Alex’s Word of Web3
— September Recap
The Word of Web3 is written for eduational purposes only. The author is not providing any financial advice on investing in any digital asset, cryptocurrency security or company.
Welcome to the Word of Web3 September Recap! Every month, you can find an overview of all things crypto and blockchain and the developments in the Web3 ecosystem.
Now, if you are not working in crypto or are not a blockchain-enthusiast (as of yet), you may wonder ‘why the term Web3’. If so, scroll down to the end of this article for a quick intro to the topic and some definitions. Or, watch this video in which I discuss crypto and blockchain with trader and investor Alessio Rastani.
Web3 is inherently global. Its builders and users come from anywhere. In Web3, the geographic distribution is boundless. Investors, entrepreneurs and blockchain companies (or “projects”, as we call them!) all act on the same level playing field, which is a good thing.
Although open and globally accessible, there is quite some room for improvement on Web3’s level playing field. That’s why I’m building company that will spur blockchain investors, projects and others. Drop me a message if you care to know more.
Much has happened in September. Here’s my take on the most noteworthy industry developments.
Feel free to reach out or contact me if I forgot to mention something important.
Industry Developments
Private capital investment in blockchain and Web3 has been growing exponentially. Blockchain funding globally surged over 700% year-on-year to reach over $25 billion in 2021. But that was last year.
Today the story is somewhat different. We are currently finding ourselves in a ‘crypto winter’, understood as something similar to a bear market cycle in the stock market.
Yet, the numbers show that despite the winter, fiat and crypto are still pouring in. Data from Cointelegraph Research showed that only in August 2022, the industry saw a total of $1.36 billion of venture capital invested. One VC launched a new $300 million fund to back early-stage startups, emphasising its bullish belief that Web3 will “continue to progress through all market cycles”.
I think that crypto prices are a leading and lagging indicator of the overall performance in the Web3 industry. Rising prices are like hooks; the numbers drive interest, which causes ideas and activity, which drives innovation. As advocated by A16z, this idea argues that the crypto market evolves in cycles. Those cycles can appear chaotic from an external point of view.
Yet, in reality, there is an underlying logic in which prices, industry developments and innovation evolve in a positive feedback loop. Corrections flush out the flawed projects. Upon this base, innovation will be built.
Now, let me stress that my analyses (including this article on the economic impact of cryptocurrenciese) are not meant as investment advice — they are only for educational purposes. Those who saw the interview with Alessio Rastani know I favour BTC’s stock2flow model. While it is often argued that crypto is risky — understandably perhaps — , BTCs log chart shows that volatility and drawdowns have remained relatively consistent over the years.
Interestingly, a recent study from Coinfolio Capital analysed the effects of integrating 5% of Bitcoin into a traditional portfolio (the traditional 60% equity & 40% bond portfolio). The researchers constructed a modified portfolio of 57% equity (i.e. IVV ETF), 38% bond (i.e. SXRM ETF) and 5% direct Bitcoin exposure. They analysed the results against the traditional portfolio consisting of 60% equity and 40% bond.
The results may be especially surprising to sceptics. While Bitcoin suffered two large drawdowns of over 70%, the returns of the modified portfolio improved substantially. Moreover, the risk in terms of volatility and maximum drawdown increased marginally.
See the chart and the complete research piece for all the details:
As the investment numbers partially reveal, the adoption of crypto as payment assets and of blockchain(-related) projects is increasing all over the board.
The continued institutional interest in Web3 and crypto indicates that the sector matures. At the same token, institutional adoption is reflected in the correlation of BTC with major indexes, such as the S&P 500. I consider the recent downward pressure of the BTC price in light of both the correcting traditional markets and geopolitical factors and other crypto-inherent matters.
Speaking about institutional adoption and adoption from traditional institutions, equity exchange operator Nasdaq is preparing to launch an institutional crypto custody service. Meanwhile, several giant Wall Street firms announced the start of crypto exchange EDX Markets.
Likewise, the European Union announced that it would deploy blockchain and NFTs to fight against counterfeiting EU trademarks and products. A complex system of tracing and certification will guarantee the originality of the artefacts born in the Member States.
Much brand adoption was also announced in September, some from big household names. FIFA launched its digital collection platform to offer digital video moments of the World Cup. By purchasing NFTs, buyers will have access to physical matches, merchandise and more. Another mainstream brand, Starbucks, opened its waitlist for an NFT-based loyalty program.
In sum, we see adoption and interest in crypto assets. Yet, adoption often goes accompanied by a superficial understanding of the sector.
So what are the regulators doing?
