Hello friends, and welcome back to Week in Review!
Last week, I wrote about tech taking on Disney. This week, I’m talking about the search for a new crypto messiah.
Elon has worn out his welcome among the crypto illuminati, and the acolytes of Bitcoin are searching out a new emperor god king.
This weekend, thousands of crypto acolytes and investors have descended on a Bitcoin-themed conference in Miami, a very real, very heavily-produced conference sporting crypto celebrities and actual celebrities all on a mission to make waves.
Even though I am not at the conference in person (panels from its main stage were live-streamed online), I have plenty of invites in my email for afterparties featuring celebrities, open bars and endless conversations on the perils of fiat. The cryptocurrency community has never been larger or richer thanks to its most fervent bull run yet, and despite a pretty noteworthy correction in the past few weeks, people believe the best is yet to come.
Despite having so much, what they still seem to be lacking is a patron saint.
For the longest bout, that was SpaceX and Tesla CEO Elon Musk who bolstered the currency by pushing Tesla to invest cash on its balance sheet into bitcoin, while also pushing for Tesla to accept bitcoin payments for its vehicles. As I’ve noted in this newsletter in the past, Musk had a tough time reconciling the sheer energy use of bitcoin’s global network with his eco warrior bravado which has seemed to lead to his mild and uneven excommunication (though I’m sure he’s welcome back at any time).
Goods & services are the real economy, any form of money is simply the accounting thereof
— Elon Musk (@elonmusk) June 5, 2021
There are plenty of celebrities looking to fill his shoes — a recent endorsement gone wrong by Soulja Boy was one of the more comical instances.
Crypto has been no stranger to grift — of that even the most hardcore crypto grifters can likely agree — and I think there’s been some agreement that the only leader who can truly preach the gospel is someone who is already so rich they don’t even need more money. It’s one reason the community has offered up so much respect for Ethereum founder Vitalik Buterin who truly doesn’t seem to care too much about getting any wealthier — he donated about $1 billion worth of crypto to Covid relief efforts in India. A Musk-like cheerleader serves a different purpose though, and so the community is in search of a Good Billionaire.
The best runner-up at the moment appears to be one Jack Dorsey, and while — like Musk — he is also another double-CEO, he is quite a bit different from him in demeanor and desire for the spotlight. He was, however, a headline speaker at Miami’s Bitcoin conference.
Dorsey gathers the most headlines for his work at Twitter but it’s Square where he is pushing most of his crypto enthusiasm. Users can already use Square’s Cash App to buy Bitcoin. Minutes before going onstage Friday, Dorsey tweeted out a thread detailing that Square was interested in building its own hardware wallet that users could store cryptocurrency like bitcoin on outside of the confines of an exchange.
Square is considering making a hardware wallet for #bitcoin. If we do it, we would build it entirely in the open, from software to hardware design, and in collaboration with the community. We want to kick off this thinking the right way: by sharing some of our guiding principles.
— jack (@jack) June 4, 2021
“Bitcoin changes absolutely everything,” Dorsey said onstage. “I don’t think there is anything more important in my lifetime to work on.”
And while the billionaire Dorsey seems like a good choice on paper — he tweets about bitcoin often, but only good tweets. He defends its environmental effects. He shows up to House misinformation hearings with a bitcoin tracker clearly visible in the background. He is also unfortunately the CEO of Twitter, a company that’s desire to reign in its more troublesome users — including one very troublesome user — has caused a rift between him and the crypto community’s very vocal libertarian sect.
Dorsey didn’t make it very far into his speech before a heckler made a scene calling him a hypocrite because of all this with a few others piping in, but like any good potential crypto king would know to do, he just waited quietly for the noise to die down.
(Photo by BRENDAN SMIALOWSKI/AFP via Getty Images)
Here are the TechCrunch news stories that especially caught my eye this week:
Facebook’s Trump ban will last at least 2 years
In response to the Facebook Oversight Board’s recommendations that the company offer more specificity around its ban of former President Trump, the company announced Friday that it will be banning Trump from its platforms through January 2023 at least, though the company has basically given itself the ability to extend that deadline if it so desires…
Nigeria suspends Twitter
Nigeria is shutting down access to Twitter inside the country with a government official citing the “use of the platform for activities that are capable of undermining Nigeria’s corporate existence.” Twitter called the shutdown “deeply concerning.”
Stack Overflow gets acquired for $1.8 billion
Stack Overflow, one of the most-visited sites of developers across the technology industry, was acquired by Prosus. The heavy hitter investment firm is best known for owning a huge chunk of Tencent. Stack Overflow’s founders say the site will continue to operate independently under the new management.
Spotify ups its personalization
Music service Spotify launched a dedicated section this week called Only You which aims to capture some of the personalization it has been serving up in its annual Spotify Wrapped review. Highlights of the new feature include blended playlists with friends and mid-year reviews.
Supreme Court limits US hacking law in landmark case
Justices from the conservative and liberal wings joined together in a landmark ruling that put limits on what kind of conduct can be prosecuted under the controversial Computer Fraud and Abuse Act.
This one email explains Apple
Here’s a fun one, the email exchange that birthed the App Store between the late Steve Jobs and SVP of Software Engineering, Bertrand Serlet as annotated by my boss Matthew Panzarino.
Image Credits: Bryce Durbin / TechCrunch
Some of my favorite reads from our Extra Crunch subscription service this week:
For SaaS startups, differentiation is an iterative process
“The more you know about your target customers’ pain points with current solutions, the easier it will be to stand out. Take every opportunity to learn about the people you are aiming to serve, and which problems they want to solve the most. Analyst reports about specific sectors may be useful, but there is no better source of information than the people who, hopefully, will pay to use your solution..”
3 lessons we learned after raising $6 million from 50 investors
“…being pre-product at the time, we had to lean on our experience and our vision to drive conviction and urgency among investors. Unfortunately, it just wasn’t enough. Investors either felt that our experience was a bad fit for the space we were entering (productivity/scheduling) or that our vision wasn’t compelling enough to merit investment on the terms we wanted.“
The existential cost of decelerated growth
“Just because a technology startup has a hot start, that doesn’t mean it will grow quickly forever. Most will wind up somewhere in the middle — or worse. Put simply, there is a larger number of tech companies that do fine or a little bit worse after they reach scale.”
As the price of bitcoin hits record highs and cryptocurrencies become increasingly mainstream, the industry’s expanding carbon footprint becomes harder to ignore.
Just last week, Elon Musk announced that Tesla is suspending vehicle purchases using bitcoin due to the environmental impact of fossil fuels used in bitcoin mining. We applaud this decision, and it brings to light the severity of the situation — the industry needs to address crypto sustainability now or risk hindering crypto innovation and progress.
The market cap of bitcoin today is a whopping $1 trillion. As companies like PayPal, Visa and Square collectively invest billions in crypto, market participants need to lead in dramatically reducing the industry’s collective environmental impact.
As the price of bitcoin hits record highs and cryptocurrencies become increasingly mainstream, the industry’s expanding carbon footprint becomes harder to ignore.
The increasing demand for crypto means intensifying competition and higher energy use among mining operators. For example, during the second half of February, we saw the electricity consumption of BTC increase by more than 163% — from 265 TWh to 433 TWh — as the price skyrocketed.
Sustainability has become a topic of concern on the agendas of global and local leaders. The Biden administration rejoining the Paris climate accord was the first indication of this, and recently we’ve seen several federal and state agencies make statements that show how much of a priority it will be to address the global climate crisis.
A proposed New York bill aims to prohibit crypto mining centers from operating until the state can assess their full environmental impact. Earlier this year, the U.S. Securities and Exchange Commission put out a call for public comment on climate disclosures as shareholders increasingly want information on what companies are doing in this regard, while Treasury Secretary Janet Yellen warned that the amount of energy consumed in processing bitcoin is “staggering.” The United Kingdom announced plans to reduce greenhouse gas emissions by at least 68% by 2030, and the prime minister launched an ambitious plan last year for a green industrial revolution.
Crypto is here to stay — this point is no longer up for debate. It is creating real-world benefits for businesses and consumers alike — benefits like faster, more reliable and cheaper transactions with greater transparency than ever before. But as the industry matures, sustainability must be at the center. It’s easier to build a more sustainable ecosystem now than to “reverse engineer” it at a later growth stage. Those in the cryptocurrency markets should consider the auto industry a canary: Carmakers are now retrofitting lower-carbon and carbon-neutral solutions at great cost and inconvenience.
