Here’s where to start

I started looking at crypto investments for Venrock back in 2014 and have been fascinated by the incredible progress in the space ever since. In 2017 I co-founded Props to bring blockchain-powered user ownership into mainstream apps (10M people currently use the token). Still, crypto’s unknowns are far greater than the knowns for me — it is fast-growing, complex, and we’re still in the early innings. These days, not long after the Coinbase IPO and with crypto markets having recently retreated from all-time high territory, it’s clear to most that crypto is here to stay. Though many venture capital investors have been interested (and often personally invested) in crypto, only a small number of ‘traditional’ venture firms, hedge funds, and family offices went deep early, with a16z and USV being two of the notable exceptions. The void was filled by the emergence of various types of crypto-specific funds that have played an active role in fuelling innovation in the space alongside individual investors.

With crypto now being a code-driven ~$1.5 trillion industry, investors are starting to reconsider their strategy in what I consider to be one of the most transformational and lucrative innovation spaces in tech.

But what are the core concepts and innovations that you need to know to begin tackling this beast? This post is a high-level overview of some of the main buckets of innovation in the space, assuming little prior knowledge. If you’re interested in the space, I encourage you to take a few steps further down the crypto rabbit hole. It’s a fascinating land that keeps unfolding in real time.

Where’s crypto right now?

An important aside: crypto has had an incredible year. The concept that crypto would decentralize large parts of the digital and financial world no longer feels like a ludicrous fantasy but a long-term outcome of gradually increasing likelihood. Prices reached all-time high across the board this year in a manic bull market. A healthy correction took prices down from the recent highs, but overall Bitcoin (up ~250% over the past 12 months), Ethereum (up ~800% over the past 12 months) and most crypto assets are growing in impact and value. Severe crashes happened several times before in crypto and innovation in the space prevailed, making the next wave ever-higher. So try not to take a short-term view when considering the valuation rise/fall rollercoaster. Putting price noise and excitement aside, what actually happened since the last manic tide of 2017/2018 and where are the opportunities in crypto today?

Bitcoin is huge. But it is really just the tip of the crypto iceberg

Bitcoin found product-market fit, positioned itself as digital gold and an institutional-grade asset.

Gold played a significant role in the financial world for centuries, mainly while the gold standard was still in place. The detachment of USD and other currencies from the gold standard in the 20th century was a key driver for the creation of Bitcoin in 2009. The ease with which governments have printed money — and the fears surrounding inflation — has served as a justification for investors to store wealth outside of inflationary fiat currencies (such as USD), and instead keep it in something like gold, or its digital version — Bitcoin.

Describing Bitcoin as an equivalent to gold has been controversial in the past but has become widely adopted. The comparison stems from the harsh supply constraints on gold and bitcoin, as they are inherently finite. Both are stores of value that are easily transferable (with bitcoin having an advantage as it is digitally native, requires no truck to transport it and has a clearly defined supply schedule). Some of the largest and most innovative companies (PayPal, Square, Tesla), institutional investors, hedge funds and family offices hold Bitcoin on their balance sheets. Mastercard now supports it. El Salvador became the first country to adopt Bitcoin as a legal tender. ~100 million individuals hold some percentage of their wealth in Bitcoin.

The biggest threats to Bitcoin are regulators in the world’s largest markets (China, US) and growing concerns about the environmental impact of Bitcoin. The first risk is mediated to an extent by the global, decentralized nature of Bitcoin and the countries’ own economic interests. On the environmental side, things are tricky. A consensus mechanism called Proof of Work is required in order to mine Bitcoin and run the network in a fully decentralized fashion, and this activity consumes more electricity than the country of Norway, and 10x more electricity than Google. Many of the large Bitcoin miners in China use coal to produce the electricity needed for mining, but miners seem to be heading West, a large portion of the global Bitcoin mining activity nowadays is based on renewable energy. While the vast amount of energy that goes into mining Bitcoin is what keeps its network security to a maximum, it also poses a serious threat to the Bitcoin narrative, its most powerful asset. Nevertheless, I believe that no other asset credibly competes with Bitcoin on the digital gold narrative. If you think that Bitcoin will “eat gold” the way software has eaten the world, there’s more than 10x to go from Bitcoin’s current $600–700M market cap to gold’s market cap. Don’t forget to buckle up for a very bumpy, non-linear ride.

