Building a trillion dollar crypto business

Most new billionaires created today (incl., hopefully, me, soon :)) are from the technology industry. Which is mainly just the internet these days. Which will mainly be just crypto soon. 

If you want to create a gigantic fortune or impact, you have to create it in crypto today. Here is a talk I gave on this topic. This blog is about, my thoughts on, how to actually create a trillion dollar crypto business. Of-course that's something that I'm interested in working on next.

Valuing crypto assets

Total net worth of the world is around $400T. $8T of this is in Gold today, which is cumbersome to use. BTC is a better gold alternative (fungible, secure, etc) and can be a much bigger store of value than gold. Just like how Uber is larger than all taxi cos combined and AirBnb is larger than all hotels combined. Better products 10x the addressable market. BTC is currently valued at ~$1T. So market is valuing this, gold takeover scenario ($20T market-cap) at 5% odds.

ETH is a better BTC alternative and has already won IMO. I sold my family's last BTC, last month and converted it entirely into ETH. And it's the "high optionality" currency of most crypto natives today. It can do everything that BTC does (be a distributed ledger), but can also do more -- be a programmable ledger, with smart contracts. It's a decentralized computer. ETH, which launched only in 2014, has already proven itself to be the New York of crypto, with most new businesses being built directly on it. If you want to buy any new crypto project/art, you buy it with ETH and not BTC. And you trade it on ETH as well. ETH is currently valued at ~$300B. ETH is now battling the residual network effects of BTC and could make BTC entirely irrelevant. So market is valuing this scenario at a 30% odds.

DOT/NEAR etc are building a faster ETH alternative. ETH is a massively parallel computer, in which every instruction is executed again on millions of validators (miners). It therefore costs a lot. DOT/NEAR and other ETH competitors, introduce sharding and make only a subset of validators re-do the work. These are hence able to do 2K-100K TPS vs 60 TPS for ETH and 5 TPS for BTC. And it costs a lot less to transact in these networks. DOT is currently valued at $20B and NEAR at $2B; 

All of these are battling the network effects of ETH. And resorting to building bridges so ETH apps can easily live on DOT/NEAR. And DOT/NEAR apps can easily have their tokens trade on ETH. This is a huge and recent technical breakthrough -- decentralized bridges that allow for inter-chain communication, which have gone live just over the past few months. We are entering a multi-chain future where individual chains/DBs are making API calls with each other and data/coins can move freely, with a few minute latency. ETH is still resilient right now as the center of all the chains, but that could change if a single chain ends up dominating. So market is valuing DOT at a 10% chance that it's the next ETH.

So what's next, up the stack? What's the next ETH-killer-killer? All up the stack, we notice that ETH is BTC+ (everything BTC does but more/better). DOT/NEAR/etc are ETH+ (everything ETH does but more/better). So naturally the next one, will be as fast as these other chains (Pos), can host an arbitrary VM (like ETH). But will also have one extra killer feature. Therefore, the only relevant question to answer is, what that feature is, and if you are right about this, you can create a trillion dollar protocol.

Also to note is, there are frameworks today, like DOT's Substrate framework or CosmosSDK which already give you a better do-it-yourself ETH chain out of the box. So really it's all about building the killer feature/app, with network effects on top of it.

Social

Social platforms of today are extreme centralization of power, like the East India company of the 18th century. At every geo, it's the political party vs the social networks (jack, zuck) and the outcome depends on the laws of the nation. In the US, Jack bans Trump. In China, Xi bans Jack. In India, there's a case in court -- Twitter vs the regulator. There is a decentralized alternative, where no one can ban Trump. And Xi technically cannot ban it. The rise of the "cancel culture" and "woke mobs" create an environment where people's jobs can be taken away from them. There is a real need for pseudonymity online. The tech for this has just begun to become feasible, with the blockchain TPS hitting a few thousand per second. So there is clearly a large need for this and the tech has just become feasible.

It also passes the currency test -- if a crypto social network takes off -- why wouldn't you just pay people on that chain? why go to a diff chain to pay someone? especially if your connections are all made on the chain? WePay and AliPay are the biggest payment providers in China. There's a reasonable case to be made that at scale, this can completely deprecate BTC, the way ETH has already deprecated BTC. And hence could be worth trillions of dollars.

Bitclout is the first such alternative. It launched 4 months ago and is currently valued at $2B. Activity peaked a few months ago and has been trending down since. The good news is, the activity seems to have reached a stable base, indicating it has at-least managed to retain a niche audience.

To build a killer app, you have to build it for the existing crypto-native users and not hope you'll onboard the mainstream audience. Here is my mental model of why. tl;dr Why is Naval going to tweet to 0.1% of his followers who are on BitClout, instead of the 100% who are on Twitter? So you can't directly compete with twitter but build a niche community where there are different conversations happening.

The current killer app in crypto is DeFi, so one has to build for this audience and use case. IMO, Bitclout went a lot more general purpose early and hence failed to catch on. 

So, what do the DeFi degens want? How does one build a social network for them and become the crypto AOL? :) I'd elaborate more on this in future posts, around my take on this and what I am building.

I'll end this with a fun anecdote. I was too young when the dot com boom happened and until recently did not realize the market power AOL had at that time. At the peak of AOL's power:

"The days when dot-com startups needed an AOL deal to go public are over; so is the era when AOL could sell against fear by telling nervous old-economy CEOs that "if you don't get on the Internet train, your company is going to blow up," as Schuler puts it. Still, while Internet advertising is slumping, media buyers remain interested in the opportunity it offers them to interact with consumers. "If through a partnership with AOL my clients can better understand consumers' interests and passions, there's a lot of value there," says Jack Klues, CEO of Starcom MediaVest Group, a top media-buying firm."

:)