Market participants need to actively work together to realize a low-emissions future powered by clean, renewable energy. Last month, the Crypto Climate Accord (CCA) launched with over 40 supporters — including Ripple, World Economic Forum, Energy Web Foundation, Rocky Mountain Institute and ConsenSys — and the goal to enable all of the world’s blockchains to be powered by 100% renewables by 2025.
Some industry participants are exploring renewable energy solutions, but the larger industry still has a long way to go. While 76% of hashers claim they are using renewable energy to power their activities, only 39% of hashing’s total energy consumption comes from renewables.
To make a meaningful impact, the industry needs to come up with a standard that’s open and transparent to measure the use of renewables and make renewable energy accessible and cheap for miners. The CCA is already working on such a standard. In addition, companies can pay for high-quality carbon offsets for remaining emissions — and perhaps even historical ones.
While the industry works to become more sustainable long term, there are green choices that can be made now, and some industry players are jumping on board. Fintechs like Stripe have created carbon renewal programs to encourage its customers and partners to be more sustainable.
Companies can partner with organizations, like Energy Web Foundation and the Renewable Energy Business Alliance, to decarbonize any blockchain. There are resources for those who want to access renewable energy sources and high-quality carbon offsets. Other options include using inherently low-carbon technologies, like the XRP Ledger, that don’t rely on proof-of-work (which involves mining) to help significantly reduce emissions for blockchains and cryptofinance.
The XRP Ledger is carbon-neutral and uses a validation and security algorithm called Federated Consensus that is approximately 120,000 times more energy-efficient than proof-of-work. Ethereum, the second-largest blockchain, is transitioning off proof-of-work to a much less energy-intensive validation mechanism called proof-of-stake. Proof-of-work systems are inefficient by design and, as such, will always require more energy to maintain forward progress.
The devastating impact of climate change is moving at an alarming speed. Making aspirational commitments to sustainability — or worse, denying the problem — isn’t enough. As with the Paris agreement, the industry needs real targets, collective action, innovation and shared accountability.
The good news? Solutions can be practical, market-driven and create value and growth for all. Together with climate advocates, clean tech industry leaders and global finance decision-makers, crypto can unite to position blockchain as the most sustainable path forward in creating a green, digital financial future.
Hello and welcome back to Equity, TechCrunch’s venture capital-focused podcast, where we unpack the numbers behind the headlines.
The fully vaxxed and officially fully immune took over the podcast this week, with Natasha and Danny co-hosting the show while the inimitable Alex is out from Shot No. 2. Grace and Chris, as always, were behind the scenes making sure we sound pretty and don’t fall down too many punny board game rabbit holes after vacation.
Here’s the rundown of what we got into:
And that’s where we break! Follow the podcast on Twitter, be kind to your humans, and be the kindest to yourself. Back sooner than you can raise a $25 million pre-seed round for an audio app for Dogecoin lovers.
Institutions need to keep their crypto assets somewhere. And they aren’t going to keep it on some random, or consumer-grade crypto operation. This requires more sophisticated technology. Furthermore, being in the EU is going to be a key barrier to entry for many US or Asia-based operations.
Thus it is that Berlin-based digital asset custody and financial services platform
Finoa, has closed a $22 million Series A funding round, to do just that.
The round was led by Balderton Capital, alongside existing investors Coparion, Venture Stars and Signature Ventures, as well as an undisclosed investor.
Crucially, the Berlin-based startup works with Dapper Lab’s FLOW protocol, NEAR, and Mina, which are fast becoming standards for crypto assets. They are going up against large players such as Anchorage, Coinbase Custody, Bitgo, exchanges like Binance and Kraken, and self-custody solutions like Ledger.
Finoa says it now has over 250 customers, including T-Systems, DeFi-natives like CoinList and financial institutions like Bankhaus Scheich.
The company says its plan is to become a regulated platform for institutional investors and corporations to manage their digital assets and it has received a preliminary crypto custody license and is supervised by the German Federal Financial Supervisory Authority (BaFin).
The company was founded in 2018 by Christopher May and Henrik Ebbing, but both had previously worked together at McKinsey and started working in blockchain in 2017.
May commented: “We are proud to have established Finoa as Europe’s leading gateway for institutional participation and incredibly excited to accelerate our growth even further. We look forward to supporting new exciting protocols and projects, empowering innovative corporate use cases, and adding additional (decentralized) financial products and services to our platform.”
Colin Hanna, Principal at Balderton Capital, who leads most of Balderton’s Crypto investments, said: “Chris, Henrik, and the entire Finoa team have built a deeply impressive business which bridges the highest levels of professionalism with radical innovation. As custodians of digital asset private keys, Finoa needs to be trusted both with the secure management of those keys and with the products and services that allow their clients to fully leverage the power of native digital assets. The team they have assembled is uniquely positioned to do just that.”
May added: “We identified a lack of sophisticated custody and asset servicing solutions for safeguarding and managing blockchain-based digital assets that successfully cover the needs of institutional investors. Finoa is bridging this gap by providing seamless, safe, and regulated access to the world of digital assets.”
“Being in the European Union requires a fundamentally different organizational setup, and poses a very high entry to new incumbents and other players overseas. There are few that have managed to do what Finoa has done in a European context and hence why we now see ourselves in a leading position.”
Reshaping ownership proofs in the fine art markets has been one of the blockchain’s clearest real-world use cases. But in recent months as top auction houses have embraced NFTs and popular artists experiment with the crypto medium, that future has seemed more tangible than ever before.
The ex-Christie’s and Sotheby’s team at Lobus is aiming to commoditize blockchain tech with an asset management platform that they hope can bring creator-friendly mechanisms from NFT marketplaces like SuperRare to the physical art world as well, allowing art owners to maintain partial ownership of the works they sell so that they can benefit from secondary transactions down the line. While physical art sellers have grown accustomed to selling 100% of their work while seeing that value accrue over time as it trades hands, Lobus’s goal is for artist’s to maintain fractional ownership throughout those sales, ensuring that they earn a commission on sales down the road. It’s a radical idea and a logistical nightmare made feasible by the blockchain’s approach to ownership.
“We’re really on a mission of making artists into owners,” Lobus co-CEO Sarah Wendell Sherrill tells TechCrunch. “We are really leveraging the best of what NFTs are putting out there about ownership and asking the questions of how to help create different ownership structures and interrupt this asset class.”
The startup is encapsulating these new mechanics in a wide-reaching art asset management platform that they hope can entice users of the aging legacy software suites being used today. Teaming robust ownership proofs with a CRM, analytics platform and tools like dynamic pricing, Lobus wants to give the art market its own Carta-like software platform that is approachable to the wider market.
Lobus tells TechCrunch they have raised $6 million from Upside Capital, 8VC, Franklin Templeton, Dream Machine, Weekend Fund and BoostVC, among others. Angels participating in the round include Rob Hayes, Troy Carter, Suzy Ryoo, Rebecca and Cal Henderson, Henry Ward and Lex Sokolin.
A big goal for the team has been removing the complexities of understanding what the blockchain is and instead focusing on what their tech can deliver to their network of art owners. While the NFT boom of the past few months has already produced billions in sales, efforts like Lobus are attempting to cross-pollinate the mechanics of crypto art with the global art market in an effort to put stakeholders across the board on the same footing. In addition to having partnerships with around 300 active artists, Lobus has also sold their platform to collectors, artist estates and asset managers.
At the moment, Lobus has around 45,000 art objects in its database, encompassing about $5.4 billion in asset value across physical and digital objects.
Tesla’s relationship with bitcoin is not a dalliance, according to the comments made by the company’s CFO and dubbed “master of coin” Zach Kirkhorn during an earnings call Monday. Instead, the company believes in the longevity of bitcoin, despite its volatility.
Tesla invested $1.5 billion in bitcoin this quarter and then trimmed its position by 10%, Kirkhorn said during the company quarterly earnings call. That sale made a $101 million “positive impact” to the company’s profitability in the first quarter, he added. Tesla also allows customers to make vehicle deposits and final vehicle purchases using bitcoin.
Tesla turned to bitcoin as a place to store cash and still access it immediately, all while providing a better return on investment than more traditional central bank-backed safe havens. Of course, the higher yields provided by the volatile digital currency comes with higher risk.