Ethereum found product-market fit, established itself as the leading smart contracts platform and the base-layer for most of the innovation in crypto.

Ethereum is the world’s second-largest crypto network in terms of market cap (roughly 1/3 of Bitcoin’s market cap and growing), but in terms of developer activity, it is the absolute leader.

Ethereum is different to Bitcoin in several aspects. The most significant difference is that Ethereum enables smart contract functionality, which allows developers to build protocols, applications and tokens that run entirely on the Ethereum public infrastructure. These protocols, applications and tokens form the foundation of many products and services, most notably, decentralized financial systems (more on DeFi below). Bitcoin is akin to a simple Excel spreadsheet listing the balance of each network member, Ethereum is like a spreadsheet with fully programmable macros.

In April, Ethereum settled ~$30.5 in value per day. On some measures, Ethereum is much larger than Bitcoin. To put this in perspective, PayPal settles ~$2.5B / day, and has a larger market cap than Ethereum (source: Spencer Noon)

While competitors exist, Ethereum has the richest set of tools and distribution, and the Ethereum ecosystem benefits from major network effects (at least in the foreseeable future, as interoperability between blockchains still has a lot of friction). It is the most secure and decentralized platform for building crypto apps. The major threat to Ethereum’s leading position is scalability and high transaction costs (“gas prices’’). Ethereum currently processes only ~20 transactions per second (TPS), compared with 2,000 TPS for Visa, for instance. There are more people who want to run transactions on Ethereum than capacity, which makes Ethereum slower and much more expensive to use than its traditional competitors, as well as its crypto competitors.

However, Ethereum is in the midst of a major, much-anticipated transition (“ETH 2.0”) — moving from Proof of Work as the underlying consensus mechanism (the same one Bitcoin runs on) — to a new consensus mechanism called Proof of Stake (PoS), in an effort that introduces several new benefits to the network’s usability. A successful transition to Proof of Stake, along with “layer 2” initiatives that improve Ethereum’s scalability through other measures, would tackle the biggest concern regarding Ethereum’s scalability. Their developers anticipate it would make Ethereum 1,000x faster than today. It also introduces more financial benefits to holders of ETH, as they will start earning a yield in the form of a portion of the network fees.

My view is that Ethereum is becoming an institutional-grade asset (a-la Bitcoin). I believe a successful transition to ETH 2.0 could help propel Ethereum to new highs, and in some scenarios even eclipse the value of the very-powerful-yet-somewhat-stagnant Bitcoin network. Either way, together Ethereum and Bitcoin make up 60–70% of the industry’s total market cap, and they can successfully co-exist. Long term, I expect their dominance in the crypto space to continue to trend down, as a sign of the growing diversity and expansion of crypto as a whole.

Defi — Decentralized Finance — is getting serious traction as an alternative financial system that runs entirely on open source code, without financial institutions.

A key feature of crypto is the ability to create fully decentralized networks where both “services” and value can be easily consumed and transferred. This means that applications and services that centralized entities, usually companies, have always served — can now be provided by a fully decentralized network of independent actors that don’t need to collaborate or trust each other.

Instead, trust and collaboration are achieved through code, cryptography, and built-in, network-specific token incentive mechanisms, which grow as each protocol scales.

For example, let’s consider the use case of trading. Instead of relying on Nasdaq and the New York Stock Exchange to provide regulated and safe markets for trade, DeFi services provide exchanges that run entirely off open-source code. And these DeFi exchanges are not small: Uniswap runs approximately $10 billion of transactions per week. Uniswap is also materially different to a crypto-native company like Coinbase, which operates like a traditional company — in the crypto space. On Uniswap, a network of unaffiliated liquidity providers connected only via code and a token are providing the service — there is no company providing it.

Or let’s consider lending and borrowing. Instead of borrowing from HSBC, or lending via a fintech company, DeFi allows us to borrow and lend “with the internet” without a company in the middle. Protocols such as Aave and Compound have ~$15B in assets locked to their liquidity pools as I write this. DeFi is an autonomous financial ecosystem that is always on, 24/7, internationally. These protocols are internet native, and their governance is done by their token holders and open to scrutiny by anyone.

The DeFi industry is emerging as an alternative open-source financial system with no institutions (couldn’t find the source of this image, but it’s great).

NFTs — “Non-Fungible Tokens” — are specific, unique digital assets that are now the hot ‘new’ category in crypto.

