Posts from blockchain

Sign Everything

The advances in AI over the last year are mind-boggling. I attended a dinner this past week with USV portfolio founders and one who works in education told us that ChatGPT has effectively ended the essay as a way for teachers to assess student progress. It will be easier for a student to prompt ChatGPT to write the essay than to write it themselves.

It is not just language models that are making huge advances. AIs can produce incredible audio and video as well. I am certain that an AI can produce a podcast or video of me saying something I did not say and would not say. I haven’t seen it yet, but it is inevitable.

So what do we do about this world we are living in where content can be created by machines and ascribed to us?

I think we will need to sign everything to signify its validity. When I say sign, I am thinking cryptographically signed, like you sign a transaction in your web3 wallet.

I post my blogs at AVC.com and also at AVC.Mirror.xyz which is a web3 blogging platform that allows me to sign my posts and store them on-chain. This is an attestation at the end of last week’s blog post.

You can see that “author address” and click on it to see that it is one of the various web3 addresses I own/control. That signifies that it was me who posted the blog. It is also stored on-chain on the Arweave blockchain so that the content exists independently of the blogging platform. That is also important to me.

I think AI and Web3 are two sides of the same coin. As machines increasingly do the work that humans used to do, we will need tools to manage our identity and our humanity. Web3 is producing those tools and some of us are already using them to write, tweet/cast, make and collect art, and do a host of other things that machines can also do. Web3 will be the human place to do these things when machines start corrupting the traditional places we do/did these things.

#art#blockchain#bots#crypto#digital collectibles#hacking education#machine learning#non fungible tokens#streaming audio#VC & Technology#Web/Tech#Web3

NFT Art CDMX

We spent this past weekend in Mexico City at Bright Moment’s NFT Art CDMX. Bright Moments is the premier NFT art “gallery” in the world. I use that term in parentheses because Bright Moments is much more than a gallery but that word is well understood. USV is a member of the Bright Moments DAO.

Over the course of the weekend, eleven leading NFT artists minted new generative artworks one by one in minting rooms where the collector and the artist saw the work revealed together.

Because there were eleven artists minting their work and also the 1000 mexican cryptocitizens (called Mexas) being minted all at the same time, there was a “live feed” of all of this minting activity in the center of the space.

Hanging out in the main space and witnessing all of the fantastic art coming to life for the first time in real time and in real life was an amazing experience. We did it for two nights this weekend.

I’ve written before about Bright Moments and the in-person experience of experiencing the creation (minting) of generative art. Too much of the NFT experience for my taste happens online and in isolation.

Art is best when it is experienced by a group of people and displayed in a large format where everyone can appreciate it and discuss it together. When you experience generative NFT art that way, it is an aha moment.

Finally, I want to thank the entire Bright Moments team for putting together an incredible event where the artists were front and center along with their amazing work. I came away from it even more excited about where NFT art is going and what it will become.

#art#blockchain#crypto#non fungible tokens#Web3

Taking A Long Term View Of Web3

This post was co-written by Katie Haun and Fred Wilson

The events surrounding FTX have shaken the confidence of many. How did one of the largest crypto exchanges collapse so quickly? Why do meltdowns like this seem to keep happening?

At times like this, it helps to have a long-term view of web3 as a sector, not just a forward-looking long-term view, but also some perspective on where we have come from.

As longtime investors in web3 and board members (also individual shareholders) of Coinbase, one of the oldest and best-known companies in the space, we thought we might share some thoughts.

Web3 is a software-driven innovation that has a built-in financial system. This has been both a strength and a weakness. On the one hand, tokens enable developers and users to contribute to open-source protocols and participate in the economic upside of doing so, leading to strong developer communities. That’s been a positive relative to how software has been developed, monetized, and governed in the past. On the other hand, tokens lend themselves to boom/bust cycles and a sense by many that web3 is simply a speculative endeavor with no real substance behind it. 

This perception is only reinforced by the companies and individuals who started web3 companies and projects with the exclusive intent of making a lot of money very quickly through leveraged trading and speculation, pumping and dumping, and, sometimes, outright fraud.

Most of the well-known meltdowns in web3, going all the way back to Mt Gox and including recent failures like 3AC, Celsius, and Alameda/FTX, have happened to centralized companies operating trading, lending, and speculating businesses. Many of the failures have been offshore and all of them were largely unregulated. These companies and their activities have given web3 a bad name. We have also seen high-profile decentralized projects, like Terra, fail due to flawed design but those failures happen out in the open in a transparent way that is much healthier than the way centralized companies fail.