Tesla bucks the trend of the more cautionary Federal Reserve Chairman Jay Powell who noted back in March at virtual summit hosted by the Bank for International Settlements that the Fed considers crypto speculative assets that are highly volatile and therefore not useful stores of value. That matters because the basic function of currency is its ability to store value. He also noted that digital currencies are not backed by anything and compared it to gold and not the dollar.
Elon and I were looking for a place to store cash that wasn’t being immediately used, try to get some level of return on this, but also preserve liquidity, you know, particularly as we look forward to the launch of Austin and Berlin and uncertainty that’s happening with semiconductors and port capacity, being able to access our cash very quickly is super important to us right now.
And, you know, there aren’t many traditional opportunities to do this or at least that we found and and talking to others that we could get good feedback on, particularly with yields being so low and without taking on additional risk or sacrificing liquidity. Bitcoin seemed at the time, and so far has proven to be a good decision, a good place to place some of our cash that’s not immediately being used for daily operations or maybe not needed till the end of the year, and be able to get some return on that.
Tesla is watching the digital currency closely, Kirkhorn said, noting that there is a lot of reason to be optimistic.
“You know, thinking about it from a corporate treasury perspective, we’ve been quite pleased with how much liquidity there is in the bitcoin market,” he said. “Our ability to build our first position happened very quickly. When we did the sale later in March we also were able to execute on that very quickly. And so as we think about kind of global liquidity for the business in risk management, being able to get cash in and out of the market is something that I think is exceptionally important for us.”
While Tesla did trim its position in March, Kirkhorn added that the company’s intent is to hold what it has long term and to continue to accumulate bitcoin from transactions from its customers as they purchase vehicles. Musk, who also goes by Technoking, announced in March that Tesla would accept bitcoin as a form of payment in the United States.
The two founders of Crusoe Energy think they may have a solution to two of the largest problems facing the planet today — the increasing energy footprint of the tech industry and the greenhouse gas emissions associated with the natural gas industry.
Crusoe, which uses excess natural gas from energy operations to power data centers and cryptocurrency mining operations, has just raised $128 million in new financing from some of the top names in the venture capital industry to build out its operations — and the timing couldn’t be better.
Methane emissions are emerging as a new area of focus for researchers and policymakers focused on reducing greenhouse gas emissions and keeping global warming within the 1.5 degree targets set under the Paris Agreement. And those emissions are just what Crusoe Energy is capturing to power its data centers and bitcoin mining operations.
The reason why addressing methane emissions is so critical in the short term is because these greenhouse gases trap more heat than their carbon dioxide counterparts and also dissipate more quickly. So dramatic reductions in methane emissions can do more in the short term to alleviate the global warming pressures that human industry is putting on the environment.
And the biggest source of methane emissions is the oil and gas industry. In the U.S. alone roughly 1.4 billion cubic feet of natural gas is flared daily, said Chase Lochmiller, a co-founder of Crusoe Energy. About two thirds of that is flared in Texas with another 500 million cubic feet flared in North Dakota, where Crusoe has focused its operations to date.
For Lochmiller, a former quant trader at some of the top American financial services institutions, and Cully Cavmess, a third generation oil and gas scion, the ability to capture natural gas and harness it for computing operations is a natural combination of the two men’s interests in financial engineering and environmental preservation.
NEW TOWN, ND – AUGUST 13: View of three oil wells and flaring of natural gas on The Fort Berthold Indian Reservation near New Town, ND on August 13, 2014. About 100 million dollars worth of natural gas burns off per month because a pipeline system isn’t in place yet to capture and safely transport it . The Three Affiliated Tribes on Fort Berthold represent Mandan, Hidatsa and Arikara Nations. It’s also at the epicenter of the fracking and oil boom that has brought oil royalties to a large number of native americans living there. (Photo by Linda Davidson / The Washington Post via Getty Images)
The two Denver natives met in prep-school and remained friends. When Lochmiller left for MIT and Cavness headed off to Middlebury they didn’t know that they’d eventually be launching a business together. But through Lochmiller’s exposure to large scale computing and the financial services industry, and Cavness assumption of the family business they came to the conclusion that there had to be a better way to address the massive waste associated with natural gas.
Conversation around Crusoe Energy began in 2018 when Lochmiller and Cavness went climbing in the Rockies to talk about Lochmiller’s trip to Mt. Everest.
When the two men started building their business, the initial focus was on finding an environmentally friendly way to deal with the energy footprint of bitcoin mining operations. It was this pitch that brought the company to the attention of investors at Polychain, the investment firm started by Olaf Carlson-Wee (and Lochmiller’s former employer), and investors like Bain Capital Ventures and new investor Valor Equity Partners.
(This was also the pitch that Lochmiller made to me to cover the company’s seed round. At the time I was skeptical of the company’s premise and was worried that the business would just be another way to prolong the use of hydrocarbons while propping up a cryptocurrency that had limited actual utility beyond a speculative hedge against governmental collapse. I was wrong on at least one of those assessments.)
“Regarding questions about sustainability, Crusoe has a clear standard of only pursuing projects that are net reducers of emissions. Generally the wells that Crusoe works with are already flaring and would continue to do so in the absence of Crusoe’s solution. The company has turned down numerous projects where they would be a buyer of low cost gas from a traditional pipeline because they explicitly do not want to be net adders of demand and emissions,” wrote a spokesman for Valor Equity in an email. “In addition, mining is increasingly moving to renewables and Crusoe’s approach to stranded energy can enable better economics for stranded or marginalized renewables, ultimately bringing more renewables into the mix. Mining can provide an interruptible base load demand that can be cut back when grid demand increases, so overall the effect to incentivize the addition of more renewable energy sources to the grid.”
Other investors have since piled on including: Lowercarbon Capital, DRW Ventures, Founders Fund, Coinbase Ventures, KCK Group, Upper90, Winklevoss Capital, Zigg Capital and Tesla co-founder JB Straubel.
The company now operate 40 modular data centers powered by otherwise wasted and flared natural gas throughout North Dakota, Montana, Wyoming and Colorado. Next year that number should expand to 100 units as Crusoe enters new markets such as Texas and New Mexico. Since launching in 2018, Crusoe has emerged as a scalable solution to reduce flaring through energy intensive computing such as bitcoin mining, graphical rendering, artificial intelligence model training and even protein folding simulations for COVID-19 therapeutic research.
Crusoe boasts 99.9% combustion efficiency for its methane, and is also bringing additional benefits in the form of new networking buildout at its data center and mining sites. Eventually, this networking capacity could lead to increased connectivity for rural communities surrounding the Crusoe sites.
Currently, 80% of the company’s operations are being used for bitcoin mining, but there’s increasing demand for use in data center operations and some universities, including Lochmiller’s alma mater of MIT are looking at the company’s offerings for their own computing needs.
“That’s very much in an incubated phase right now,” said Lochmiller. “A private alpha where we have a few test customers… we’ll make that available for public use later this year.”
Crusoe Energy Systems should have the lowest data center operating costs in the world, according to Lochmiller and while the company will spend money to support the infrastructure buildout necessary to get the data to customers, those costs are negligible when compared to energy consumption, Lochmiller said.
The same holds true for bitcoin mining, where the company can offer an alternative to coal powered mining operations in China and the construction of new renewable capacity that wouldn’t be used to service the grid. As cryptocurrencies look for a way to blunt criticism about the energy usage involved in their creation and distribution, Crusoe becomes an elegant solution.
Institutional and regulatory tailwinds are also propelling the company forward. Recently New Mexico passed new laws limiting flaring and venting to no more than 2 percent of an operator’s production by April of next year and North Dakota is pushing for incentives to support on-site flare capture systems while Wyoming signed a law creating incentives for flare gas reduction applied to bitcoin mining. The world’s largest financial services firms are also taking a stand against flare gas with BlackRock calling for an end to routine flaring by 2025.
“Where we view our power consumption, we draw a very clear line in our project evaluation stage where we’re reducing emissions for an oil and gas projects,” Lochmiller said.
Cryptocurrency prices continued to tumble Friday with Bitcoin leading the charge, with prices for the internet currency dipping below $50,000 for the first time since early March.
Bitcoin is down roughly 20% week-over-week, around 30% from its all-time-high of nearly $65,000 early last week. The market cap of the coin has dipped below $1 trillion. The tumble has been less severe for Ethereum which hit an all-time-high just yesterday but has since dropped 13% as the broader market has crawled back.
