
Crypto Fund II - momentmaker
https://a16z.com/2020/04/30/crypto-fund-ii/
======
jasondelta
Where's the Infrastructure Fund? The Education Fund? I thought a16z was all
about "It's Time to Build" now. [https://a16z.com/2020/04/18/its-time-to-
build/](https://a16z.com/2020/04/18/its-time-to-build/)

I guess even they couldn't convince themselves to _want_ to build things. I
suppose that hollow rhetoric was for everyone else and not them?

~~~
godzillabrennus
Even google balked at the cost of infrastructure and abandoned Fiber.

~~~
MR4D
I think google made a mistake. AT&T (and Verizon too) still has a monopoly on
places because of cables that were laid almost a century ago.

If someone figures out the next step of search, google could disappear
quickly. AT&T, not nearly.

------
swyx
do we know anything about the performance of Crypto Fund I so far? i'm really
curious what kind of GP throws good money after bad on out-of-favor stuff like
this. not that it can't work, its just unusual.

one whole thesis here is "Modern Store of Value". is Crypto Fund II just gonna
put 25% in bitcoin?

"New Ways for Creators to Monetize". i feel this is the weakest thesis of the
lot. i dont see how decentralization helps here.

alright im done being crabby hn commenter. good luck to cdixon and katie haun,
and the people actually trying to invent the future.

~~~
timerol
Credit card transactions generally take 2.9% + $0.30, which completely removes
the possibility of making money on micropayments. Theoretically crypto should
enable lower-fee transactions which could enable micropayments.

I say that, but a transaction on the Bitcoin ledger has been more expensive
than $0.15 since mid-2016 and fluctuates wildly. Other cryptocurrencies might
be able to handle this better. I'm optimistic about Stellar being a useful
transaction network, but I don't think the value of 1 XLM is going to move
much relative to 1 USD.

~~~
grey-area
Micropayments and cryptocurrencies are really separate concerns.

All you need for micropayments are low fees - that doesn't require a pseudo-
anonymous collective keeping a shared public database of transactions. In fact
it's better if you know who the counterparties are.

Companies like stripe, apple, google or banks like monzo could offer low fee
transactions for example between two counter-parties who are both customers,
bypassing payments networks and taking on a little more risk for a lower fee.

Payment networks are ripe for disruption, but I'm not sure bitcoin et al will
do the disrupting - it's solving the wrong problems.

~~~
AnthonyMouse
> All you need for micropayments are low fees - that doesn't require a pseudo-
> anonymous collective keeping a shared public database of transactions.

Oddly it kind of does, but for bad reasons.

Existing rules for payment processing basically require the payment processor
to eat the cost of fraud. That means you can't have small transaction fees
because they have to cover the cost of fraud or the payment processor goes out
of business.

A payments system where there is no "payment processor" middle man to foist
the cost of fraud onto thereby doesn't require that middle man to charge high
transaction fees to cover it. In principle that could allow lower transaction
fees.

> Companies like stripe, apple, google or banks like monzo could offer low fee
> transactions for example between two counter-parties who are both customers,
> bypassing payments networks and taking on a little more risk for a lower
> fee.

Scenario: Mal uses your payment service to buy goods from Alice, Bob and Carol
and pays you with a credit card, possibly stolen. As soon as the goods change
hands, Mal (or the real owner of the card) disputes the charge with the credit
card company.

You have a bootstrapping problem. You need a way for the customer to get money
into the system which doesn't impose the cost of fraud on _you_ if the charge
gets reversed after the goods change hands.

This could also be solved by changes to the law, but easier said than done,
especially with a bunch of incumbents enjoying the larger vig from the status
quo.

