The Crypto Insider Report #1: The influx of capital from web2 to web3
Disclaimer: Everything we write in "The Crypto Insider" newsletter is an x-ray of the industry as we see it, through the lens of publicly available information. We are not financial advisors.
Two news stories caught my attention at the end of last week.
Digital Currency Group, the company that owns Grayscale, Coindesk, or the Genesis OTC Desk, has reached a valuation of $10 billion, and among the latest shareholders sitting at the table are SoftBank or Capital IG, the investment arm of those from Google/Alphabet.
ConsenSys, a company founded by Joseph Lubin, one of the co-founders of Ethereum, announced a funding round of $65 million. Investors include JPMorgan Chase, UBS, and Mastercard.
If the amounts doing the rounds no longer surprise us, the involvement of big names that are not related to the industry is a sign that confirms, from my point of view, the maturation of crypto into an asset that can no longer be ignored by anyone.
The main argument for the coming of the so-called "institutional” entities is the price. The same one for which we entered and the same for which most developers wake up in the morning. But beyond the price, the funds also want to participate in building companies that, through a massive impact, will turn into stars to put on their shoulders.
The traditional capital is not the only to come, as a lot of money made in web2 will also move towards companies that have web3 in their DNA. I don't think we're far from seeing Amazon unable to stay out of the game without risking losing its image of cool tech biz. And there are many like them who would lose out by not getting involved either at the marketing & PR level or from a financial point of view.
If the influx occurs, watch out; in the next few years, the market could reach values that we can not even imagine.
Stay safe,
V
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The first steps in crypto:
Blockchain Scalability and Solutions to Increase It
To understand Layer-1 solutions, we must first take a look at blockchain scalability. Despite providing users with a variety of benefits, such as decentralization, high levels of security, and recordkeeping that cannot be changed, blockchain technology still comes with a few drawbacks.
As its usage becomes more common, various issues are surfacing. One of them is scalability, which refers to the system’s throughput rate measured by how many transactions are performed per second (TPS).
However, the more general definition of this term may vary from one expert to another, and it may sometimes be used to refer to the system’s ability to provide every user with a rich experience, no matter how many users it has at any given time.
Considering the increasing usage of cryptocurrencies in everyday life, the need for blockchain layers has also grown. Such layers are necessary for ensuring higher network security and speed, better recordkeeping, higher TPS, and so on. Here is where Layer 1 and Layer 2 solutions come into play.
What Are Layer-1 Solutions and How Do They Work?
When talking about a decentralized system, a Layer-1 network refers to a blockchain. The purpose of Layer-1 solutions is to improve the base protocol itself in order to make scalability possible. Layer-2 solutions are networks or technologies that operate on top of an underlying blockchain protocol to improve efficiency and scalability.
While Bitcoin, Ethereum, and Litecoin are Layer-1 blockchains, Lighting Network is a Layer-2 solution that was built to increase the transaction speeds on the Bitcoin network.
When it comes to Layer-1 solutions, they change the rules of the blockchain’s protocol to increase its transaction speed and capacity and thus accommodate more users and data.
For example, a Layer-1 scaling solution could be used to accelerate the speed of block confirmation or to augment how much data a block contains. Such solutions would then increase the network’s throughput.
Types of Layer-1 Solutions
The two most common Layer-1 solutions include the following:
Consensus Protocol Changes
Since some consensus mechanisms are more efficient than others, projects such as Ethereum are moving from the slow Proof of Work mechanism to Proof of Stake. The latter ensures higher speeds and is more energy-efficient than the former as it doesn’t require miners to solve complex cryptographic algorithms and thus use substantial computing power. Instead, a PoS system processes and validates the new blocks of data based on the participants’ stake.
Sharding
Sharding is one of the most popular layer-1 scalability methods, and it is a mechanism that has been adapted from distributed databases. Through sharding, transaction sets are broken down into smaller pieces, known as “shards,” which are processed by the network in parallel. Since the workload is spread across the peer-to-peer network better, blocks are completed faster. Ethereum 2.0, Tezos, and Zilliqa are exploring the use of shards.
Conclusions
Scalability becomes an issue when the amount of data that passes through a blockchain is limited because of its insufficient capacities. To overcome such problems and ensure faster processing times and a higher number of transactions per second, blockchain developers are working on scaling solutions.
Layer-1 solutions improve the base protocol of a blockchain by changing how it operates in terms of data processing. One of their advantages is that there is no need to add something on top of the existing infrastructure. Changes to the blockchain’s consensus protocol and sharding are two such solutions.
Animation of the day: What is Ethereum?
Tania.
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The Altcoin Pulse
1. Holoride ($RIDE) is the first project to launch on Maiar Launchpad.
https://maiarlaunchpad.com/holoride
2. VeChain's DEX, Vexchange, will launch its own governance token and boost DEX liquidity through a yield farming program.
https://www.newsbtc.com/news/vechains-vet-dex-to-launch-governance-token/
3. Katana DEX joins the Axie Infinity ecosystem.
https://decrypt.co/85281/ethereum-game-axie-infinity-ronin-dex-slp-token-spikes
4. FTX, Lightspeed, and Solana Ventures raised a $100m fund targeting the Web 3.0 gaming developed on Solana.
5. Chainlink has announced that it surpassed $75bn in total value secured (TVS), a measure of the value included in the smart contracts that use its price feeds.
6. Enjin raises a $100m fund that will provide funding to metaverse and gaming projects, as well as to those involved in digital collectibles and multichain applications.
https://www.coindesk.com/business/2021/11/04/enjin-forms-100m-fund-to-support-metaverse-projects/
7. Grayscale adds Avalanche and Terra to the list of potential projects that can be included in the suite of funds it manages.
https://grayscale.com/update-grayscale-investments-exploring-additional-assets/
8. Several future token releases and listings, and other events.
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Interesting Headlines
1. In addition to receiving his first three paychecks in Bitcoin, NYC Mayor-elect Eric Adams wants to turn the city into a crypto-friendly one. He also believes that digital assets and the crypto space should be studied in schools.
https://cointelegraph.com/news/incoming-ny-mayor-wants-crypto-taught-in-schools
2. Bank of America COO says that, in the future, BofA may offer loans with Bitcoin as collateral. This will depend on stabilizing and reducing the market volatility.
https://blockworks.co/bank-of-america-coo-crypto-could-add-value-to-banks/
3. AscendEX has announced a $50m Series B funding round, with the participation of funds such as Polychain Capital, Hack VC, and Alameda Research.
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Tweet of the week:
Willy Woo on how the price of bitcoin is rising even though the profile of those who add selling pressure has fundamentally changed.
Business book of the week: Jab, Jab, Jab, Right Hook: How to Tell Your Story in a Noisy Social World by Gary Vaynerchuk. Although the book is not new, there are many ideas that would do well as standard practices in today's marketing, even more so in crypto.
Youtube clip of the week: Benjamin Cowen on Why Ethereum is an absolute beast.