Plenty of altcoins have also taken a beating. Dogecoin erased the breakneck gains of the week and then some, nearly halving its price after a meteoric climb last weekend. XRP is down 35% week-over-week, Stellar is down 30% and Polkadot is down 25% since last week.
Overall, Coinmarketcap estimates the global crypto market has shrunk around 10% in the past 24 hours.
Crypto prices have been on a tear for the past several months, but the past week has been the clearest sign of a correction to climbing prices, though many see news of President Biden’s adjustment to the hikes on the capital gains tax as the most apparent reason for the market’s slide as investors cash out hoping their gains won’t be reached by a retroactive application of the rules.
Coinbase, which went public last week via direct listing, shaved about 10% off its share price this week, but was largely unaffected Friday in intraday trading.
To close out the week, a short meditation on value, or, more precisely, how assets are valued in today’s markets.
Do you recall the pre-direct-listing hype Coinbase enjoyed? After reporting its estimated first-quarter financial performance, interest in the domestic cryptocurrency trading giant ran red-hot.
When Coinbase set a $250 per-share direct listing reference price, it was broadly viewed as modest, if not downright low. Of course, a reference price is just that — a reference — so it wasn’t too big a deal. But it also wasn’t surprising that Coinbase shares traded as high as $429.54 on their first day, according to Yahoo Finance data.
Coinbase equity hasn’t topped $400 in any following day and is now under the $300 mark, with more declines set to arrive as trading commences. Its reference price looms, and suddenly a price that felt intensely conservative before Coinbase began to trade is starting to look nearly reasonable.
The Exchange explores startups, markets and money.
There have been other notable declines in value among some recently public, more technologically differentiated companies. The Exchange has watched with something akin to polite confusion as the value of Root, a neo-insurance company, fell to a third of its public-market highs after going public, even though it beat growth expectations in its most recent quarterly report.
We could toss UiPath into our trend of wildly meandering value. The company’s initial IPO price range targeted a price as low as $43 per share. Today it’s worth $76.75 per share in pre-market trading.
No one knows what anything is worth, again. This is the feeling I get while watching the markets work to determine how to value assets as diverse as startups crossing the private-public divide to the value of Bitcoin, which was supposed to keep going up. Until it suddenly reversed gear.
Frankly, we’re still dealing with new-enough models — or big-enough guesses about the future baked into business models — that it’s hard to really value the most uncertain (and therefore most exciting) companies, let alone cryptocurrencies. Let’s discuss.
The crypto industry as a whole has seen a momentous year of growth, heavily spurred on by the entrance of institutional investors adopting bitcoin due to its store of value properties. The 2020 spike bitcoin experienced was also accelerated by its global adoption as the number of global cryptocurrency users surpassed 100 million in Q3 2020.
For Luno, a U.K.-based crypto company founded by Marcus Swanepoel and Timothy Stranex in 2013, it grew to 6 million customers from January 2020 to January 2021. However, that number has since gone up to 7 million. Today the company, headquartered in London, has nearly 400 employees across London, South Africa, Malaysia, Indonesia, Nigeria and Singapore, with customers in 40 countries globally.
According to CEO Swanepoel, Luno’s numbers have been increasing month-on-month over the last seven years. However, this is the first time it is observing an acceleration of this magnitude.
There are a couple of reasons for Luno’s surge in numbers (like any other crypto exchange startup). Generally, despite talks of bitcoin being used in everyday life by crypto enthusiasts and interests from institutional entrants like BNY Mellon, Mastercard and Tesla, it is a long shot before becoming mainstream.
For now, crypto mainly serves investment purposes. This singular factor has particularly made it very popular with Africans — a demographic that has been a major part of Luno’s growth and the huge traction it is witnessing.
Last year, the company surveyed the markets in which it currently operates. It featured 15,000 respondents from South Africa, U.K., France, Italy, Indonesia, Malaysia and Nigeria; the answers helped Luno understand how the pandemic influenced attitudes towards the current financial system. According to the survey, 54% of Africans were ready to adopt a single global digital currency, compared to 41% for Asia and 35% for Europe.
Africa’s dominance also shows in its numbers. Out of the 7 million customers it has globally, 4.7 million people are in Africa. This number was 2.3 million in January 2020. Luno’s app installs across the continent have increased by 271% within this time frame, and trading volumes skyrocketed 12x, from $555 million to $7 billion. For context, Luno did $8.3 billion in total trading volume.
But a large part of this growth is down to Luno’s early play in the market. Over the last few years, infrastructure in parts of the world that could not previously support the crypto market has improved substantially. Luno has played a vital role as one of the first platforms to improve the crypto marketplace experience by including local currencies. It also helped to lay the groundwork for educating people on digital currencies.
“The last time bitcoin went up as it did during the past year was in 2017 and 2018, and it was mostly driven by retail, but it was still very difficult to buy crypto. There were trust issues; it would take days to get your account verified and even set up a wallet,” Swanepoel told TechCrunch. “Now, over the last three years, companies like ours, especially in Africa, have built up this infrastructure, KYCs, new payment methods, customer experience and support. The experience is much better and education levels are a lot higher. To me, I think that’s played a large role in crypto adoption in the continent.”
In September last year, Luno got acquired by Digital Currency Group (DCG), an investment firm that builds, buys and invests in blockchain companies. Some of its portfolio companies include Coindesk, Genesis and Grayscale Investments. Before acquiring Luno, BCG first invested in the company’s seed round in 2014. Then last year, Swanepoel said he saw the opportunity to take Luno to a larger scale after noticing the immense growth and adoption on its platform.
“The first five to six years for us was on a small scale and now, we want to go big. So it helps to have a global platform like DCG to do it from because they have large amounts of capital and are committed to investing in Africa as well as outside the continent,” he remarked.
The CEO adds that DCG has more visibility on the crypto industry and trends. The acquisition was simply for Luno to leverage DCG’s insights and stay ahead of the curve, which looks to have paid off. Since the acquisition, Luno has seen the number of active users increase by 167%. As of January, the average user held more than $7,000 in their wallet, up 56% from December 2020.
Nothing lasts forever, but if the crypto market bull run is anything to go by, crypto isn’t the fad people once thought it was. In Q1 2021, companies like Coinbase (going public Wednesday) and Robinhood experienced monster numbers showing strong growth projections. For Luno, it expects to continue growing exponentially, a trajectory that sets the company on track to reach 1 billion customers by 2030.
It’s been a big year for crypto, and Robinhood shared some stats today providing more evidence that the crypto boom is more than just hype — at least for now.
In a blog, Christine Brown, Robinhood’s head of crypto operations, revealed that in the first quarter of 2021, 9.5 million of its customers traded crypto via the company’s platform. That’s up big time from the 1.7 million customers who traded crypto in the 2020 fourth quarter.
Brown says the company’s intent behind launching Robinhood Crypto in the first place was to give its customers the opportunity to buy and sell cryptocurrency in addition to the range of assets offered through its brokerage, Robinhood Financial.
Robinhood Crypto currently offers seven tradeable coins: Bitcoin, Bitcoin Cash, Bitcoin SV, Dogecoin, Ethereum, Ethereum Classic, and Litecoin.
Brown also noted that Robinhood’s crypto team has already more than tripled since the beginning of the year, although it’s not entirely clear how many staffers it currently has on that team. There are a number of crypto-related openings on its careers site, including an open “Crypto CFO” role.
The company is making clear that crypto is an important part of its overall business and part of its mission to democratize access to the masses.
“All it takes to spend, trade, and store cryptocurrency, theoretically, is an internet connection — you don’t need access to a big line of credit, or startup capital,” Brown wrote. “You don’t even have to be awake at a certain time of day to trade. The crypto market doesn’t close. Crypto was born out of a mission to take power away from institutions and return it to the people.”
Last August, Robinhood raised $200 million more at a new, higher $11.2 billion valuation in its third raise of the year before filing to go public in March. The company has had a tumultuous past year or so that was filled with time in front of Congress, bad PR from a user’s suicide, and settlements with the SEC.
Meanwhile, TechCrunch also reported earlier this week that in the first quarter of 2021, American consumer cryptocurrency trading giant Coinbase grew sharply, generating strong profits at the same time. Specifically, the company notched revenue of $1.8 billion in Q1 2021, up from $585.1 million in Q4 2020. Net income totaled “approximately $730 million to $800 million,” up from $178.8 million in Q4 2020.