Contrast that with regulated web3 businesses like Coinbase, Kraken, and Anchorage that operate in the US and you will see that the companies that have followed the rules and behaved properly have weathered these storms. Coinbase’s early innovation was creating a secure, easy-to-use, regulated bridge from fiat currencies to crypto and a safe place to store crypto assets. Coinbase provides a number of important services that have allowed the web3 ecosystem to grow and thrive. 

The most important software innovation of the last decade, which started with the Bitcoin white paper fourteen years ago, is the emergence of open-source software and decentralized protocols that are the foundation of web3.  These protocols have survived recent market volatility. It is the promise of software that is not controlled by a company, but instead by an open-source community with built-in safeguards and increased transparency relative to today’s tech and financial systems, that gives us so much confidence in the future of web3.

These web3 protocols are in active development for mainstream adoption and some key features are still missing. For example, blockchains as they were originally architected are public by default. This is not suitable for most applications. Imagine if your email, banking, and social data were public for everyone to see on a blockchain. Also, blockchains are slow and complex networks. Improvements to performance, scalability, and privacy are happening at the infrastructure level of the web3 technology stack. Emergent technologies like zero-knowledge proofs and rollups are starting to address these issues without compromising decentralization. These breakthroughs are still in the early stages of deployment among a small subset of developers. This is the kind of important work that happens behind the scenes without any coverage. But it is these developments that are preparing web3 for the mainstream.

Eventually, as the web3 infrastructure improves, the user experience gap between self-custody and storing assets on centralized entities will shrink. More users will feel comfortable self custodying their assets in software they control and managing the keys that provide access to their assets themselves. This is how many web3 users interact with decentralized applications, like NFT marketplaces, today.

When web3 becomes a credible alternative to web2 for the masses, large centralized companies like Facebook, Apple, Amazon, and Google will have to compete for access to our data thus redefining how we use the web. Software development will be more open-source and composable. And large financial institutions like banks and brokerage firms (which includes the FTXs of the world) will no longer control our assets and lend them out without our permission.

Ironically, web3 is about giving control of data and assets back to the people and taking it away from large centralized companies. But the transition from web2 to web3 has been slow and messy and many of the early web3 companies have been copycat versions of what came before them. That is where the risk has been in the web3 ecosystem and what we need to move away from.

The lesson of these recent events for policymakers should not be that web3 is bad and must be constrained. It should be that pushing innovation offshore is bad. We need trusted and well-regulated centralized entities to survive and thrive and we also need decentralized web3 protocols to flourish and provide a path to a fully decentralized web. Both are possible and the good news is we are already on a path toward both. We need to stay that course, provide for a healthy web3 sector in the US, and stop pushing US users to risky/shady offshore entities with unclear, uneven, and unfair policy actions.

This is another hard moment for web3 and we will see negative headlines about “crypto” for some time. But it’s important to remember that these headlines are all about the speculating/trading part of web3. The much more important underlying software innovation continues unabated. And that is what we remain so excited about and will continue to fund and champion. 

This post was also shared on the Haun Ventures blog.

#blockchain#crypto#Current Affairs#digital collectibles#non fungible tokens#Web3

Creator Royalties

One of my favorite things about NFTs is that they contain a mechanism for the artist/creator to collect royalties on all of the sales that happen after the initial sale/mint. The creator specifies the royalty percentage when they initially mint the NFT and the NFT marketplaces/smart contracts collect the royalties on future sales and pay them to the creator.

Some forms of creativity have had ongoing economic participation by the creator for many years. In the music industry, there are publishing rights and recorded music rights that are paid to the creator and/or the creator’s financial partners (ie record labels and publishing houses). In the television industry, there are syndication rights. Many of the most successful musicians and television talent have made significant sums of money on these rights.

But for many forms of creativity, the ability to participate in the future value of the work has been absent.

So when I saw the NFT standard emerge, I was really excited about the potential for artists to participate as the value of their work escalates over time.

However, there are clouds on the horizon right now. Some NFT marketplaces have chosen not to enforce NFT creator royalties. There are some valid reasons for this and some not-so-valid reasons.

