How venture capitalists think crypto will reshape e-commerce

Venture capitalists are betting billions of dollars to create what is in effect an alternate world of web finance, commerce, communications and entertainment that could radically transform major parts of the global economy, all based on the blockchain technology popularized by Bitcoin.

In the first three quarters of 2021, venture capitalists invested a record $ 21.4 billion in cryptocurrency and blockchain-related companies, in 1,196 transactions, according to Pitchbook, a market data provider. This is more than five times as much money as last year.

No one places a bigger bet than Andreessen Horowitz, also known as A16Z, a Silicon Valley company whose founders helped build and finance today’s Internet. They say the “digital status quo is broken”, with giant tech gatekeepers taking advantage of each other’s creativity and data.

What are some of these companies doing? And how do they really work?

Collectibles and games

Start with fun stuff. Say you want work to be more like gambling – let your virtual pets do the hard work by earning crypto in an online game that draws millions of players.

Axie Infinity, a Pokemon-inspired game with collectible characters who raise descendants of monsters and fight online, relies on a model called ‘play to win’, which means potentially real profits. But for now, at least, players also have to pay to start playing by purchasing new characters, which can cost a few hundred dollars each. Vietnamese game maker Axie recently raised more than $ 150 million in a funding round led by A16Z and was valued at $ 3 billion, according to the company.

This game is decentralized, which means players access it on the Ethereum blockchain and not through an app acquired through Google or Apple, arguably limiting the dominant role these companies play and the fees they charge. That’s the main draw of A16Z, which argues that the shift to blockchain technology – an open-source, web-distributed ledger that eliminates institutional middlemen – will kick off a wave of new and disruptive industries.

The company also supports platforms for so-called non-fungible tokens, or NFTs, like Open Sea, where digital artists can sell their works without the need for agents and galleries. This week, the platform hosted an online auction for “Crypto Heroe on Mars # 2225”, created by an artist who calls himself Suprematic, with a “buy now” price of 0.04 Ether, the token. principal of the Ethereum blockchain, about $ 175. (The auction ended Thursday night with no sale.) The platform charges a 2.5% fee on sales, far less than an art gallery commission.

CryptoKitties is a collectible digital chat game created by Dapper Labs in Canada in 2017, a phenomenon so curious it earned an explanation in the New York Times. A $ 140,000 sale of CryptoKitties generated a different story in 2018, and when NFTs became popular this year, cats were cool again. What would you pay for a chic kitten? The value depends on “rarity, usefulness and appearance,” explained Dapper Labs. A16Z invested $ 12 million in CryptoKitties in 2018.

The company again backed Dapper Labs this year, citing the success of NBA Top Shots, where sports fans trade digital collectibles of the most memorable moments in hoops. With around $ 780 million of these collectibles sold, the NFL, athletes and leagues around the world are also making NFT deals.

Decentralized finance and artificial intelligence

Crypto-finance can sound like science fiction. But it is our reality. Right now, all over the internet, on decentralized finance programs like Uniswap, people are trading, borrowing and lending digital assets on platforms where computer code turns heads. There is now around $ 235 billion invested in DeFi, by an industry account.

On the DeFi Compound protocol, a recent programming snafu revealed vulnerabilities in systems deliberately designed to eliminate the middlemen that regulators traditionally rely on to oversee financial transactions and ensure consumer protection. After a bug was introduced during a software upgrade, the system automatically paid around $ 160 million incorrectly and the payments could not be reversed.

Technically, Compound does not trade transactions, it simply programs software for the transactions. But its founder, Robert Leshner, conceded in an interview with the New York Times this summer that he had long feared that a mistake could lead to significant losses. “For the first two years of Compound, I woke up with a cold sweat every morning,” he said.

Launched in 2017, the company now claims to have $ 18 billion worth of interest-earning cryptocurrency on its platform. Leshner’s recurring nightmare was that someone would find a loophole in the program, a line of bad code, and steal everything. “All it takes is a bug,” he said.

Community telecommunications

A16Z supports a network called Helium. This “decentralized wireless infrastructure” company hopes to one day compete with established brands like Verizon or AT&T. Community members create an access point in their neighborhood with a special device and earn data and crypto helium tokens in exchange for their contribution to powering this group 5G cellular system.

Social networks

The value of popularity on social media can now be calculated when you “tokenize” yourself and create an economy powered by your own crypto.

On BitClout, each user receives a coin and its value suggests what the internet thinks of them. “There is no company behind it; it’s just parts and code, ”say the developers. An account by the name of Elon Musk is the most popular token at around $ 115. But the project’s launch was controversial, with crypto insiders calling the “dystopian social network” for relying on data collected by giants like Twitter to calculate reputation, among other criticisms. DeSo, short for Decentralized Social, is a blockchain network for developers to create decentralized social media programs.

If personal tokenization is too far a bridge, try applying to join FWB, or Friend With Benefits, a members-only crypto-based social and cultural club that hosts events in the virtual and physical worlds. Membership guarantees entry to club parties. At the Bitcoin conference in Miami in June, hundreds of budding friends reportedly shouted for entry, and A16Z sent a young scout to their team who was already on the scene. The company became intrigued and now supports the club. As the club becomes known, its chips increase in value, as does the price of admission.

The Babe Ruth model
In the end, many of those efforts won’t take off and pay off for Andreessen Horowitz. But a few could be huge successes. And that’s the game the firm is playing.

He was an early investor in the Coinbase cryptocurrency exchange, now the first publicly traded company, and he follows a simple philosophy adopted by Babe Ruth. “I’m rocking big, with everything I’ve got,” Ruth explained. “I hit big or miss big.”

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