LiquidStack does it. So does Submer. They’re both dropping servers carrying sensitive data into goop in an effort to save the planet. Now they’re joined by one of the biggest tech companies in the world in their efforts to improve the energy efficiency of data centers, because Microsoft is getting into the liquid-immersion cooling market.
Microsoft is using a liquid it developed in-house that’s engineered to boil at 122 degrees Fahrenheit (lower than the boiling point of water) to act as a heat sink, reducing the temperature inside the servers so they can operate at full power without any risks from overheating.
The vapor from the boiling fluid is converted back into a liquid through contact with a cooled condenser in the lid of the tank that stores the servers.
“We are the first cloud provider that is running two-phase immersion cooling in a production environment,” said Husam Alissa, a principal hardware engineer on Microsoft’s team for datacenter advanced development in Redmond, Washington, in a statement on the company’s internal blog.
While that claim may be true, liquid cooling is a well-known approach to dealing with moving heat around to keep systems working. Cars use liquid cooling to keep their motors humming as they head out on the highway.
As technology companies confront the physical limits of Moore’s Law, the demand for faster, higher performance processors mean designing new architectures that can handle more power, the company wrote in a blog post. Power flowing through central processing units has increased from 150 watts to more than 300 watts per chip and the GPUs responsible for much of Bitcoin mining, artificial intelligence applications and high end graphics each consume more than 700 watts per chip.
It’s worth noting that Microsoft isn’t the first tech company to apply liquid cooling to data centers and the distinction that the company uses of being the first “cloud provider” is doing a lot of work. That’s because bitcoin mining operations have been using the tech for years. Indeed, LiquidStack was spun out from a bitcoin miner to commercialize its liquid immersion cooling tech and bring it to the masses.
“Air cooling is not enough”
More power flowing through the processors means hotter chips, which means the need for better cooling or the chips will malfunction.
“Air cooling is not enough,” said Christian Belady, vice president of Microsoft’s datacenter advanced development group in Redmond, in an interview for the company’s internal blog. “That’s what’s driving us to immersion cooling, where we can directly boil off the surfaces of the chip.”
For Belady, the use of liquid cooling technology brings the density and compression of Moore’s Law up to the datacenter level
The results, from an energy consumption perspective, are impressive. The company found that using two-phase immersion cooling reduced power consumption for a server by anywhere from 5 percent to 15 percent (every little bit helps).
Microsoft investigated liquid immersion as a cooling solution for high performance computing applications such as AI. Among other things, the investigation revealed that two-phase immersion cooling reduced power consumption for any given server by 5% to 15%.
Meanwhile, companies like Submer claim they reduce energy consumption by 50%, water use by 99%, and take up 85% less space.
For cloud computing companies, the ability to keep these servers up and running even during spikes in demand, when they’d consume even more power, adds flexibility and ensures uptime even when servers are overtaxed, according to Microsoft.
“[We] know that with Teams when you get to 1 o’clock or 2 o’clock, there is a huge spike because people are joining meetings at the same time,” Marcus Fontoura, a vice president on Microsoft’s Azure team, said on the company’s internal blog. “Immersion cooling gives us more flexibility to deal with these burst-y workloads.”
At this point, data centers are a critical component of the internet infrastructure that much of the world relies on for… well… pretty much every tech-enabled service. That reliance however has come at a significant environmental cost.
“Data centers power human advancement. Their role as a core infrastructure has become more apparent than ever and emerging technologies such as AI and IoT will continue to drive computing needs. However, the environmental footprint of the industry is growing at an alarming rate,” Alexander Danielsson, an investment manager at Norrsken VC noted last year when discussing that firm’s investment in Submer.
If submerging servers in experimental liquids offers one potential solution to the problem — then sinking them in the ocean is another way that companies are trying to cool data centers without expending too much power.
Microsoft has already been operating an undersea data center for the past two years. The company actually trotted out the tech as part of a push from the tech company to aid in the search for a COVID-19 vaccine last year.
These pre-packed, shipping container-sized data centers can be spun up on demand and run deep under the ocean’s surface for sustainable, high-efficiency and powerful compute operations, the company said.
The liquid cooling project shares most similarity with Microsoft’s Project Natick, which is exploring the potential of underwater datacenters that are quick to deploy and can operate for years on the seabed sealed inside submarine-like tubes without any onsite maintenance by people.
In those data centers nitrogen air replaces an engineered fluid and the servers are cooled with fans and a heat exchanger that pumps seawater through a sealed tube.
Startups are also staking claims to cool data centers out on the ocean (the seaweed is always greener in somebody else’s lake).
Nautilus Data Technologies, for instance, has raised over $100 million (according to Crunchbase) to develop data centers dotting the surface of Davey Jones’ Locker. The company is currently developing a data center project co-located with a sustainable energy project off the coast of Stockton, Calif.
With the double-immersion cooling tech Microsoft is hoping to bring the benefits of ocean-cooling tech onto the shore. “We brought the sea to the servers rather than put the datacenter under the sea,” Microsoft’s Alissa said in a company statement.
Ioannis Manousakis, a principal software engineer with Azure (left), and Husam Alissa, a principal hardware engineer on Microsoft’s team for datacenter advanced development (right), walk past a container at a Microsoft datacenter where computer servers in a two-phase immersion cooling tank are processing workloads. Photo by Gene Twedt for Microsoft.
In the first quarter of 2021, American consumer cryptocurrency trading giant Coinbase grew sharply, generating strong profits at the same time.
For Coinbase, the disclosure of its preliminary Q1 2021 results comes a week ahead of its direct listing, an event that will see the company begin to trade publicly. As it is both cash-rich and well-known, Coinbase is foregoing a traditional IPO in favor of the more exotic method of going public.
In its release, Coinbase disclosed the following metrics, which TechCrunch has compared to metrics from its S-1 filing:
The growth of Coinbase from Q4 2020 to Q1 2021 is so extreme that the company’s year-over-year comparisons are farcical. For example, in Q1 2020 Coinbase’s revenues were $190.6 million, or just under 11% of its Q1 2021 top line. The company’s adjusted profits alone in Q1 2021 were more than five times its year-ago revenues.
The new numbers may help solidify some valuation marks that the company has been discussed as approaching, like the $100 billion threshold, or even boost them.
The company did present some warnings in its public release, noting that cryptocurrency price “cycles can be highly volatile, and as a result, [Coinbase] measure[s] [its] performance over price cycles in lieu of quarterly results.” The company also stated that future declines in crypto trading activity will not slow its investment:
MTUs, Trading Volume, and therefore transaction revenue currently fluctuate, potentially materially, with Bitcoin price and crypto asset volatility. This revenue unpredictability, in turn, impacts our profitability on a quarter-to-quarter basis. In terms of expenses, we intend to prioritize investment, including in periods where we may see a decrease in Bitcoin price. This is because we believe that scale is central to achieving our mission and it is still early in the development of this industry. [Emphasis: TechCrunch]
Or more simply, it is willing to sacrifice future profitability if its revenues decline, as it is building for the future instead of hewing to more near-term investor expectations. At least Coinbase is being clear in its messaging to investors; don’t buy Coinbase stock expecting the company to tune its results to quarterly expectations.
Looking ahead, Coinbase did provide some guidance for its full year results. For 2021, the company provided three scenarios. The first “assumes an increase in crypto market capitalization and moderate-to-high crypto asset price volatility,” leading to 7.0 million MTUs. The second “assumes flat crypto market capitalization and low-to-moderate crypto asset price volatility” and 5.5 million MTUs. The third “assumes a significant decrease in crypto market capitalization, similar to the decrease observed in 2018, and low levels of crypto asset price volatility thereafter” and 4.0 million MTUs for the year.
But don’t think that Coinbase is anticipation stagnant growth, simply because its best scenario anticipates mere growth from 6.1 million MTUs to 7.0 million MTUs. The company wrote in its release under the headline “institutional revenue” that it expects “meaningful growth in 2021 driven by transaction and custody revenue given the increased institutional interest in the crypto asset class.”
Coinbase’s quarter was bonkers good. But so was the performance of cryptocurrencies themselves. A bet on the company’s shares, then, could easily be seen as a bet on the value of bitcoin and its ilk. April 14th is going to be a fun day to watch.
