> do we know anything about the performance of Crypto Fund I so far?
Bad. Very, very bad.
> i'm really curious what kind of GP throws good money after bad on out-of-favor stuff like this. not that it can't work, its just unusual.
Crypto is at the intersection of ancaps and difficult, probably intractable engineering problems. That intersection is highly idealistic and highly motivated, with an almost religious zeal.
> Crypto is at the intersection of ancaps and difficult, probably intractable engineering problems. That intersection is highly idealistic and highly motivated, with an almost religious zeal.
There's another reason too: faulty reasoning by superficial historical analogy. There's a crowd of people who think cryptocurrency resembles the early Internet, and that its detractors are wrong in the same was as Paul Krugman was when he thought the net would turn into nothing.
The difference of course is that the Internet was immediately useful to an exponentially exploding number of people. I got on the net in 1993-1994 as an early teen and immediately found a ton of fascinating stuff to do with it. I helped less tech-savvy people (including my step sister) get online and they started enjoying chat rooms and the very early web.
Nobody uses cryptocurrency except users in a few niches that have remained relatively stable since its inception: people using it as an alternative wire transfer method, black/grey market commerce, and enthusiasts who just think it's cool and go out of their way to use it for the sake of using it. Those niches exist but they aren't growing very fast.
If you want to see what corporations are actually starting to use public blockchains for, check out the keynote from the EY blockchain conference last week: https://www.youtube.com/watch?v=-ycu5vGDdZw&t=14m
Essentially, EY expects public blockchains to do for B2B what ERP software did for internal operations. They're building zero-knowledge tech to make that sufficiently private and help with scaling.
> Essentially, EY expects public blockchains to do for B2B what ERP software did for internal operations. They're building zero-knowledge tech to make that sufficiently private and help with scaling.
Yes, but it's totally and completely unnecessary. If a company doing business with another company doesn't trust either the other company or a mutual jurisdiction to remediate -- they just shouldn't be in business together. No amount of blockchain magic fairy dust is going to change that.
Blockchain also only accurately reflects things solely encapsulated within the blockchain. As soon as you're trusting someone to enter data they can enter false data, and now you've got a permanent immutable ledger of hot garbage.
It may not be "necessary" but the keynote is about the reasons it's vastly more efficient than what we're doing today. They've done real-world case studies to prove it.
The video you linked leads with "it's been too complicated in the past to explain return on investment" lol, if you can't tell me if your product will save me money or not, your product is bad and will cost me money.
It's like going to buy a new fangled electric car, and you asking the salesman, hey, so how much will this save me on gas! And the salesman responds: "well that's hard to say." That's not a good sign.
Key words there are "in the past." An RDS instance is not the sort of thing they're talking about at all. In one case study, they took a licensing process at Microsoft and reduced it from several weeks long to one minute, and reduced overall cost by 99%.
You could run everything on one system, but companies don't like trusting and paying whoever runs that one system, so mostly they run their own systems, send messages back and forth, and do a lot of cumbersome mutual auditing. That's exactly the sort of thing EY works on for a living.
There's absolutely no reason that (1) Microsoft licensing should have taken a month to begin with, that's madness, you can buy a license on their website in seconds -- so it was a process and policy issue, not a technology issue and (2) there's no reason that if you trust Microsoft and Windows to validate that license information that you can't trust them to store that license information alongside your receipt/proof of purchase. None. They're required to hold on to it by law anyways. And if they don't honor it (and they will) you can always sue them.
Who on earth needs to validate MyCo has a license to Windows other than MyCo and Microsoft? Absolutely nobody. And if you don't trust Microsoft to honor the license in the first place why are you doing business with Microsoft?
Now beyond that, EY. They're not selling blockchain, they're selling SaaS apps built on top of blockchain technology because they need to meet CTO/CIO buzzword quotas. Their SaaS apps could be just as easily run on, wait for it, AWS.
It could be, (and not saying it will be), but it could be over time the last good money standing. Or last good money that is easy to transfer standing.
The transnational nature of it is interesting. But otherwise ya, I agree. Very niche at the moment and not really exploding in use or use case.
Central to their reasoning is the thesis that every ~15 years there is a breakthrough in computing (PCs in ~'78, the Web in ~'93, Smartphones in ~'07). This thesis is laid out on their site.
