a16z 10,000 words to interpret the development status of Web3, business boundaries and regulatory innovation

PANews

2023-11-19 08:21:27

者:a16z crypto

编译：饼干 & bayemon.eth，ChainCatcher

*a16z Note: The views expressed in this article are those of individual AH Capital Management, L.L.C. (a16z) individuals quoted and do not represent the views of a16z or its affiliates. The information provided is from third-party sources, including portfolio companies of funds managed by a16z. While sources are generally reliable, A16Z does not independently verify such information and makes no representations as to the enduring accuracy of the information or its suitability in particular circumstances. This content is for informational purposes only and should not be relied upon as legal, business, investment or tax advice. *

Crypto & Web3 World Event Inventory

Andreessen Horowitz’s annual “State of Crypto” report shares data on Web3 activity and innovation. The November 2023 issue of Policy Spotlight collates insights from the report aimed at U.S. policymakers and others interested in the state of crypto policy today. The report includes:

Part1: Why Web3 is so important

Web3 is a more consumer-friendly form of the internet, with benefits and uses that go far beyond financial services.

Part2: The State of the Crypto Industry

Cryptocurrencies have become indispensable due to their ability to transcend party and identity restrictions, yet the United States may be losing its lead.

Part3: Policy Principles and Framework

How do you stay competitive in emerging technology innovations while protecting consumers?

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Part 1: Why Web3 is so important

The Internet is one of the most important technological innovations in human history. However, it often disappoints consumers, creators, and developers who rely on it.

Adoption of Web3 technologies is evolving in ways that help consumers

Web1（1990 - 2005）
- Loosely managed by various institutionsOpen technologies (protocols), i.e. anyone can build such as email (SMTP-based) and web (HTTP-based)Value does not accumulate to the network
Web2（2005 - 2020）
- Centralized, siloed platform managed by the company, where decisions can be made by a single individual (e.g. social network) Value is accumulated in a small number of large tech companies, not in the value creators themselves Web3 (2020-present)
- Community-managed decentralized, interoperable, network-owned and maintained services (e.g., blockchains such as Bitcoin, Ethereum, etc.) accumulate value in users, builders, and communities that contribute to the network: developers, entrepreneurs, creators, fans, and other consumers.

Web2 tech giants are intended to monopolize, Web3 emphasizes “decentralization”

Only three companies, including Facebook, Google, and Twitter, contribute one-third of the world’s web traffic
Only five companies, Amazon, Apple, Facebook, Google, and Microsoft, account for 50% of the total market capitalization of the Nasdaq 100 (only 25% ten years ago)

Web3 Delivers Network Value to More People Through Ownership

Token: The cornerstone of Web3

Tokens are “units” of ownership:* tokens can represent ownership of any item: digital items (such as artwork, tickets, or game items), or physical objects (such as clothing, experiences, or even real estate). Tokens are the basic building blocks: Tokens are not financial instruments in nature, just like websites in Web1 and posts in Web2, tokens are the foundational modules in the Web3 network building process. Tokens empower people: Tokens are a new way for people to control their digital identities across different platforms and services, similar to property rights talked about in the internet.

Tokens are used for much more than just speculation…***

Blockchain should be a powerful computer, not a casino for speculation

There is an essential difference between the world for speculative purposes and the world computer as a product.

Computer

As a technological innovation to promote the development of computer science
Based on digital trust, “can’t be evil” is hardcoded as a rule
High operational transparency
Strong toughness

Casino

Gambling is financial speculation, not innovation
Gain-based trust, with “not doing evil” as a varied choice
Opaque operations
Very vulnerable

Community-managed networks will become the next generation of the Internet

Advantages: As a new type of computer, what unprecedented capabilities does blockchain have?

Protecting consumers in the midst of artificial intelligence (AI) advancements

Fight against AI-based high-quality counterfeiting: In a world of endless high-quality AI-generated fakes, encryption can help trace the authenticity and origin of the things we face.
Democratize AI innovation: Unlike the big tech companies that rely on the big tech companies that have the most data and computing resources, cryptography can democratize access to these resources more and benefit more builders.
Unraveling the “black box” of AI: AI doesn’t have to be a black box where no one knows what’s going on or where the data is coming from. Encryption technology can make the data used by AI more transparent and auditable, while protecting data privacy.
Data ownership is owned by individuals: Cryptography can enforce data privacy in AI models, while also helping companies provide incentives for consumers and creators to contribute their (already) data.

