🌻 a16z “State of Crypto 2023” Report 🧵
Hi again😊
My name is Elif Hilal! 🔮 First of all, thank you for reading my articles and blog posts. Let me introduce myself!
(Note: All opinions are my own, it has nothing to do with the companies I work for)
👀 What topics did a16z cover in 60 pages?🎨
They summarized their perspective on Web3 and ;
● Web3 is more than a financial movement; it’s an evolution of the internet. ● They explained that blockchains are more than ledgers, they are actually computers. ● They started the report by mentioning that crypto is not just a new financial system but a new computing platform.
And to the report with an image attached, what are we supposed to understand from this?
🎨 Web3 is the next evolution of the internet, combining the best features of previous eras; why?
Because as we can see from the picture, Web3 combines Web1’s open decentralized protocols and community governance with Web2’s functionality. In this way, web3 adds value to network participants. Web3 is thought of as a computer that democratizes ownership.
The most important thing I want to say here is the concept of “ownership”.
How is Web3’s understanding of decentralization? Web3 breaks the chains of the internet, giving control back to “the people” and ushering in a new era!
Let’s continue ⏩
📚 When we scroll down a page or two, we see an image.
The journey of crypto with web3 is actually a journey of transformation into a transparent technology.
● For example, we can see that code-based rules will provide transparency with blockchain technology. ● We can see technological innovations coming instead of financial speculations ● We can see that the private transactions behind the back doors become completely transparent operations. ● We can see those systems that are more robust than fragile structures and close to manipulation are built with this technology.
Note: Although people perceive blockchain technology as crypto-assets, that's not right. There are dozens of ways to interact with blockchains and web3 applications or to be a part of this ecosystem. Many options, from DeFi to web3 games, dynamic NFTs to ZK projects etc.
Let’s continue ⏩
What catches our attention here is a cycle. A positive feedback loop drives crypto market cycles. Price increases stimulate interest, ideas, initiatives and further price increases. In this way, we already see that the loop has become a repeating spiral.
● As the interest grows and the usage areas of this technology become more widespread, they present more different usage scenarios.
● These new ideas and new use cases become projects and provide a scalable benefit,
● Later, this situation supports price stability and increase, but even if it does not, technology continues to develop regardless of price!
● This creates new interests, and then the cycle starts again!
Let’s continue ⏩
Then another image caught my attention.
It is possible to see how innovative products emerge.
The thesis we wrote above is supported by another image here. The price increase creates interest; the interests bring the ideas, the ideas the projects, and the projects make the new prices :)
Let’s continue ⏩
The report also includes the trends that we will encounter in the coming period.
The first of these is “Scaling blockchains,” which actually reminds us of the blockchain trilemma.
Did you know that about 7% of fees paid on the Ethereum network come from layer 2 rollups?
These images and data show that Layer 2 blockchain solutions will appear soon.
Scaling the blockchain is a complex and challenging problem as we know it. Although there are many ways to scale, new issues and searches need to be made, like what? :
Whatever Layer-2 environment is concerned, the common thing between all of them; is that layer 2s on the underlying chain should provide some sort of cryptographic and verifiable “evidence” about the proposed state change to the blockchain.
● Optimistic Rollups are an alternative layer-2 technology used by leading scaling solutions.
● The main difference between Zero Knowledge solutions and Optimistic Rollups is how transactions are validated.
● Another difference between the two different layer-2 solutions (zero knowledge solutions and optimistic rollups) is capital efficiency.
What can we mention as examples of different ZK solutions?
I want to share an article I previously explained about ZK and Optimistic Rollups.
Let’s continue ⏩
When we come to another image, we can see Ethereum.
In September 2022, The Merge took place, and in this event, Ethereum switched from PoW to PoS mechanism. So what happened next? Ethereum saw a 99.9% reduction in energy consumption.
If you have a question mark about energy, the numbers in the image will illuminate you.
Let’s continue ⏩
The part I enjoyed the most in the report was the ZK.
As I understand from this report and especially this image, a16z has a positive approach to ZK and privacy. Zero-knowledge proofs (ZK) open the door to reduced hardware costs. In addition, zero-knowledge-oriented projects provide a severe convenience of scaling. I look forward to future use cases of ZK.