~~~
holdenk
It was my understanding that in the current system merchants tend to eat the
cost of fraud under our current system (see charge backs, rolling reserves,
etc.)

~~~
AnthonyMouse
> It was my understanding that in the current system merchants tend to eat the
> cost of fraud under our current system (see charge backs, rolling reserves,
> etc.)

1) A significant portion of the cost of chargebacks is administrative,
_especially_ for small transactions. The banks at least nominally attempt to
prevent customers from defrauding merchants, even if they fail more often than
not, because if they didn't even try it would get a lot worse fast. But that
costs money, and the money it costs is proportional to the amount
fraud/chargebacks and _not_ linearly proportional to the purchase price.
Having to go through the chargeback process over a nickel is not something
they're about, hence the minimum transaction fees. They also sometimes lose
the money because it's not possible to recover it from the merchant for some
reason.

2) If you're trying to become a payment processing system with low transaction
fees which people can transfer money into using their credit cards, the
"merchant" who eats the cost of fraud is _you_.

------
jkhdigital
Can we drop the whole "blockchain" shtick and just start calling this space
"crypto"? Bitcoin combined a cryptographic protocol with an incentive
structure to produce something incredible: digital cash that can be held and
transacted without a central authority. The innovation was in the combination
of protocol components, not the data structure that resulted ("the
blockchain").

The problem that we're actually trying to solve with all of this is how to
provide a root of trust. Blockchains are a way to do that, but I've yet to see
a compelling use case beyond digital cash. Attempts to implement any
transaction more complicated than cash settlement on a blockchain will
inevitably run into the fundamental problem: transactions are contracts, and
contracts will always require a legal framework and judicial system to
mediate. You simply can't remove that requirement and all of the
"inefficiency" that comes along with it.

~~~
vbuterin
I agree with this. Blockchains are pretty much a novel subset of cryptography,
and I expect the most interesting protocols/applications that get called
"crypto" in the next ten years are going to make heavy use of both blockchains
and other new forms of cryptography (ZKPs, MPC....). There will continue to be
a rift between "purist crypto" and "mainstream/enterprise crypto" but it's the
purist vs enterprise divide that will matter, not blockchains vs cryptography.

~~~
Ar-Curunir
the problem is that what is called "crypto" by cryptocurrency enthusiasts
often has very little to do with actual cryptography.

------
chrischen
Online payment fees come from fraud, chargebacks, and credit card
points/benefits.

I don’t see how crypto solves the fraud problem. Sure there will be lower
fees, but higher risk of fraud.

~~~
vngzs
Cryptocurrencies transfer the risk of fraud from a company to the user. Good
luck getting your funds back if someone scams you. I agree that it's not
clearly better than what we have.

~~~
qqii
This is not always strictly true, with projects like OpenBazaar the risks can
be transfered to an explicit third party with a proven record of being
impartial.

~~~
joosters
Please name me some of these impartial third parties, then? Can’t be hard for
you to track them down if they really do exist, after all they should be on
some immutable blockchain somewhere...

~~~
qqii
Firstly there's a difference between impartial third parties and third parties
which a record of being impartial. Secondly I wouldn't endorse using
OpenBazaar in its current state. The ideas and concepts are there but the user
experience is inconsistent and awful.
[https://medium.com/openbazaarproject/verified-
moderators-c83...](https://medium.com/openbazaarproject/verified-
moderators-c83ea2f2c7f3)

Here's a post detailing what I was taking about. Unfortunately OB's interface
for these things are awful and I'm not invested in its platform.

~~~
joosters
That was the point I was making: the idea of an 'impartial third party' on an
anonymous blockchain is a pathetic joke. OpenBazaar's half-assed solution is
to:

1) Moderate the moderators: Great, now we have two problems.

2) Try to tie moderators to a real-world ID: Realising they have to roll back
the purported 'features' of crypto-currency (anonymous, peer-to-peer,
unrestricted, etc), in order to try to get somewhere close to normal, real-
world, commercial transactions.

------
ve55
>Transferring actual value quickly and cheaply without a third party, in much
the same way we currently transfer data like emails or photos,

Do we actually do this that often, though? Email and photo sharing are
generally dependent upon third parties, and generally extremely centralized
and powerful ones, such as Google or Facebook or Twitter. Very little Internet
communication goes directly from one person to another.

~~~
xkjkls
And do we not want a third party? Honestly, I like the security of knowing
that most of my transactions are reversible within the context of the legal
system.