Today Coinbase, an American cryptocurrency trading platform and software company, said that it will begin to trade via a direct listing on April 14th. In a separate release the company also said that it will provide a financial update on April 6th, after the close of trading.
Coinbase’s impending public debut comes at an interesting market moment. As some tech companies delay their offerings over demand concerns, Coinbase is pushing ahead with its flotation perhaps in part because it will not price its debut in the traditional sense; direct listings forgo raising capital at a specific price point, and instead merely begin to trade, albeit with a reference price attached.
That Coinbase will release new numbers before beginning to trade is at once interesting and pedestrian. It’s interesting as TechCrunch cannot recall a private company looking to go public holding a similar event. And, Coinbase deciding to share “first quarter 2021 estimated results” and “provide a financial outlook for 2021” is also in part a common move, as many companies provide updated financials in their S-1 documents if time passes from when they first file to when they actually trade.
We’ll be tuned into that call, as the numbers shared will impact not only how Coinbase trades when it does float, but will also provide insight into how active consumer trading is writ large, and particularly in the cryptocurrency space; more than one startup in the market today depends on trading incomes to generate top-line, so seeing new numbers from Coinbase will be welcome.
The company will trade under the ticker symbol “COIN.”
PayPal this morning announced the launch of Checkout with Crypto, a new feature that will allow consumers to check out at millions of online businesses using cryptocurrency. The feature expands on PayPal’s current investments in the cryptocurrency market, which include its partnership with Paxos to power its service that allows customers to buy, sell and hold a range of cryptocurrencies, and more recently, its acquisition of cryptocurrency security startup Curv.
According to PayPal, customers with cryptocurrency holdings in the U.S. will be able to check out using their cryptocurrency at PayPal’s 29 million global online businesses in the coming months. The feature will also work without any additional integrations or fees required by the businesses themselves.
Essentially, Checkout with Crypto allows the customers to sell their cryptocurrency through PayPal at the time of checkout, then settle the actual transaction in U.S. dollars. For the businesses, that means nothing really changes on their end — they’re still being paid in USD, not cryptocurrency. But PayPal’s feature makes it possible for this transaction to take place within the same checkout flow, making it easier on shoppers to quickly make their purchases using cryptocurrency.
At launch, the service will support Bitcoin, Litecoin, Ethereum and Bitcoin Cash — but only one type of cryptocurrency can be used for each purchase.
If the customer has enough cryptocurrency to pay for their online purchase, then the Checkout with Crypto feature will appear, alongside other traditional payment methods, like the customer’s bank account, PayPal balance, or credit or debit card. Like other payment methods, Checkout with Crypto will also include PayPal’s safety and security benefits, including fraud protection, return shipping and purchase protection on eligible items, PayPal notes.
After the transaction completes, the customer will receive both a record of the cryptocurrency sale, as well as their purchase receipt.
The company had announced its plans to launch support for checkout with cryptocurrency last year, when it first entered the cryptocurrency market. It said that after providing support for buying and selling cryptocurrencies, it would launch a checkout feature in 2021.
Today, PayPal makes makes money by charging transaction fees when customers buy or sell their cryptocurrencies, which is why it’s not placing any fees on their merchants themselves.
PayPal’s launch will help to dramatically expand the number of places where cryptocurrency can be used for real-world purchases, which could help accelerate mainstream adoption of digital currencies. The move comes shortly after last week’s announcement from Tesla, which said U.S. customers could now buy a car using bitcoin, and Japanese e-commerce giant Rakuten’s news earlier this month where it said users could check out with online merchants in Japan using cryptocurrencies.
“As the use of digital payments and digital currencies accelerates, the introduction of Checkout with Crypto continues our focus on driving mainstream adoption of cryptocurrencies, while continuing to offer PayPal customers choice and flexibility in the ways they can pay using the PayPal wallet,” said PayPal President and CEO Dan Schulman, in a statement about the launch. “Enabling cryptocurrencies to make purchases at businesses around the world is the next chapter in driving the ubiquity and mass acceptance of digital currencies,” he added.
Non-fungible tokens (NFTs) are trending hotter than pogs right now, and the number of articles published on the subject in the last few weeks has ballooned into the thousands. So a pardon must be begged at the outset here, but the overlooked potential of token economies is simply too important to let slip away.
NFTs are but one small part of a much larger development in the world of finance capital. What leaves some scratching their heads and chuckling could, within a decade, completely transform the model of investment that has been in place since the rise of Silicon Valley.
NFTs have had a strange first step into the spotlight, bringing wealth to a very small group of people and making most people simply perplexed. Before NFTs are written off as a flash in the pan, it might be worth considering that NFTs were never designed to be very useful in traditional investment frameworks.
It can be hard to imagine how this might all play out, but we are already seeing the outlines of this new economy begin to poke through the dried-out skin of the old model.
An auction house selling a $69 million JPEG is akin to a horse-and-buggy driver strapping a small nuclear reactor to the top of the cab and declaring, “This is an atomic buggy!” as the horse continues to chug along, doing all the work. You’ll get the attention of bystanders, but nothing has fundamentally changed here.
Each of the headline-grabbing NFT sales seen recently are instances of exactly this kind of backward thinking. And the bystanders criticizing the buggy driver and saying, “nuclear reactors are hype,” are not really seeing the long-term implications, or they just don’t like horses.
From early conceptions of investment as a way to fund transoceanic ship voyages, to the rise of venture capital as we know it today, the entire cosmos of finance capital has remained an elite sport. This is because the current model is based on big investors getting big wins.
Almost the entire world of finance capital is structured on big whales and unicorns, mythical creatures that mere mortals consider themselves lucky to have glimpsed. The word “structured” is chosen here carefully, as the “big-dog” theory of capital is literally built on powerful intermediaries that facilitate the will of these top investors.
The invention of bitcoin is an epochal event in the development of finance. Bitcoin itself has crystallized into merely another playground of power, but the technological tremors it left in its wake are starting to emerge as the real game-changers. Primarily, distributed ledger technologies (DLTs) — of which blockchain is but one instance — are a breakthrough on par with being able to send a message instantaneously to a person on the other side of the world.
DLTs mean that finance capital no longer has a need for powerful intermediaries — or intermediaries of any kind. Middlemen are currently very necessary in order for parties to establish trust in transactions, trades contracts or investments. Paying for the services of these middlemen can be written off as the cost of doing business for large companies and wealthy individuals, but these expenses remain prohibitive barriers for many.
DLTs break down these barriers because trust is established by and built into the very architecture of the network itself. With DLTs, anybody with an internet connection can do big-dog-style business deals at whatever level they can afford, and the way that these deals are transacted is through tokens.
DLT economies are going to be adopted by all of the major investment players in the next few years as the advantages of decentralizing investment are too numerous to ignore — lower friction for transactions due to automation, much quicker (real-time) results and analysis of market conditions, greater security through transparency, and a higher level of customization for financial products and services. The adoption of decentralized finance by major players will have a net-positive impact for everyone else.
Tokens are the lifeblood of this new system, and non-fungible tokens are just one type of token. In this emerging model, there are payment tokens that behave like money, security tokens that are comparable to stocks, utility tokens that provide functions like space or bandwidth and hybrid tokens that mix these tokens into new forms. If it sounds a bit confusing and exciting, that’s because it is.
The main takeaway to understand here is that tokens are going to replace not just stocks and other investment products but also the entire idea of having middlemen between you and your purchases, whether that middleman is an investment broker, a credit card company, a platform provider or a bank. The decentralized economy is going to be a much more open and direct kind of market.
It can be hard to imagine how this might all play out, but we are already seeing the outlines of this new economy begin to poke through the dried-out skin of the old model. These protrusions are most apparent where economic reality doesn’t really make sense.
Think of the emerging gig economy, where nobody really seems to have a steady job anymore, where each of us is some kind of professional mercenary, moving from gig to gig. Think of the huge number of subscriptions that most of us carry like millstones around our necks. Think of the paradoxically frustrating relationship of musicians to streaming platforms, or artists to galleries. Think about the amount of crushing poverty that still remains on our planet.
These are all instances of models of living and working not really fitting into old containers. We can all sense that these aspects of our lives aren’t really functioning optimally, but we can’t quite say why and we certainly don’t know what the solution might look like. Decentralized, tokenized economies have the potential to erase all of these pain points, paradoxes and kludges and replace them with something much more intuitive and elegant.
