a16z started investing in the crypto industry nearly a decade ago, the industry has changed dramatically since then.
This report is the first annual trend look at the crypto industry, and our team has written it with two of our strengths in the crypto industry : the ability to track data and the opportunity to connect with countless businesses and builders. This report is for readers who are trying to understand the evolution of the Internet and where we are on this journey from a centralized web2 platform to a decentralized, community-led web3 world – especially for creators and builders .
The most important themes in the report can be distilled into five main points below, but to make sure to dive into these 50+ slides (the full State of Cryptocurrency 2022 report can be downloaded below); also make sure to subscribe to a16z’s live feed for ongoing insights and upcoming resource updates.
Five key points
We are in the middle of the fourth “price-innovation” cycle
Markets are seasonal; the crypto market is no exception. Summer gives way to the bitterness of winter, and winter will melt away in the heat of summer. Progress made by builders on dark days will eventually rekindle industry-wide optimism when the dust settles. And with the recent market downturn, we now seem to be entering these dark times.
Cryptocurrency Market Cycle Development: Price – Interest – New Ideas – Entrepreneurship & Projects
Despite the volatile and chaotic cycles in the cryptocurrency market, as Chris and Eddy first pointed out in 2020 (i.e. the price-innovation cycle above): it has a basic working logic. (See slides 9-12.)
While in some industries price is often a lagging indicator of market performance, in cryptocurrency markets price is a leading indicator .
Price is an attractive factor, and rising prices generate interest in the industry, which in turn fosters creativity and activity, which in turn drives innovation. We call this feedback loop the ” price-innovation cycle “.
And, since the creation of Bitcoin in 2009, this cycle has been the driving force that has propelled the crypto industry forward in multiple waves.
The result is sustained long-term growth driven by a feedback loop between profit and innovation
Legendary investor Benjamin Graham once said that it is best to ignore “Mr. Market”, who often falls from impassioned and happy moods back to despair and depression.
Based on Graham’s wisdom, we add our own humble opinion: it’s better to go into construction. Think about it, after the dot-com bubble burst in the early 2000s, so-called future investors abandoned technology and the Internet, leaving them behind the best of the decade: cloud computing, social networking, live streaming, intelligence The rise of technologies such as mobile phones. Now, it’s time to think about what equivalent success web3 will achieve.
#2 For creators, web3 is far superior to web2
The web2 giants have ridiculously high pumping rates; web3 platforms offer fairer economic terms. (See slide 39) Meta ‘s take on Facebook and Instagram users is nearly 100%, compared to 2.5% on OpenSea , the NFT marketplace .
In an editorial, U.S. Congressman Richie Torres said, “When Big Tech is pumping more than the Mafia, you know there’s something seriously wrong with our economy.
The pumping rate of the web3 platform is much lower than that of the current Internet giants
Our team conducted a new data analysis to assess how much creators were paid to compare web2 and web3. (See slide 40) It’s early days, but the data speaks for itself.
In 2021, the initial sale of Ethereum-based NFTs (ERC-721 and ERC-1155) and the payment of creator fees in OpenSea’s secondary sale yielded a total revenue of $3.9 billion. That’s four times the $1 billion in dedicated payments Meta will pay to creators in 2022, which is just 1% of Meta’s revenue.
NFTs offer creators a new way to directly financially connect with fans
This figure is all the more staggering considering the huge disparity in the number of web2 and web3 users: our team calculated that there are 22,400 creators on web3 (based on the number of NFT collectibles), and users who publish content on the Meta platform There are nearly 3 billion.
While Spotify and YouTube pay creators $7 billion and $15 billion, respectively , in absolute terms, the stark difference in per capita distribution is staggering. According to the analysis, web3 pays $174,00 per creator, while Meta pays only $0.1 per user, Spotify pays $636 per artist, and YouTube pays $2.47 per channel. web3 is small, but its power is evident.
Cryptocurrencies are affecting the real world
Creator payouts are just one example of user benefits in the cryptocurrency market; there are many more lucrative ones.
