Posts from crypto

Some Thoughts On Crypto

The crypto sector is in an interesting phase right now.

The market has rallied from its lows this past winter and is up a lot in 2019:

But Bitcoin now makes up almost 70% of that aggregate market cap.

In some ways, Bitcoin is the one protocol that has found lasting product-market fit. In terms of a censorship proof digital store of wealth, there is nothing that comes close to Bitcoin. There are some protocols, like the privacy-focused ones, that offer similar and in some cases better use cases. But for the most part, Bitcoin is our digital gold.

Ethereum, as many of you know, confounds me. It has shown the way to so many important things; smart contracts, programmable trust-free computing, potentially proof of stake, and a lot more. But it remains hard to build on, scaling issues abound, and many developers are looking elsewhere.

Stablecoins, including Facebook’s plans for Libra, are a bright spot. There has been much innovation in this sector and more is coming. There is no doubt that technology can provide a stable programmable crypto asset. We are still early days in the use cases but it is not hard to imagine why one would want to own and use stable programmable digital money.

We are also seeing signs that users like using crypto-assets in mobile and web apps. Kin, built by our portfolio company Kik, has become one of the most used cryptocurrencies in the world and is built into more than fifty mobile apps. Our portfolio company Blockstack has a Dapp platform that many developers are using to create consumer Dapps. And our portfolio company YouNow’s Props token is seeing a lot of consumers transacting with it.

But there is also plenty of disappointment to be had in crypto right now.

Regulators and banks in many parts of the world are downright hostile to crypto and have pushed much of the liquidity to Asia and the innovation has followed it there. Many of the most interesting things in crypto right now have emanated from Asia.

And many of the most promising and best-funded projects are massively delayed in getting to market. Some of this is that building scalable secure and decentralized protocols is not easy. But it is also true that the decentralized development approach that many of these projects are taking is not well suited to deadlines and ship dates.

And maybe most of all, crypto has not gone mainstream. Very few people earn in crypto. Very few spend in crypto. Very few use Dapps. Very few do anything with crypto other than buy, sell, and mostly hold.

I am an optimist. I am convinced that many of these disappointments will be overcome in the next few years. But it is easy to be bearish on crypto right now. The reality is well below the hype and challenges abound

I am long crypto and USV is long crypto. And we are putting more capital into the sector and will continue to do so. But it is not without risks and setbacks. Actually it is full of them.

The Erasure Protocol

Some crypto projects are developed from scratch. Bitcoin, Ethereum, and our portfolio company Algorand are examples of this. The developers have a vision and they go out and build it.

Other crypto projects evolve from something else. Kin and Props, both created by USV portfolio companies, are examples of that.

A particularly interesting example of the latter model is Numerai>Numeraire>Erasure. USV is an investor in Numerai which is a hedge fund that sits on top of the “The hardest data science tournament on the planet”.

Numerai initially developed the crypto token called Numeraire to allow data scientists to stake their predictions in the Numerai tournament and earn more compensation.

But as the Numerai tournament gained scale and the adoption of Numeraire grew, the Numerai team “realized that the primitives Numerai has built could have a wide range of applications beyond the tournament”.

And so they built the Erasure protocol which allows anyone to publish data and stake capital based on the accuracy of that information. This post explains some of the ideas behind the Erasure protocol.

The Erasure protocol is now live on the Ethereum Mainnet and you can build things on it. The Numerai team has already built two applications on Erasure:

Erasure Quantis a tournament used to crowdsource data on the Russell 3000 index. Participants submit daily price predictions on US stocks and are rewarded for contributing while building an immutable track record. Erasure Quant is a template that can be used by others to build their own tournaments.
ErasureBay is an open marketplace for information of any kind. It can be used to create credible signals over possession of local knowledge and attract a buyer willing to pay for it.

These crypto projects that evolve from something else are more focused and benefit from a real use case and market need. That does not make them more likely to succeed or more valuable. In the current market, almost all of the most valuable crypto projects are ones that started from scratch.

But I don’t think that will always be the case. Many of the most important technologies evolved from something else and I think that will be the case in crypto as well.

