6 ms·

A16Z struggles to earn passing grade in crypto fund II investor letter

48 points by 1cvmask 7y ago

deleted 7y ago
[deleted]
908087 7y ago
All I got from that was "these other hucksters are selling different snake oil than I am".
seibelj 7y ago
> Stable coins are just bank liabilities in the best case, and more commonly fraudulent mafia money laundering ponzi schemes like tether. Bitcoin lightning makes higher throughput blockchains irrelevant. Bitcoin maximalist hit piece. All other coins are worthless to the bitcoin maximalist. I love BTC but there is a lot of innovation in crypto, almost all of which is not on BTC.
- grubles 7y ago
  The part about Lightning making "higher throughput blockchains irrelevant" is correct though. Blockchains inherently do not scale unless you sacrifice decentralization, and once you've done away with decentralization then you don't need a blockchain. You're better off for many reasons using a database instead.
  - seibelj 7y ago
    Lightning is a complex piece of technology. It basically requires an ISP-like layer-2 solution where nodes peer with each other in order to route payments. This is not a silver-bullet solution to scaling. ZK rollups[0] are another solution and are live on Ethereum right now.[1] [0] https://docs.ethhub.io/ethereum-roadmap/layer-2-scaling/zk-rollups/ https://docs.ethhub.io/ethereum-roadmap/layer-2-scaling/zk-r... [1] https://loopring.org/#/protocol https://loopring.org/#/protocol
    - grubles 7y ago
      Lightning is live right now too, and has been for two years. The "ISP"-like (???) layer-2 thing you're referring to is just the fact that Lightning is decentralized and also scales, which is probably why the author accurately claimed that it makes many-TPS blockchains irrelevant. ZK rollups are completely new and they do not scale nearly as well as Lightning, which performs at nearly 500 transactions per second /per payment channel/. So take the number of channels existing currently on the Lightning Network and multiply by 500 and you have a theoretical ceiling. It comes out to some multiple millions of transactions per second.
      - seibelj 7y ago
        As a typical client, when using the Lightning network you open a channel with a peer, which requires an on-chain (slow) transaction and locks up funds. If you don't wish to do this with every single person you want to transact with, then you select a peer who is a major node (exchange, payment processor, etc.) who already has channels with the other major nodes. This will allow you to quickly route payments to anyone affiliated with the large network. This is why it is like an ISP layer-2 solution. IP packets route through the internet in a similar way.
  - ashtonkem 7y ago
    Its true that blockchains don’t scale, but it doesn’t follow that Lightning is the answer. Especially since it always seems like lightning will be ready for public use “soon”.
  - flarex 7y ago
    It's not correct. A layer 2 network is bottlenecked by the throughput from layer 1. Higher throughput on layer 1 is very relevant.
    - tromp 7y ago
      Number of channel creations/closures is bottlenecked by layer 1. Second layer transaction throughput is not.
ashtonkem 7y ago
It’s funny watching two true believers argue about who’s doing a better job chasing their shared vision. The narcissism of small differences comes for all of us, it seems.
- vertak 7y ago
  Thank you for posting this, it made me look up narcissism of small differences and it sums up this article well. Maybe it would be a better idea to start infighting once bitcoin and other crypto’s make it mainstream. https://en.m.wikipedia.org/wiki/Narcissism_of_small_differences https://en.m.wikipedia.org/wiki/Narcissism_of_small_differen...
mbloom1915 7y ago
mostly accurate piece. I can't say I agree with the stablecoin analysis since many are being used as novel financials instruments, but I see where he is coming from.
ketamine__ 7y ago
If future funds aren't investing in Coinbase, Etherscan, and CoinMarketCap because those companies already exist then the risk profile is much higher. All of these companies can make money in up and down markets. It's less obvious that other crypto startups can do the same.
wpietri 7y ago
Amen to this part: "Yes but what PROBLEM are we trying to SOLVE?" Every time a blockchain-based solution comes up, I try asking that question. There's only occasionally a real answer. Then my next question is, "How EXACTLY does this solve the problem BETTER?" The answers there are almost always tautological, some version of, "because blockchain!" (For what it's worth, I give the original bitcoin paper [1] full marks on these points. It has a clear thesis: distributed e-cash will solve particular problems for particular people. It turns out it was wrong on every count, but at least the idea was clear.) A while back a friend asked me to meet with a first-time entrepreneur pal. The entrepreneur had a business plan that was, like so many others, "existing business, but blockchain". After some explanation of how it would work, I asked, "Ok, how does this help your users?" The answer was, "It's more secure, because blockchain!" I said that wasn't sure it really was more secure. But either way, how could customers know it was better? Because the customer experience for the blockchain version and the non-blockchain version were the same. Either way, it came down to a company saying, "Trust us!" Would the new company's customers see a claim of blockchain usage as better? And better enough to compensate for the product limitations imposed? They didn't really have an answer for that. And, unsurprisingly, I never heard back again. Nobody likes it when you tell them their baby is perhaps not the most beautiful child ever. ¯\_(ツ)_/¯ [1] https://bitcoin.org/bitcoin.pdf https://bitcoin.org/bitcoin.pdf
- seibelj 7y ago
  Blockchain is good for permission-less financial innovation including raising funds. It doesn't matter if the SEC considers a digital asset a security if everything is offshore and the purchasers are offshore or anonymous. It is a financial network without regulation. Regulation can pierce areas of the network that interface with physical entities, just as regulators can regulate pieces of the internet they can control but lack capabilities around the darknet. This is what blockchain is - purely digital and open financial networks.