Consider the financial system, and its status quo has disappointed many: According to the World Bank, more than 1.7 billion people are unbanked. As the next slide shows, even accounting for the recent economic downturn, demand for decentralized finance (or DeFi) and digital dollars has surged over the past few years. (See slides 26, 28, and 33.) Among the underserved and unbanked population, 1 billion of whom have smartphones, the crypto industry presents an opportunity for financial inclusion.
Projects like Goldfinch are giving more people access to capital that would otherwise be unavailable in emerging markets.
Total assets under management in DeFi may represent the 31st largest U.S. bank
The cryptocurrency market is also grappling with other fragmented markets. (See slide 53) Flowcarbon is facilitating the transparency and traceability of the increasingly important unit accounts on the blockchain to complement the carbon credit model. As a grassroots wireless network, Helium is bringing its first legal and decentralized challenge to the established telecom giant.
And Spruce is also empowering people to control their identities, rather than ceding that power to online intermediaries like Meta , which profit from users through data-mining business models.
The cryptocurrency market is affecting the real world
Continuing this list, DAOs (Decentralized Autonomous Organizations) demonstrate how strangers can economically coordinate and cooperate to achieve goals. NFTs empower people to own virtual assets like avatars, artwork, music, game items, proof of access, virtual world lands, and other digital products.
Also, token rewards allow newcomers to avoid the ” cold start ” problem and introduce network effects. The crypto industry is far more than a financial innovation, it is a social, cultural and technological innovation.
For its more possibilities, we only know the fur.
Ethereum is a clear frontrunner, but faces stiff competition
Ethereum dominates the web3, but many other blockchains now play a similar role. Developers of blockchains like Solana, Polygan, BNB Chain, Alvalance, and Fantom are all vying for similar victories. (see slides 15 and 27)
Ethereum continues to attract most developers, but there are several emerging ecosystems competing on the same track
Ethereum’s leadership has a lot to do with its early launch and healthy community. As for developer interest, Ethereum clearly has the majority of builders, almost 4,000 monthly active developers. (See slide 18) Behind it are Solana (nearly 1000 MAUs) and Bitcoin (about 500 MAUs).
Ethereum’s overwhelming share explains why its users are willing to pay an average of over $15 million a day in fees to use the chain. For such a young project, this achievement is remarkable. (see slide 16)
While other smart contract platforms are still competing with Ethereum for users and usage, the demand for block space on Ethereum is unrivaled
The popularity of Ethereum is also a double-edged sword. Because it has always attached great importance to decentralization rather than scaling, and other blockchains can take advantage of this to attract users with better performance promises and lower fees. (Some might say they came at the expense of safety.)
In addition to challenger blockchains, we are also witnessing amazing progress in Ethereum’s interoperability, which allows users to ” bridge ” assets from one chain to another; Layer2 also has incredible developments such as optimistic rollups and zk-rollups, they aim to reduce fees by expanding the available block space. (See slides 17 and 21-23.)
optimistic rollups is the most popular L2 technology right now, but ZK rollups are just starting to go live
Blockchain is the hottest product in the new wave of computing, like personal computers and broadband in the 90s and 21st century, and mobile phones a decade ago. Innovation has a lot of room for development, and we believe that there will be many winners in the future.
Yep, it’s still early
Although the exact number of users of web3 is difficult to calculate, we can calculate the scale of this web3 movement. Depending on different on-chain parameters, our team estimates that there are currently around 7-50 million active users on Ethereum. (See slide 54.) In contrast to the early days of the commercial Internet, we were around 1995.
The internet hit 1 billion users in 2005, and coincidentally, the web2 was starting to take shape in the creation of future tech giants such as Facebook and YouTube.
It’s still early days for web3
Again, although it is difficult to measure user volume right now, if the trends depicted on the graph continue, web3 could reach 1 billion users by 2031. In other words, it’s still early to get in. web3 still has a lot of work to do, let’s keep building.
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