Atlanta goes crypto
Today we’re diving into crypto, a topic you’ve likely been unable to avoid as news of multimillion-dollar NFTs and Elon Musk’s most recent tweets about bitcoin or Dogecoin have been pretty much everywhere as of late. Every day seems to bring another startup proposing new uses for digital ledger technologies (DLT) like blockchain.
What is in the news?
As of this writing, the global cryptocurrency market cap is over $2.5T, larger than the GDPs of all but the world’s top seven economies. The expansion has been driven by the doubling in price of the world’s most traded cryptocurrency, bitcoin (BTC), since July to a record high of nearly $67K this month, as well as a similar rise in crypto runner-up Ethereum (ETH).
US-based bitcoin proponents have been doubling down. The US recently overtook China as the world’s largest bitcoin mining center, largely as a result of the Chinese government’s crackdown on bitcoin mining (i.e., new coin creation) and trading, causing miners to close up shop or move operations abroad. On October 19, the first-ever bitcoin futures ETF (the ProShares Bitcoin Strategy Fund, BITO) listed on the New York Stock Exchange and quickly became the second-heaviest traded ETF debut in history and the fastest ever to reach over $1B under management. Other bitcoin futures ETFs have been fast on its heels, with the SEC currently reviewing around 40 crypto-related ETF filings. Also last week, Walmart, the world’s largest retailer, acknowledged that it has started piloting kiosks that allow customers to buy bitcoin across dozens of its US stores.
Leveling up on the blockchain
Let’s back up a second though. Not everyone is up on the lingo, so I’ll give a brief overview of what blockchain is and why it and crypto are garnering so much attention. While I won’t go deep into the intricacies of these topics (or we’d be here a while — like The Irishman run length a while), it’s probably helpful to cover some basics.
For the purpose of simplicity, think of a blockchain as an immutable (i.e., permanent, unalterable), distributed, digital ledger. Unlike traditional ledgers or databases, transactions recorded on the blockchain are copied and shared across a network of computers spanning multiple locations and owned by thousands of different individuals and groups. This decentralization makes the ledger accessible to people all over the world and resilient against manipulation and single points of failure.
The world of blockchain can be thought of as consisting of two “layers”:
Level 1: The base or blockchain level, consisting of the underlying architecture and protocols (rules) making up a specific blockchain. These blockchains include the bitcoin blockchain, the Ethereum blockchain, and the Solana blockchain, among various others.
Level 2: The projects that are built on top of a specific blockchain. For example, Ether is the cryptocurrency built on top of the Etherum blockchain and SOL is the native cryptocurrency used on Solana.
Digital currencies are not the only types of projects that can be built on a Level 1 blockchain base though. Other Level 2 projects include:
Decentralized Finance (DeFi): An ecosystem of blockchain-based applications offering financial services like loans, banking, or investment products. These apps run autonomously, allowing buyers, sellers, lenders, and borrowers to interact directly — with only software-based middlemen — rather than through traditional financial intermediaries like banks, brokers, and insurance companies. DeFi facilitates transactions via smart contracts — computer programs that self-execute, meaning that they automatically perform functions (say, the funding of a loan) when certain pre-determined terms and conditions are met.
The total value of tokens held in DeFi smart contracts across different blockchains is estimated to exceed $200B, with the majority of this value on the Ethereum blockchain.
Decentralized Social Media (DeSo): DeSo consists of social media apps like Subsocial (built on the Polkadot network and the Substrate framework) and Steemit (built on the Steem blockchain). As these apps are built on blockchains, no central authority can control, oversee, or censor user activity — unlike mainstream social platforms like Facebook and Twitter. Decentralized social apps also prevent the unauthorized sale of user data (as is contentiously done by the centralized social media players).
It’s not all sunshine and puppies in DeSo-ville though. No central authority means no moderators to remove or label inaccurate or offensive information and the risk of a so-called 51% attack, where a malicious actor controls over 50% of a network’s power, disrupting the integrity of the blockchain and allowing them to edit data as they please.
Nonfungible Tokens (NFTs): NFTs are unique digital assets that are verified and stored using blockchains. While they can be everything from music, to videos of basketball plays, to the first-ever tweet, digital artwork has made the most news. Digital pictures of cryptopunks and bored apes have sold for millions of dollars on online marketplaces like OpenSea, Nifty Gateway, and SuperRare. In the spring, a collage by the digital artist Beeple sold for $69M at Christie’s.
NFT market trading volume hit $10.7B in Q3 2021, prompting both cryptocurrency exchange Coinbase and auction house Sotheby’s to announce they would be launching NFT marketplaces.