Let’s continue ⏩
NFT’s!!
NFT content creators have earned over $1.9 billion in royalties as the world’s biggest brands step into the web3 ecosystem. SHOCK! Starbucks, Reddit, TIME, Nike, Adidas, Gucci, and Porsche are just some of them… As for NFTs, I think the future is especially in Dynamic NFTs.
Here I leave my previous article on this subject. (TR and ENG options available)
Let’s continue ⏩
Another topic is Web3 games!
Web3 games generated 23 times more on-chain transactions than DeFi, which is a huge improvement in gaming. So, in summary, there is a huge opportunity for new crypto users in the gaming industry.
Let’s continue ⏩
It’s time for the DAOs. I think the first word that comes to mind when we say DAO is community :)
Communities continue to experiment with governance. As we can see from the picture, participation in DAO governance increases with increased votes, unique voters, and proposals in the DAO process. This naturally raises the use of DAOs in management and communities.
Let’s continue ⏩
We see a picture of the USA.
Regulatory controversies and court cases affect the US cryptocurrency, which has the potential to protect consumers, establish rules and encourage innovation. In particular, the decisions made by The SEC recently can negatively affect the US crypto ecosystem.
Let’s continue ⏩
In another image, Active Developers were mentioned.
As we understand from developer data and metrics, there is a lot of interest in developers in the industry. As the need for smart contract development increases, this also brings the need for contracts on cyber security. This means more academic research and coding, so business interest is growing daily. There is still great potential for developers.
Let’s continue ⏩
👑 Here is my favorite part of the report :)
As you can see from this image, there is still a developing process for crypto and blockchain, and we are in the early stages! 🙂 When we look at the future of Web3 from afar, we can say this very clearly.
● smart contracts continue to be developed
● New blockchains and protocols are being developed. Seeking alternative scaling paths for existing blockchains
● all this brings the cyber security side of the business, which means a new business area
● moreover, there is also the privacy aspect, which means that ZK projects will be seen and used more in the future :)
So it is still developing, and we are faced with a completely different development every day, and we will continue to encounter it👀
Other points that caught my attention in the report are as follows:
For example, I would like to introduce to you about two people whose work I love very much and whose work I follow:
Academic studies by Dahlia Malkhi — a Distinguished Scientist at Chainlink Labs — and Ari Juels — Chief Scientist at Chainlink Labs — lead the industry!!
I just read the latest blog post by Chainlink Labs Chief Scientist Ari Juels, and I would like to share it with you. Kushal Babel, Yan Ji, Ari Juels, and Mahimna Kelkar explain the MEV auctions in this blog.
Then, they propose a remedy called “protected order flow” (PROF). PROF is a way to sequence transactions fairly and yet ensure their uptake by profit-maximizing, a.k.a. greedy, block validators. The PROF architecture, shown in the Figure above, introduces two new software modules into the MEV supply chain: a PROF Sequencer and a PROF Bundle-Merger.
A PROF Sequencer receives transactions from users and orders them into a PROF bundle according to a published policy, i.e., one made transparent to users. This policy, as noted above, may achieve some notion of fairness. Ideally, the PROF Sequencer executes in a TEE. The TEE can ingest encrypted transactions and keep them confidential.
There are several other studies similar to this topic, for example:
— Flashbots Protect
— TEE’s (there are serious security vulnerabilities in this regard)
— Order-flow auctions (OFA)
You can read the entire article here:
Apart from the State of Crypto report, A16z Crypto has also prepared an interactive web page with monthly updated data, where you can access the numbers I shared above.
You can see the indicators followed at this address and view the graphics!
Let’s continue and finish⏩
Considering 2023, the industry can bring optimistic scenarios for Game, DAOs, and especially scalability solutions.
In the report, a16z also shared images of these issues and explained them in short sentences. Moreover, they made a Twitter space broadcast last week where they talked about it. If you want to listen, I will share the link with you.
📌 If you want to take a look at the whole report for yourself, I’m adding the link here:
Especially as I mentioned above, ZK (zero-knowledge) is becoming a huge dynamic in this industry. I am preparing a long article series for those who want to work on ZK :)
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