~~~
chrisco255
You don't have to do 100% of your finance on blockchain. I like the freedom of
knowing that my funds cannot be controlled by any third party entity, who may
object to my spending on the basis of some arbitrary criteria. We've seen
people shut out of PayPal for very arbitrary reasons. We've seen the marijuana
industry in Colorado shut out of banking ([https://www.acams.org/aml-white-
paper-marijuana/](https://www.acams.org/aml-white-paper-marijuana/)).

If centralized entities can control your spending, they can control you.
That's one of the core arguments for decentralized finance.

As for transaction reversibility, I am sure that a payment insurance program
will crop up in the not-too-distant future to alleve those fears.

~~~
xkjkls
> You don't have to do 100% of your finance on blockchain. I like the freedom
> of knowing that my funds cannot be controlled by any third party entity, who
> may object to my spending on the basis of some arbitrary criteria. We've
> seen people shut out of PayPal for very arbitrary reasons. We've seen the
> marijuana industry in Colorado shut out of banking
> ([https://www.acams.org/aml-white-paper-
> marijuana/](https://www.acams.org/aml-white-paper-marijuana/)).

See, I see Crypto people mostly arguing that Crypto is going to take over a
some huge percentage of transactions in order to justify some skyhigh
valuation, and then when pushed back on whether it is actually superior for
large percentages of transactions, they revert back to an argument that there
are certain (normally politically motivated) transactions that its important
for.

Unfortunately I don't see a universe where you can justify any of the
valuations or importance of Crypto if the main use is the much smaller set of
transactions.

~~~
chrisco255
No, my argument is that it will eat the whole financial system over the next
few decades. Buying ETH or BTC is like buying a share of HTTP. The value of
the ecosystem is captured at the protocol layer. If crypto bulls are right,
the market cap for Bitcoin and Ethereum will be in the trillions and a
significant portion of the financial system from banking to insurance to
derivatives to stock market trading will all be traded on these chains.

~~~
xkjkls
Why? What advantage does Crypto offer that the current financial system
doesn’t. It feels to me to be inferior in the fact that transactions can’t be
taken back, and don’t have a firm legal framework behind it; in terms of cost
and latency, a third party is always going to be able to set up a cheaper to
run system. What about current banking and finance makes crypto superior in
any way?

------
lalaland1125
It seems to me like 99% of the aims in this document could be achieved by a
competent and efficient non-profit bank that offers a good API. Let's Encrypt
is a similar example of how a cheap and effective competitor can really
improve things in a space fraught with inefficiency.

Why don't we create a Let's Encrypt for banking rather than fiddle around with
frankly unnecessary technology?

------
freyrs3
You have to appreciate the audacity of some of the portfolio companies in Fund
I for getting away hilariously bad business models. They literally fleeced
Chris Dixon into funding Pied Piper (dfinity.org) and crypto kittens and he
actually bought it. There's definitely some massive sunk cost effect going on
with this new fund on a scale we haven't seen before. Anderssen used to be the
smart money in VC and now they're doing this fund.

------
rayuela
Crypto Fund II to pay off investors from Crypto Fund I... genius I tell ya.

------
PanosJee
Where are the companies from Fund I? Didn't they invested in Telegram. How did
that go?

~~~
wmf
It looks like the Telegram pre-ICO is going to convert into Telegram equity
which is what the VCs wanted all along. [https://www.coindesk.com/telegram-
caves-to-us-regulators-del...](https://www.coindesk.com/telegram-caves-to-us-
regulators-delays-blockchain-launch-offers-to-return-1-2b-to-investors)