Another key innovation brought about by blockchain technology is the ability to create digital scarcity: there can only be 21 million Bitcoins, and if you send your Bitcoin you cannot keep a copy of it (unlike an email or a file). Most cryptocurrencies are scarce but fungible — if you hold two Bitcoin, there is no difference between them. However, non-fungible tokens (NFTs) are unique — each of them represents a unique asset, and whoever holds the key to the underlying ‘smart contract’ owns the asset.

Take, for instance, a unique piece of digital art — turning it into a unique NFT means that wherever it travels on the internet, it has an owner and the potential to generate income for both the piece’s original creator and current owner. Think of it as the digital, publicly-traded version of baseball cards, without the need for physical authentication. This can become lucrative — NBA Top Shot, which runs on the Flow blockchain, made $53.9M in sales in one week in February 2021.

Most of the world consists of unique, non-fungible assets: your house, your family photos, anything you collect. As more aspects of our lives move from the offline world to its digital version, the potential for NFTs is tremendous.

Prime candidates for NFTization are digitally-nascent items in video games (some of the early use cases), music and other media items that translate real-world copyright to digital scarcity (the way that the NBA and Players Association assign copyrights to NBA Top Shot), sneakers, fine art and later even real estate and other unique objects that are not digital-first.

Now that we can definitively identify a digital asset’s owner wherever an asset appears on the internet, these assets can be used in other, more creative ways, such as collateral for a loan. It is still early, and there are a number of challenges for NFTs, for example, the tension between owning the NFT of an asset and owning its IP and getting royalties. However, as the crypto ecosystem grows, I think there will only be more opportunities to use and transact with NFTs in unique and exciting ways.

“Decentralized Infrastructure” is now live and increasingly used

Just as Ethereum provides a decentralized computing platform, there are meaningful attempts to create a decentralized alternative to other key building blocks of the digital world. For instance, Filecoin, a decentralized storage network, is live and used by many developers as an alternative to AWS or Google Cloud. Helium is a decentralized wireless coverage network for Internet of Things (IoT) devices with >30,000 hot spots globally, that is independent from existing telecom networks. Livepeer is a decentralized video streaming network, where “video miners” run video transcoding nodes in return for token rewards.

I see a world in which the next globally dominant infrastructure services will be decentralized.

“Ethereum Alternatives” are starting to find an audience

While Etherum is the dominant smart-contract platform, alternatives with significant developer activity are gaining traction. Smart contract networks such as Polkadot, Solana, Algorand, Tezos, Near and several others, which offer specific advantages over Ethereum, are seeing an uptick in usage. These alternative networks usually offer hefty financial subsidies for developers building on them, in order to incentivize the development and usefulness of the network. Broadly speaking, Ethereum’s competitors strike a different balance than Ethereum, opting for improved performance (e.g. transactions per second) and lower transaction costs, at the price of less decentralization (read: security). Some of them have better consensus mechanisms (already running on Proof of Stake, a mechanism that Ethereum still hasn’t upgraded to) or governance features (e.g. Tezos), but the open-source nature of all crypto networks means successful features are often replicated on other networks. As Ethereum transaction costs (“gas prices”) increase to unprecedented levels, we’re starting to see growing usage for its younger competitors for some use cases. The disruptor is becoming the disrupted. Will Ethereum be “the MySpace of smart contract platforms”? My prediction is that in either case, Ethereum is here to stay and will remain an important part of web 3.0 for many years to come, especially for critical financial functions. However, it’s unclear whether its dominance will grow or diminish over time as other networks continue to grow and serve specific functions, especially for high throughput use cases such as social networking, gaming or micro-payments, which have lower security requirements than some DeFi use cases.

Crypto-enabling companies are becoming large businesses

Unlike the above, this sub-section refers to companies — not protocols with tokens — that support crypto’s intersection with the incumbent financial system (and other systems) of the non-crypto world. Coinbase is a prominent example, but there are many others, for example Chainalysis (crypto data analysis and fraud detection), BlockFi (wealth management for crypto owners), Anchorage (crypto custody and trading and associated services for institutions) etc. We are also seeing major companies such as Paypal and Square, building in functionality to enable interaction with crypto ecosystems.