Crypto IRA

I have an old IRA that I don’t pay much attention to. I thought about cashing it out but the tax load to do that was too much for me to stomach. So then I thought about investing it in crypto.

But that turns out to be pretty hard.

I think there is an opportunity out there for a crypto brokerage to offer IRAs or an IRA custodian to offer crypto, or both.

Given the tendency for many investors to buy and hold crypto, it would lend itself to a long term investment product like an IRA.

Seems like an opportunity to me.

Open Finance First, Open Data Second

My partner Nick put together a deck outlining USV’s approach to crypto investing earlier this year and we have been using it with founders and investors since then.

One slide I particularly like from that deck is this one which describes how we think the crypto market will develop over time.

We have already seen an explosion of assets issued on blockchains and a number of very large and profitable custody/brokerage/exchange businesses built. We expect we will see continued innovation in the open finance (finance 2.0) sector in the next few years while the open data (web 3.0) sector will take longer to develop.

We also think that open finance will inevitably lead to open data as users (both consumers and businesses) will start to understand and appreciate the benefits of increased user control, lower transaction (and other) costs, and other benefits of decentralization.

The Kik Answer

I have mentioned the legal case between USV portfolio company Kik and the SEC several times here on AVC, most recently here.

Last night Kik filed a 130 page Answer to the SEC and made this press release.

The story was picked up by Coindesk and other news outlets.

I am not going to get into the details of this matter here on AVC, but this is not an open and shut case by any means.

NBA Top Shot

I’ve written on this blog about extensible blockchain games, the ability to own the virtual goods you earn or buy in your games, and the idea that these virtual goods can move from game to game. I think this is a big deal and possibly the thing that brings blockchains and crypto tokens to the mainstream user.

So, here’s an awesome example of that. Our portfolio company Dapper announced today that it is building a blockchain game with the NBA called Top Shot.

Here is the idea behind the game:

NBA Top Shot will feature a social experience built around digital collectibles as well as a complementary head-to-head game designed to create a fun, authentic and accessible fan engagement on blockchain. Like other sports games or fantasy brackets, fans who play the game are tasked with creating their ideal squad, but in this game, their rosters are built by acquiring live in-game moments from the NBA season. These moments, such as a Kevin Durant 3-point shot, or Joel Embiid dunk, which are acquired as digital collectibles or tokens, can then be either owned forever or used to compete against other players in online tournaments and leagues.

NBA Top Shot will start offering crypto-collectibles in the fall, with the game to follow in early 2020. You can get early access by leaving your email address here nbatopshot.com

Haven

Our portfolio company Open Bazaar released a new mobile app called Haven today.

The idea behind Haven is:

Finally, people anywhere in the world can connect directly to each other using their mobile devices and trade privately with no credit cards, no banks, and no tech companies tracking their activities, or charging listing and transaction fees. 

Here’s what the front page looks like:

And here is what an item listing looks like:

Note that you can pay for this coffee maker in Bitcoin and Litecoin.

Haven is built on the Open Bazaar protocol:

Haven creates a mobile window into the groundbreaking OpenBazaar network powered by cryptocurrencies like Bitcoin, Bitcoin Cash, Litecoin and Zcash (Ethereum coming soon). Over 250,000 nodes have been created by people using this peer-to-peer network since the release of version 2.0 and tens of thousands of listings have been put up for sale from crypto tokens to original paintings by popular artists to business services. OB1 expects Haven to rapidly bring even more users onto the network who are eager to shop, chat and send cryptocurrencies privately from their mobile phones.

If you want to check out Haven, you can do that here.

Video Of The Week: CEO AMA

AMA stands for “Ask Me Anything.” I have noticed a trend of CEOs doing these AMAs for their customers and broader stakeholder communities.

A good example of a CEO who is doing this is Brian Armstrong, CEO of our portfolio company Coinbase.

Brian has been doing this for several months. You can see all of them on their YouTube channel.

Here is the one he did with LJ Brock, Coinbase’s Chief People Officer, yesterday.