There is an “architectural shift” in technology and in the world brought upon by cryptoassets, which many crypto supporters miss, according to Marc Andreessen, co-founder of venture capital powerhouse Andreessen Horowitz (a16z), and founder of Netscape Communications Corporation.
Today, a16z announced a new USD 2.2bn fund to continue investing in crypto networks.
Meanwhile, in a recent interview with economic blogger Noah Smith, Andreessen compared the topic of crypto with the parable of the blind men and the elephant, allowing people to interpret many different parts in many different ways, or use it to make their point. As an example, he gave people seizing on “the money part,” then either glorifying crypto as a new type of monetary system that brings freedom from the nation-state, or “crucify[ing] it as a danger to economic stability and the ability for governments to tax.”
However, while these are interesting arguments, Andreessen stressed,
“I think they all miss a more fundamental point, which is that crypto represents an architectural shift in how technology works and therefore how the world works. That architectural shift is called distributed consensus — the ability for many untrusted participants in a network to establish consistency and trust.”
According to him, the Internet has never had this until now and it will take thirty years to work through all of the things that can be done as a result. While money is the easiest application of this idea, other things that can now be built in theory include Internet native contracts, loans, insurance, title to real-world assets, unique digital goods aka non-fungible tokens (NFTs), and online corporate structures such as digital autonomous organizations (DAOs), among others, the investor said.
This also presents a great impact on and shift in incentives – which further impacts reaching these applications.
Collaborative human effort online so far was either in the form of a literal adoption of real-world corporate norms, such as a company with a website, or an open-source project like Linux that didn’t have any money directly attached to it, said Andreessen.
“With crypto, you can now create thousands of new kinds of incentive systems for collaborative work online, since participants in a crypto project can get paid directly without a real-world company even needing to exist,” he said.
While open-source software development has been great, people are generally willing to work more for money than for free, “and all of a sudden all those things become possible and even easy to do.” And though it will take a few decades to see the results of this as well, “I don’t think it’s crazy that this could be a civilizational shift in how people work and get paid,” said Andreessen.
He also discussed the idea that AI is somewhat a left-wing idea, having centralized machines making top-down decisions, but that crypto is a right-wing idea, having many distributed agents, humans and bots, making bottom-up decisions, he said, citing another prominent venture capitalist Peter Thiel, co-founder of PayPal.
The tech industry has historically been dominated by left-wing politics and today’s big tech companies are intertwined with the US Democratic Party, Andreessen said, noting,
“Crypto potentially represents the creation of a whole new category of technology, quite literally right-wing tech that is far more aggressively decentralized and far more comfortable with entrepreneurialism and free voluntary exchange. If you believe, as I do, that the world needs far more technology, this is a very powerful idea, a step function increase in what the technology world can do.”
As for a16z becoming known for innovating in the space of venture capital itself, Andreessen said that there is something old and something new about venture capital – and this something new includes crypto.
“So we sit at the vortex of this combination of the very old and the very new. It’s certainly possible that venture capital itself gets pulled into this vortex and comes out the other side radically transformed, and in fact, this is what some of the smartest crypto experts are predicting,” Andreessen concluded.
The rapid rise of cryptocurrency has led to a surge in initial coin offerings (ICOs) - a form of fundraising that involves the creation and sale of a new digital token. In 2020 alone, ICOs raised over $4 billion in capital, making it a popular choice for startups and investors alike. However, with its growing popularity, there has also been an increase in the risks associated with ICOs. In this article, we will explore what ICOs are, why they have gained traction, and the potential risks they pose in 2021.
What Are ICOs?
ICO stands for Initial Coin Offering, and it is a process of creating and selling a new digital token to finance a project or startup. ICOs are typically launched before the project is completed, with the promise that the token will have value when the project is completed. Investors purchase these tokens in the hope that they will increase in value in the future, similar to how people invest in stocks.
Why Have ICOs Gained Traction?
ICOs have gained traction due to a few key factors:
1. Lack of Regulations
One of the main attractions of ICOs is that, unlike traditional fundraising methods, they are not subject to the same regulations. This means that anyone can launch an ICO, which has lowered the barrier to entry for startups and made it easier for them to raise capital.
2. Potential for High Returns
ICOs have enabled small companies with innovative ideas to raise significant amounts of capital in a short period. This has attracted investors looking for high returns on their investments, often making ICOs more profitable than traditional investments.
3. Efficiency
The use of blockchain technology, which enables the creation, sale, and tracking of digital tokens, has made the ICO fundraising process more efficient and cost-effective than traditional methods such as IPOs. It has also made it easier for investors to participate as they can do so from anywhere in the world using cryptocurrency, reducing geographical barriers.
Risks Associated with ICOs in 2021
While ICOs have their benefits, they also come with various risks that investors and startups need to be aware of before participating in one.
1. Lack of Regulations
While the lack of regulations is one of the reasons why ICOs have gained traction, it also poses a significant risk. Without proper regulations in place, there is a higher chance of fraud, scams, and other illegal activities, leaving investors vulnerable to losing their funds.
2. Volatility of Cryptocurrencies
ICOs are usually funded using cryptocurrencies like Bitcoin or Ethereum. These cryptocurrencies are known for their high volatility, meaning that their value can fluctuate significantly in a short period. This poses a risk to investors as they could end up losing a significant portion of their investment if the value of their chosen cryptocurrency decreases rapidly.
3. Lack of Transparency
The lack of regulations also means that ICOs do not have to go through the same level of scrutiny as traditional investments, making it more challenging to assess the legitimacy and transparency of the project. This lack of transparency can lead to investors participating in fraudulent or unsuccessful projects, ultimately losing their investment.
4. Low Success Rate
Despite the potential for high returns, the majority of ICOs fail to deliver on their promises. In 2020, over 50% of ICOs failed to reach their funding targets, and many of the projects that did manage to raise funds failed to deliver on their promises, leaving investors disappointed and out of pocket.
5. Legal Issues
ICOs often involve the sale of tokens that have characteristics of traditional securities, such as stocks. However, unlike traditional securities, ICOs are not subject to the same regulatory laws, leaving them in a legal gray area. This puts both investors and startups at risk of facing legal consequences in the future.
Practical Tips for Mitigating Risks
While there are risks associated with ICOs, some practical tips can help mitigate these risks and make the investment process smoother and safer:
1. Research the Project
Before deciding to invest in an ICO, it is essential to thoroughly research the project, team, and white paper to ensure its legitimacy and potential for success. Look for red flags, such as lack of information, unrealistic promises, or false claims.
2. Diversify Your Investments
Just like with any investment, diversifying your portfolio can help minimize risks associated with ICOs. Do not invest all your funds in one project; instead, spread out your investment across multiple projects.
3. Stay Up-to-Date with Regulations
As the cryptocurrency market evolves, so do regulations. Staying up-to-date with the latest regulations can help you make more informed investment decisions and avoid potential legal issues.
Conclusion
ICOs have gained popularity due to the potential for high returns, low barriers to entry, and efficiency. However, they also come with various risks that investors and startups need to be aware of. Conducting thorough research, diversifying investments, and staying up-to-date with regulations can help mitigate these risks, making the investment process safer and more successful. In conclusion, while ICOs present an exciting opportunity for fundraising, it is crucial to approach them with caution and carefully assess the potential risks before investing.