So, the hedge seems to concern investing in a new computing platform that will gain traction around 2021-2023. Does either the thesis or hedge seem bad? Well, the thesis doesn't seem obviously bad in comparison to other VC theses out there (I mean, theses are sort of about putting a stake in the ground with regards to predicting the future). Let's agree the thesis is sound. Is the hedge still bad? I don't know. If you were to line up the other options, like A.I. and AR/MR/VR (are there any others?), I'm not sure one would really stand out above all the others. Maybe A.I.? But even then, they've already invested in the other options (especially A.I.), so at this point it's a matter of distribution of invested capital.
Could the crypto investments end up being complete and embarrassing failures. Definitely. But, I'm not sure how this risk really stacks up to a different hedge for 2021-2023. It doesn't seem to be obviously bad in comparison to the other options.
And numerology with suspect numbers at that; 1978 was the year after the introduction of the first viable personal computers, 1993 was, er, Mosaic came out I suppose, but it was not the year the web showed up (that was earlier) or the year that it started to see widespread adoption (that'd be, er, 95 or 96). 2007 was the year that smartphones became mainstream, if you don't count blackberries or other consumer quasi-smartphones. This all feels very cherrypicked to fit the thesis.
Smartphones became popular in Asia long before the USA too, and there was a big market for flip phone apps there too while those never caught on in the US. This model seems more than even US-centric or Anglo-centric. Its Valley-centric.
I don't know what their reasoning is, but I suspect it's a mix of everything discussed on this thread: ancap/right-libertarian ideology, an affinity for sexy tech regardless of usefulness, faulty reasoning by historical analogy, reality distortion due to having made money off the crypto bubble, and a bit of sunk cost fallacy.
I am willing to be proven wrong. Show me growing uses of cryptocurrency that are not one of: niche wire transfer applications, black/grey market commerce, cryptocurrency aficionados nerding out, gambling, speculation, fraud, or solutions in search of a problem. Those are all (except the last two) real applications to varying degrees, but they're not large, rapidly growing, mainstream, or of that much interest to business customers.
In other words show me something someone that doesn't care about cryptocurrency would use. The Internet in the mid-90s offered a ton of things people wanted to use even if those people didn't know what an IP packet was.
I have asked the above in various forums, Twitter, etc. for years and so far nobody can produce anything. The closest I've ever seen is this:
It's the only ICO project I know of that has actually shipped something usable and possibly useful. Still that's one singular example and it's not like they're going to displace Amazon S3 or Backblaze any time soon.
VC theses are almost always just pattern matching. Moreover, they aren't the first to ever put forward that thesis.
Is it a good thesis? What's your criteria? By any scientific criteria, of course, the thesis is asinine. However, if the criteria is other VC theses, then it is an adequate thesis.
The difference is AI and MR/AR/VR have use cases that aren't solved as well with classical methods. There isn't a single use case blockchain is better at than classical methods. Not one -- except for crime and heating up the planet. We've spent 12 years trying to find one.
"AI" is great at solving fuzzy matching and pattern inference, which opens up a world of interesting things. Image segmentation, image analysis, dynamic image infill, facial recognition, and so on can all benefit. Is it a be all and end all technology? Probably not, certainly not yet, but it's clearly, trivially and obviously superior for a certain problem domain.
Just because something happens "every 15 years on average" doesn't mean it happens on a 15 year clock and it certainly doesn't mean you can just throw a lawn dart and hit one in the face without using some logic, reasoning and due diligence.
Having a forum where people discuss tech trends with an explicit commitment to reasoning from first principles would be very interesting, especially if it had cross over to physics and other sciences.
The first ARPAnet was immediately useful to almost everyone who had access to it.
Everyone has had access to cryptocurrency for over a decade, yet it still only has its original niches. This is a niche technology, not the next revolution.
> The first ARPAnet was immediately useful to almost everyone who had access to it.
As an Ethereum user, I find Ethereum useful. Maybe my experience is not unlike that of the initial ARPAnet users?
While between jobs, I have paid my rent with a blockchain-based loan. I found Ethereum to be a much better creditor than a bank.
I've quickly and inexpensively sent money to friends in other countries.
> yet [cryptocurrency] still only has its original niches [after a decade]
On this point, you are misinformed. There are many niches, services, and new kinds of financial primitives that have emerged on Ethereum over the past few years.
Could you provide details on how you know it’s bad? I’m not a big “believer” in crypto, but investments can do well on an IRR basis for many years before things go south. See we work in 2017... in crypto, have the companies they investments been marked down?