The beginning

There are many additional areas of innovation that are very promising: social tokens (Bitclout, Roll, Props), decentralized GitHub (Radicle), privacy coins (Zcash), decentralized virtual worlds (Decenterland), DAO enablers (Aragon) and so much more is happening in crypto. Crypto has grown to become a large, complex industry — and this post outlines the absolute tip of the iceberg. I’m excited for the future of crypto; it represents an entirely new way to interact with digital-native assets, and opens up a new canvas for innovation. There is more developer talent than ever working in the crypto space, and many outstanding entrepreneurs choose to build there.

If you’re an investor who wants to discuss this further, or a builder working on any of the above themes — I’d love to talk with you. Feel free to email me at yonatan@spc.vc.

Power users — not companies — drive most of consumer internet. They are social media’s content creators and curators, Uber’s drivers and car suppliers, Airbnb’s hosts and real estate investors, etc. Users consuming these products pay for these networks to exist. Heck, individuals volunteering their time — not companies — write most of the open source code on which these networks rely. So, why don’t users own any piece of these networks?

Take Snapchat, for example. Millions of content creators who turned the app into the behemoth it became didn’t get any direct proceeds from the network’s $25 billion IPO. This misalignment is not only unjust, but also makes the network vulnerable: Snapchat gave shares / stock options to retain and engage thousands of investors and employees, but not to its content creators. Its power users had no skin in the game, and many of them switched to Instagram when it launched Stories. Similarly, Adi Sideman and I learned firsthand through our experience running YouNow — a 50 million user mobile video app — that networks rise and fall with their power users. It became clear that the economics of user networks are broken, and that they ought to change. The consumer networks of the future will be user-owned.

Three and a half years ago, we started Props to bring user ownership to today’s popular apps. Bitcoin and Ethereum were the first to prove the power and feasibility of the Ownership Economy in digital networks (hat tip to our early supporter Jesse Walden for coining the term). Crypto token models show that the code tissue that connects two sides of a marketplace (for computing power, financial assets — anything really) can become a fully open-sourced public good governed by the network itself. Token models enable those who contribute time, energy, capital or code to share in the wealth that a network generates, and govern it together (the key tenets of ownership), and we’re seeing more crypto-native networks successfully going down that route. Our approach at Props has been to leverage blockchain tech under the hood to make it easy for standard, popular consumer apps to get into the ownership economy. Not rebuild consumer networks from scratch, but enable people to share in the financial success of apps they regularly use.

Fast forward to today, multiple apps leverage Props to run their “user ownership loyalty program” using a simple API integration, and see material growth in user engagement and loyalty. With ~6 million Props users across multiple apps, we’re now one of the most highly used crypto tokens out there. Reddit’s recent launch of its own app token serves as strong validation that even large incumbents recognize the need for deeper alignment with their users. For Reddit, one of the world’s top 10 networks in popularity, this was the culmination of a multi-year strategic initiative. Props enables any app to launch their own app tokens within a couple of weeks, and tap into the power of user ownership without going “all in”, or knowing anything about the blockchain tech under the hood.

My Journey from entrepreneur to investor

Developing this vision and bringing it to life together with Adi, Peter Watts and the rest of the amazing Props team over the past few years has been the most exciting adventure of my career. I can’t thank my teammates enough. We’re in the pole position for serving many more apps and hundreds of millions of users. With Props growing stronger than ever before, and my family and I moving to Israel, this is the right time for me to follow my heart and take the next step in my journey. I’ll be transitioning from leading the team and an operational role, to a board role on the Props team. I will continue to help Props bring the project’s vision to life, and grow from 6 to 60 million users and beyond in my capacity as a board member.

I’ve been building startups for most of the past 12 years. The common thread in the three main ventures I was part of was the passion for creating something new and valuable in the world. I love diving into a new domain, thinking through the different facets and the deeper layers of a problem and the process of making something new using tech, because it can quickly become impactful for millions. In recent years I had the privilege of closely supporting other founders on their path, and I found great joy in that. I will now get to do a lot more of that — as a VC.

I’m moving from building to partnering with other builders because I am too excited about various tech vectors, too impatient to park my unsatisfied curiosity, and too eager to work with multiple founders to have the laser-focus that leading one venture requires.