Traditional Privacy System Upgrade

Apple charges up to 30% on mobile purchases. Apple has tremendous pricing and decision-making power in mobile distribution. Encryption can reduce the rate at which platform owners are charged from users (as a percentage of platform revenue), increase competition, and provide consumers with more choice.
People spend $647 billion annually on remittances, with an average cost of 6.25 percent. Crypto technology can eliminate unnecessary middlemen and cut international transaction fees by up to $40 billion.
Only 18% of social media users trust Facebook’s data protection services. In Web3, people own their data – from the posts they create to the music they make to the networks they build. What’s more, they can take their network and data from one platform to another.

Encryption technology to deal with the current pain points

Identity issues: Unlike relying on large platforms to manage user identities, Spruce gives people the power to control and own their identities. Organizations can also manage the lifecycle of digital credentials (just as California’s DMV is managing mobile phone driver’s licenses). Creator monetization issues: Among streaming services, only 18,000 musicians (less than 0.2%) earn more than $50,000 a year. Sound eliminates the middleman and enables artists to monetize directly with their fans. Carbon neutrality issues: The voluntary carbon credit market system is opaque and inefficient. With Flowcarbon, more money can go directly to important environmental projects. Review and decommission platform issues: Biased platform leaders can dictate the rules and reach of social networks. But Farcaster, a decentralized social networking protocol, lets users choose between apps while easily moving (and owning) their data. Infrastructure issues: Lack of competition in the telecommunications industry leads to higher prices and uneven coverage. Helium is working to deliver 5G anywhere at a fraction of the cost of traditional ones through a decentralized wireless infrastructure. Online collaboration opportunities: Narrative, production and division of responsibilities for intellectual property. Story Protocol and Adam provide an open infrastructure to help people co-write, mix, collaborate, and create characters, while protecting intellectual property and compensating creators.

Part II: The State of the Crypto Industry

The era of Web3 has arrived: millions of Americans hold cryptocurrencies and are growing in their use.

More than 40 million Americans hold crypto assets, and there are no clear party affiliation or identity restrictions

Between 16% and 20% of U.S. adults (about 40 million - 50 million people) have purchased cryptocurrency

The use of cryptocurrencies is increasing. Despite the price volatility, we have seen at least double-digit growth in the number of active users for four consecutive years. **

This data tracks the number of unique active (sending) addresses across all blockchains, including Ethereum, Polygon, Solana, Avalanche, Fantom, Celo, Optimism, Base, and Arbitrum. Note: One address does not necessarily correspond to one person. Source: Nansen Query, CoinMarketCap

There is a growing number of institutions for cryptocurrency research, and it is driving progress in other areas. 21,000+ Crypto Publications Dedicated to Solving Top Problems:**

Financial compliance for privacy: using zero-knowledge (which is rapidly moving from theory to practice)
Fight against disinformation: Use encryption methods to prove authenticity
Checks and balances of AI: Use blockchain networks and decentralization
Blockchain performance and security: crypto-economy, game theory, networks, etc.

The Importance of American Leadership

Leading web3 innovation will be able to keep the U.S. competitive, which also involves national security concerns.

The U.S. has been a beacon of innovation in tech, but could lose its leading position in web3

Percentage of U.S. cryptocurrency developers (left), percentage of global traffic to U.S. crypto websites (right)

More developers are working on developing crypto projects outside of the US time zone

Number of Independent Cryptocurrency Developers: When Do They Code?

Most Github commits are made during US business hours (9 a.m. to 9 p.m. ET).
Most Github commits take place during UK and regional business hours (9am to 9pm BST).

The UK is actively leaning towards cryptocurrencies, and A16Z crypto startups have entered the UK ecosystem. Note: This analysis only shows directional trends; Pay attention to overlapping time zones or other business time factors

Like semiconductors, the crypto industry could soon move out of the US

In terms of industry innovation, the historical lesson is that in today’s manufacturing industry, for example, the United States should not rely on foreign suppliers of critical technologies, and that the scale of infrastructure dependence will affect our daily lives. Similarly, where the future of distributed computing infrastructure (the Internet, organizations, jobs) is headed, and the United States should take the lead.

US Dollar Status Is Under Threat from Sovereign Digital Currencies

Global Central Bank Digital Currency (CBDC) Status: The development of China’s central bank digital currency (CBDC) has posed a threat to the U.S. dollar’s status as a world currency, with transactions involving the digital yuan totaling $250 billion as of June 2023.

Stablecoin innovation could strengthen the dominance of the US dollar

What is a stablecoin? A stablecoin is a cryptocurrency whose price is nominally “pegged” to a stable asset, such as the U.S. dollar. [For more information on the types of collateral, see this article in the Financial Times.] Stablecoins can help improve the efficiency of the U.S. payment system and cement the U.S. dollar’s position as a global digital currency.

