a16z redefines the crypto industry in 2022: the new “price innovation” cycle

The state of cryptocurrencies has changed a lot since we started investing in the space nearly 10 years ago.

This report will be the first of an annual overview of trends in the crypto industry, the advantages of tracking data through a16z encryption, and shared by the countless entrepreneurs and builders we meet. It’s for those trying to understand the evolution of the internet and where we are on the journey towards an alternative to a decentralized, community-owned and operated web2 technology platform – especially when it comes to creating builders and other builders.

We are in the middle of the fourth “price innovation” cycle

Markets are cyclical, and cryptocurrencies are no exception. Summer makes winter colder, winter melts in summer heat. The progress builders made in the dark times will eventually rekindle optimism after the dust settles. We may now be entering such a period due to the recent market downturn.

a16z redefines the crypto industry in 2022: the new "price innovation" cycle

While cryptocurrencies can be volatile and their cycles seem chaotic, as Chris and Eddie first pointed out in 2020, there is an underlying logic. (See slides 9 to 12) In some industries, price tends to be a lagging indicator of performance, but in crypto it is a leading indicator. Price is a hook, numbers drive interest, interest drives ideas and activity, which in turn drives innovation. We call this feedback loop the “price innovation cycle,” and it has been the engine that has propelled the industry through many different waves since Bitcoin’s inception in 2009.

a16z redefines the crypto industry in 2022: the new "price innovation" cycle

As legendary investor Benjamin Graham once said: Better to ignore “Mr. Market”, who often goes from euphoria and ecstasy to despair and depression. To Graham’s wisdom, we add: it’s better to focus on building, think about it, any would-be founder who vowed to stay away from tech and the internet after the dot-com bubble burst in the early 2000s missed out on this decade The best opportunities for: cloud computing, social networking, online video streaming, smartphones, etc. Now is the time to think about what similar successes will be in web3.

Web3 is much better for creators than Web2

The acquisition rate of Web2 giants is ridiculously high, and the Web3 platform provides a fairer economic condition. (See slide 39 of the slides.). By comparison, Meta has close to 100% usage on Facebook and Instagram, while NFT marketplace OpenSea has 2.5% usage. As U.S. Congressman Rich Torres pointed out in a recent op-ed, when Big Tech is taking over at a higher rate than the Mafia, you know something is seriously wrong with our economy.

a16z redefines the crypto industry in 2022: the new "price innovation" cycle

Our team conducted new data analysis to estimate how much web3 is paying creators compared to web2. (See slide 40) Although it’s still early days, the data speak for itself. In 2021, one sale of Ethereum-based NFTs (ERC-721 and ERC-1155), plus royalties paid to creators for secondary sales on OpenSea, will generate a total of $3.9 billion. That’s four times the $1 billion Meta (Facebook) data company plans to pay creators by 2022, or less than 1% of revenue.

a16z redefines the crypto industry in 2022: the new "price innovation" cycle

This number is even more staggering considering that Web2 has more users than Web3: we counted 22,400 Web3 creators (based on the number of NFT collections), while the number of users publishing content on the Meta platform is close to 3 billion. While in absolute terms Spotify and YouTube pay creators more — $7 billion and $15 billion, respectively — the “per capita” gap is staggering. According to our analysis, Web3 pays $174,000 per creator, Meta pays $0.10 per user, Spotify pays $636 per artist, and YouTube pays $2.47 per channel. Web3 is small but powerful.

Crypto is having a real-world impact

Creator payments are just one example of the benefits of cryptocurrencies, there are many others.

Take the financial system, for example. The status quo has disappointed many: More than 1.7 billion people are unbanked, according to the World Bank. As the slide shows, demand for decentralized finance (DeFi) and the digital dollar has increased substantially over the past few years, even taking into account the recent downturn. (See slides 26, 28 and 33) For the underserved and unbanked population (1 billion of whom have mobile phones), cryptocurrencies offer an opportunity for financial inclusion, with projects like Goldfinch expanding emerging Funds that are not available in the market.

a16z redefines the crypto industry in 2022: the new "price innovation" cycle

Crypto is also addressing other market crashes (see slide 53 in the slideshow.). FlowCarbon is transforming carbon credits by making these increasingly important units of account transparent and traceable on the blockchain. Grassroots wireless grievances pose the first legitimate, decentralized challenge to the entrenched telecom giant. Spruce empowers people to control their identities, rather than ceding that power to online intermediaries like Google and Meta, which profit from people’s information through data-mining business models.

a16z redefines the crypto industry in 2022: the new "price innovation" cycle

Such examples cannot be listed all, DAOs, or Decentralized Autonomous Organizations, show how strangers can economically coordinate and cooperate to achieve goals. NFTs grant users virtual property rights, including personal NFT avatars, artwork, music, in-game items, passes, land in virtual worlds, and other digital goods. Token incentives allow newcomers to bypass the “cold start” problem and quickly activate network effects. Cryptography is much more than a financial innovation – it is a social, cultural and technological innovation.

We’ve just scratched the surface of the possibilities.

Ethereum is the clear leader, but faces competition

Ethereum dominates the web3 conversation, but there are many other blockchains now, with blockchain developers like Solana, Polygon, BNB Chain, Avalanche, and Fantom seeking similar success.

a16z redefines the crypto industry in 2022: the new "price innovation" cycle

Ethereum’s lead has a lot to do with its early start and the health of the community. In terms of developer interest, Ethereum has the most builders, with nearly 4,000 monthly active developers. 18 (see slideshow). It is followed by Solana (close to 1000) and Bitcoin (around 500). Ethereum’s overwhelming reach helps explain why its users, on average, are willing to pay more than $15 million per day to use the blockchain — remarkable for such a young project.

a16z redefines the crypto industry in 2022: the new "price innovation" cycle

The popularity of Ethereum is also a double-edged sword. Since Ethereum has historically valued decentralization over scale, other blockchains have been able to lure users by promising better performance and lower fees. (Some might say they do so at the expense of safety.)

In addition to challenger blockchains, we’ve also seen incredible progress in interoperability, which allows people to “build” bridges between one blockchain asset and another, as well as “layer two” “Techniques, such as optimistic aggregation and zero-knowledge aggregation, aim to reduce costs by expanding the available block space.

a16z redefines the crypto industry in 2022: the new "price innovation" cycle

Blockchain is a hot commodity for the new wave of computing, just like PCs and broadband in the 90s and 2000s, and mobile phones in the past decade. There is a lot of room for innovation and we believe there will be multiple winners.

Yes, it’s still early

While it’s hard to know the exact number of web3 users, we can infer the scale of the move. Based on various on-chain metrics, we currently estimate that Ethereum has between 7 million and 50 million active users. 54 (see slideshow). Compared to the early days of the commercial Internet, our development was around 1995. By 2005, the Internet had reached 1 billion users—coincidentally, just as web2 was starting to take shape, future giants like Facebook and YouTube were also being formed.

a16z redefines the crypto industry in 2022: the new "price innovation" cycle

Again, although hard to estimate, if trends continue, Web3 will reach 1 billion users in 2031.

In other words, it’s still early, there’s a lot of work to do, let’s keep building/building. 

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/a16z-redefines-the-crypto-industry-in-2022-the-new-price-innovation-cycle/
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