Odaily Frontline | a16z: The encryption industry has gone through three cycles

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Author: a16z Partners Chris Dixon, Eddy Lazzarin

Odaily Translator |

Odaily Translator |

Some researchers who have been engaged in encryption work for a long time believe that the industry we are in is evolving in a cyclical way, with "market active periods" and "encryption winters" alternating. The crypto industry has gone through three cycles so far. The peak of the first cycle occurred in 2011; the second in 2013 and the third in 2017.

• These cycles may seem chaotic, but they have a basic internal order, and the general characteristics are:

• At first, the price of Bitcoin and other crypto assets began to increase;

• Growing interest in cryptocurrencies and increased social media interest;

• The industry welcomes more new faces, who will contribute new inspiration and technology;

• More projects or startups emerge;

New projects and companies will release new products, which will further inspire more people and eventually enter the next cycle.

Some facts and figures can support the above views. One interesting thing (and you’ve probably heard it too) is that in the hundreds of conversations we’ve had with founders of various crypto projects, we’ve often heard stories like: “I was "The first time I heard about cryptocurrency, the price was skyrocketing and everyone was talking about it. At first, I thought it was only about making money, but then I started reading white papers and some blog posts, learned more about the potential of this technology, and eventually fell in love with it. "

We recently ran a project inside a16z and wanted to see if the data would appear in the same state. With the help of our crypto data scientist Eddy Lazzarin, we analyzed nearly 10 years of data, including comments on cryptocurrency-related subreddits on Reddit, related code commits on Github, and data provided by Pitchbook. The result is shown in the figure below.

First cycle: 2009 - 2012

• The first cycle in the cryptocurrency industry peaked in 2011. Until then, even the most ardent Bitcoin enthusiast would have considered this an interesting experiment, unlikely to have practical value. Later, entrepreneurs started realizing that you could use cryptocurrencies to start a business. It was at that time that many of today's largest exchanges, mining machine manufacturers and wallets were established one after another.

Odaily Note: The five data items in the chart above are, from top to bottom, BTC price (orange at the top), developer activity (blue), and entrepreneurial activity (green), which mainly track the first financing completed by companies in the encryption field within a specific time frame. total times), social media activity (purple), and the total market value of cryptocurrencies (bottom orange).

One thing to note is that development, entrepreneurial activity, and social media discussions continued after prices started to move lower. We will see later that this pattern holds true for the other two cycles as well.

Second cycle: 2012 - 2016

The second cycle peaked in late 2013, probably when most non-technical people first heard about Bitcoin. During this cycle, about 10 times as many developers and projects entered the market. It was also at this time that many important projects were officially born or completed financing, especially Ethereum, which indirectly triggered the third boom in 2017. A key feature of crypto cycles is that each cycle sows the seeds that drive the generation of the next cycle.

Third cycle: 2016-2019

The third cycle peaked in 2017, when the wider implications of cryptocurrencies began to attract mainstream attention. The number of developers and startups increased again by about 10 times during this cycle. Encryption has gradually developed from a fringe industry to a real emerging industry.

Observing the above three cycles in the same chart (as shown in the figure below), although the growth of all key indicators is unstable, it is consistent in the long run. During the three periods, the compound annual growth rates of the four indicators are: BTC price (196.4%), developer activity (74.4%), entrepreneurial activity (53.9%), and social media activity (207.5%).

In the figure above, the top row of project logos shows representative high-quality projects in each cycle. Dozens of exciting projects were born in the third cycle, covering a wide range of fields, including payment, finance, games, infrastructure and network applications, etc. Many of these projects will be launched in the near future, perhaps driving the emergence of the fourth crypto cycle.