Venture capital firm a16z has released its 2023 ‘State of Crypto’ report, which contains an overview of the current state and trends of the cryptocurrency and blockchain industry.
The report provides an analysis of the evolution of the industry, the current state of infrastructure, the growing use cases of crypto and blockchain, the regulatory landscape, as well as the future outlook.
One of the key takeaways from the report is the growing adoption of cryptocurrencies by institutional investors where it also notes that ‘Crypto isn’t just a new financial system, it’s a new computing platform.’
Web3 advancing the internet
a16z’s report also shows how Web3 matters and is shaping up to be an integral part of the next phase of the internet. The report says, ‘Web3 is more than a financial movement, it’s an evolution of the internet.’
Another aspect of the report is how users have more power and earn a greater share of revenue on Web3 in comparison to Web2 platforms. Additionally, Web3 will advance the internet through crypto computers using tech innovation, code-enforced rules, transparent operations and resilience.
Scaling multiple paths with blockchains
The report says, ‘Blockchains are more than ledgers, they are computers.’ New Layer 1 blockchains are expanding the set of possible infrastructure choices for builders, improving scalability, security and of course decentralisation. Adding that, ‘App ecosystems can be built on multiple blockchains communicating seamlessly.’
Blockchains can also be exclusively designed to operate one specific application, and that computation and storage resources are not shared with other apps.
The report also provides insights on optimistic and zero-knowledge rollups. Optimistic rollups will be separate Layer 2 blockchains that extend the base layer and inherit its security challenges, while Zero knowledge rollups will be separate Layer 2 blockchains that extend the base layer and inherit its security guarantees.
Zero knowledge (ZK) proof is yet another area that’s becoming more tangible. The report defines ZK proof as, ‘A cryptographic method for proving a statement is true without revealing any information about the statement – other than that it is true.’ And that blockchains can utilise ZK proofs through scaling and privacy.
Brands exploring Web3
The report shows some of the world’s biggest brands that are already exploring Web3 through NFTs including Starbucks, Reddit, Tiffany & Co., Nike, Adidas, Porsche, Gucci, Louis Vuitton and even popular kids channel Nickelodeon.
According to the report, NFT creators have earned over $1.9 billion in royalty revenues. However, transfer-based royalties are under fire due to a lack of viable on-chain enforcement, but the report notes that the industry is exploring solutions.
The report also sees Web3 games as a huge opportunity to welcome new users to crypto. Consumers spent an estimated $67.9 billion on digital in-game purchases last year. And in 2022 we saw the release of more than 700 Web3 games.
Impacts of policy and regulation
The report acknowledges the challenges and risks facing the industry, such as regulatory uncertainty as it shares its views on how policy and regulation are impacting crypto in the US with four main views including:
- Banning new business models or technologies undermines American values and drives innovation and jobs elsewhere
- Agency guidance or new legislation that establishes appropriate, clear rules will protect consumers and help the Web3 industry flourish
- Legal businesses and their customers deserve access to financial services and lawful protections, from banking relationships to data privacy
- Businesses should be the focus of regulation, whereas decentralised, autonomous software should not
As the industry continues to evolve, it will be interesting to see how these trends and challenges play out, and how the industry responds to them.