  - mochapot 7y ago
    There is a group of people who assert that laws will not apply to them because technology obscures their identity. Those people are wrong. Blockchain is an append-only database. It does not create sovereign citizens.
Qasaur 7y ago
>Bitcoin lightning makes higher throughput blockchains irrelevant. Lightning is a UX disaster that is not easily solvable as the headaches are part of the protocol itself (opening/closing channels with nodes etc.). I've used some of the various apps that have been released and I find it very difficult to see how "normal" people are going to understand and use it at all. Instead of trying to innovate with new blockchain designs, there is a significant amount of minds trying to hack together bandaids for Bitcoin, a protocol and blockchain that has already been crippled by Blockstream and the scaling debacle. If one steps back and takes stock of the ecosystem, I find it very difficult to see what value proposition BTC has other than reputation and being a first mover. Store-of-value is something that Monero can do better as it guarantees privacy which I'm sure a lot of people would like. Instant transactions is something that NANO has solved on the protocol/blockchain layer (and without using clunky hacks like Lightning) whereby transactions are settled almost instantly and at zero cost. Quite frankly, the only thing BTC has going for it is brand value - technically it has already been superseded by other protocols, but BTC maximalists (such as the author of the article) are ignoring this reality likely due to sunk-cost fallacy. So no, I disagree strongly with the author. There is a lot that can be built within the cryptosphere, and I think trying to gatekeep innovation by limiting it to the BTC protocol is extremely disingenuous.
- poontang1 7y ago
  > Lightning is a UX disaster Lightning absolutely was a UX disaster, but things are improving quickly. There are wallets now that manage your funds completely without the notion of channels, and thats how it should be for most users. You don't even care whats going on under the hood, because it's all automatically managed. > Store-of-value is something that Monero can do better Monero has worse scaling issues than Bitcoin and is even harder to use for most people. > Instant transactions is something that NANO has solved Every design decision is a trade off. Something free and instant is also infinitely spammable. If every transaction requires a PoW, its not actually free, and if it's easy enough for a phone to do, its 1000x easier for an ASIC to do, and still doesn't prevent spam. No one wants to actually store spam data forever, and a lot of blockchains have the issue no one one is actually incentivized to store the crap forever, and _someone_ has to. I completely agree Bitcoin, at it's base layer could be a better protocol, but nearly every other protocol you'll encounter has made design trade offs that make it less decentralized in the long term
jariel 7y ago
"but Bitcoin is a digital alternative that is gaining acceptance and adoption around the world." If by that they mean 'losing adoption and acceptance around the world' then, sure. BTC has obviously lost the game at being any kind of 'currency' and as a real store of value beyond the speculative type, it's not quite there. Are there any serious funds putting BTC in their portfolio as a matter of regular discourse? When Buffet pulled out of stocks and went 'cash' a few years ago, did he allocated 4% to BTC? No, why not? The industry is in a death-march, the path forward for blockchain, and such things is not quite clear.
- everfree 7y ago
  To be fair, Buffett doesn't invest in anything he doesn't fully understand, and his strong suit is corporate fundamental analysis.
flarex 7y ago
Tone is very tribalistic and low level. "If it's not Bitcoin it's not crypto". Irrational dismissiveness of innovation because their investment is at risk from competition. Like the saying goes "It is difficult to get a man to understand something, when his salary depends on his not understanding it." Similar dynamic here.
- sparkie 7y ago
  If it's not bitcoin, it does not inherit the fix for inflation. If you have a useful innovation, it is possible to deploy it as a bitcoin sidechain, or colored coin on bitcoin, which retains the fix for inflation (no need to create new tokens), whilst enabling whatever developments you've created. There's one, and only one reason why people prefer to do the print your own token strategy: to generate lots of low cost tokens early on with the expectation of exchanging them for real wealth later on when an exchange market with some liquidity arises and you can market your product to naive investors. If it's not bitcoin, it's a money grab. It really is that simple.
  - tromp 7y ago
    > the fix for inflation. Bitcoin is a fix for unpredictable and arbitrary emission. But its finite supply, said to be modeled after Gold's, is questionable. Gold may have a finite supply, but it's been mined for millenia and has slowly increased its supply rate over time, and will likely continue to do so in our lifetime. In contrast, Bitcoin's emission which ranges from 2009 through 2140 is heavily tilted to the first few years. Its final century from 2040 through 2140 accounts for only about 0.5% of emission. The only point of the halvings is to be able to claim "finite supply". A constant reward would still have the yearly supply inflation rate (stock to flow ratio) going to 0, albeit more slowly. So crucially, supply would still be scarce, would be more predictable (time independent), more fair to late adopters, and be much closer to Gold's emission over our lifetime. It would also avoid the inherent instability [1] of mining rewards dominated by transaction fees. If we further consider the fact that coins inevitably get lost, then even a constant reward will yield a softcap of supply, where yearly emission merely serves to balance the yearly losses. Unfortunately, practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards, even when they often already enjoy lower difficulty. [1] https://www.cs.princeton.edu/~arvindn/publications/mining_CC.. https://www.cs.princeton.edu/~arvindn/publications/mining_CC....