This new reality is easy to imagine in some of its attributes: Instead of nine different subscriptions, you can just pay directly for the content that you want, when you want it. Instead of artists giving up half of their earnings to galleries or musicians giving, well, all of their earnings to streaming platforms, they now just take direct payment for their work through fluid networks built by and for this type of content. Instead of paying brokers to facilitate your investments, you can now just invest directly in the enterprises that interest you, including formerly out-of-reach sectors like real estate investment. Instead of crushing poverty and fiercely protected borders between classes, we break down barriers and give everyone access to value.
Many of the other developments in a token economy have yet to be imagined, and this is probably the most exciting aspect of all. When we distribute the economy globally, in a way that allows anyone with an internet connection the ability to interact and contribute in a meaningful way, we are unlocking the value of untapped assets that are worth literally trillions of dollars. So what is holding us back, and how do we get there as soon as possible?
The hardest part of unlocking this new economy has already been achieved — we have the technological understanding of how to distribute and decentralize a system of consensus that combines with a system of digitizing assets for trade and investment.
The remaining work that will actually bring this system online is fairly obvious — first and foremost, we need to take a look at the ecological impacts that this new system has had in its infancy. We should absolutely outlaw mining farms or set the strictest limits for how much of their energy comes from nonrenewables. If the backbone of this new economy is destroying the planet, we need to shut it down before it grows, full stop. The system needs to be ecologically sustainable.
The second most immediate concern is that there are currently no standards, no common network, that the multitude of different cryptocurrencies and tokens agree on. It’s astounding and absolutely frustrating that the various cryptos are hardly even talking about this.
It’s as if we have a bunch of different companies not only inventing the light bulb but also inventing their own light sockets and wiring protocols, and each one is insisting that they are the best and they will win out in the end. Light bulbs are great, but can we please agree on one socket? This beautiful new economy will never get off the ground unless we build a neutral, interoperable network, and this network needs to be feeless and scalable.
The last cause of immediate concern is regulation and legal frameworks. There are too many people still in crypto that have some kind of anarchist’s deathwish to just be completely left outside, and this is not serving the long-term goals of our communities.
I’m all for knocking intermediaries out of the value chain, but this doesn’t automatically entail the establishment of a never-never land that no regulatory agencies are invited to. Legal frameworks for decentralized economies go hand in hand with our ethos of open-source, community-building, transparent operations. We all need to be advocates for thorough and precise regulation of our nascent technology.
With ecology, interoperability and regulation as our watchwords, we can begin work on building the actual apps and other infrastructure that will allow users to leverage the power of a new economy. The uses are limitless, from selling excess electricity to your regional smart power grid, to investing in your favorite artists’ network, to accepting direct payment for your own labor, to — yes — buying NFTs, which will make a lot more sense in the new economy.
Tesla made headlines earlier this year when it took out significant holdings in bitcoin, acquiring a roughly $1.5 billion stake at then-prices in early February. At the time, it also noted in an SEC filing disclosing the transaction that it could also eventually accept the cryptocurrency as payment from customers for its vehicles. Now, Elon Musk says they’ve made that a reality, at least for customers in the U.S., and he added that the plan is for the automaker to ‘hodl’ all their bitcoin payments, too.
In terms of its infrastructure for accepting bitcoin payments, Tesla isn’t relying on any third-party networks or wallets — the company is “using only internal & open source software & operates Bitcoin nodes directly,” Musk said on Twitter. And when customers pay in bitcoin, those won’t be converted to fiat currency, the CEO says, but will instead presumably add to the company’s stockpile.
You can now buy a Tesla with Bitcoin
— Elon Musk (@elonmusk) March 24, 2021
In February when Tesla revealed its bitcoin purchase, observers either lauded the company’s novel approach to converting its cash holdings, or criticized the plan for its attachment to an asset with significant price volatility. Many also pointed out that the environmental cost of mining bitcoin seems at odds with Tesla’s overall stated mission, given its carbon footprint. Commenters today echoed these concerns, noting the irony of Tesla accepting the grid-taxing cryptocurrency for its all-electric cars.
As for how the bitcoin payment process works today, Tesla has detailed that in an FAQ. Customers begin the payment process from their own bitcoin wallet, and have to set the exact amount for a vehicle deposit based on current rates, with the value of Tesla’s cars still set in U.S. dollars. The automaker further notes that in the case of any refunds, it’s buyer-beware in terms of any change in value relative to the U.S. dollar from time of purchase to time of refund.
Musk also said that the plan is to expand Bitcoin payments to other countries outside the U.S. by “later this year.” Depending on the market, that could require some regulatory work, but clearly Musk thinks it’s worth the effort. Meanwhile, Bitcoin is up slightly on the news early Wednesday morning.
While much of the recent wave of relentless hype around NFTs — or non-fungible tokens — has been most visibly manifested in high-dollar art auctions or digital trading cards sales, there’s also been a relentless string of chatter among bullish investors who see a future that ties the tokens to the future of social media and creator monetization.
Much of the most spirited conversations have centered on a pre-launch project called BitClout, a social crypto-exchange where users can buy and sell tokens based on people’s reputations. The app, which launches out of private beta tomorrow morning, has already courted plenty of controversy inside the crypto community, but it’s also amassed quite a war chest as investors pump tens of millions into its proprietary currency.
Early backers of the platform’s BitClout currency include a who’s who of Silicon Valley investors including Sequoia Capital and Andreessen Horowitz, the startup’s founder tells TechCrunch. Other investors include Chamath Palihapitiya’s Social Capital, Coinbase Ventures, Winklevoss Capital and Reddit co-founder Alexis Ohanian. A report in Decrypt notes that a single wallet connected to BitClout has received more than $165 million worth of Bitcoin deposits suggesting that huge sums have already poured into the network ahead of its public launch.
BitClout falls into an exploding category of crypto companies that are focusing on tokenized versions of social currency. Others working on building out these individual tokens include Roll and Rally, which aim to allow creators to directly monetize their internet presence and allow their fans to bet on them. Users who believe in a budding artist can invest in their social currency and could earn returns as the creator became more famous and their coins accrued more value.
“If you look at people’s existing relationships with social media companies, it’s this very adversarial thing where all the content they produce is not really theirs but it belongs to the corporation that doesn’t share the monetization with them,” BitClout’s founder, who refers to themselves pseudonymously as “diamondhands,” tells TechCrunch. (There’s been some speculation on their identity as a former founder in the cryptocurrency space, but in a call with TechCrunch, they would not confirm their identity.)
The BitClout platform revolves around the BitClout currency. At the moment users can deposit Bitcoin into the platform which is instantly converted to BitClout tokens and can then be spent on individual creators inside the network. When a creator gets more popular as more users buy their coin, it gets more expensive to buy denominations of their coin. Creators can also opt in to receive a certain percentage of transactions deposited into their own BitClout wallets so that they continue to benefit from their own success.
The company’s biggest point of controversy hinges on what has been opt-in and what has been opt-out for the early group of accounts on the platform. Most other social currency offerings are strictly opt-in. Users come to the platform in search of a way to create tokens that allow them to monetize a fanbase and build a social fabric across multiple platforms. The thought being that if the platforms own the audience then you are at their mercy.
BitClout has taken an aggressive growth strategy here, turning that model on its head. The startup has pre-populated the BitClout network with 15,000 accounts after scraping information from popular public Twitter profiles. This means that BitClout users can buy shares of Kim Kardashian’s social coin or Elon Musk’s without those individuals ever having signed up for a profile or agreeing to it. This hasn’t been well-received by all of those who unwittingly had accounts set up on their behalf including many crypto-savvy users who got scooped up in the initial wave of seeding.
The startup’s founder says that this effort was largely an effort to prevent handle squatting and user impersonation but he believes that as the platform opens, a sizable pre-purchase of creator coins reserved for the owners of these accounts will entice those users to verify their handles to claim the funds.
Perhaps BitClout’s most eyebrow raising quirk is that the platform is launching with a way to invest into the platform and convert bitcoin into BitClout, but at launch there’s no way to cash out funds. The project’s founder says that it’s only a matter of time before this is resolved, and points to Coinbase and the Winkelvoss twin’s status as coin holders as a sign of future exchange support to come, but the company has no specifics to share at launch.
While the founders and investors behind the project see a bright future for social currencies on the blockchain, many in the decentralized community have been less impressed with BitClout’s early efforts to achieve viral adoption among creators in a permission-less manner.