Decentralized Autonomous Organizations (DAOs): DAOs apply the logic of smart contracts to organizations. Smart contracts lay out the rules of an organization and hold its storage. All of a DAO’s rules or financial transactions are publicly recorded on the blockchain and no single individual can edit the rules without others noticing. Organizational decisions are made democratically (rather than by executives or a board of directors as in a traditional organization — in fact, neither of these things exists in a DAO). All members of a DAO need to vote for changes to be made and the organization is normally funded via the issuance of digital tokens. DAOs have so far been set up for investing, charity, borrowing, and buying NFTs, among other purposes.
Decentralized Wireless Internet: Helium is the most notable example of a project building out a physical, decentralized wireless network. The company is organizing a community of users to host wireless hotspots in exchange for cryptocurrency payments. The aim is to create a ubiquitous global WiFi network that anyone can access. In July, Helium announced that there are now over 100K Helium hotspots across 108 countries.
The future is decentralized
These activities are collectively giving rise to what is being called “web3” — a third phase of the internet. This phase follows web1 — which was characterized by static online content and limited functionality — and web2 — today’s internet, defined by interactivity; the ability of users to not only read but also write, post, and create online; and the centralization of data among a limited number of digital platforms.
Web3 aims for decentralization. Whereas web2 focuses on front-end (user-facing) functionality and data centralization, web3 seeks to improve backend functionality and share data transparently across users. Access is open to everyone, payments are built in via native tokens, and, because of its distributed nature, web3 can’t crash.
As touched on above, because this future internet is still being built, there are drawbacks. UX can be an issue: interacting with web3 apps (also known as dApps or decentralized apps) can require extra steps, software, or education — especially because they are not integrated into most mainstream browsers. Transactions can be slower because they’re decentralized. And the lack of central control means that misinformation and bad actors can run amok.
Fiat money pours into crypto
This democratized vision of the internet has attracted a lot of interest — and capital. Major tech players have been funneling resources into crypto and blockchain more broadly. Facebook (now Meta) started piloting its Novi cryptocurrency wallet in the US and Guatemala earlier this month and is backing the soon-to-be-launched Diem blockchain payment system and associated Diem coin. The company also announced that its planned virtual metaverse will support the buying, selling, and displaying of NFTs. PayPal now allows users to buy, hold, and sell cryptocurrencies on its platform and its payment app Venmo. And Stripe recently announced on Twitter that it’s hiring for a new crypto team “to help build out the future of Web3 payments.”
As of June, VC firms had poured $17B into the crypto space this year — by far the most of any single year. Andreessen Horowitz (a16z) is a clear leader in the space, launching a new $2.2B fund dedicated to crypto in June and participating in megadeals of $100M or more for multiple crypto startups. Other top VC firms like Accel, Sequoia, Lightspeed, and Bessemer have all gotten crypto religion as well, making more crypto investments this year than any other.
The regulators cometh...
All this financial activity — some may say “speculation” — has spooked regulators. SEC chairman Gary Gensler likened the rapid proliferation of cryptocurrencies and investment products tied to them to the “wild west” when testifying before the Senate Banking Committee last month and warned that such offerings are not being properly overseen due to gaps in federal regulation. His agency has been pursuing a federal case against crypto company Ripple since last year, alleging Ripple’s XRP token constitutes an unregistered security offering. Further, the Commission’s recent threat to take legal action against Coinbase if it launched a product allowing users to earn interest by lending digital assets led the company to cancel its launch plans.
In mid-October, the Commodity Futures Trading Commission (CFTC) fined crypto company Tether $41M to settle allegations that the company lied in claiming that its stablecoins (a type of virtual currency whose value is tied to another asset) were fully backed by US dollars. Around the same time, the Justice Department announced it was creating a “National Cryptocurrency Enforcement Team” to prosecute criminal misuses of cryptocurrency.
These are just the domestic regulatory actions. Most notably internationally, Chinese authorities issued a sweeping ultimatum in late September banning all crypto transactions and services and saying that they would move aggressively to root out cryptocurrency mining in the country.
Atlanta: City of...Crypto?
Atlanta has long been associated with financial technology and payments. Around 70% of US credit, debit, and gift card payments are processed through companies located in metro Atlanta like Global Payments, FIS, Fiserv, and NCR, earning the city the nickname “Transaction Alley.” Georgia is also poised to become a bitcoin mining hub, as Chinese bitcoin hardware giant Bitmain recently struck a deal to bring 56,000 of its proprietary mining rigs to the state, with a plan to have them fully deployed by October 2022.
Many of Atlanta’s payment processing giants — wary of the risks inherent to novel technology and hesitant to invest in new infrastructure and distributed models so outside their comfort zones — have been slow to move into the cryptocurrency market though. This provides an opening to the city’s crypto and blockchain startups.
The New Kids on the Blockchain
The Big Two
BitPay and Bakkt are metro Atlanta’s two largest crypto players.
BitPay, founded in 2011 by Georgia Tech graduates Stephen Pair and Tony Gallippi, has raised over $70M from investors like Founders Fund, Index Ventures, Felicis Ventures, and Atlanta-based TTV Capital. The company provides both B2B and B2C crypto products, enabling partners like Microsoft, AT&T, and Wix to accept crypto payments online through their websites or email billing, and helping consumers manage, track, and spend cryptocurrencies using BitPay’s crypto wallet, web extension, and prepaid Mastercard.
Bakkt was launched in 2018 by New York Stock Exchange parent company Intercontinental Exchange, Inc. (ICE) and previously led by former US Senator Kelly Loeffler. Bakkt enables users to store, trade, and use digital assets like cryptocurrencies, dollars, gift cards, and reward points from partners like Starbucks and Choice Hotels via the Bakkt app. The company also provides businesses the ability to offer digital wallets and cryptocurrency trading through their own branded platforms. In mid-October, Bakkt merged with a special purpose acquisition company (SPAC) and started trading as a public company on the NYSE. Prior to the SPAC, the company had raised nearly half a billion dollars.
The Upstarts
There are a number of smaller metro Atlanta-based crypto startups making waves as well. They fall into a few different categories:
Banking & Payments
Banking and payments startups include Fold, Unbanked, and Ryze. Fold, a portfolio company of Decatur- and San Francisco-based venture studio, Thesis, is a gamified bitcoin rewards app that gives users of the company’s Visa debit card the ability to win bitcoin prizes post-purchase. The company raised a $13M Series A led by Craft Ventures in April.
Unbanked, which presented at last week’s Venture Atlanta Conference, offers consumer financial products like bank accounts and debit cards for storing and spending cryptocurrencies. The company also provides businesses card issuance, bank account, and crypto wallet and trading solutions. And early-stage Ryze, which emerged from Georgia Tech’s undergraduate CREATE-X program last year, touts bank accounts that can convert cash into bitcoin.
Startups Yellow Card and Bitcoin Depot focus on financial inclusion. Yellow Card’s app gives residents of African countries like Kenya, Botswana, and Ghana the ability to buy cryptocurrencies, while the company’s Yellow Card Academy offers easy-to-understand educational programming to improve crypto and overall financial literacy. Bitcoin Depot operates over 5,000 ATMs across the US and Canada for converting cash into crypto and enabling crypto buying and selling.
Accounting & Financial Tracking
Midtown-based Verady, which was incubated by Georgia Tech’s ATDC and counts Atlanta-based Engage, TTV Capital, and TechSquare Labs as investors, offers individuals and businesses tax, audit, and accounting solutions for blockchain assets through its Ledgible platform. Polygon, based in Inman Park, offers APIs for real-time market data on everything from stocks to cryptocurrencies.
NFTs
A couple of Atlanta startups have dived into the buzzy world of NFTs. MomentRanks, founded in February, helps collectors track and appraise NFTs as well as connect with fellow enthusiasts via community tools. The company has raised $5.9M to date. GigLabs, which itself just raised a $4.5M Seed round co-led by Atlanta-based Panoramic Ventures, offers tools to help brands and creators mint and sell NFTs as well as showcase them via customized and immersive virtual galleries.
Enterprise Blockchain
Startups that provide services focused on the enterprise include Provide and Storj. Provide offers businesses tools for low-code enterprise blockchain application development, while Storj is a blockchain-based cloud storage platform that offers a decentralized alternative to major cloud providers like AWS and Google Cloud. Storj users can pay other users on the network to store their files using the company’s STORJ cryptocurrency. The company itself went through a $30M token sale in 2017 as a means of raising capital.
Despite various focuses, these ATL startups are all ultimately betting on models taking hold that reshape the internet, finance, and, perhaps, society itself. This anticipated future champions distributed power, universal access, and the disintermediation of traditional gatekeepers. Together, with others around the globe, they are helping construct the infrastructure underlying this future and the tools — from crypto wallets and blockchain-based payment products to NFT generators and galleries — to navigate it. It should be thrilling to watch.