Many regulators (and Dutch judges, see below) lack an understanding of disruptive technologies. Governmental institutions are also slow by nature. If one wishes to control the sector, the cross-border effects of Web3 make that only through solid international cooperation can one regulate. Yet, the decentralised nature of crypto makes it even harder to control (and that is arguably a good thing).
Interestingly in Colorado, one can now pay taxes with crypto, which is pretty cool. Meanwhile, this month the White House released its framework for regulating crypto in the U.S. Interestingly, the Blockchain Association has formed a political action committee to support pro-crypto candidates in the U.S.
Where policy-makers are getting involved to regulate the industry, the builders and coders of blockchain technology themselves need to be involved and listened to.
This means not putting them in jail…
In August, the Tornado Cash developer was arrested in the Netherlands (read my article on this attempt to drain Web3). In September, it was revealed that the developer would remain in jail for another two months.
Tornado Cash is a crypto mixer for those unfamiliar with the protocol. Such tools offer an extra layer of privacy when carrying out transactions. As U.S. House of Representative Tom Emmer readily mentioned, “[t]he sanctioning of neutral, open-source, decentralised technology presents a series of new questions, which impact not only our national security but the right to privacy […].”
Indeed. What I’d like to say is this: dear enforcers, until you better grasp the opportunities of Web3 and appreciate technological neutrality, please consider shifting your normative judgements. Target blockchain technology’s evil and malicious end-users, not the bound-breaking enablers of a more equitable and open monetary future.
Considering more happy news: the Merge finally took place.
Ethereum has officially gone from being a proof-of-work blockchain to a proof-of-stake-based blockchain. It was one of the most relevant events in the Blockchain world. The Merge has been a critical moment in Web3’s history. According to A16z, it involved a community of hundreds of developers. It meant “hot-swapping the most important component of Ethereum’s architecture, its consensus mechanism, basically like “changing the engine on a moving car”.
Replacing proof-of-work consensus with proof-of-stake will have the immediate effect of reducing grid energy consumption by 99.95%.
That will make those worried about the environmental impacts of blockchain happy…
Speaking about sustainability: according to research recently quoted in mainstream media, Bitcoin has become considerably more polluting. Bitcoin is said to be “about as damaging to the climate as the entire North American beef sector”, according to University of Texas scientists.
I suggest always looking at these types of studies (and at any research, really) with care. When reading, always check the source of electricity; high energy use does not necessarily imply high environmental direct impact. Quite often, miners use excess energy as this is also economically efficient. Moreover, arguably more efficient hardware will ultimately force out the less energy-efficient BTC miners.
This meme was very much on-point:
Yet, as argued in an excellent article I came across this month, sustainability, decentralised finance, and blockchain do go hand in hand. The article concerned how Regenerative Finance aims to tackle climate change using blockchain technology. For instance, it seeks to reverse climate change by bringing natural assets “on-chain” and introducing incentives to reward eco-friendly behaviour.
Interestingly, one of the most vibrant and active categories in Regenerative Finance is the Voluntary Carbon Market, which shows promising growth and is worth exploring for those curious.
Web3 is global and decentralised. A sneak peek at what’s happening around the world:
The Iranian government presented this summer its first cryptocurrency-based order, worth $ 10 million, without specifying which transaction it was and which digital asset was used.
Russia is close to pushing legislation for the use of cryptocurrency in international trade after the Congressional Energy Committee expressed earlier this year that the government was open to taking payments for natural gas and other natural resources exports in bitcoin.
In China, the situation in terms of crypto seemed to be positive until the government started repressing Bitcoin mining and crypto trading activities last year. This month, the news broke that despite enforcing the ban one year ago, the Chinese government still protects crypto investors by considering crypto as virtual property protected by the law.
Meanwhile, South and Southeast Asia are home to five of the top ten countries in the Chainalysis 2022 Crypto Adoption Index: Vietnam (1), the Philippines (2), India (4), Pakistan (6), and Thailand (8). In that light, is it interesting that South Korea has requested Interpol and law enforcers worldwide to locate and arrest Terra’s Co-Founder, Do Kwon.
The fight on crypto also takes place in Afghanistan, where the police reportedly shut down 16 crypto exchanges. Afghanistan’s central bank also banned crypto trading practices, following reports that suggested an increased demand for cryptocurrencies on the part of Afghani residents.
Finally, some happier news and a last note on the metaverse:
The tax authority in Argentina announced that taxpayers may pay provincial taxes and fees with cryptocurrencies, purportedly only stablecoins for the time being.
The United Arab Emirates Ministry of Economy announced a new headquarters in the metaverse. It would allow the ministry to make digital services a more significant part of its operations. Visitors to the HQ may sign legally binding documents, eliminating the need for individuals to visit a physical location.
