a16z: We are in the middle of the fourth crypto market

To sum up, from the emergence of BTC to the present, cryptocurrency has developed for more than ten years. With the development and innovation of cryptocurrency and blockchain, the Internet Web3 era has begun to attract more and more people’s attention.

The development of the Internet is currently divided into three stages, namely Web1, Web2, and Web3. Web1 happened circa 1990-2005 and was mostly about decentralization and community-governed open protocols, where most of the value was concentrated on users and builders. Web2 happened around 2005-2020 and was a closed, centralized era service with most of the value concentrated in a few large tech companies. Web3 is what we are experiencing today, it combines the spirit of decentralization and community management of the first era with the advanced and modern features of the second era. Although the development of Web3 is still in its early stages, we still believe Web3 will unlock a new wave of creativity and entrepreneurship.

a16z published a report on the state of crypto last month, which outlines where we are in the crypto lifecycle and where we’re headed going forward. The following are some important statements about the report covered in the report:

1. NFTs are going mainstream, which is a good thing for creators

In 2021, NFTs have become a hot topic. We saw Apes NFTs sell for several million dollars. Much of the buzz in the NFT space is unsustainable, and most projects that exist today will inevitably go to zero.

But NFTs are not just pictures of monkeys. They have countless applications and they will play a key role in the creator economy.

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Web3 is much better for creators than web2, and we can see by comparing its usage:

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Developers have created more empowerment on NFTs than on the Web2 platform.

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2. Encryption technology will have a huge impact on the financial system

With 1.7 billion people still unbanked, demand for decentralized finance (DeFi) and digital dollars has increased dramatically. DeFi has the potential to solve these problems.

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Cryptography has already made a huge impact, and DeFi is huge on a global scale.

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There are many potential use cases, but DeFi is still in its infancy, with lending protocols and token exchanges being the most common.

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These use cases are not limited to broken financial systems. Web3 can do more, and cryptocurrencies are helping other disrupted markets as well.

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3. Ethereum is still far ahead, and competitors are catching up

Ethereum was the first to introduce smart contracts, and it has had a huge impact on blockchain networks since its inception. While Ethereum has the most builders, other competing platforms are starting to grow.

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The popularity of Ethereum is a double-edged sword, Ethereum prioritizes decentralization over scale, which opens the door to other competitors who attract users with lower fees and better performance .

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4. The future is cross-chain

Bridges and cross-chain infrastructure are taking off. Clearly, L1 cannot do everything we hope to achieve in Web3.

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5. L2 may be the answer to Ethereum’s scale problem

Rollups are growing in popularity, they are cheaper and more efficient than L1s. Ethereum founder Buterin believes that L2s will be the key to the future development of cryptocurrencies.

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ZK rollup has many privacy and security related use cases and counting.

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6. Web3 games may grow 

We haven’t seen a lot of good Web3 games, most of them suck. This is because it takes time to create a good game, a lot of money is pouring into the crypto space, and teams are under pressure to launch products, which has led to the emergence of some undeveloped games.

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In the future we will see people investing more time and money to create great Web3 games, which will open the door to a new century for us.

7. The DAO may be the largest entity we will see in the future

DAOs give people better creativity and the freedom to make collective decisions, and there are already some DAOs and some great narratives out there. Examples include Constitution DAO, OlympusDAO, and GnosisDAO. The changes to the Constitution DAO have caused quite a stir, and I believe we will see more such narratives in the next few years.

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8. We are in the middle of the fourth cryptocurrency market cycle

Cryptocurrencies are volatile and their cycles look chaotic, but there also seems to be some underlying logic.

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cdixon and eddylazrazin wrote an excellent article on the crypto price innovation cycle, which divides the price innovation cycle into four cycles:

The first cycle: 2009-2012

The first crypto cycle peaked in 2011. Until then, even bitcoin enthusiasts thought bitcoin was an interesting experiment and unlikely to have real value. Later, entrepreneurs realized that it was possible to do business with cryptocurrencies, and many of today’s largest exchanges, miners, and wallets were founded during this period.

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Notice how developers, social media, and startups stay alive after the price drops. As we’ll see later, this is an ongoing pattern that kicks off a long-term steady increase in fundamental innovation.

Second cycle: 2012-2016

The second cycle, which peaked in late 2013, was probably the first time most people outside the tech world had heard of Bitcoin. This cycle has attracted about 10 times as many developers and startups into the space. It was also during this time that some important projects were created and funded, most notably Ethereum, which caused a stir in 2017 (in the third cycle). A key feature of cryptocurrency cycles is that each cycle plants seeds, which then grow and drive the next cycle.

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The third cycle: 2016-2019 

The third cycle peaked in 2017, when the broader impact of cryptocurrencies attracted mainstream attention. This cycle has once again increased the number of developers and startups in the space by about 10 times, and cryptocurrencies have grown from the fringes to a real startup space.

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Zooming out, when you combine the three cycles, you see erratic but steady increases in all key metrics:

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The top row of signs is a sample of high-quality projects that start in each cycle. The 2017 cycle spawned dozens of exciting projects in a wide range of fields including payments, finance, gaming, infrastructure and web applications. After many of these projects were launched, it was a good push for the fourth crypto cycle.

Finally, here are the compound annual growth rates for each indicator from 2010 to the present:

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As chaotic as the crypto cycle may seem, over the long term, there has been a steady increase in new innovations, codes, projects, and startups — the fundamental drivers of software innovation. Technologists and entrepreneurs will continue to push crypto forward for years to come, and we’re excited to see their results.

It is worth mentioning that we are currently in the middle of the fourth cryptocurrency market cycle.

In essence, the price is a hook, and as the price rises, the interest of the cryptocurrency also rises, which also promotes innovation in the industry.

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Benjamin Graham once said, “It’s better not to care about the market, which often takes us from excitement to despair and even depression.” But if you believe in Web3, don’t walk away. Because once you leave, you may miss a once-in-a-lifetime opportunity.

Imagine if people swore off the internet after the dot-com bust, there would be no streaming, cloud services or social media today.

Web3 could be a very similar story. 

9. We are still early

a16z estimates that there are an estimated 7 million to 50 million active Ethereum based on various on-chain metrics. In terms of acceptance, we are like the internet in 1995.

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This is very early. Cryptocurrencies have yet to gain mainstream adoption. Most people have heard of cryptocurrencies but don’t use it, DeFi and dApps are rarely used these days.

But it’s worth noting that Web3 has a lot of potential. It can help creators, but it can also solve problems in the financial system and change the way we collectively make decisions. Web3 has the potential to change the world, but the technology is still in its infancy and we’re only just scratching the surface.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/a16z-we-are-in-the-middle-of-the-fourth-crypto-market/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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