Most cryptos (that are not ICO scams) are hammers looking for nail. Outside of some very niche use-cases, most are non-competitive with centralized payment systems. Keep in mind there is a difference between an investment vehicle and a currency, and just about anything is a decent investment if your risk tolerance is high enough.
The fervor by which they're pushed by fans is almost religious in that their arguments stem from asking you to ignore certain facts and have faith, usually in the holy whitepaper.
> ... their arguments stem from asking you to ignore certain facts and have faith, usually in the holy whitepaper.
As the scriptures of the great Satoshi Nakamoto [1] foretold, the bankers are coming to steal our net worth through inflation. Therefore, help me move my narcotics proceeds overseas.
Well, the best performing token is down 8% from ATH (and it launched this morning) and the worst is down 98.59% [1]. All this is leading me to believe they're a poor investment vehicle.
You can't project a16z's performance based on what happened on exchanges.
During the ICO boom, they got access to tokens before they ICO'ed, usually at 70-90% discounts. They also make a lot of equity investments into the companies behind the protocol.
I have no idea what their numbers look like right now. And it will be hard to judge as most of their investments are illiquid at this point and don't know how they'll work out. Chia, Filecoin, Libra, ... haven't launched so could end up being worth a lot or could be worth 0.
Silly to look at % down from ATH when we had a massive bubble that peaked and popped. If you look at return overall, crypto beats ALL stock market investmets.
From a brief google, Uber's seed round is up 5000X so that beats my example. But Ethereum did pretty well; their equivalent of a seed round was in 2014, when one Bitcoin was worth $600, and as of today they're up 700X since then. That's down 85% from their peak of 4600X.
And I'm guessing the Uber seed round wasn't available to the average investor. If you just look at the public companies available to everyone, another quick google says the best in the last decade was Netflix at 40X gain.
> And I'm guessing the Uber seed round wasn't available to the average investor.
If you ask the SEC the majority of ICOs aren't available to the average investor either, and never should have been. Because the vast majority are pure, hot, unadulterated garbage like Dentacoin and IOTA - which emulates a ternary computer for literally no reason anyone can identify.
Nevertheless it was available and the SEC is fine with Ethereum today. In any case, as far as the Crypto Fund goes my second paragraph was irrelevant anyway.
I mean, look, the point is that you can't compare when bitcoin first opened up to an asset, it was a toy that surprisingly people pay for today even though it's being propped up by Tether and Bitfinex. It's akin to comparing the par value (1/10th of a cent) per share that the Uber founders received at formation - a 5,000,000% return. That makes the returns quite comparable. Starting something can be lucrative.
It is by no means the best performing asset. Anyone with shares from the formation of a startup has outperformed.
Equity is passive investment once you own it whether you remain employed or not. It's capital gains once you own the shares, not ordinary income. You can also include anyone you want in the cap table at formation, not just employees -- if you wanted, you could easily issue your advisory shares at that time.
Not to mention, at formation, you're more than welcome to pay market salaries to your founders, that's your perogative as a founder.
Not a startup. They don't just go from seed round to IPO on idle. The founders had to invest thousands of hours and immense stress to get it to IPO. Meanwhile a holder of 1000 BTC from 2012 probably continued to work their day job until 2017 when they incidentally became multi-millionaires.
This is the reason bitcoin will never be more than a way to move funds illegally and for a few gamblers to trade it online.
Society is fine with startup founders and "employee number 5" making their fortune because they put in actual effort to build a company.
The bitcoin millionaires happened to mine a few coins in 2011 before most people knew about it and then just did nothing as you said. Zero contribution to society from making that paper (or bit) fortune.
Why on earth would everyone else not on the right internet forum in the early 2010s make the few that were fabulously rich?
Investing in stocks is a similar passive income, but at least in that case the investors money is going towards some business that pays a wage to workers or provides some net benefit to society (hopefully).
A start-up is just any company that's founded, usually with aspirations, and what I'm saying is that, technically, you can throw anyone you want on your cap table at formation [note]. I'm not saying it's typical or common, just that it's fundamentally possible. Same with founder compensation.
Bitcoin as a "passive investment" is such a lame comparison because it does, literally, nothing, just like hanging onto some beanie babies. Beanie babies, but much more wasteful.
[note] Anyone who's an employee or an accredited investor.
There were thousands of people who participated in Bitcoin's early days, tens of thousands by 2012. And back then they were giving away Bitcoin on faucets. You could also mine it with a basic graphics card.