Although I’m not a metaverse expert, I appreciate blending emerging technologies into new solutions. Exponential growth is happening. The global metaverse market size was valued at USD 100.27 billion in 2022 and is projected to grow USD 1,527.55 billion by 2029, at a CAGR of 47.6%
The metaverse enables and spurs different emerging technologies that combined offer the world new solutions previously inexistent. Besides states and existing brands, many new companies seek to tap into this almost boundless market. For instance, Vertex Vision is a start-up that uses AI to generate 3D designs allowing metaverse visitors to hyper-personalize the designs of their avatars.
Final Remarks
Web3 is globally distributed and offers many possibilities for all of us. The collaborative spirit of Web3 is genuinely unique and boundlessly promising.
This month I gave a presentation for EkoLance, a female-founded company aimed to make the blockchain industry more diverse and bring more women and professionals from emerging countries to it. Those looking for free education may check out said company’s programs, alongside various other free initiatives, such as DLT Talents, DeFi Talents and NFT Talents (all organised by the Frankfurt School Blockchain Center).
The impact of crypto-native events, such as the Terra/Luna matter with systemic impact mirroring traditional finance domino effects, the Celsius downfall and the fall of Three Arrows Capital, all indicate that Web3 is not immune to failures.
Care is always necessary. Indeed, while conventional finance has institutions that are too big to fail, the crypto sector does not. However, this is arguably not bad — let the market sort it out. Always Do Your Own Research.
This industry letter aims to be an integral part of that research.
Let’s see what October shall bring. Will the Halloween effect set in across the crypto markets? Share your thoughts by dropping me a message!
Thanks for reading. Get in touch and speak soon!
Cheers.
Alex
Web3: a Quick Intro
Imagine that “blockchain” can be simply understood as an enabling technology, just as the internet has been an enabling technology. Simply put, a blockchain is a database ledger that records transactions, and is open for everyone to see. Now, with technology often comes power. Here that’s no different. With blockchain technology, in principle, no one has arbitrary power within the system: you can look at the code and see if all is right. A community governs the workings of the technology. Now, this new sort of power dynamic is entirely different from today’s internet.
Today’s functioning of the internet has a business model dependent on proprietary, closed protocols on top of the internet’s open protocols. Big companies that we use for free, may sell user data and use opaque business models and code. People working in tech also call today’s internet ‘Web2.
Importantly, Web2 was built on Web1. Web1 was the internet how it was once designed when it came into existence. Web1 consisted of open source internet protocols designed for inclusiveness. Anyone could build on top of the open source protocols without permission.
Web3 goes back to the open source protocols (of Web1), but it is collectively owned through crypto-economics with corresponding blockchains and digital assets like cryptocurrencies. Web3 is characterised through open source software, user agency over data, and access without permission. It provides its users and those building it with a shared sense of identity and collaboration.
The key to remember is that blockchain and the pre-determined nature of smart contracts that govern many blockchains help preserve trust and may even be seen as trustless (code is law). See this article of mine for a quick introduction into Bitcoin and blockchain technology.
Dr Gavin Wood, one of the creators of the Ethereum blockchain, famously defined Web3 as ‘less trust, more truth’. He implied that trust in the intentions of others and the centralisation of power of big data companies may be replaced with transparency and irrevocability as built into blockchain technology.
You may grasp that some understand blockchain and crypto assets as a social construct toward a better future. Some see web3 as a sociopolitical movement towards a more rational, liberal model. It may arguably be a way forward from today’s institutional decay.
More about the author*
Alexandra is a Web3 advocate and blockchain enthusiast and is currently building her company, Thrilld Labs, in collaboration with the Blockchain Founders Group. She is a Brand Ambassador to Radom Network, the blockchain company where she worked as a Business Development Strategist until recently.
Alexandra is active in various (academic) initiatives, including as a Mentor in the NFT and DLT Talents programs operated by the Frankfurt School Blockchain Center. Alexandra holds academic degrees in various disciplines, including law and political science and is passionate about bringing individuals together to ‘mint’ new synergies. In her free time, she trades and writes for the Cointelegraph.
- The article is written in the author’s personal capicity and does not necessarily represent the view of her employer or any previous employer. The author declares no competing interests and received no financial support for the research, authorship, and/or publication of this article. The author explicity expresses that are no affiliated links in this article.
The information provided is only for educational purposes and should not be construed as a recommendation to buy or sell any security, cryptocurrency or cryptotoken. Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated, therefore anyone considering it should be prepared to lose their entire investment.