One valid reason is that “market makers” need very low transaction fees to provide liquidity to a market. A market maker is a participant that trades assets and does not hold them for long-term appreciation. They make money on the spread between where they buy and where they sell. These market makers ensure that there is always a bid on an asset that is being sold and an ask on an asset that is being purchased. Liquidity is essential for markets to work properly and so finding a way for market makers to avoid paying royalties is important. If a creator royalty is 20%, for example, a market maker would either need to underbid by 20% or overprice by 20% in order to break even. That’s not reasonable or feasible.

But there are also less valid reasons. Some newer NFT marketplaces are not enforcing royalties in order to take share from the larger more established NFT marketplaces. While one could argue that is the market working and competition is good for innovation, they are using the NFT creator as a “pawn” in this fight and that really sucks. The NFT creator’s only recourse is to “blacklist” certain NFT marketplaces that won’t enforce royalties and many are reluctant to take that step as it potentially reduces the interest in their work.

Yesterday, OpenSea, the largest established NFT marketplace, partially addressed this issue by announcing a “tool for on-chain enforcement of royalties for new collections.” This will allow NFT creators to require the collection of on-chain royalties when they mint new collections. It is not clear to me whether this tool will only work on OpenSea or if it will work across all NFT marketplaces. Obviously, the latter is the correct approach. OpenSea acknowledged that it does not yet have a good answer for existing NFT collections and is interested in hearing from “the community” on what to do about that.

Another important development in this area comes from USV’s portfolio company Uneven Labs which shipped the Forward Protocol a few weeks ago. The Forward Protocol allows NFT creators to specify that market makers/liquidity providers will not pay royalties on their assets but collectors/long-term holders will. This seems like an incredibly sensible approach and one that the creators and NFT marketplaces should adopt.

Here’s the bottom line for me. A critical part of the NFT innovation is the ability for creators to specify a royalty rate on their work and have it collected in the secondary marketplaces. This is every bit as important an innovation as on-chain art and everything else that comes from the NFT standard. Everyone in the NFT world; creators, marketplaces, collectors, market makers, etc, etc should insist that creator royalties remain a fundamental aspect of NFTs and do whatever is necessary to ensure that happens.

#art#blockchain#crypto#digital collectibles#marketplaces#non fungible tokens#Web3

NFT Screens

I have enjoyed collecting NFT art over the last few years and I have very much wanted to display it in a physical space vs just having it online on a profile, like this one.

So when we started designing the new USV offices last year we started thinking about NFT screens. We were inspired by these amazing NFT screens in the Bright Moments NFT Gallery in Venice Beach California.

So we bought six large displays for the new USV office, three portrait orientation like the photo above and three landscape orientation and hung them around the new USV office. Here are a few photos I’ve taken of the USV NFT screens over the last few months:

Here is how we manage the screens:

We bought Yodecks, one for each screen. A Yodeck is a raspberry pi-based inexpensive device made for the digital signage market but works great as an NFT player.

There is a web app to manage the Yodecks and you can put all kinds of media onto the device. We chose to make a simple web app that runs a playlist of NFTs on each screen and shows the artist, title, and owner on the bottom left and a QR code to view/buy/etc the NFT on the bottom right.

We curate NFTs into a Google Sheet, we use a script to construct a web page playlist from that curated list, and the Yodeck runs the playlist.

It is really simple and works great.

I recommend the larger (4GB) memory Yodecks for displaying rich media NFTs. I also recommend auto refreshing the web app in the Yodeck interface with some frequency to avoid crashed web pages blanking the screens.

My partner Nick wrote the simple web app and we’ve had a lot of fun getting it working well in our office and curating the playlists. Anyone who can fill out a Google Sheet can curate a playlist in our office. So everyone can and does.

Here is the GitHub repository for the web app that Nick wrote.

If you collect NFTs and want to display them in your home, office, gallery, store, or somewhere else, I highly recommend doing some version of what we’ve done. It’s great to showcase digital art on large format screens.

#art#blockchain#digital collectibles

The Merge

In about a month, an important moment will happen in the world of crypto/web3. The Ethereum blockchain will move from a proof of work consensus mechanism to a proof of stake consensus mechanism. This event is known as “The Merge” in Ethereum land.

There are many reasons why this is an important moment for the world of crypto/web3, but to my mind the most important reasons are:

1/ The Merge reduces the carbon footprint of the Ethereum blockchain very significantly. No longer will miners be required to run large energy-intensive compute facilities to secure the Ethereum blockchain. There are many people out there who have serious concerns about web3 over environmental reasons. We can argue about that and have, but The Merge takes the concern off the table for the largest and most used smart contract blockchain. This is a big deal.

