April 6, 2022 | Issue #214

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MUST READS

Kraken Exchange & BitPay Integrate Bitcoin's Lightning Network

Two long-established major players in the crypto space, Kraken (exchange) and BitPay (payment processor), just implemented Bitcoin's favorite side-chain, also known as the Lightning Network. It just so happens that both announcements fell on the same week.
To highlight its significance, this means that all of Kraken's customers can now benefit from instant withdrawals and deposits... and will pay close to ZERO fees in the process. Kraken is the second major exchange to do this.
For BitPay, on the other hand, it means that their long list of merchants can now receive payments from Lightning-enabled wallets like Cash App and Strike, giving customers a low-cost/quicker alternative when purchasing goods and services with BTC.
If You Don't Already Know...
Lightning enables cheap and fast BTC transactions by leveraging smart contracts away from the Bitcoin network base layer.
Remember the "I can't even buy a cup of coffee with it" argument against Bitcoin? Yeah, well so much for that...
Often referred to as "Bitcoin's Second Layer," the Lightning Network is a critically important scaling solution for Bitcoin and empowers BTC to be better used for everyday payments or as a medium of exchange. The network can theoretically allow millions of transactions per second as BTC is routed across different channels from sender to recipient.

“Lightning is a lot more efficient than on-chain Bitcoin while also still relying on on-chain Bitcoin’s security, so it really is the best of both worlds”
- Pierre Rochard, Bitcoin product manager at Kraken

What Else?
Both integration milestones were followed by an announcement from Lightning Labs, the startup behind the Lightning Network, that it had completed a $70 million funding round, led by Valor Equity Partners, early backers of Tesla and SpaceX.
The startup says it plans to employ the round’s proceeds to fund its efforts in building Bitcoin and Lightning software, including Taro, a new protocol that leverages Taproot and the Lightning Network to bring even more assets and scalability to Bitcoin. You can read more about Taro and Taproot here.

How Blockchain·com's New $14 Billion Valuation Stacks Up Against the Competition

Last week, Blockchain·com announced that it raised new funding at a $14 billion valuation, nearly tripling its $5.2 billion valuation from March 2021.
While exchanges like Coinbase, FTX, and Binance seem to get a consistent amount of press, investors shouldn't be sleeping on Blockchain·com. The UK-based crypto exchange is one of the oldest (founded in 2011), predating Coinbase and launching around the same time as Kraken. But how does it stack up against some of the competition? Let's take a look...
What Makes Blockchain·com Different?
While other exchanges are buying rights to stadiums, launching Superbowl commercials, or are too busy dodging regulators, Blockchain·com is moving in the other direction by directly trying to onboard more institutions.
This is evident by the company's recent acquisition of Altonomy for a rumored $250 million, to further entrench itself as the go-to exchange for institutions. Just this morning even, the exchange launched an asset management service in partnership with Altis aimed at institutional and high net worth investors.
Speaking to Real Vision in March 2021, CEO Peter Smith stated:

"I think revenue across the entire crypto space is probably 98% retail or consumer derived... in our business, about 60% to 65% of our revenue is from retail, but another 30% to 35% of it from institutional.
Most companies in crypto really are one or the other, and we are very fortunate to have both very large stable revenue lines. The institutional business... is profitable enough that it can pay for the entire operating costs of the company globally, and we would still be profitable."

How Does The Valuation Stack Up?
In December 2021, Fortune reported that the company was looking to raise $400 million at an $18-20 billion valuation. This week's raise at $14 billion, however, represents a greater than 20% decrease in the company's valuation in only 90 days.
This discount almost certainly has nothing to do with the company's fundamental business but rather represents a general softening of tech valuations due to the macro environment.
Heck, just last year CEO Peter Smith stated that the company would "do somewhere between $1.5-2.5 billion in gross revenue and make more pretax profit than most major financial institutions."
Based on those revenue numbers and using a valuation of $14 billion, Blockchain·com is trading at around 7x last year's revenue, compared to Coinbase, which is valued at ~$36 billion on the public markets and is trading at around 5x last year's revenue. Meanwhile, this week, Binance US, raised over $200 million at a $4.5 billion pre-money valuation.