------
kryptiskt
I wonder why the fund is themed after a technical solution, and not industry
or anything else. It's not like you see container funds or functional
programming funds.

~~~
barnabee
Because it has been true for every major change since the industrial
revolution that the people who saw a new enabling technology trend early and
funded/built it won big despite not knowing exactly how it would plays out
(and yes, those that arrive too late or get it wrong end up at a dead end
lose), so if people get convince something might belong to that category,
you’re going to be able to raise a fund around it.

You name it: railways, cars, telephone, radio, TV, semiconductors, personal
computing, the internet — all of these technologies were created without a
complete idea of the change that would happen, and there were always investors
ready to get behind the _technology_.

Re: containers and functional programming, I guess most people (myself
included) see these as tools that streamline existing things but are not going
to deliver the kind transformational change that these other technologies do.
I realise this is subjective: some people may believe containers are in that
category and/or that crypto isn’t, but what matters is only the belief between
the people raising the funds and those investing in them.

------
RichardHeart
Cryptocurrency was invented to remove middlemen. Everyday I hear about another
company trying to hold your keys for you. Exchanges are the new banks. DeFi
helps get rid of them. Now if only you could buy crypto from your neighbor, we
truly could get the efficiencies of fast and nearly free, instant payment.
Exchanges benefit from the accidental regulatory capture of security theater
making it so you can't sell crypto to others out of fear. Perhaps I'm biased
as a cryptocurrency founder.

------
rl3
If only there was a way to directly pitch A16z without the connections.

Some of us crazy people are consumed by Web3 ideas so much that we spend years
thinking about it full-time aren't necessarily the most social or well-
connected people.

Creating an MVP for a vertically-integrated company that's carefully designed
to rip the guts out of the entire existing tech monopoly is extremely
difficult at best. Applying with large-scale ideas like this to YC as a solo
founder without an overachieving background offers an almost infinitesimal
probability of success.

Likewise, it'd be cool to see pre-seed funding from these types of
initiatives. I'd love to spend another year or two just refining the notes
generated by tens of thousands of hours of thought into a cohesive design
document. It's so much content I'm having to create a custom spatial interface
to map and organize it all into a kind of living design doc.

I suppose the point is that the deep thought required to envision things like
this is at odds with creating a personal brand or playing the traditional
traction-based startup game. Some of us are just out there in left field,
alone. We want to bring incredible amounts of value to the table, but it's
very difficult to do so.

~~~
craze3
I would look into getting a head start by leveraging one of the existing
blockchain companies that's looking for developers to build on their platform.
Usually they are very happy to promote your project(s) on their social media,
and/or offer you seed/bridge funding if you can create a compelling MVP. I
would also urge you to look for the blockchain companies that are hosting
hackathons, since that means they have money to blow on attracting developers.
I know all this since I'm in the same boat as you :) Good luck!

~~~
woah
This is an amusing truth in the industry. The VC's have given much of their
money to "layer 1" blockchain projects that are supposed to have lots of
application projects building on them.

But VC's aren't investing as much in application projects, since there often
isn't a clear path to profitability with a decentralized application. A big
reason for this is that the layer 1 blockchain will capture most of the value
of the applications running on it (for a real life example of this, see
Uniswap on Ethereum).

At the same time, the success of a layer 1 blockchain is judged by how many
applications it has. So maybe one could argue that applications are valued
more highly by VCs for enhancing the appearance of success of layer 1
blockchains than for their own sake.

This leads to the situation you portray, where it's sometimes easiest for a
founder to get investment money from VCs that has first passed through the
hands of a layer 1 project.

------
jgalt212
I've been a crypto bear/skeptic for a long time, but given how much cash the
Fed has pumped into the market and their general reluctance to take cash out
of the market, we could be set up for some pretty intense inflation if/when
there is a U shaped recovery. As such, I'd be looking to buy inflation
protection where you can these days: gold, BTC, TIPS, etc.

------
tphyahoo2
[https://standardcrypto.wordpress.com/2020/04/30/a16z-struggl...](https://standardcrypto.wordpress.com/2020/04/30/a16z-struggles-
to-earn-passing-grade-in-crypto-fund-ii-learn-by-doing-classroom-project/)

( A16Z struggles to earn passing grade in crypto fund II “learn by doing”
project )

------
murftown
Off topic, but I really, really wish we could stop overloading the word
"crypto" to refer to cryptocurrencies when it already is an abbreviation for
cryptography. It's worse when we start saying things like "crypto networks",
which is likely frequently misinterpreted/conflated with any kind of secure or
encrypted network.

We owe it to ourselves to keep clear language available to talk about the
concept of secure, private information storage and transmission. Blockchain is
cool, but it's a very distinct concept from crypto.

------
quickthrower2
Sounds like a 2010 view of crypto when it was all new and exciting!

In reality there are a lot of practical problems that I don't think have been
solved because they are baked in.

I feel they have been mentioned a thousand times on HN.

Just to pick on one, using cash which has a volatile value is not practical
for the "unbanked". Whereas "IOU" cash based on $US is. Obviously $US is
volatile too but a lot less than Bitcoin etc.

Stablecoins might solve this, but they are IOUs. And if they are not IOUs then
they are untrustable not to crash to zero worth.

Crypto makes sense as a speculation, and also as an alternative to cash where
you want to avoid government and private interference in transactions (but
don't mind potentially losing privacy as all transactions are public).

For example Paypal can freeze your account or the Government can freeze your
bank account, but "One does not simply confiscate bitcoin".