It's not a lame comparison at all. If you bought Bitcoin in 2010, you've seen a 8,900,000% ROI. The asset may go up another 10-1000x from here. Bitcoin will outlast Uber. And if you're still comparing it to Beanie Babies 11 years later, it's likely you don't understand finance or blockchain, and you haven't been paying attention to what's happening in the past few years.
Or it may go down to 0. Your assertion is as likely as mine, and you’re not basing it on anything it all. Past performance != future performance.
> Bitcoin will outlast Uber.
Ok, that doesn’t mean it’ll be worth anything. Or if it does that doesn’t mean anyone will have their keys haha. Every random walk down the timeline results in 100% of keys lost haha.
> And if you're still comparing it to Beanie Babies 11 years later, it's likely you don't understand finance or blockchain, and you haven't been paying attention to what's happening in the past few years.
It’s because I’ve paid attention. Citing the divine scriptures of satoshi isn’t sufficient dismissal.
It may. I mean, oil just went negative a couple weeks ago so anything is possible.
When analyzing an asset class you have to look at probabilities. Probability of Bitcoin going to zero during a financial crisis, where people are losing faith in local currencies around the world:
...is near zero. It's much more likely that adoption continues and Bitcoin matures as a financial asset class, not just in the developing world, but here in the U.S.:
As for the random walk and 100% of keys being lost...maybe if you march out the timeline long enough, the whole human species isn't going to exist any longer...so there's that. But I would argue strongly that Bitcoin (and Ethereum) has better prospects than any other digital infrastructure.
In the mean time, the next few decades look very bright indeed.
> When analyzing an asset class you have to look at probabilities. Probability of Bitcoin going to zero during a financial crisis, where people are losing faith in local currencies around the world:
BTC has dropped 50% in value over the last three years, while the currency has inflated 5%. I know which I'd rather hold. Actually I'd rather hold neither, I'd rather be invested.
> It's much more likely that adoption continues and Bitcoin matures as a financial asset class, not just in the developing world, but here in the U.S.:
> As for the random walk and 100% of keys being lost...maybe if you march out the timeline long enough, the whole human species isn't going to exist any longer...so there's that. But I would argue strongly that Bitcoin (and Ethereum) has better prospects than any other digital infrastructure.
20% of BTC has already been lost.
Probably more if you count Satoshi's wallet, which likely belongs to Paul Calder Le Roux, currently working with the DEA as penance for his many, many crimes. [1]
The price is largely propped up through a massive fraud perpetrated by Tether and Bitfinex. All the folks with those heavy, heavy bags have no interest in surfacing it, as it has become too big to fail within the crypto community.
I think they have invested directly in cryptocurrencies (that is why they decided to register as an RIA), along with a range of other bets that include Coinbase, Compound and Anchorage.
So you're saying the fund invested at all time highs into small cap shitcoins, or whats your point? FB is 10% off all time highs - Are all investors doing terrible?
I'd say if $AAPL were down 98% from ATH then investors probably shouldn't be running out to buy the next $AAPL. Who's running out to buy the next GameStop? In fact GameStop is only down 90% from ATH so you'd have made out 5X better on a $GME investment at peak than you would have buying $ZEC.
It's like a16z launching a fund to invest in retail video game sales (due to the overwhelming success of $GME) in shopping malls but also run by criminals and utilizing more power than your average country. It's stupid technology.
And for the record, I've no axe to grind, I made a bunch of money in the run-up, and sold all my crypto at BTC$17000. That doesn't mean I think it's at all valuable, or would recommend literally anyone buy any, ever.
By the end of the stock market downturn of 2002, stocks had lost $5 trillion in market capitalization since the peak.[39] At its trough on October 9, 2002, the NASDAQ-100 had dropped to 1,114, down 78% from its peak.[40][41] Many online shopping companies, such as Pets.com, Webvan, and Boo.com, as well as communication companies, such as Worldcom, NorthPoint Communications and Global Crossing, failed and shut down.[42][43] Others, such as Cisco, whose stock declined by 86%,[43] and Qualcomm, lost a large portion of their market capitalization but survived, and some companies, such as eBay and Amazon.com, lost value but recovered quickly.
Bad. Very, very bad.
> i'm really curious what kind of GP throws good money after bad on out-of-favor stuff like this. not that it can't work, its just unusual.
Crypto is at the intersection of ancaps and difficult, probably intractable engineering problems. That intersection is highly idealistic and highly motivated, with an almost religious zeal.