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DEEP DIVES

Exploring Real World Crypto Use Cases

When most people think about crypto, they imagine tiny bits of digital money in the form of long strings of numbers and letters floating around on the internet. And to be honest, they aren't too far off. Sure, those bits are being used to create new economies and transform the idea of communities, but most tokens today don't equate to the real, physical world.
Enter what Multicoin Capital calls “Proof of Physical Work" – or, protocols that incentivize people to do work that builds infrastructure in the real world.
Society today believes that to solve large, physical problems such as infrastructure, electric grids, or mapping, capital needs to be centralized in a single company which then decides who, when, where, and how people are compensated. Multicoin, on the other hand, believes that:

"A corporation making central planning decisions and compensating its stakeholders at its discretion will never be as effective as a properly designed permissionless network that scales and compensates its most productive actors using the free market’s conceptions of supply and demand."

In other words, by using tokens to incentivize builders, we may be able to create large-scale infrastructure projects without the need for large conglomerates or Pete Buttigieg's infrastructure planning.
Here are a few companies making it happen...
Nova Labs
Last week, Helium (HNT), the company behind the Helium blockchain network, announced it had closed a $200 million funding round at a $1.2 billion valuation. Along with the fundraising, the company announced it was changing its name to Nova Labs.
The company has built a decentralized wireless network that connects Internet of Things (IoT) devices such as GPS trackers and air quality monitors to hotspots run by Helium. Individuals who buy and run Helium Hotspots are rewarded in tokens in the form of HNT for providing bandwidth.
Companies like Lime already use Helium devices to connect their products and according to Helium, the network has more than 680,000 mobile hotspots in 52,000 cities.
While telecommunications companies spend millions of dollars each year to build gigantic cell towers, Helium is able to tap into the power of a network of incentivized actors to produce the same coverage for zero labor costs.
Hivemapper
On Tuesday, April 6, Hivemapper (HONEY) announced they raised $18 million in a Series A to build a decentralized map.
Currently, large tech companies such as Google and Apple spend billions of dollars through the use of satellites and employees in specialized cars equipped with 3D cameras driving 12 hours per day. And although this was a breakthrough in mapping, in reality, the maps from these companies are often months or even years out of date.
Hivemapper, on the other hand, is looking to incentivize a network of users to place dashcams in their cars to collect data and upload it to the Hivemapper Mapping Network (check it out here). In doing so, users will receive HONEY tokens as a reward and maps will be significantly more up to date.
Interestingly, Hivemapper's dashcam will use Helium’s network of wireless nodes to authenticate the vehicles' location, and Amir Haleem, CEO of Nova Labs, participated in this round of funding and sits on their board.

Two Insightful Long Reads From Two Billiant Minds

This week's lineup of deep dives is pretty epic, to say the least. If Multicoin's primer on real world crypto use cases wasn't enough, we have two more (mostly bullish) long reads on Bitcoin (BTC) and Ethereum (ETH), the largest cryptocurrencies in existence.
🚀 Five Ducking Digits, By Arthur Hayes
In his latest essay, the former CEO of BitMEX outlines what the Ethereum 2.0 merge (scheduled to happen in June) will mean for the network, post-merge investment opportunities, and how investors can prepare. Long story short, Arthur Hayes is extremely bullish on ETH. In the article, he even articulates how ETH could moonshot to $10,000 before the end of the year.
👑 In Defense Of Bitcoin Maximalism, By Vitalik Buterin
Here we have Vitalik, the godfather of Ethereum, talking up Bitcoin. Many in the space have professed these as rivals, but that couldn't be farther from the truth. In this piece, Vitalik shows off his deep understanding of Bitcoin and what makes it so different.

The New Creator Economy: A Guide On Web3 Creator Platforms

There's probably some cheeky meme out there on Twitter with one hand representing "Web 3.0," shaking hands with another representing "the creator economy." We don't really have the chops (or energy) to do all of that but what we can do is share this report.
Antler's 2nd Annual Creator Economy Report provides a brief introduction to the creator economy, an overview of its latest developments (think YouTube or TikTok), and outlines where we are today with the introduction of Web3 creator platforms.

"Creators are no longer just the product - they are the new economies."

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REGULATORY FRONT

EU Parliament Passes Privacy-Busting Crypto Rules Despite Industry Criticism

European Union lawmakers this week voted in favor of new measures to outlaw anonymous crypto transactions.
Although person-to-person transactions are not included in the law, payers and recipients of even the smallest crypto transactions would need to be identified, including for transactions with unhosted or self-hosted wallets.
Exchanges such as Coinbase would be required to report users to the authorities any time they receive 1,000 euros or more in crypto from a self-hosted wallet, regardless if their was suspicious activity or not. And we all know that this data will be secured and immune to hackers, right?... 💀
In order to pass the law, the plan must be agreed on by both the parliament and national ministers. In the meantime, speak up.

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