48 points by 1cvmask 7y ago

deleted 7y ago

[deleted]

908087 7y ago

All I got from that was "these other hucksters are selling different snake oil than I am".

seibelj 7y ago

> Stable coins are just bank liabilities in the best case, and more commonly fraudulent mafia money laundering ponzi schemes like tether. Bitcoin lightning makes higher throughput blockchains irrelevant. Bitcoin maximalist hit piece. All other coins are worthless to the bitcoin maximalist. I love BTC but there is a lot of innovation in crypto, almost all of which is not on BTC.

grubles 7y ago
The part about Lightning making "higher throughput blockchains irrelevant" is correct though. Blockchains inherently do not scale unless you sacrifice decentralization, and once you've done away with decentralization then you don't need a blockchain. You're better off for many reasons using a database instead.
- seibelj 7y ago
  Lightning is a complex piece of technology. It basically requires an ISP-like layer-2 solution where nodes peer with each other in order to route payments. This is not a silver-bullet solution to scaling. ZK rollups[0] are another solution and are live on Ethereum right now.[1] [0] https://docs.ethhub.io/ethereum-roadmap/layer-2-scaling/zk-rollups/ https://docs.ethhub.io/ethereum-roadmap/layer-2-scaling/zk-r... [1] https://loopring.org/#/protocol https://loopring.org/#/protocol
  - grubles 7y ago
    Lightning is live right now too, and has been for two years. The "ISP"-like (???) layer-2 thing you're referring to is just the fact that Lightning is decentralized and also scales, which is probably why the author accurately claimed that it makes many-TPS blockchains irrelevant. ZK rollups are completely new and they do not scale nearly as well as Lightning, which performs at nearly 500 transactions per second /per payment channel/. So take the number of channels existing currently on the Lightning Network and multiply by 500 and you have a theoretical ceiling. It comes out to some multiple millions of transactions per second.
    - seibelj 7y ago
      As a typical client, when using the Lightning network you open a channel with a peer, which requires an on-chain (slow) transaction and locks up funds. If you don't wish to do this with every single person you want to transact with, then you select a peer who is a major node (exchange, payment processor, etc.) who already has channels with the other major nodes. This will allow you to quickly route payments to anyone affiliated with the large network. This is why it is like an ISP layer-2 solution. IP packets route through the internet in a similar way.
- ashtonkem 7y ago
  Its true that blockchains don’t scale, but it doesn’t follow that Lightning is the answer. Especially since it always seems like lightning will be ready for public use “soon”.
- flarex 7y ago
  It's not correct. A layer 2 network is bottlenecked by the throughput from layer 1. Higher throughput on layer 1 is very relevant.
  - tromp 7y ago
    Number of channel creations/closures is bottlenecked by layer 1. Second layer transaction throughput is not.