I am joining Square Peg to help grow the Tel Aviv office. I chose to join the Square Peg crew because of the people. They are a strong mix of builders and allocators, who are brilliant and authentic, with great vibes. They are very founder centric, and feel like true partners to the founders they invest in. We have a fantastic portfolio (Canva, Fiverr, Stripe and many others) and ability to invest across stages (manage funds of over $1billion). The firm is growing, and we have a unique opportunity to double down on the thriving Israeli tech hub, where we’ve been investing ~40% of our funds. So I still got some building to do, even if my main job going forward will be to help others build their own dream company. If you are building something special — hit me up on Twitter or LinkedIn, I’d love to talk!

The prevailing thesis in blockchain is that we are in the infrastructure phase. In short, the thesis says that Web 3.0 infrastructure is not yet in place for effective consumer-facing apps to evolve. The compelling logic compares this to the way Instagram or Uber could not emerge on your old flip phone. These apps really needed the infrastructure — iPhone-like camera/GPS, connectivity, UX and general smartphone ubiquity — to catch on. But our experience building Props exemplifies why this narrative of a linear-progression and dichotomy between infrastructure (often referred to as “protocols”) and apps, as well as the overarching phases of deployment is over simplified and misleading. Earlier this week, our friends at USV published an insightful post about the myth of the infrastructure phase. They argue that the process of innovation is iterative, and it is incorrect to focus on infrastructure independent of the apps that use it.

I prefer Hegelian Dialectic as a general model to describe complex processes that a person, society, or new technology undergoes, rather than “textbook logic” models that describe a linear A → B → C progression. While the latter is often an easier model to popularize (“infrastructure now, apps later”), it is often too simplistic. The Dialectic model suggests that any initial thesis is too abstract and lacks the negative of trial, error and experience (antithesis) that the encounter with reality entails. Only then can the synthesis emerge. It is usually a better model to use when attempting to describe the way people grow, societies change and technologies emerge. It applies well to Web 3.0 evolution as well. Powerful infrastructure is not developed in a secluded lab and apps do not develop once the infrastructure is “ready”.

Yes, building a crypto-powered app today is harder than it will be in five years. No, not everybody in crypto should focus on building infrastructure at the moment. Building a crypto-powered consumer app today means more complexity, more tradeoffs, greater uncertainty, longer timelines and necessary reliance on a number of centralized pieces. You may also need to forgo rigid definitions of a team as builders of “a consumer app” versus “developer infrastructure”. Since not all the infrastructure a specific crypto consumer app needs actually exists today, as an app developer you may just have to build some of it yourself.

Since not all the infrastructure a specific crypto consumer app needs actually exists today, as an app developer you may just have to build some of it yourself.

The Props team experienced this over the past 18 months. It’s unclear whether we’ve been developing an app on nascent crypto infrastructure or actually building a lot of our own infrastructure. Neither accurately defines our work. Props uses blockchain and a cryptocurrency to create an increasingly decentralized digital media network that empowers the community that comprises it. Paraphrasing Jake Brukhman, Props is simultaneously a protocol for the stack above it — comprised of Props Apps like this one — and an application of the stack below it (Ethereum). Our first goal was simply to get two of our own apps to integrate the Props cryptocurrency in a seamless way and share information on the blockchain. But there is no Stripe APIs equivalent in crypto, yet.

Therefore, all the rails related to users holding, spending and receiving crypto, in a way that is user friendly, scalable and assumes little experience with cryptocurrency and very little tolerance for technical complexity — needed to be created. Similarly, a system for apps to issue these mass payments to users based on complex, changing logic also had to be created, and wrapped up in a way that is easy for apps to deploy and connect to their backend.

So we had to get creative in building our own wallet SDK for apps to deploy (PropsKit) and in developing server-side tooling that would make it easier for apps to interact with the blockchain (Props Sentinel). We’ve been building a backend crypto payments system (PropsPay) that apps can integrate and to top it all, we have been setting up our own Props blockchain — a sidechain to the Ethereum network, which enables faster, cheaper and more scalable information sharing. These are part of Props Apps’ infrastructure, in addition to the Ethereum network itself, which is used for the higher-value-lower-volume activity.

We’ve invested significant time and resources in building infrastructure just to get, as a first step, what we needed for our own apps. However, this infrastructure enables the integration of Props into any app in a user-friendly manner, providing the backbone for other developers to leverage it in the future (see open source code for some of the Props tooling). We had to build some infrastructure internally to support scaling issues, a bit like the way Amazon had to build some infrastructure for its e-commerce app. In their case, that infrastructure was very valuable for any scaling app and Amazon began offering it to others, calling it AWS. I can only hope that developers will find similar value in the scaling and payments solutions that we’ve developed to support our first crypto apps.

