Reflection amid Bear Market: Takeaways from Why Crypto/Web3 is Happening and Why it Matters by Sequoia

It is intended to solve the problem of TRUST.

Money is about trust. Many people on our planet enjoy trust in their money and financial systems. We trust our central banks not to devalue our currency overnight. We trust our governments to avoid hyperinflation so our money retains purchasing power. We trust banks to secure our money and not loan it recklessly, and private companies to help us safely use our money for commerce and other financial services. We pay for the privilege of this trust in taxes and fees to financial services companies (a multi-trillion dollar industry). This foundation of trust has been an essential bedrock of our economic progress over the last few centuries.

Yet, many do not enjoy this level of trust in their financial systems, if they can access them at all. This is true even in some of the most prosperous and populous countries. Recent events, especially the Great Financial Crisis of ‘08–09, eroded trust even in the US. Global monetary stimulus in response to COVID has many questioning again whether their trust is well‐placed.

It is unlikely a coincidence that the Bitcoin whitepaper which ignited the crypto industry was published October 31, 2008, just six weeks after Lehman Brothers collapsed in the Great Financial Crisis. Titled “Bitcoin: A Peer‐to‐Peer Electronic Cash System,” it described the solution to a holy‐grail problem in cryptography: using a distributed network to validate the authenticity of a digital file. This introduced a new phenomenon on the Internet: verifiable scarcity, and enabled the direct transfer of value online without intermediaries. To exchange Bitcoin, all we need is internet access and trust in Bitcoin’s open source code. Just as billions now trust the Internet for the global free exchange of information, 220M and counting now trust a blockchain for the global free exchange of value.

A mis-step or an ineluctable step to get enough attention. Time will tell

While it seems Bitcoin was intended to solve a payments problem, inventions rarely go as their inventors planned. As demand for Bitcoin grew, its price and transaction fees increased, making it more useful for many as an investment vehicle (or store of value) than a payment mechanism (medium of exchange). Most interestingly, new inventors built on the concepts of Bitcoin in new ways. Ethereum’s contribution was using a distributed ledger not just for currency but for computation.

I am wondering if “Better money” or “Better internet” is tenable? The complexity of human and society validate my argument.

There are patterns in history

While these are the goals, we still have a long way to go. Some point to crypto’s shortcomings as evidence the entire effort is a scam, but this misses the point.

Historically, when technological innovation has led to financial innovation ahead of regulation, we have seen world-changing innovation, then mania, fraud, a crash, a regulatory framework and then a slow build toward lasting value (see: early stock markets of 1600s Amsterdam). Crypto appears no different. There are tokens of dubious quality. There are pockets of over-hype. But as with all other technology revolutions, there will also be enduring companies created in this time.

The big transformation is coming

What is the middle ground between traditional fiat and crypto?

Digital currencies are fundamentally useful to 220M people and counting, whether as capped‐supply inflation hedges, censorship‐resistant stores of value, borderless mediums of exchange and/or investment vehicles. This has created a new asset class.


Digital renminbi (Chinese: 数字人民币; also abbreviated as digital RMB and e-CNY),[1] or Digital Currency Electronic Payment (DCEP), is a central bank digital currency issued by China’s central bank, the People’s Bank of China. It is the first digital currency to be issued by a major economy, undergoing public testing as of April 2021. The digital RMB is legal tender and has equivalent value with other forms of renminbi, also known as the Chinese yuan (CNY), such as bills and coins.

The digital yuan is designed to move instantaneously in both domestic and international transactions. It aims to be cheaper and faster than existing financial transactions.The technology enables transactions to take place between two offline devices; and certainly prevent money laundry because e-CNY’s traceability.

The digital renminbi is seen by some commentators as a form of Chinese government surveillance and control over users and their financial transactions.

Build the infrastructures and tools, keep iterating them, to enable mass adoption, otherwise crypto goes nowhere, despite how much potential it holds to improve the operation efficiency of the world

This new asset class is creating a market for financial services, both centralized and decentralized (DeFi). As with any asset class, owners want to be able to buy, hold, sell, trade, lend, hedge, swap, fractionalize, insure and more. With crypto, they also want to do it freely across borders and time zones, 24/7. This is likely to be expansionary to current financial systems, creating more consumer choice.

The rise of crypto necessitates a new crypto stack. From core infrastructure to developer tools, some of the traditional stack will translate and some won’t. Custody, nodes, fiat<>crypto on/off ramps and both on and off-chain data are just a few areas of the emerging crypto stack. In this era, value may accrue to new layers. In traditional software, more value accrued to the application layer (Google ~$2T market cap, TCP/IP/SMTP arguably $0) whereas in crypto, core protocols are monetizable via tokens (BTC+ETH ~$2T market cap vs. crypto apps ~$200B so far).

Mental Model for Crypto — the fundamental principle of an exchange ecosystem

Where are we now?

Phase 1: Isolation. Crypto as an island, disconnected from the non‐crypto world. Core protocols are built out (think TCP/IP for internet, and layer 1 blockchains like Bitcoin, Ethereum and Solana for crypto). Protocols are inextricable from their native coins. A variety of coins creates demand for exchanges and additional financial services. Most incumbents lack the tech and regulatory appetite to serve this demand, allowing crypto‐natives to fill the void. Crypto‐native analogs of every financial service arise roughly in their historical order: currency, foreign exchange, lending, derivatives, insurance, options, ETFs, etc.

Phase 2: Connectivity. Bridging the crypto and non‐crypto worlds. The non‐crypto world sees value in crypto and builds/buys the infrastructure to access it. Custody/wallets, crypto<>fiat on/off ramps, data feeds, blockchain‐specific infrastructure and developer tools grow exponentially in this time. New use cases from NFT art communities to gaming to web3 social networks draw in new users. As the mass-market starts to engage in crypto, competitive pressure dramatically simplifies the user experience and lowers barriers to access. The number of users and developers with access to crypto increases by 10–100x over this next decade. We’d argue we are just starting Phase 2.

Phase 3: Maturation. Fusion of crypto and non‐crypto worlds so they are no longer distinct. Like mobile, once crypto access is sufficiently ubiquitous, applications will have the foundation they need to reach their full potential. They will cross the chasm from crypto‐niche to commonplace. To be clear, founders are already building across consumer finance, DeFi, NFT, web3 and more, but only a few hundred million people and institutions have the tools to access them. As access spreads, applications will see an order of magnitude increase in user engagement.

Are we now building the FUTURE?

Crypto is still in its early innings. Though it is rife with volatility, it’s also ripe with innovation. To dismiss crypto as purely speculative is to ignore the history that every financial innovation has had its misusers and to miss the tremendous potential crypto holds to create better financial systems.

To dismiss crypto as too slow, expensive, or confusing to ever be useful is like dismissing the Internet in its dial-up phase. While criticisms of crypto’s user experience, cost, speed or environmental impact are all valid, these aren’t doomsday signals for the movement — they are opportunities to build.

The bottom line is: billions of people want a better financial system and a better internet and a new generation of developers is motivated to build that for them.




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NFT | DeFi | Music | Personal growth