2/ The supply/demand balance of the Ethereum token will change dramatically. In a proof of work system, miners spend significant sums of money to run large energy-intensive compute facilities to secure the chain. They are rewarded with tokens (in Ethereum’s case, these are Ethereum tokens) and they must sell most of these tokens to pay their electric bills and hardware costs. In a proof of stake system, validators stake significant amounts of the base token (in Ethereum’s case, these are Ethereum tokens) and risk losing them if a bad transaction is validated. There is very little cost associated with staking so the tokens that are earned from staking are mostly held/re-staked instead of sold. I have seen a lot of estimates of how this shift will play out and my take is that Ethereum will move from a system that has roughly $20mm a day of structural outflows to a system that has roughly a half a million dollars a day of structural inflows. This shift in supply/demand will likely result in a very different dynamic for ETH/USDC, ETH/USD, and ETC/BTC (and other ETH pairs too) going forward.

3/ Proof of Stake systems (of which they are many in the market already like Solana, Avalanche, etc) are considered more secure because the likelihood of a 51% attack is much lower. I don’t plan to lay out the argument here, but suffice it to say that Ethereum is moving to a consensus mechanism that many consider to be more resistant to attack, making it even more secure than it has been.

There are some interesting side effects of this event. The current Ethereum proof of work blockchain will not go away. This chain, which many are calling ETH POW, could develop a community around it and live on and provide value to developers and others. This has already happened in the Bitcoin community a few times and once before in the Ethereum community. Holders of ETH at the time of The Merge will receive ETH POW tokens as a result of this fork. These ETH POW tokens could be worthless in time or worth a lot in time. There is really no way to know how ETH POW will develop.

The Merge is probably the most important change that a large scaled blockchain has ever undergone. It is not without risk and there is a chance that things will not go smoothly. The Ethereum core developers have been working on this effort for many years and have deployed many testnets and they are confident they can pull this off next month. The crypto/web3 world will be watching closely and I am rooting for them. I think this is a very important moment for the sector and that it will be very positive if things work as planned.

Disclosure: My family and USV have large holdings in ETH and other crypto assets and may continue to add to them in the coming weeks, months, and years.

#blockchain#crypto#Web3

An Earth Day Message To The New York State Legislature

It is Earth Day, a day to celebrate our planet and rededicate ourselves to saving it. I plan to walk and ride my bike, avoid cars, and enjoy being out and about in NYC today.

But I’d also like to talk about something that is bothering me.

The New York State Assembly and Senate are working to pass a bill that would put a two-year moratorium on “proof of work” cryptocurrency mining. Here is the most important part of the bill:

1. For the period commencing on the effective date of this section and
    25  ending two years after such date,  the  department,  after  consultation
    26  with  the department of public service, shall not approve a new applica-
    27  tion for or issue a new permit pursuant  to  this  article,  or  article
    28  seventy  of  this  chapter,  for  an  electric  generating facility that
    29  utilizes a carbon-based fuel and that provides, in  whole  or  in  part,
    30  behind-the-meter  electric energy consumed or utilized by cryptocurrency
    31  mining operations that use proof-of-work authentication methods to vali-
    32  date blockchain transactions.
    33    2. For the period commencing on the effective date of  this    section
    34  and  ending  two years after such date, the department shall not approve
    35  an application to renew an existing permit or  issue  a  renewal  permit
    36  pursuant  to  this  article  for  an  electric  generating facility that
    37  utilizes a carbon-based fuel and that provides, in  whole  or  in  part,
    38  behind-the-meter electric energy consumed or utilized by a cryptocurren-
    39  cy  mining  operation  that uses proof-of-work authentication methods to
    40  validate blockchain transactions if the  renewal  application  seeks  to
    41  increase  or  will allow or result in an increase in the amount of elec-
    42  tric energy consumed or utilized by a  cryptocurrency  mining  operation
    43  that  uses  proof-of-work  authentication methods to validate blockchain
    44  transactions.

I believe this bill resulted from an application to fire up an old coal-powered electric plan to power a Bitcoin mining facility and I will be the first to admit that is a horrible idea. We should not be firing up old fossil fuel plants for any sort of economic activity. It is time to retire fossil fuel-powered plants and replace them with nuclear, hydro, wind, solar, and other clean energy sources.