Infrastructure development, which has been an essential task in order to simply get Props tokens into YouNow apps, has indeed been a substantial effort. But we believe this is also the only way we could put Props in the hands of mainstream users a couple of years earlier than most projects. It also may become valuable infrastructure for other developers, who will create the next block in the chain and push the boundaries further out. This could be the synthesis of our very own Crypto Dialectics.

Crypto Dialectics: Building consumer apps on nascent infrastructure was originally published in Props Project on Medium, where people are continuing the conversation by highlighting and responding to this story.

This past year the broader tech community has become increasingly convinced that the impact of blockchain and “money as code” on society is going to be fundamental. Crypto brings the promise of breaking central banks’ monopoly on money. It threatens to reshape the organization of the workforce. It currently seems like one of the only ways to disrupt GAFA’s oligopoly on the internet (I finally feel comfortable using “disrupt” again…). And the list goes on.

However, it’s still hard to find popular implementations of blockchain-based products that are useful for the non-speculating individual (with just a few exceptions), let alone use cases that fulfill crypto’s grander social promise. A lot of people are betting that crypto’s potential will be realized, while crypto’s real-world applications are finding it hard to keep up with ever increasing market expectations (the crypto market cap is currently around $600 billion, even after this week’s “correction”). There seems to be a gap between crypto valuations and today’s real-world, non-speculative crypto use cases.

This is more apparent in crypto than in past innovation cycles (internet, mobile etc.): the change in expectations with regards to development in crypto is quickly reflected in the market. Unlike past innovation cycles’ VC-backed startups, most “crypto startups” (projects, networks) have cryptotokens that are tradable. Liquidity is fundamentally different than that of a VC that finances innovation and only expects to see a return in 6–10 years. Access too is materially different than in previous innovation cycles, as anyone can come in and attempt to financially benefit from the rise of new emerging technology. They can do so early, before the majority of the value has been realized, and benefit from liquidity along the way.

Facebook was already valued at $104 billion and provided detailed reports of its performance when it went public and first became available for the average individual to invest in, raising $16 billion. Investing in Facebook at that point would give the individual investor a great ~5X return in 5 years. Ethereum’s crowdsale was available for anyone to participate in, raising ~$18 million, at a very early stage in the project’s life with little data. Those buying into Ethereum’ crowdsale saw a whopping ~2,000X return in 3 years for this particularly useful currency. These kind of returns were only available for VCs and professional investors in previous cycles. Now they’re available for all. This democratization of access is a feature of cryptocurrencies, not a bug.

Combine blockchain’s disruptive potential, early access for all (that was never enabled before for financing of technology) and inherent liquidity — and it’s easy to see why money keeps pouring in. It also makes it hard to determine whether the cart is well ahead of the horses like many argue (i.e. the amount of capital poured in is excessive), or we’re simply witnessing the impact of a new phenomenon in the finance of innovation.

Moreover, this substantial capital flow may actually give this once fringe, “anarchist tech” a better chance to become influential and useful, faster. Expectations are clearly very high at this point: 40 coins have become “unicoins” in the past year (valued at > $1 billion sometime this week), while 22 unicorns were born in all of tech in 2017. It’s fair to say that crypto projects reach this status faster than startups in other sectors, and that at this point in time the valuations are rich. This year, I believe we’ll see a number of high quality projects and real-world applications that emerge or evolve, while market expectations will be significantly lowered for many others. Corrections of the type we have witnessed this week are more of a relief than anything else for many of the entrepreneurs and developers in the space, myself included. Every market corrects itself from time to time.

What I am more interested in is whether in 2018 the entrepreneurs and developers working in the space will be able to bring to market useful, real-world applications for crypto? The presence of a solid, growing number of useful crypto applications will help ensure that the blessing of all this capital (which has financed innovation and drawn top-level talent) will continue to benefit the space in the long term, regardless of market fluctuations that will certainly continue. With visible, non-speculative utility created in the space, healthy checks and balances in the form of market corrections will not choke financing. The value-delivering winners of crypto will survive market cycles, just like those of the internet did. But it’ll take time.

