Is Crypto Finished?
Is Crypto Finished?
Cryptocurrencies are collapsing, NFT's are crashing - what's up with Web3?
Cryptocurrency prices are down nearly 70% since last November. According to Bloomberg, the value of all crypto assets peaked at around $3 trillion. Today they are closer to $1 trillion. A number of crypto companies have collapsed and many more are teetering on the edge. The contagion seems to be spreading across other Web3 assets, in particular NFT’s.
Dotcom collapse 2.0?
Last month alone crypto assets plummeted nearly $800 billion in market value, according to data site CoinMarketCap, as the end of easy monetary policy diminished appetite for risky assets. Where’s that Big Mac and valium?
In the same month sales of NFTs totalled just over $1 billion, according to the crypto research firm Chainalysis, their worst performance since June last year when sales were $648 million. Sales reached a peak of $12.6 billion in January.
An NFT of the first tweet from twitter’s co-founder Jack Dorsey sold for $2.9 million last year. This year an attempt to sell on the Dorsey NFT was abandoned when bids topped out at $14,000. Not exactly an advert for NFT memorabilia! NFT art seems to be faring a little better - even though the NFT marketplace, Opensea, admitted that better sales do not necessarily add up to genuine crypto-art!!
Just a few months ago OpenSea announced that over 80% of the NFTs created for free on the platform are “plagiarized works, fake collections, and spam.” As Vice reported, the revelation came after the company instituted, then quickly reversed, a rule meant to crack down on fraudulent NFTs. Newer Web3 platforms such as LettsArt require creators to provide fuller information, including bank details, to be able to sell their art.
NFT sales reached $40 billion last year and the 2022 total has already exceeded that, at more than $42 billion, according to Chainalysis. Sales in January and February accounted for more than half of the 2022 total so far. Graphs of NFT sales look like a 12 month banksy of a bell curve. Internet speed for ‘bubble’?
Some are predicting that the current crypto collapse and the wider technology stock market downturn is reminiscent of the dotcom collapse in 2000. Back then a large number of internet companies failed after the market soured, investors wobbled and valuations cratered. At that time most of the investors of private internet companies were venture capital firms. The loose money stoked the creation of endless copy cat internet companies that, in hind sight, were never meant to be. Perhaps a case of loose money chasing lesser ideas. Sound familiar?
“Crypto copycats - what copycats?”
Today there are thousands of crypto currency lookalikes playing follow the leader. Bitcoin and Ethereum dominate and these two currencies alone are worth nearly 60% of the entire crypto market. Some argue that it is just a matter of time before they are 80% of the market. Pareto would be proud.
Technology stocks are down nearly 30% from their stratospheric peak and firmly in bear market territory. Mind you pretty much everything is down, other than the Russian ruble, oil, food and arms??!!
“You could argue that the second dotcom collapse has already happened. This time around it is consumers that are being hit and not just venture capital firms”.
Many complained that Web1’s wealth creation came at the expense of the consumers that drove it - so Web3 was designed to correct this. Millions are are ruing the day. After all it is the consumers that are shouldering the latest losses. And you wonder why there is a cost of living crisis?!
At the end of 2021 there were about 300 million users of cryptocurrencies, which is about 6% of the total number of internet users. We estimate that the internet currency users of the leading currencies at the time of the dotcom collapse including Beenz, Flooz and e-gold amounted to between 2 - 3% of internet users. Plus ca change... Like then, many of today’s digital currencies will get caught in a flight to safety and lack of new capital. Many of the leaders of the latest crypto outfits have little experience managing through a major financial downturn. Again, reminiscent of the last time around. And look at how that turned out…
Most technology pundits agree that Web3 is designed to free the internet from monopoly style Web2 technology megalodons like Google and Meta. The blockchain, ledger rules and the tokenization of the internet is meant to liberate both creators and consumers - helping original content producers to get away from corporate chains, and the constraint of digital advertising and social media platforms. A nirvana (not the band) of tivo style ad-free couch surfing.
To accomplish this Web3 will need to step past the early geek phase supporting the techno-literati and mould consumer friendly platforms and apps that serve the mass market.
This is where the future Web3 might emerge from the ashes of the crypto collapse - because like all internet markets and waves, in the end there will be just a handful of cryptocurrencies and blockchain providers. And analogous to the Italian Renaissance, starting as a revolution in finance that later fanned the flames of technology and art - Web3 will follow. A 21st century avenue for a new, modern way of thinking about the world and man's place in it replacing an old, backward one controlled by Bill, Steve, Mark and Jack.
The beginning of Web3 has been all about the money - some would argue that this is its greatest limiting factor - that and a dodgy track record crashing the climate. But its real success has been to put control back into the computer - cryptocurrency just its first application. Limited, but important none the less. And remaining limited until it can morph into a better system for payment rather than solely an investment asset akin to gold - but clearly without the physical characteristics of gold when things go bell-curve up and you’re looking to stuff the shiny stuff under the mattress.