“BitClout will make a great case study on how badly crypto projects can mess up incentive engineering when they try to monetize social networks.” Jay Graber, a decentralized platform researcher involved in Twitter’s bluesky effort, said in a tweet. “Trust and reputation are key, and if you create a sketchy platform and mess with people’s reputations without their consent it is not going to go well.”
If BitClout comes out of the gate and manages to convert enough of its pre-seeded early adopter list that there is value in joining its closed ecosystem version of a social token then it may have strong early momentum in an explosive new space that many creators are finding valuable. The concepts explored by others in the social currency space are sound, but this particular execution of it is a high-risk one. The network launches tomorrow morning so we’ll see soon enough.
Nigerian startup Xend Finance uses decentralized finance (DeFi) to address currency devaluation. DeFi aims to bridge the gap between decentralized blockchains and financial services. Aronu Ugochukwu and Abafor Chima founded the startup in 2019, and Ugochukwu is quite familiar with currency devaluation.
Currency devaluation is a common economic nightmare faced in most African countries and other developing countries worldwide. It has become imperative for organisations like credit unions to hedge their collective funds against their local currency’s devaluation.
“We’ve experienced three massive currency devaluations in the last three years in Nigeria, and this is similar to different economies in the world with unstable economies,” Ugochukwu said to TechCrunch. “My mother and I belong to different cooperatives where we save and make monthly contributions to help one another in the cooperative. Realizing that despite saving regularly, we were losing more value for our money. This gave birth to Xend Finance.”
Today, the company announced its mainnet launch, opening up the ability for credit unions to access DeFi for their members by using decentralized stablecoins such as DAI and BUSD.
Not only is Xend Finance trying to protect credit unions from fluctuation, but it is also changing how they operate. In these unions, groups of individuals contribute to informal savings for their different mutual benefits.
However, they are often limited by three factors. One is in its size — only a small knit of people in a particular locale can access the service. The second is lack of insurance, which means people don’t have the confidence to join saving cycles. The third has to do with how credit union members default in payments, affecting how much is paid down the line.
Image Credits: Xend Finance
Xend Finance is plugging these gaps using blockchain technology. The platform allows credit unions to have over 1,000 members who don’t stay in the same geographical location. It also employs smart contracts to lock each member’s contribution and enable flexible payouts when a payment cycle is due, which reduces default payment rates. The company also says it offers decentralized insurance to protect members against any form of asset loss that results from contract failures. However, this isn’t a traditional insurance contract from an insurance company.
Besides, the company says credit union members can earn interest in their savings by exchanging their crypto or fiat currency for stable cryptocurrencies and locking crypto assets on lending platforms. According to the company, there’s a possible 15% available annual percentage yield on the platform.
The company claims to be the world’s first decentralized finance (DeFi) credit union platform and the first DeFi company to launch out of Africa. Its technology is built on Binance Smart Chain (BSC), a blockchain for developing high-performance decentralized applications.
In 2019, the startup based in Enugu, Nigeria took part in the Google Launchpad Africa accelerator and the Binance Incubation Programme. It has since secured $2.2 million from Binance, Google Launchpad, NGC Ventures, Hashkey and AU21 Capital, among others.
From December 2020 to January 2021, Xend Finance executed a testnet with over 1,500 participants in 75 countries. This helped them find product-market fit, and last week, the company did a beta launch of its mainnet where it received over $500,000 in deposits. They also signed a credit union partnership with a software service provider, TechFusion Africa and its 5,000 members.
Image Credits: Xend Finance
The company intends to onboard a lot of customers now and focus on revenue later, Ugochukwu says. And when it does, the play will be to charge a commission (not more than 5%) on the return on investment when members of cooperatives or regular individuals save or perform contributions on the platform.
Having run some tests and passed several iterations, Xend Finance is fully going public today, and Changpeng “CZ” Zhao, CEO of Binance, expects the platform to show what can be built on BSC.
“Africa is one of the most important continents, representing the future and emergence of DeFi and blockchain capabilities,” said Zhao. “We are very excited about the mainnet launch of Xend Finance, with a team we backed early on that has a strong foothold in Africa and have been strong advocates for what Binance Smart Chain can accomplish. With their platform, they can bring stable currency and DeFi investment opportunities to those who normally wouldn’t have them.”
Along with the mainnet launch, Xend Finance will introduce the $XEND token through a Token Generation Event (TGE) on Balancer. The company says the token will reward users for performing different operations in “the protocol, as well as allows a decentralized governance of the Xend Finance ecosystem.”
For Ugochukwu, Xend Finance presents people with the opportunity to channel their savings into stablecoins without worry that their money will devalue overnight and earn higher interest rates through DeFi. “We are very excited that blockchain will have a positive impact on the people of Africa,” he said.
Spending millions for a digital work of art that could be screenshotted feels similar to traipsing around a strip of concrete as a tourist activity. The optics don’t make immediate sense — there’s hardly any appeal in something as accessible as a Google image or street.
That’s my best bet at explaining at least some of the confusion around the explosive rise of NFTs, or nonfungible tokens. The token, minted on the blockchain, can give digital assets a unique signifier. In other words, anyone could screenshot a piece of art, but only one of us will own the true, original piece of art. This context is part of the reason why Beeple, a digital artist, had his artwork sold for $69 million just a few days ago.
The reason this topic is coming up in a Startups Weekly newsletter is because of the impact it could have on the cryptocurrency movement, of which there is a growing tide of early-stage and late-stage startups. The popularization of NFTs, as I argued in Equity this week, could be what makes cryptocurrency finally palpable to the average human — beside the average bitcoin hoarder. Platforms that sell NFTs usually need you to use cryptocurrency (usually Ethereum) to purchase anything. Mix that with the fact that humans have an innate desire to own, protect and immortalize their assets, and you might have the perfect storm. Beeple, a digital artist, made $69 million for his work, and this isn’t just a big financing event, it’s a signal that crypto enthusiasts and crypto assets are getting to an inescapable spot in public dialogue.
Ownership as a way for a decentralized network to become mainstream is its own meta conversation, and I’ll be clear that the blockchain and NFTs have a long way to go before they are truly equitable, accessible and hit their stride. But, it’s hard to not to let your mind wander about the opportunities here.
It’s more than a screenshot, it’s about the potential of pixels having more meaning than they ever did before. And it’s more than a strip of concrete, it’s the Hollywood Walk of Fame. Finding exclusive aspects of accessible things in our lives is compelling to a consumer and could be great for creators.
In the rest of this newsletter, we’ll discuss Coupang’s competitive industrial edge, a startup hoping to be the Nasdaq for revenue and Google’s brains fighting Google itself. As always, you can follow me on Twitter @nmasc_ for my thoughts throughout the week and tech news.
Coupang, which some describe as the Amazon of South Korea, priced and started trading this week on the public markets. At one point on Thursday, the company was valued at $92 billion.
Here’s what to know: When Coupang first launched, it found that South Korea had an absence of third-party logistics companies similar to UPS or FedEx in the United States. Now, it wasn’t without competition, but it did have an opportunity to build an end-to-end logistics company that is now worth a boatload of money.
Image Credits: Bryce Durbin/TechCrunch
Pipe has a compelling narrative: It’s anti-VC, doesn’t like naming its rounds and says its goal is to be the Nasdaq for revenue. The goal since it started was to give SaaS companies a way to get their revenue upfront by connecting them to investors that would pay a rate for the annual value of those contracts. It turns monthly recurring revenue into annual recurring revenue.
Here’s what to know: The startup raised $50 million in a financing event this week. In the first quarter of 2021, tens of millions of dollars were traded through its platform, reports TechCrunch’s Mary Ann Azevedo.
Image Credits: Bryce Durbin
(By the way, if you want a huge discount for Extra Crunch, just use our code, EQUITY, when you sign up to access great articles like this one and most of our analytical work).
Here’s what to know: Neeva, built by a team of ex-Googlers including the guy who built Google’s advertising engine, is one startup to watch. There’s a lot to chew and we do it best during the episode, so take a listen and figure out if you’re team Natasha and Danny, or team Alex.
Image Credits: TechCrunch
As SolarWinds is showcasing, a company can be liable for the mistakes of its employees via a legal term called “vicarious liability.”
Cybersecurity writer Chandu Gopalakrishnan explains what it means for you and what you can do to stay on the right side of the law.
A few house-keeping things this week: