Three decades into the internet, we are faced with three fundamental realities:

  • content creation rules the internet
  • value flows primarily to centralized platforms
  • platform censorship is on the rise

Non-fungible tokens address the challenges presented by these realities. With non-fungible tokens, internet creators are given a mechanism to truly own their creations. NFTs are unique digital assets that live on a blockchain. When paired with brands, creators, or experiences, NFTs have value. NFTs can be anything — art, collectibles, music, games and more. These assets then provide ownership, provenance, and transferability among other characteristics.

In 2021, we’ve seen 300M+ in trading volumes for NFTs. Broad support is growing from both crypto-centric and traditional investors and influencers. While the market activity may be speculative today, the timing of this second NFT wave might get it right.

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Why use crypto assets?
Crypto allows for virtually any digital asset to be built and owned by the users themselves. This minimizes the role of rent-seeking platforms that historically sit between users and creators.

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NFTs offer better economics than existing methods of value capture. By owning your content, internet creators can benefit directly from the economics. For example, creators retain most of the revenue when a sale occurs. Programmability provides a way for secondary transaction revenues to also flow back to the creator and NFT owners, not primarily the platforms. Users who own NFTs participate in the full economic lifecycle.

Lastly, NFTs enable platformless media— where media isn’t tied to any one single entity. While marketplaces and platforms will exist, users will be given the optionality of where to take their NFTs. Platforms will be constrained and forced to serve creators and users first.

Valuing NFTs is subjective. Just like valuing art, for example, an NFT’s value will likely depend on a confluence of factors, including cultural relevance, scarcity, utility, social status, and credibility. Price discovery is in the earliest stages in the NFT market. There are a number of experiments like peer prediction for NFTS (Upshot), bonding curves for price discovery (Foundation), and unique markets for individual NFTs (Zora). Although the market is currently flooded with NFTs, over time a set of standards will likely emerge to better enable efficient pricing and discovery.

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What can you do with NFTs?
“Full-time internet creator” didn’t exist a few decades ago. It wasn’t until recently that this became feasible for small to mid-sized communities. However, the biggest platforms reward the biggest creators today. On YouTube, 97% of creators don’t make enough to reach the US poverty line. Becoming a truly independent creator online is hard. The advent of NFTs and tokenized communities enables new monetization models, making it economically feasible for small to medium-sized creators. Specifically, creators can lean into monetization methods:

  1. Prefunded projects — creators can raise money via a token to create something (e.g., write an essay) and then the holders of that token will accrue value for early support of the project.
  2. Programmable revenues — when a creator makes something, they can generate value across the lifetime of that object from such as art resales or song streams.
  3. Access — many communities today are freely available to the masses. Tokenization can enable unique access requirements which incentivize communities and users to pay for access and participate more actively.

Ultimately, when users become owners, they turn into advocates for the community. By cutting in users on the ground-floor, users will become stickier than ever before. It’s still early days for the consumer category. We’ve seen a flurry of activity in the NFT sector, with the build-out of NFT issuance, marketplaces, tools, and more.

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Over time, we see NFTs expanding in two ways. First, is traditional products that use NFTs as a distribution channel and a new economic model. For example, NFTs can be used to retroactively distribute tokens to communities, as a way to reward early support. Tokens will be used to incentivize access, attention and user behavior. A few creators to embrace NFTs include Beeple the artist, Logan Paul the YouTuber and the NBA.

The second is the creation of digitally native experiences, centered on issuing, exchange, and using digital assets. These digitally native experiences may span games, music, art, writing and more. The potential is enormous. NFTs may become a key form of value capture on the internet, enabling consumer use cases we’ve never even imagined.

For a broader intro to the consumer opportunity, we recently created an intro presentation you can find here

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Research Scholar Program

What is it

Blockchain Capital is the leading blockchain-focused venture firm, with over eight years of experience in the sector. Working in partnership with our research and investment team, this is a unique role that offers the right candidate the ability to work closely with the investment team, conduct deep research and analysis, and develop their understanding of the crypto ecosystem and venture capital.

Responsibilities

  • Conduct deep research and analysis on industry-related topics
  • Identify and reason emerging trends in the space, and distill appropriate investment themes
  • Take both a qualitative and technically quantitative approach to research projects
  • Present ideas and analysis regularly to the broader investment and research team

What we’re looking for

  • A strong understanding of smart contracts, crypto-economics and blockchain technologies generally
  • Robust analytical skills that allow for identifying trends and assessing data in the crypto ecosystem
  • Ability to aggregate information from a variety of sources and distill data into informed insights and conclusions
  • Strong writing and communication skills
  • Excellent interpersonal skills, think creatively and have a point of view you like to express
  • Technical background in engineering or computer science is preferred but not a requirement

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Applications are evaluated on a rolling basis. Internships typically last 3-4 months.
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On Monday, January 4, we filed a public comment in response to FinCEN’s notice of proposed rulemaking that would require banks and money services businesses to collect, and in some cases report to the government, sensitive personal information in connection with certain crypto transactions with self-hosted (or as FinCEN refers to them “unhosted”) wallets.

For the past eight years, we at Blockchain Capital have been directly investing in the future of an open, free, fair and safe global financial ecosystem that allows for increased financial access and the flourishing of innovation. It has been a great joy to the see the industry evolve so extensively over that time. That evolution has also brought about the challenge of assessing how regulation should attach to this new technology and asset class. Meeting this challenge is a natural and important part of the maturation of a nascent industry. We firmly agree that combating money laundering, terrorist financing and other illicit financial activity is critical to the ongoing health and growth of an evolving financial infrastructure. However, regulations aimed at protecting our financial infrastructure must be appropriately tailored to effectively combat illicit activity while also protecting individual freedoms and promoting innovation. We believe FinCEN’s proposed rulemaking does neither.

In our view, FinCEN has made an alarmingly hasty and ill-considered rulemaking proposal. If implemented, the proposed rule will disproportionately infringe on individual rights of privacy and disenfranchise underrepresented populations in the US from the benefits of open financial access. Even more concerning is that the rule could result in actual harm to millions of users of digital assets by increasing cyber and financial crime, not combating it. These fatal deficiencies will cause both entrepreneurs and investors involved in building out this new technology to seek out jurisdictions that are more thoughtful and deliberate in crafting functional regulation. This would hurt US innovation and competition in what could be the future technological foundation for global finance and commerce.

We, along with many of the entrepreneurs behind our over 90 portfolio investments, are eager to engage with FinCEN and the Treasury Department to craft effective and measured regulation for decentralized systems. There are thousands of other industry participants who are hopeful to do the same. At present, however, the industry has not been granted a meaningful opportunity to do so. Providing a mere 15 days over the Christmas and New Year’s holidays for public comment on this immensely complex subject is woefully inadequate. For this reason, we have filed the attached letter requesting that FinCEN abandon its proposed rule.