Let's pick up where we left off last week, shall we? We finished talking about legitimacy. Legitimacy takes many forms, one of which can be something that you know is both verifiable but also a thing that everyone else seeks out as a single source of truth. As I kept on going down the rabbit hole, I came across the Chris Dixon thread below that was really captivating. Chris is an OG VC at A16Z (love that acronym wordvomit). One of his main niches in crypto, and you'll be hard pressed to find too many people who know more about the ecosystem than he does. He compares blockchains to many of our single-source’s of truth, the App Store.
In this thread he compares blockchains to app stores, but as we all know about the app store, and therefore Apple, it's not a platform. A platform "is when the economic value of everybody that uses it, exceeds the value of a company that creates it". Apple accrues all the value of the App Store as evident in the ridiculous revenue charted below. But in the case of crypto, blockchains accrue significant value for all of their users.
(Worldwide gross app revenue of the App Store from 2017 to 2020 - Statista)
Blockchains are the Level 1 infrastructure that make up the underlying architecture of crypto. They're the foundation for all the other levels of all the applications that can be built on top of them (Level 2 and up!) as well as the rails for the millions of transactions that occur daily. Chris points out in his third tweet in the aforementioned thread that "the computing frontier of this decade is building apps on programmable blockchains like Etherum". As we experienced with the app rush from 1998 to 2015 or so, computers got faster and more capable, so we were able to do more. Everything shifted to the web. Almost everything is being stored in the cloud nowadays, and slow adopters are getting crushed. The cloud has also become the biggest buzzword of the last decade. Few know exactly what “the cloud” means or does, but it’s commonly accepted that the cloud is invaluable. But until recently, no one had asked what happens at the end of this rush. But is it crazy to say that we'd have… computers in the cloud?
(Source: David Hoffman)
Chris points out that it's not, and that's exactly where we're going. Smart contracts enable blockchains to run as designed, without people operating them. With a blockchain, the code is in charge. So an autonomous computer, run by its own self-governing code, can be trusted in ways that a human can't. Make sense? This quote by Ethereum creator Vitalik Buterin might help clarify a bit (emphasis my own):
Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly
Think of the DAOs I mentioned last week when discussing NFTs, they can enable a new wave of possibilities where the take rate goes to the creator. What if Cameo or Patreon didn't take a cut? Or instead of releasing albums for pennies on the dollar on Spotify, an artist could release an album on the blockchain after a certain $ amount was raised. All contributors would get an token proportionate to their contribution. NFTs can come with certain attributes like additional songs, VIP access to shows, and more. Many of the ideas that we'll see likely haven't even been conceived yet, and NFTs will just be the tip of the iceberg. Crypto relics after 20 years. All of these ideas will seem strange to most people in the world today, and coincidentally enough, Chris presciently said over 10 years ago that "the next big thing will start out looking like a toy".
Chris ties that narrative to the idea that technology growth outpaces user's needs. The ever present opinion that NFTs are expensive jpegs or that crypto is a niche currency only viable for a fraction of the population is shortsighted. Similar to how we at first thought Facebook was just a place to post about lunch but now is a TRILLION dollar company. Chris' post goes on to say that you're correct to say, well sometimes they are just toys. But when you add congruent external forces like more powerful microchips, better mobile phones, etc. there becomes symbiotic, exponential growth.
Fred Wilson, an early investor in Coinbase and other aspects of the venture system, recently described the NFT boom as “the opening”. Similar to a running back approaching his line after the handoff, we’re watching for that hole to open up to run through. Like I mentioned in last week’s article, The Inevitable Crypto Plunge, PartyBid was what turned the light on for both me and Fred. It was social, it inspired FOMO, it involved financial transactions, and it was a community of like-minded thinkers and early-adopters. The excitement we share isn’t solely around the NFT space, but all of the attributes that come with it. Fractional ownership and community building enables access to opportunity and belonging.
Community building is an enormous trend in tech right now and its part of why crypto has taken off. Recently I had a good chat with a friend of mine, Alex, who is deep in the crypto space and works for a company in the ecosystem. We were going back and forth on NFTs and I asked him what he had his eyes on outside of the blue chips like CryptoPunks. He mentioned Purrnelopes Country Club.
(Source: OpenSea)
I found it kind of strange that pictures of these cats were going for up to 500 ETH ($1.6MM), but Alex explained their concept of ownership simply:
They took a page out of Punks Comics and so each NFT can eventually be burned and in return you receive a % ownership in a community wallet where they will be purchasing blue chip NFTs. So the project itself is deflationary and will always have the wallet as the underlying value. Also have a really strong roadmap with a lot of creative airdrops and the person spearheading it is an OG NFT guy @Carlini8
Essentially, the purchases become part of a larger fund, that can then be turned into a financial vehicle used for purchasing more valuable work. The creators of Purrnelope describe the NFTs as having “utility”. They describe that utility, which is the “burning” of the cats, as like having a piggy bank. The piggy bank contains fractional and full Punks, other valuable NFTs, and more. By burning the cat, which realistically is just deprecating the NFT, you get a token for the PCC piggy bank. It makes the cats deflationary, and therefore rarer and more valuable - in turn increasing the value of the piggy bank. You can read more here. It’s a fascinating case of creating economic value purely within its own community.
What's happening in crypto is so new and moving at such a rapid pace that people looking from the outside often think it's crazy. Even people inside sometimes think it is sometimes. There's an associated stigma about being a "crypto guy". Right now, it's just being early to a new wave of compute. Sure I might be drinking some of the cool aid and overestimate the reach that crypto will have or speed that it will permeate, but I'd rather get in early than be too late.