“Real-world, widespread applications” can take many shapes. Some believe that we’re a few years away from that, as the infrastructure layer of Web 3.0 is not yet ready for mainstream user applications. I argue that a fully distributed infrastructure layer is not necessary in order to build popular, useful applications for crypto. Many of the building blocks are here, as a result of years of work by determined teams that started working long before the massive capital inflow. Comparing crypto to the internet, it’s been claimed that the tech is at 1994 levels while valuations are at 2000 levels. There’s some truth in this analogy, but Amazon too started in 1994… I believe that widely useful apps can be created on the blockchain today, alongside the continued development of the infrastructure layer.

One promising path to achieve that is to focus app development on specific merits of the blockchain and make some architectural trade-offs that would make it more accessible and suitable for widespread, mainstream adoption. There is no need for an app to be a fully decentralized app (DApp) for it to matter. That’s our strategy at Props, and I hope that we’ll be among the first to introduce a blockchain-based product to millions of mainstream, non-trading users. Regardless of what happens to cryptocurrency prices in 2018, I bet that this year several projects will make meaningful progress towards this goal.

Crypto Horses and the Market Cart was originally published in Props Project on Medium, where people are continuing the conversation by highlighting and responding to this story.

However, it would be too simplistic to believe that all decentralized networks will emerge following the same evolutionary path. Some will “start from scratch” while others will be coming from existing services starting with scale. Building a distributed computing platform serving engineers that create decentralized apps (Ethereum) is fundamentally different from building a decentralized digital media ecosystem serving non-technical users that create and engage with content. I believe they will emerge through different paths.

Digital media is based on content creation and human interaction. Network effects are required for it to thrive. The sheer number of people required to participate in a successful digital media network is an order of magnitude larger than other decentralized networks. In order to compete, a media network needs to:

1. Provide something meaningful and distinctly new for users, that the giant incumbents will find very difficult to copy.
2. Be easy enough for most people to use in order to reach the platform ubiquity that mainstream users have come to expect.

These are difficult challenges to overcome. While decentralization and tokenization provide a distinct value proposition, conceptually and financially, we may not be ready for a purely decentralized media ecosystem that provides the required ease of use, yet. I believe that a decentralized media network is more likely to emerge from an existing community and jumpstarted by an experienced, focused product organization that is fully committed to the idea of building an open network that is not subject to a small group’s long term control (in terms of product roadmap, governance or financial benefit). This is not the prevailing ethos in Silicon Valley, but it is the one brought to the forefront by blockchain-powered models, and it’s a powerful idea.

Here are a few thoughts on what it would take to build such a blockchain-based decentralized digital media network, today.

• Significant financial utility for users, particularly early adopters — Critical, especially in today’s landscape, where a few monopolistic media networks exercise powerful network effects that serve as barriers to healthy competition. Cryptoeconomic business models offer financial utility and a stake in the network for all network participants. A cryptoeconomic model creates strong incentives for early adopters to participate even before a critical mass of users is achieved. This is a new, promising path to overcoming the “chicken and egg” problem where, in the old model, networks tend to provide value to participants only upon reaching a critical mass of users (more on this by Chris Dixon).
• Robust community of content creators and engaged users — While Token Distribution Events offer an opportunity to seed such a community, so far the people buying tokens on TDEs are not the standard users that drive digital media networks. Getting tokens into the hands of creators and other key community members aligns the interests of all the network’s stakeholders and helps ensures a stable token holder ecosystem that is less dependent on speculative activity.
• A natural use case for a token — The tokenization of digital media needs to be implemented in a way that doesn’t add complexity and is natural for the use case. This makes current digital economies, with existing micro transaction behavior, uniquely suitable candidates for tokenization.
• No requirement of users for prior knowledge of blockchains or crypto — Designing a system that bridges the gap between the blockchain and the mainstream is essential for mass market success: Coinbase is a classic example of a product that has achieved this. Providing a user friendly, easy to use product is challenging in the world of cryptocurrency. However, it is more feasible with a sufficiently large, experienced, product-focused organization, that leverages open-source code available for a global community of developers. This is one of the key reasons I have high hopes for projects like Filecoin, Blockstack and Props.
• A fresh user experience and killer features- As Facebook, YouTube and Instagram have gained strength, creating something brand new has become an essential component of expanding on digital media. For Snapchat, it was disappearing messages and stories; for YouNow, it was live mobile video with microtransactions; for Musica.ly, it was lip-syncing and discovery. I believe the next innovation will continue to happen around video, because it has become the dominant form of media in the devices we all have, and more advanced forms like AR/VR are not ready for mass adoption (yet).