And limited because, in the end, most countries will offer their own digital currencies pegged to the national cash-under-the-mattress, becoming a more widely adopted tool.
Cryptocurrencies like bitcoin will survive as an alternative growth asset, and, perhaps like gold, also provide solid financial returns for the day traders and longer term holders. But as bitcoin matures the Internet savvy digerati will turn to the next hot new tech investment. Hence Robinhood - assuming they don’t trip over as well.
Crypto will spawn a more profound revolution in financial technology and a more independent, technology driven financial services industry.
According to the Harvard Business Review “Web3 is being touted as the future of the internet. The vision for this new, blockchain-based web includes cryptocurrencies, NFTs, DAOs, decentralized finance, and more. It offers a read/write/own version of the web, in which users have a financial stake in and more control over the web communities they belong to”. [All good until, well, its not…]
“Web3 promises to transform the experience of being online as dramatically as PCs and smartphones did. It is not, however, without risk. Some companies have entered the space only to face a backlash over the environmental impact and financial speculation (and potential for fraud) that comes with Web3 projects. [Ya think] And while blockchain is offered as a solution to privacy, centralization, and financial exclusion concerns, it has created new versions of many of these problems. Companies need to consider both the risks and the benefits before diving in”. [i.e. don’t hit the buy button quite yet!]
Following the current crypto turmoils we could start to see a growing number of Web3 technology companies liberated from the monopoly of app stores, with more mature blockchain technology, released from the constraints of Web2’s monopolistic model and infrastructure. And thanks to crypto, payments will no longer need to flow solely through banks and Web2 payment systems. Some of the more exciting next generation startups will use such combinations of Web3 style technology to create new vertical stacks which disintermediate the current content controllers - movie studios, newspapers, music companies and art dealers.
This approach will, over time, also challenge other legacy corporations such as law firms, management consultancies, advertising agencies and more. Process replaced by blockchain rules.
What the crypto/NFT craze has demonstrated is that consumers want to move beyond legacy banks, media companies, utilities and telco’s who are becoming increasingly unwieldy, constrained by the systems that they designed to scale efficiently and profitably with controls that were tighter than ever. Now this very system is their constraint - no longer serving the customer. Have you tried calling BT or AT&T customer service recently? Endless circular conversations with puppets on a string that work the system rather than satisfy the user. Customer yes, service perhaps not so much.
The idea behind Web3’s core technology is to place the power of these systems back into the computer given that customer service staff are in any case controlled by the computer - so you may as well liberate them and give the black box full control. Like Siri for us all.
At the same time new platforms are already emerging that remove the media corporation and its unwieldy process from the content provider or ‘creator’.
One of the new innovators, called Substack, has managed to develop technology that is pretty much as powerful as any paywall based publishing system used by old world media companies like the New York Times, Fox News or Bloomberg. The difference is that instead of selling their publishing technology to corporations they offer it to independent publications and writers with a canny new business model. The software can be used for free, and is designed to be consumer friendly - powerful yet simple to use. Paywall enabled publications pay Substack 10% of the revenues they earn from their subscription based readers. Today Substack is the hottest west coast mediatech company with thousands of customer publications and millions of readers.
UK based LettsArt is doing something similar for visual artists. This is a Web3 technology company that has built a £multi-million gallery system that is potentially more advanced than most other gallery systems used by large art corporations, whether it be leading commercial galleries, auction houses or even museums. Yet LettsArt offers their system to independent artists and gallerists - putting more power back into the creators of today’s art, while liberating collectors to buy direct from the artist. Like a giant online art fair for the masses. LettsArt is tipped to be one of the more interesting new mediatech companies to come out of Europe.
Their innovation, like that of Substack, is to build a powerful new age technology platform that could power a large corporate, yet is designed to be simple enough for the very large number of independents and content creators to use. Stripping out the corporate middleman. At the same time they provide the necessary security and controls so consumers can confidently use their system in earnest. Interestingly both companies partner with Stripe for payments. LettsArt accepts crypto alongside cash. Substack only the latter. LettsArt makes creating NFT art simple and invisible - without the need for crypto exchanges to facilitate sales - yet they are integrated with them to extend their reach. They both support more traditional, even physical forms of media as well as the newer digital craze.
So while Web3 seems too binary and exclusively focused on the cryptocurrency fad, it could be that the current crypto chaos will pave the way for the emergence of new, commercially focused technology companies and co-operatives that change the business model for tomorrow’s users and producers. You know, the way Tim Berners-Lee always dreamed it would be before Google, Apple and Meta bent it to their monopolistic requirements. Let’s hope Web3 doesn’t succumb to the capricious corporate dark arts as well. Only time will tell - that and bucket load of crypto’s.