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A lot has changed since the advent of the cryptocurrency market. In early May, report about his condition, issued by the Andreessen Horowitz Foundation. According to the report, the cryptocurrency market, like traditional markets, is inherently cyclical. This work allows us to understand the evolution of the Internet and where we are on the road to a decentralized alternative to centralized web2 technology platforms.
The report can be divided into 5 main components.
1. The cryptocurrency market is in the middle of the fourth price-innovation cycle
All known markets are subject to seasonal fluctuations, and the crypto market is no exception in this regard. Growth is replaced by a recession, which, in turn, gives way to another growth. The current downturn may indicate that the market is on the appropriate cycle of its development.
Despite the fact that cryptocurrency is subject to high volatility, and its movements seem sometimes chaotic, it is based on logic based on cyclicality. If in traditional financial systems prices are often a lagging indicator of performance in some industries, then in cryptocurrency they are a leading indicator. Prices are what grab the attention of users. Figures increase interest in the project, thanks to this ideas and activity are born, which leads to the emergence of innovations. The authors of the report call this chain the “price-innovation cycle”, and it has been the basis of all movements in the cryptocurrency market since the advent of Bitcoin in 2009.
Legendary investor Benjamin Graham once put it this way:
“It is not necessary to pay attention to the understanding of the market, it often moves from the stage of abundance and euphoria to the stage of despair and depression and back again. To the words of Graham, the authors of the report add that it is better to create markets yourself. It should be remembered that companies that did not take advantage of technology and the development of the Internet after the collapse of dot-coms in the early 2000s, lost the best development prospects – cloud computing, social networks, streaming online video, smartphones, etc. It is worth thinking about what opportunities the nascent era of web3 opens. ”
2. Web3 is more attractive to content creators than Web2
Giant companies in the web2 market take the lion’s share of cash flows. In contrast, Web3 technologies are more fair to authors. Meta (Facebook and Instagram are banned in Russia) take almost 100% of the income from the placement of content, while the commission percentage of the NFT OpenSea marketplace does not exceed 2.5%. No wonder US Congressman Richie Torres in a recent speech said that the penetration of the economy of technology companies causes more and more concerns.
The authors of the report, Andreessen Horowitz, analyzed an array of data and compared the fees of content creators on Web3 and Web2 platforms. Despite the relatively short lifespan of Web3 projects, the numbers speak for themselves. Last year, the initial sales of NFT on the Ethereum blockchain (ERC-721 and ERC-1155), combined with payments from secondary trading, allowed authors to earn more than $ 3.9 billion. During the same period, Meta paid its authors only $1 billion, or 1% of all revenues received by the company.
If we take into account the number of users of the Web3 and Web2 platforms, the gap becomes even more noticeable. The authors of the report counted 22,400 authors on the NFT market, and more than 3 billion users post content in Meta projects. Spotify and Youtube paid their creators more than their competitor – $7 billion and $15 billion, respectively. But in terms of one user, the difference is palpable. Web3 projects paid their creators an average of $ 174,000. At the same time, Meta paid an average of 10 cents to each user, Spotify paid $636 to each artist, and Youtube paid $2.47 to each channel owner.
3. Cryptocurrency affects the real world
Higher rewards to authors are just one example of the benefits of cryptocurrency.
According to World Bank statistics, more than 1.7 billion people do not have bank accounts. Interest in cryptocurrencies and decentralized financial institutions is growing steadily. People who do not have the opportunity to use banking services, but have smartphones, and there are about 1 billion of them, can enter the world of finance with the help of cryptocurrencies. Cryptocurrency projects like Goldfinch allow new entrants into the world of finance and capital who would not have done so in the traditional financial system.
Digital technologies based one on the blockchain, help in improving other areas of the economy and life. Flowcarbon helps track so-called carbon credits more transparently. Helium, a decentralized wireless communications network, is poised to compete with large telecommunications corporations. Spruce allows users to manage their own personal data, preventing technology companies from using it and benefiting from it.
The list of these examples can be continued. Decentralized autonomous organizations (DAOs) have clearly demonstrated that people who previously do not know each other can cooperate to solve common problems. Non-fungible tokens (NFTs) give people virtual ownership rights to their images, artwork, music, in-game items, access passes, land in virtual worlds, and other digital goods. Digital currency and blockchain technology is much broader than just a new financial structure. This includes social, cultural and technological innovation. The market is only at the beginning of this journey.
4. Ethereum remains the leader, but competition is growing
Ethereum leads the web3, but it has many competitors such as Solana, Polygon, BNB Chain, Avalanche, Fantom, etc.
Ethereum remains a leader largely due to the fact that it was a pioneer in this direction. The Ethereum network employs the most developers, almost 4,000 per month. In second place is Solana with 1000 developers and Bitcoin with 500 developers. The record number of developers on the Ethereum network allows us to understand why users of this blockchain were willing to pay $ 15 million a day as a commission for its use.
Ethereum is built on the principles of decentralization, not scaling. Other blockchains bypass it at the expense of greater performance and lower fees.
In addition to the blockchains themselves, services for combining different blockchains and Layer2 technology (second-level networks) are also developing.
Blockchain is an innovative solution comparable to the advent of personal computers and the development of the Internet at the end of the last century. Distributed ledger technology opens up great opportunities for innovation.
5. The cryptocurrency market is still in the initial stage of its journey
Although it is not possible to accurately count all Web3 users, we can assume their number. According to the authors of the report, the Ethereum blockchain is currently used by 7 to 50 million people. If we compare with the spread of the Internet, then so many users it had in 1995. And after 10 years, the number of Internet users has grown to 1 billion people.
If the trend of web3 distribution repeats the trend of the spread of the Internet, then by 2031 at least 1 billion people will use cryptocurrency services. This means that the cryptocurrency market is only at the beginning of its development.
#Cryptocurrency #market #cyclicality