~~~
fraggle222
What makes the $ more stable?

~~~
quickthrower2
I am no economist, but probably it's more widespread use pins it down, and
addition central banks are supposed to try and keep inflation within a target.
Exchange rates fluctuate of course and they can be wild, but within a country
currency is usually stable but slowly losing value.

------
arcticbull
> Unlike existing systems where the sender and receiver must have fee-
> extracting bank infrastructure in place, payment blockchains require no bank
> account, thereby opening up financial services to the two billion-plus
> unbanked worldwide.

Unlike existing systems where you have recourse to recover your payments if
anything goes wrong, blockchains leave you hanging and at risk of fraud and
even simple coding mistakes, thereby opening up financial services to the
modern-day robber barons of the world -- and less efficiently than ever.

Thus solving payments, once and for all. ONCE AND FOR ALL.

Less tongue in cheek, here I was naively hoping we'd gotten over all this.
Twelve years of attempts to advance this technology with absolutely no break-
out successes, but hundreds of high-profile seemingly obvious failures.

Alas, sounds like we're winding up for round 2.

~~~
htrp
its interesting how crypto ends up rediscovering principles in banking/
traditional finance

~~~
arcticbull
Speed running the history of finance.

------
realtalk_sp
I didn't realize until reading the comments in this thread that some people
hawking crypto are now using the term 'Web 3.0'? That's utterly repugnant.

------
Traster
So is this why there was an article yesterday from A16z pushing a really
neutral and balanced guide to crypto explaining how it's going to solve every
problem under the sun and is a great tool to decentralize control away from
big corporations. Because as you know, venture capitalists are all about
creating tiny corporations and giving control back to the customers.

------
zxcmx
What if crypto fund II were a token. That'd be putting money where mouth is.

~~~
Sargos
A16Z is from the US. They don't have the freedom to do that.

------
chrisco255
The advances happening in Decentralized Finance right now are very important
and will power the financial infrastructure of the 21st century. This space is
rapidly evolving and is undergoing a Cambrian explosion right now, which is
super fascinating to watch. Having been there for the dot com era and the
mobile era, this feels the same. If you're in technology, it's worth educating
yourself on this space. Two of the best resources I've found are:

Bankless Newsletter & Podcast:
[https://bankless.substack.com/](https://bankless.substack.com/) The Defiant
Newsletter:
[https://thedefiant.substack.com/](https://thedefiant.substack.com/)

~~~
barnabee
Not sure why this is downvoted. It’s clear if you spend time at the right
conferences, read the right papers, and talk to the right people that
$billions can eventually be saved and risk massively reduced / much better
understood and managed, if not by the specific “DeFi” protocols people are
using on Ethereum now, then by the things that will come to follow them. The
potential upside for the bets that come good is worth a lot of losers — VC is
very asymmetrical. Maybe this will _all_ fail but there aren’t many good
arguments why. (Yes, you can build all the fraud protection, account recovery,
regulatory compliance features that you might need into these systems when the
time comes, if that’s what it takes to realise the other benefits — arguments
about this are at least 5 years too early.)

I remember when building on or investing in Linux was a waste of time because
it was a toy and would never be used for anything serious. The truth is,
things are still very early — the internet has its roots in the 1960s, we are
perhaps where the internet was sometime in the ‘80s with crypto (still an
accelerated timeline!). Be very cautious of extrapolating from what can be
done now (in crypto, quantum computing, biotech, AI, wherever). Unless you’ve
spent months or years researching and piecing things together and know what is
actually possible, it’s just possible that there are aspects that you don’t
fully appreciate.

------
lawnchair_larry
I’m surprised a16z are still falling for the cryptocurrency meme. It’s been so
obvious from the beginning that this will flame out.

