A counter to a16z Crypto fund II thesis

I read the article developing the thesis for the a16z Crypto fund II and it only confirmed my opinion that most VC don’t know what they’re talking about [there are a few exceptions!]. Or maybe a16z does, but they’re hiding their real thesis (“continue to invest in software”) behind irrelevant statements for some strategic reason.

For instance, the article says:

“the payments system we use today was designed more than a half-century ago”

Obviously, many innovations have taken place since the 70’s. To name a few: Internet banking in 1994. Paypal in 1998/1999. Mobile banking in 2008 (Wells Fargo had tried in 2002!) and digital check clearing in 2014. Some countries have implemented fast payments (transfers in seconds).


“In contrast to services like Venmo or PayPal where a digital IOU is sent in place of actual money, here [payment blockchains] the recipient possesses the actual value without third-party dependencies once you click send”

It’s wrong because:

  1. There are always third-party dependencies (miners, nodes, software wallet, exchange, custodian, etc.)
  2. When you click “send”, no cryptocurrency value is actually sent. The value was and remained on the ledger. You only sent a message with some attributes and keys. It is very similar to a Swift or a Visa message in fact, but the verification system is different.
  3. The so-called “IOU” is in fact e-money. It is closer to actual money than any cryptocurrency. In effect e-money can be used to buy real world products and services, when cryptocurrencies are either not legal tender or only a representation of a real currency held in a bank (stablecoin).


“Cryptocurrencies are like cash in this way: the bits and bytes are themselves the bearer instrument”

Actually, they aren’t:

  1. As I explained, crypto assets don’t actually “move”, when cash and bearer bonds do. Users only possess keys, stored in wallets. Those keys allow to transfer some value registered in a ledger using a web or mobile application, just like a login/password allow you to transfer some USD registered in a Bank or PSP ledger through a web or mobile application
  2. And as some lawyers would say: possession of a key does not mean ownership (it could have been stolen)


“payment blockchains require no bank account, thereby opening up financial services to the two billion-plus unbanked worldwide”

It’s obviously wrong as any regulated digital currency would require users to open an account with a regulated intermediary, that would perform the KYC onboarding and AML/CFT controls. Besides, any digital currency (regulated or not) requires a mobile device, a data plan, internet and electricity to work, thus excluding poor and not technology savvy people. Physical cash is much more inclusive as a mean of payment.


“Turning money into pure bits also allows software developers to creatively design new services around money the way they have done with photos and text”

It’s nothing new. Money has already been turned into bits (bank deposits, e-money, cards…) and new services are being continuously implemented for decades. This trend will continue.


“Payment blockchains could end up doing to banks what email did to the post office”

Another proof that analogy using is almost always bad thinking:

  1. Post Offices were still around the last time I checked – The authors probably meant “physical personal mail”
  2. Payments are a small part of what banks do. Even though their form may evolve, we will always need intermediaries (banks) to manage payments, offer loans, provide investment advice, custody assets, etc.
  3. Physical cash may disappear, but a “blockchain” is not needed to digitize cash. Bank and PSP/EMI deposits are already digital. Ecuador launched a CBDC without a blockchain (it was later decommissioned for lack of adoption), and several central banks recently stated that a blockchain is not required for a CBDC.


I could go on with the other sections on DeFi and Web 3, but it’s not worth my time any longer. It’s the same collection of unsubstantiated statements and dull marketing commonplaces. They use fancy buzzwords instead of simply saying “we’ll continue to invest in software”.

Just because they don’t know what they’re talking about doesn’t mean that the fund won’t be successful. They could throw money at ten firms and one of them could be a huge success, just because software is powerful! No-one can deny that.

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