ashtonkem 7y ago

It’s funny watching two true believers argue about who’s doing a better job chasing their shared vision. The narcissism of small differences comes for all of us, it seems.

vertak 7y ago
Thank you for posting this, it made me look up narcissism of small differences and it sums up this article well. Maybe it would be a better idea to start infighting once bitcoin and other crypto’s make it mainstream. https://en.m.wikipedia.org/wiki/Narcissism_of_small_differences https://en.m.wikipedia.org/wiki/Narcissism_of_small_differen...

mbloom1915 7y ago

mostly accurate piece. I can't say I agree with the stablecoin analysis since many are being used as novel financials instruments, but I see where he is coming from.

ketamine__ 7y ago

If future funds aren't investing in Coinbase, Etherscan, and CoinMarketCap because those companies already exist then the risk profile is much higher. All of these companies can make money in up and down markets. It's less obvious that other crypto startups can do the same.

wpietri 7y ago

Amen to this part: "Yes but what PROBLEM are we trying to SOLVE?" Every time a blockchain-based solution comes up, I try asking that question. There's only occasionally a real answer. Then my next question is, "How EXACTLY does this solve the problem BETTER?" The answers there are almost always tautological, some version of, "because blockchain!" (For what it's worth, I give the original bitcoin paper [1] full marks on these points. It has a clear thesis: distributed e-cash will solve particular problems for particular people. It turns out it was wrong on every count, but at least the idea was clear.) A while back a friend asked me to meet with a first-time entrepreneur pal. The entrepreneur had a business plan that was, like so many others, "existing business, but blockchain". After some explanation of how it would work, I asked, "Ok, how does this help your users?" The answer was, "It's more secure, because blockchain!" I said that wasn't sure it really was more secure. But either way, how could customers know it was better? Because the customer experience for the blockchain version and the non-blockchain version were the same. Either way, it came down to a company saying, "Trust us!" Would the new company's customers see a claim of blockchain usage as better? And better enough to compensate for the product limitations imposed? They didn't really have an answer for that. And, unsurprisingly, I never heard back again. Nobody likes it when you tell them their baby is perhaps not the most beautiful child ever. ¯\_(ツ)_/¯ [1] https://bitcoin.org/bitcoin.pdf https://bitcoin.org/bitcoin.pdf

seibelj 7y ago
Blockchain is good for permission-less financial innovation including raising funds. It doesn't matter if the SEC considers a digital asset a security if everything is offshore and the purchasers are offshore or anonymous. It is a financial network without regulation. Regulation can pierce areas of the network that interface with physical entities, just as regulators can regulate pieces of the internet they can control but lack capabilities around the darknet. This is what blockchain is - purely digital and open financial networks.
- mochapot 7y ago
  There is a group of people who assert that laws will not apply to them because technology obscures their identity. Those people are wrong. Blockchain is an append-only database. It does not create sovereign citizens.

Qasaur 7y ago

>Bitcoin lightning makes higher throughput blockchains irrelevant. Lightning is a UX disaster that is not easily solvable as the headaches are part of the protocol itself (opening/closing channels with nodes etc.). I've used some of the various apps that have been released and I find it very difficult to see how "normal" people are going to understand and use it at all. Instead of trying to innovate with new blockchain designs, there is a significant amount of minds trying to hack together bandaids for Bitcoin, a protocol and blockchain that has already been crippled by Blockstream and the scaling debacle. If one steps back and takes stock of the ecosystem, I find it very difficult to see what value proposition BTC has other than reputation and being a first mover. Store-of-value is something that Monero can do better as it guarantees privacy which I'm sure a lot of people would like. Instant transactions is something that NANO has solved on the protocol/blockchain layer (and without using clunky hacks like Lightning) whereby transactions are settled almost instantly and at zero cost. Quite frankly, the only thing BTC has going for it is brand value - technically it has already been superseded by other protocols, but BTC maximalists (such as the author of the article) are ignoring this reality likely due to sunk-cost fallacy. So no, I disagree strongly with the author. There is a lot that can be built within the cryptosphere, and I think trying to gatekeep innovation by limiting it to the BTC protocol is extremely disingenuous.