But the idea of targeting a specific industry for this moratorium and leaving all other economic activity in NYS free to use fossil fuel is just absurd. Is it OK to use fossil fuels to power bowling alleys, movie theaters, car washes, sports stadiums, data centers, banks, homes, cars, etc, etc? Is it just not OK to use fossil fuel to power a network that secures our next-generation technology stack?

And at the same time New York State is doing this, the State of California is preparing an Executive Order that will be extremely friendly to the emerging crypto/web3 industry. New York State is already fighting an uphill battle with the crypto/web3 industry with its god awful BitLicense law and now they want to do this.

New York State should just put signs up on the Holland Tunnel, the Lincoln Tunnel, the George Washington Bridge, the Peace Bridge, and everywhere else people arrive in New York State that says “Web3 Is Not Welcome Here.” And save themselves the time and energy of doing nonsense like this.

We get the message loud and clear.

#blockchain#climate crisis#crypto#Current Affairs#NYC#Web3

Dune.xyz

Dune.xyz is a community of crypto enthusiasts, analysts, and investors who use the open data available to all via public blockchains to create charts and other analyses to understand what is going on in these systems.

One of the most important differences between blockchain-based systems and traditional web-based systems is that the blockchain has an open data layer. That means that we all control our data when we use a blockchain-based system. But it also means that this shared data layer is available to all to observe, measure, and analyze.

Here are some examples of community-built charts:

The P&L of the Maker lending system:

A time-based comparison of trading volume on the leading AMMs:

What is interesting and different about Dune vs traditional analytics services is that everything is built on open data. There is no proprietary data involved. And this is as much a community (like Reddit or Wikipedia) as an analytics service.

USV recently participated in a financing for Dune.xyz and we plan to start using it to observe and analyze blockchain-based systems that we are involved in and interested in.

It makes sense to me that analytics tools for blockchain-based systems will be open, community-driven, and composable. And that describes Dune.xyz.

#blockchain#crypto

The Opening

I like to think of investing in new things a bit like a football running play. Imagine you are the running back. You’ve been handed the football and you are looking for a hole to open up and run through. What you really want is some running room beyond the opening.

We’ve known for a while that crypto is the next big tech architecture. We’ve known that once the wave breaks on the shore, there will be enormous opportunities unleashed. Like the web. Like mobile. Like the PC.

But what has been hard to see is the opening. It wasn’t trading/speculating, although that has been huge. Coinbase announced yesterday that 68 million verified users. It wasn’t DeFi, although that has also been huge.

What we have been looking for is the consumer opportunity to emerge. Until you have billions of consumers around the world using a technology, you don’t have a new wave to ride. So like the running back, you wait and hope you don’t get hit.

But in the last few months, the opening is emerging. In slow motion. I can see the left tackle move his man off the line. I can see the left guard move his man off the line. And there is running room. The defensive backs are on the other side of the field.

I’ve always thought the opening would be at the intersection of gaming, online communities, and social networks. Why? Because those are the mainstream consumer experiences where geeks tend to be the first adopters.

But it is hard to take on the existing gaming companies with a new architecture. The user experience around new stuff always sucks and who wants to play a game with a shitty UI? It is also hard to take on the existing social nets. Why would someone with a million followers on Instagram or TikTok or Twitter leave those behind for a new social net? So the existing incumbents are the defensive line. They look impenetrable. Until they aren’t. That’s when the opening emerges.

The opening is emerging around NFT experiences, something we’ve been excited about for quite a while now. But not the NFTs that Sothebys sells for $69mm. Not even the CryptoPunk that sells for $7.5mm. But when a party emerges online that anyone is invited to attend and the 500 person group picks up a punk with a party hat and they all change their social network avatar to this, well that got my attention.

PartyBid is cool. That’s why I wrote about it on Friday. TopShot is cool. And so is Axie. And so is the Bored Ape Yacht Club. But what is cooler is that these NFT experiences are operating at the interaction of gaming, communities, and social nets. And they are not taking on any of the incumbents directly. They are building on top of them all.

I am not saying NFTs are the next big thing. I am saying that consumer experiences built on a crypto stack are the next big thing. I am saying that NFT experiences are showing the way. They are the left tackle that you can run behind into the opening. Where enormous opportunity exists.

#blockchain#crypto