It’s not just about protecting Silicon Valley start-ups, it’s about maintaining America’s global leadership. The U.S. can win by using the free market as a way to win, not a centralized planning approach. This bottom-up approach will lead to many new experiments and innovations. This may be the only way to defeat the central bank digital currency (CBDC) of countries such as China.

Part III: Policy Principles and Framework

U.S. incentives for innovation can protect consumers and provide a path to compliance for businesses

Regulatory activities remain a top priority

**a. Crypto legislation passed in a House committee for the first time in its history:

《Committees Introduce Financial Innovation and Technology for the 21st Century Act》，来自众议员：French Hill R-AR、Glenn “GT” Thompson R-PA 和 Dusty Johnson R-SD。
《Clarity for Payment Stablecoins Act of 2023》，来自北卡罗来纳州众议员 Patrick McHenry。

b. The Court is making a number of decisions on influential cases:

The court ruled in the SEC/Ripple enforcement action; The SEC dismissed the claim against the individual and appealed the trial court’s legal ruling.

c. Government agencies are proposing new rules

Internal Revenue Service (IRS) proposed rules for reporting requirements for digital asset brokers;
U.S. Commodity Futures Trading Commission (CFTC) Notice of Proposed Rule Making on Self-Certification of Derivatives Contracts;
FinCEN’s Proposed Rule Making Notice on Convertible Virtual Currency Mixers to the SEC Considering the Proposal;
Amendments to the Guardianship Rules; It is also the definition of “Exchange”;

Good regulation can crack down on bad actors and protect consumers

Former legislators, agency heads, and others have advised U.S. legislators to do three things:

a. Consumer Protection: Require centralized company registration and regulation: Regulators should investigate risks arising from custody relationships, conflicts of interest, and the use of digital assets in illicit finance.

b. Provide a pathway to compliance: Any legislation should provide a pathway to disclosure-based compliance for entrepreneurs who have been building decentralized networks and legitimate businesses (albeit in an uncertain environment).

C. Incentivize Community Ownership :** Laws and regulations should appropriately incentivize decentralization and community ownership – a core promise of web3 technology to benefit the public and pave the way for future innovation.

Guiding Principles and Regulations for U.S. Cryptocurrency Policy

A. Banning new business models or technologies would undermine American values and drive innovation and jobs elsewhere.

b. Establish appropriate and well-defined institutional guidance and legislation. Not only does this protect consumers, but it also helps promote healthy competition for all, including allowing new innovators to confront entrenched centralized players and the regulatory power of incumbents.

c. Legitimate businesses and their customers deserve access to financial services and legal protections – from banking relationships to data privacy.

d. Businesses should be the focus of regulation, rather than broad-based, decentralized, autonomous software that provides a foundation for innovation. (Regulatory application, not protocol)

Myth: Cryptocurrencies are only used for illegal activities

Total Trading Volume vs. Illegal Trading Volume

Blockchain analytics firms estimate that illicit transactions account for less than 2% of total cryptocurrency activity. As of 2022, this type of activity accounts for about 0.10-0.24% of all cryptocurrency activity.

There are far more money laundering activities through fiat currencies than through cryptocurrencies. It is expected that by 2021, the amount of cryptocurrency money laundered in traditional financial markets will reach 100-250 times per year [Source: Nasdaq’s Head of Anti-Financial Crime Technology]

Fiat money laundering methods (cash, bank wire transfers, real estate, etc.) far surpass cryptocurrencies in both volume and percentage.

Fact: Cryptocurrencies Can Help Fight Crime

Criminals still prefer traditional financial products and services over cryptocurrencies. While criminals and terrorists are looking for any available means, including emerging technologies, to fund and carry out their activities, the U.S. Treasury Department’s 2022 National Terrorist Financing Risk Assessment found that the use of “limited other financial products and services” – blockchain’s traceability is inherently detrimental to these groups compared to other countries.

Blockchain is public, traceable, and immutable. This makes them useful in investigations, prosecutions, and asset recovery. Fiat currencies, especially cash, are difficult to track and are still used more frequently for criminal activities.

Cryptocurrencies play a role in the fight against crime. In contrast, law enforcement agencies have been very effective in tracking cryptocurrency activity (using sophisticated analytical tools), and governments have proven their ability to recover funds in this way.

Myth: All cryptocurrencies are bad for the environment

Estimated Annual Energy Consumption by Product/Industry

Other industries and companies currently consume far more energy than Ethereum. Why? In September 2022, Ethereum moved to a PoS (“proof-of-stake”) consensus mechanism on which many developers choose to build applications, resulting in a 99.9% reduction in energy consumption. All blockchains need such a consensus mechanism because they are decentralized; PoS Methods Network consensus consumes much less energy than the PoW (“proof-of-work”) method used by Bitcoin.

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