~~~
spir
Today, on Ethereum, in one atomic transaction, you can borrow $5m with zero
credit or collateral, execute an arbitrage algorithm across N independent
financial services, generate a small profit, and repay the $5m. The
transaction fails if the predicted profit doesn't materialize, preventing you
from losing money, except the transaction fee.

The idea that nothing novel or useful is going on in cryptocurrency is
intellectually bankrupt.

Here are two recent links that I think show some of the cool work going on in
Ethereum

[https://medium.com/molochdao/the-state-of-optimistic-
rollup-...](https://medium.com/molochdao/the-state-of-optimistic-
rollup-8ade537a2d0f)

[https://gitcoin.co/blog/gitcoin-grants-round-5-funding-
our-f...](https://gitcoin.co/blog/gitcoin-grants-round-5-funding-our-future/)

~~~
lawnchair_larry
Doesn’t matter if money is moving around in it right now. It doesn’t matter if
it’s “interesting”. It’s a fad with no staying power.

------
stazz1
Are there any promising ideas for content creators other than Steemit?

------
htrp
iirc they went all in on the exchanges? problem is none of them were able to
ride the crypto wave to an ipo

------
Fede_V
This is so incredibly ironic after the call to build stuff in the real world.

As I posted at the time
([https://news.ycombinator.com/item?id=22913860](https://news.ycombinator.com/item?id=22913860))
- talk is cheap, let's see where they put their money before we compliment
them. I guess we've seen it now.

------
kauffj
If anyone is interested in the intersection of Web 3.0 and Creator
Monetization, you might like LBRY.

The core idea of LBRY is to make YouTube-like experiences possible without
Google (alternatively, to fix the discovery, incentive, and legitimacy
problems of BitTorrent).

[https://lbry.com](https://lbry.com) (consumer portal)

[https://lbry.tech](https://lbry.tech) (tech portal)

[https://lbry.tv](https://lbry.tv) (web app)

We were also just mentioned on HN in Andy Baio's article on Deep Fakes:
[https://news.ycombinator.com/item?id=23011445](https://news.ycombinator.com/item?id=23011445)

------
some_furry
I'm disappointed to see that none of the Crypto Fund II is slated for
Cryptography, but instead only to Cryptocurrency.

Obligatory:
[http://www.cryptoisnotcryptocurrency.com](http://www.cryptoisnotcryptocurrency.com)

There's a lot of important problems in (and around) cryptography that need
solving.

To be charitable: Maybe some of them can be solved by cryptocurrency projects?
There is some precedent here. (Zcash advanced the state of the art for non-
interactive zero-knowledge proofs and pairing-based cryptography, Monero
demonstrated real-world ring signatures, etc.)

But more importantly: There are a lot of possible solutions that need an
incentive to be developed, and could potentially become profitable start-ups.

But it's sad to see that cryptography (a.k.a. the real "crypto") isn't even a
seat at the table calling itself "Crypto".

~~~
wmf
_There 's a lot of important problems in (and around) cryptography that need
solving._

So pick a problem, wrap a coin around it, and profit.

~~~
SI_Rob
> and profit.

I see what you didn't do there :D

~~~
joosters
They forgot the important step of ‘sell coin to gullible idiots’, which is
essential to the profits.

n.b. The ‘solve the underlying problem’ step is optional in all blockchain
projects, and is generally omitted entirely.