poontang1 7y ago
> Lightning is a UX disaster Lightning absolutely was a UX disaster, but things are improving quickly. There are wallets now that manage your funds completely without the notion of channels, and thats how it should be for most users. You don't even care whats going on under the hood, because it's all automatically managed. > Store-of-value is something that Monero can do better Monero has worse scaling issues than Bitcoin and is even harder to use for most people. > Instant transactions is something that NANO has solved Every design decision is a trade off. Something free and instant is also infinitely spammable. If every transaction requires a PoW, its not actually free, and if it's easy enough for a phone to do, its 1000x easier for an ASIC to do, and still doesn't prevent spam. No one wants to actually store spam data forever, and a lot of blockchains have the issue no one one is actually incentivized to store the crap forever, and _someone_ has to. I completely agree Bitcoin, at it's base layer could be a better protocol, but nearly every other protocol you'll encounter has made design trade offs that make it less decentralized in the long term

jariel 7y ago

"but Bitcoin is a digital alternative that is gaining acceptance and adoption around the world." If by that they mean 'losing adoption and acceptance around the world' then, sure. BTC has obviously lost the game at being any kind of 'currency' and as a real store of value beyond the speculative type, it's not quite there. Are there any serious funds putting BTC in their portfolio as a matter of regular discourse? When Buffet pulled out of stocks and went 'cash' a few years ago, did he allocated 4% to BTC? No, why not? The industry is in a death-march, the path forward for blockchain, and such things is not quite clear.

everfree 7y ago
To be fair, Buffett doesn't invest in anything he doesn't fully understand, and his strong suit is corporate fundamental analysis.

flarex 7y ago

Tone is very tribalistic and low level. "If it's not Bitcoin it's not crypto". Irrational dismissiveness of innovation because their investment is at risk from competition. Like the saying goes "It is difficult to get a man to understand something, when his salary depends on his not understanding it." Similar dynamic here.

sparkie 7y ago
If it's not bitcoin, it does not inherit the fix for inflation. If you have a useful innovation, it is possible to deploy it as a bitcoin sidechain, or colored coin on bitcoin, which retains the fix for inflation (no need to create new tokens), whilst enabling whatever developments you've created. There's one, and only one reason why people prefer to do the print your own token strategy: to generate lots of low cost tokens early on with the expectation of exchanging them for real wealth later on when an exchange market with some liquidity arises and you can market your product to naive investors. If it's not bitcoin, it's a money grab. It really is that simple.
- tromp 7y ago
  > the fix for inflation. Bitcoin is a fix for unpredictable and arbitrary emission. But its finite supply, said to be modeled after Gold's, is questionable. Gold may have a finite supply, but it's been mined for millenia and has slowly increased its supply rate over time, and will likely continue to do so in our lifetime. In contrast, Bitcoin's emission which ranges from 2009 through 2140 is heavily tilted to the first few years. Its final century from 2040 through 2140 accounts for only about 0.5% of emission. The only point of the halvings is to be able to claim "finite supply". A constant reward would still have the yearly supply inflation rate (stock to flow ratio) going to 0, albeit more slowly. So crucially, supply would still be scarce, would be more predictable (time independent), more fair to late adopters, and be much closer to Gold's emission over our lifetime. It would also avoid the inherent instability [1] of mining rewards dominated by transaction fees. If we further consider the fact that coins inevitably get lost, then even a constant reward will yield a softcap of supply, where yearly emission merely serves to balance the yearly losses. Unfortunately, practically all cryptocurrencies subscribe to the notion that early miners must receive greater rewards, even when they often already enjoy lower difficulty. [1] https://www.cs.princeton.edu/~arvindn/publications/mining_CC.. https://www.cs.princeton.edu/~arvindn/publications/mining_CC....