With this thesis in mind, we designed and built Props and the first app in the ecosystem, Rize, which will be seeded with millions of YouNow community members. Learn more about our project here and join our discussion on Telegram.

How will the Blockchain Transform Digital Media? was originally published in Props Project on Medium, where people are continuing the conversation by highlighting and responding to this story.

The YouNow team has been working on this project for the past year, and we are thrilled to finally share it with our community and the world. The initial reactions from existing YouNow users and creators to our vision have been overwhelmingly positive. The official launch of Rize will be in the coming weeks, once Props are distributed.

Our Vision and Motivation

In our view, the world needs a decentralized digital media ecosystem for two primary reasons:

1. The value created in digital media is disproportionately distributed between the network operators and the users of these networks. Network operators generate hundreds of billions of dollars in enterprise value, while users only receive a tiny fraction of that value. For example, users and influencers creating engaging content are at the heart of Facebook and Snapchat’s success, yet they didn’t benefit when these companies IPOed and they don’t reap proportionate financial value from the platforms today.
2. Media distribution is currently controlled by a few large companies, leaving decisions about the content the world gets to see in the hands of a small group of people.

Props is transformative in this context because it enables network contributors such as Snapchat video creators, Facebook content curators and Instagram influencers to programmatically receive an equitable reward for the value created by the networks they comprise. They get a personal stake in the community they are creating, a long-term interest in its success and motivation to grow it. The same is true for media companies and publishers contributing content, who no longer need to settle for whatever margin Facebook, YouTube or Snapchat choose to leave for them. The same goes for developers building new apps within this decentralized economy. Rather than getting copied or out-competed by a larger network, they benefit from its growth.

YouNow is fully committed to this vision, as YouNow itself is transitioning from its current status as a C Corp to become a B Corp, with a Props-centric mission: creating a more open and sustainable media ecosystem.

Our Practical Approach to Decentralization

To bring Props Project to fruition, a practical implementation path of decentralization over time will be required, and we’re starting with the economy. Mainstream digital media users are accustomed to using apps that are free, readily fast, available on their smartphones and have easy access to in-app purchases. Decentralization of the digital media components that can work just as well as centralized apps is a long-term effort requiring advancements in the development of a decentralized infrastructure layer. Key challenges include handling the demands of live video streaming, high volume microtransactions and low latency messaging at scale. For example, running all of YouNow’s current 60,000 daily transactions on-chain would be ineffective, result in subpar UX, and become unrealistic in a 10x growth scenario. Therefore, the roll out strategy is to first leverage Props within Rize to pay rewards, provide in-app utility such as status and access to features, as well as for interoperability amongst other applications in the ecosystem to create a larger social graph and value layer.

Our approach allows us to ship a mass market app — easy to use and accessible on everybody’s device — with a tokenized, decentralized digital media economy. This way we exploit the distribution efficiencies of tightly managed mobile apps that enable participation by mainstream users.

The Rize platform will launch with the YouNow community base, encouraging millions of users who already transact in a digital economy to use Props and grow the use cases for the token and its value. The potential outsized financial utility “mined” in the early days of cryptoeconomic networks creates powerful incentives for early adopters (including users, creators and influencers who are not on YouNow today) to participate even before mass market adoption is achieved.

Rize will demonstrate the ability to operate a viable business opportunity within the Props ecosystem, thus contributing to the adoption of Props by additional ecosystem partners. Internally, Rize generates a stream of in-app purchases which in turn drive demand for Props used to reward its content creators and developers. Externally, Rize will position itself to receive Props rewards from the Foundation’s partner rewards program which is set up to maintain 50% of the total supply and competitively allocate rewards. Props users will be able to take their identity, relationships and tokens with them between Props powered apps, so new platforms and apps that integrate with Props will be able to quickly onboard users and benefit from network effects across the ecosystem, as well as the Foundation’s partner rewards program. A diversified network of ecosystem participants will over time further decentralize the Props economy.

This is a summary of our practical approach to decentralizing media. The Props whitepaper provides more detail. We’re excited to walk together with millions of YouNow users and many others on this path toward a more level media playing field and an empowered community.

A Practical Path for Decentralization was originally published in Props Project on Medium, where people are continuing the conversation by highlighting and responding to this story.