The private venture capital firm argues that cryptocurrencies are much more than financial innovation and that the crypto industry is just at the stage of growth, development and adoption.
Compared to the innovation of the Internet, cryptocurrencies are in 1995, said US venture capital firm Andreessen Horowitz (a16z).
In its 2022 State of Crypto Report, a16z noted that the crypto industry is still in its early stages. However, it also noted that its innovation already encompasses much more than just the financial sector. Cryptocurrencies are a social, cultural and technological invention, the firm stated.
Here we tell you the key points of their most recent report on the current state of crypto assets in 2022.
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The era of the digital economy with cryptocurrencies
There has been a lot of talk about cryptocurrencies in recent years.
Since its inception, the crypto industry has become a vehicle for a new digital economy, the main foundation of which is the decentralization of trust and the democratization of financial services.
As a digital medium, cryptocurrencies have been causing a structural change in different sectors of society. It is an emerging and disruptive technology that has given rise to a new generation of projects, protocols and business models that promise to be the future of finance, just as the innovation of the Internet did in its early stages.
According to Andreessen Horowitz, Cryptocurrencies are providing unique opportunities to their participants, which may not be repeated. The private venture capital firm compared the current innovation in cryptoassets to the dotcom era.
Despite the dotcom boom of 1997-2001, many companies that decided to give up on technology missed out on the best opportunities of the decade. This period, now seen as one of consolidation for the technology industry, gave way to a new generation of the Internet, which in turn has allowed the creation of a series of innovations beyond the imagination of the time.
Cloud computing, social media, live music and video streaming, and smartphones are some of the biggest technological creations in existence today, born out of the dotcom bust.
Given this, Andreessen Horowitz notes that it is time to consider what equivalent successes will be in the new era of the digital economy based on cryptoassets.
Cryptocurrencies in a cycle of constant innovation
Andreessen Horowitz notes that cryptocurrencies have been evolving in cycles marked by periods of high activity and so-called “crypto winters.”
The first cycle, which began in 2011, was characterized by rising Bitcoin prices. Between February and April 2011, the price of Bitcoin reached parity with the US dollar., equaling fiat currency and sparking a wave of interest in new investors.
Visit the article “Bitcoin historical price” at Bit2Me Academy to learn more about the evolution of the BTC price.
This new interest and activity that occurred on social media led to more people getting involved in cryptocurrencies and contributing to the ecosystem with new ideas and code development. This, in turn, led to the creation of new projects and the formation of companies that gave rise to the next cycle, seen between 2012 and 2016.
Source: Andreessen Horowitz
The second cryptocurrency cycle peaked in late 2013, Andreessen Horowitz noted. The evolution of Bitcoin and the birth of new cryptocurrencies attracted 10 times more developers and companies to the crypto space than in previous years. Ethereum, which was in full development at the time, was one of the crypto projects that received significant funding.
By 2017, when the third cycle of cryptocurrencies took place, the industry was even more consolidated. This cycle It was characterized by a paradigm shift that allowed for more utility to be created for crypto assets., sparking a new wave of interest that businesses and developers used to deliver high-quality projects focused on payments, finance, gaming, infrastructure, and web applications.
While the three cycles that cryptocurrencies have gone through so far may seem chaotic when viewed individually, Andreessen Horowitz concluded that in the long term they have been drivers of the industry, fostering its growth and constant innovation.
Currently, he noted that The cryptocurrency industry is on its way to a fourth cycle, which is being marked by volatility and “price innovation”.
DeFi: Banking through decentralized financial services
Decentralized finance, known as DeFi, have become a banking instrument for those who do not have access to traditional financial services.
Through DeFi, people from all over the world can use financial products and tools without the need for centralized institutions or intermediaries, which has brought greater value to the crypto industry in recent years.
In its report, Andreessen Horowitz highlighted the growth that the decentralized financial ecosystem has gained, which saw its highest point so far in 2021, with more than $250.000 billion deposited within its projects and protocols.
The firm noted that the current financial system has failed a significant portion of the population, with more than 1.700 billion unbanked people worldwide. However, as nearly 1.000 billion of these people do have access to smartphones and the Internet, Cryptocurrencies and decentralized finance offer them a new opportunity for financial inclusion.
Green finance
Another key point in Andreessen Horowitz’s State of the Art report on cryptocurrencies is the concept of “green finance” that industry participants are embracing.
The venture capital firm noted that the crypto industry has been turning to other markets, such as carbon credits, to positively impact the environment and society.
Miners of cryptocurrencies based on Proof of Work, like Bitcoin and Ethereum, are developing new models based on clean and renewable energy to ensure the environmental sustainability of cryptocurrencies over time. In addition, they are recycling the heat generated by their mining equipment to support other activities and improve energy efficiency, among other things.
Ethereum, Solana and Bitcoin, the 3 blockchain ecosystems with the most builders
In terms of adoption, Andreessen Horowitz talked about Ethereum, Solana and Bitcoin as the three most important blockchain ecosystems by the number of existing developers and builders.
According to the firm, Ethereum is the leading blockchain that dominates blockchain development and the construction of Web3, thanks to its early development and a solid community. Thus, despite the high cost of developing on this unscalable network, which consumes an average of 15 million dollars in fees per day, The Ethereum ecosystem brings together more than 4.000 developers. This is more than any other blockchain, a16z noted.
Solana and Bitcoin are in second and third place, with the number of active developers at 1.000 and 500, respectively.
Towards mass adoption of cryptocurrencies
In 2021, cryptocurrencies experienced strong growth that further boosted their global adoption levels. According to data from the Crypto Market Sizing survey, cryptocurrency adoption grew by 178% in 2021, from 106 million active users in January to a total of 295 million users by the end of December.
Most of these users are within the Bitcoin ecosystem, although the venture capital firm estimates that only On Ethereum, as the leader of Web3 development, there are between 7 and 50 million active users to date.
Web3 for artists and content creators
Web3, which is still under construction, is offering greater advantages and benefits to creators than Web2, Andreessen Horowitz said.
In the new generation of the decentralized Internet, artists and creators can access much fairer and more balanced economic conditions. In fact, the firm's research reveals that Web3 paid an average of $174.000 per creator in 2021, while other platforms on the current web, such as Meta and Spotify, paid much smaller figures.
Facebook users received an average payment of $0,10, a16z noted, while artists on Spotify received payments of $636 on average. On the popular social video platform YouTube, channels received an average payment of $2,47 per channel.
The digital economy in Web3 is marked by NFTs, which experienced a huge frenzy in 2021; a year in which primary sales of these assets, plus royalties paid to creators for secondary sales on marketplace platforms such as OpenSea, generated a total of 3.900 billion dollars for the creators.
In his report, Andreessen Horowitz also discussed stablecoins, which are experiencing a crisis of confidence due to the recent collapse of the Terra ecosystem's algorithmic stablecoin, UST.
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