Is the hype the start of a new internet?

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SvD Näringsliv

This column was first published in SvD Näringsliv, in Swedish, on October 5th, 2021.

Speculation in cryptocurrencies has turned many into both paupers and millionaires. But when phenomena like NFTs begin to mature, they can form the basis of something entirely new – a different type of internet than the one we know today.

A shiba inu dog that looks a little lost. The image is at the center of a series of seemingly strange events that make derivatives trading feel uncomplicated and risk-free by comparison. Come along for the latest adventures in the crypto world – and which, according to some, point out the direction of a future internet:

First there was a meme, a funny photo montage, called “doge”. The picture depicted the aforementioned dog.

Subsequently, the cryptocurrency dogecoin was created as a joke, with the dog as its symbol.

After this, the image was sold as an NFT – that is, the digital right to the original image to a group of investors. Price? Around 4 million dollars. At this point, many people probably start to think that it sounds strange because anyone can download a JPG image for free on the internet.

Then these investors took the NFT image, and split it into 17 billion small parts instead – so-called “fractionalization”. Now anyone could buy a share of the image. This in turn created another cryptocurrency called dogcoin (without the “e” at the end). After an auction of 24 hours, this new cryptocurrency – and the image of the dog – was worth 225 million dollars.

Now, just over a month later, the value has plummeted to just over 27 million dollars. Still a considerable amount of money.

This of course sounds absurd. How can a photo of a dog that everyone can Google become worth 225 million dollars overnight?

The first factor is the huge speculation that has taken place in cryptocurrencies in recent years. Although there are many legitimate uses, the great interest in crypto has not been driven by average joes who have a philosophical interest in a decentralized social economy. They have mostly wanted to make quick money. And many of them have succeeded. Huge runs (and crashes) over the course of a single a day are hard to find in the regular stock market, but they do occur here.

The great interest has also created a number of new millionaires. People who bet a couple of thousand at the right time are now sitting on huge crypto resources. However, the use for cryptocurrencies is still very limited. There are simply very few things you can buy with the currency, unless you decide to exchange it back to regular dollars. But if you do that – then you are once again outside the market.

NFT solves this – admittedly self-created – problem. It is a digital asset that may increase in value, and which preferably must be purchased with cryptocurrency. It allows speculators to use their newfound profits and still remain in the market. And the interest is great. The art series “Cryptopunks” had over a billion dollars in total sales by the end of August this year, and is now traded for around 20 million dollars every day. Speculation is rampant, in other words. There are similar art projects around digital apes, or almost what you can imagine, where transactions for millions are made repeatedly.

The other influencing factor is the huge amount of venture capital invested in the sector. This past summer, over 17 billion dollars worth of investments had been made in crypto companies – in the first half of the year alone. That’s almost as much as the total amount invested in crypto in all other years combined.

Venture capital, by its very nature, is looking for the next big thing. The amount of capital invested in crypto suggests that the industry believes it may be just that. Or that it can serve as the starting point for something new, something bigger.

The last 20 years on the internet have been characterized by an enormous centralization around the very largest companies: Apple, Google, Facebook and Amazon in the USA. Alibaba, Tencent, Baidu in China. The crypto trend can be seen as a backlash to just this – a decentralization of the internet. This is what has started to be called “Web 3”.

A new kind of Internet, as “Web 3” might be, would also mean new category winners, and that is where venture capital’s interests lie. Who creates Facebook for “Web 3”? That’s the question investors all over the world are pondering.

But while the venture capitalists are guessing with their money, a new generation of entrepreneurs is sitting with well-filled coffers and experimenting. Sometimes the result is an overpriced image of a dog that no one will want in six months. Sometimes it becomes a building block for a completely new kind of internet.

This column was first published in SvD Näringsliv, in Swedish, on October 5th, 2021.

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