The evolution of crypto and blockchain — a VC perspective

The evolution of crypto and blockchain — a VC perspective

In 2010, Laszlo Hanyecz recorded the first ever purchase of goods with Bitcoin, buying two pizzas for 10,000 BTC. We’ve come a long way since then, where what was worth around $20 is now worth over $100 million. Given the recent rise in Bitcoin’s price, our first blockchain investment in Figure, and forays into the space by Facebook, JPMorgan, and others, we thought this would serve as an opportune time to provide a lay of the land. We’ll dive into:

  1. Terminology — crypto vs. blockchain,
  2. The history of Bitcoin and Ethereum (and what the recent rise of other blockchain protocols has meant for the space),
  3. Fortune 500 sentiment,
  4. Market / VC data, and
  5. Subsectors of particular interest to us.

Crypto vs. blockchain

“I don’t believe in Bitcoin; I believe in blockchain.”

How many times have you heard that one? Too many.

But isn’t Bitcoin a blockchain? Yes.


thought it was a crypto? Also yes.

*scratches head*

Blockchains today form the technical foundation on which applications can be built and cryptocurrencies, or cryptos, can participate. Blockchains bundle data and transactions into blocks, which are validated and permanently recorded on their distributed ledgers. Cryptos are necessary to facilitate these transactions, often taking on the form of tokens (which can be bought, sold, invested in, traded, mined, or used). Without the underlying blockchain itself, however, these transactions would never occur.

As a result, companies in the space generally must employ both a crypto element AND a blockchain element in their foundational structures. Ethereum (blockchain) utilizes Ether (underlying crypto). Figure, our latest investment, operates on (blockchain), which utilizes Hash (underlying crypto). Dapps, or decentralized applications, are typically built on existing blockchains and then implement proprietary tokens.

What folks are really trying to say with the above quote is that they believe in smart contract-enabled distributed ledgers (i.e., Ethereum) over stores of value (i.e., Bitcoin). Crypto (err…blockchain?) pro tip: don’t get bogged down by the terminology.

Colloquially the two terms are interchangeable, and it’s all the same space.


2008 marks the year that Bitcoin’s whitepaper was published by one Satoshi Nakamoto, who to this day remains a mystery. Early 2009 witnessed the launch of Bitcoin’s genesis block (i.e., block 0), mined for 50 BTC. Since then, Bitcoin has gone through numerous ups and downs (in terms of price, popularity, and sentiment) and even shifted personas slightly, initially seen as a decentralized currency away from the purview of a central government to more recently as a store of value, a “digital gold.”

Over this last decade or so, the price of one Bitcoin has skyrocketed from a fraction of a cent to a high of nearly $20,000 in December 2017. While upside potential remains, we’ll refrain from providing Bitcoin price predictions and instead focus here on what’s inherently more fascinating to us — the underlying blockchain protocols. For that discussion, let’s begin with the World Wide Web (WWW).

From 1990 to 1993, a plethora of WWW browser attempts emerged. From CERN (the notorious first mover) and Erwise to Viola and Samba, each came with its benefits — and its pitfalls. They iterated on each other, adding additional OS bandwidth, font capabilities, and hyperlink functionality. Still, none could achieve mass adoption — until Mosaic Netscape (or Netscape for short). Netscape’s claim to fame was the <IMG> tag, which allowed one to insert images inline rather than having them pop up in separate windows like the browsers before it. This allowed web pages to look more like the familiar print media that people were used to.

Why is this notable? Well, the evolution of blockchain protocols feels quite similar.

Although Ethereum is regarded as the first mover in the blockchain space, due to its introduction of smart contracts, several competing architectures and projects have popped up since its launch in 2015. EOS (dubbed ‘Ethereum on Steroids’ by some) is one of these, operating at ~2,800 transactions per second. With Ethereum operating at about 15 transactions per second today, it’s no surprise EOS now touts more users than Ethereum, recently surpassing its predecessor. And as new Layer 2 protocols such as Polkadot and Cosmos sprout left and right, enhanced speed, scalability, and interoperability appear more in reach than ever before.

But, of course, everything comes with trade-offs.

Ethereum maximalists claim that these “faster” protocols are not truly decentralized and, to be fair, they have a point. EOS, for example, is built on a DPoS, or delegated proof of stake, architecture. The three primary architectures in blockchain protocols today are:

  1. Proof of work, which requires enormous amounts of energy to solve incredibly complex mathematical computations — so bad for the environment and unsustainable,
  2. Proof of stake, which grants pro rata rights to token owners to participate in the ecosystem — so plutocracy-driven historically (i.e., anyone who owns more tokens than others will inherently have more say than others), and
  3. Delegated proof of stake, which entrusts a select number of highly-powered individuals (also known as staking agents or block producers) to vote on behalf of everyone in the community — so not truly decentralized and also susceptible to 51% attacks and iniquitous activity via cartel incentivization.

As a result, the question of where to build one’s decentralized apps has shifted into two, distinct options for developers — namely:

  1. Should one wait until 2021 for this entire Ethereum thing to be built again from scratch (coined Ethereum 2.0), where each individual gets one vote regardless of how much they own, and sharding, VM improvements, and a handful of other techniques create (hopefully) a fast, scalable, truly decentralized platform? Or…
  2. Should one discard their Ethereum loyalty, instead proceeding with a platform that boasts speeds capable of mass adoption today, such as EOS, albeit at the cost of becoming a proponent of delegated non-decentralization, the antithesis of what blockchain was intended to be?

The Ethereum folks have stated time and again that they would like to build this the right way — with a truly decentralized governance model, representative of its ecosystem and incentivized to act in the interests of its community as such. While we laud the altruism, the risk with this approach is that developers and users may convert to other protocols in the meantime.

Although being the first mover in blockchain provides its advantages, by no means does it guarantee that you will be the winner, as evidenced by CERN’s attempt at a web browser. We do believe there will be a winner (or winners) here, but which protocol will become the next Netscape remains to be seen.

Enterprise sentiment

There are some prominent fans of cryptocurrency. Zuck likes it — cough, cough, Libra. Elon likes it. Jack likes it. Jamie is…mixed, given recent announcements of JPM Coin and Quorum. And others, like Warren Buffett who has called Bitcoin “rat poison squared,” are not fans at all.

More quantitatively, Deloitte recently published its 2019 global blockchain survey. While the report included many insightful tidbits, the below was particularly fascinating — namely, most respondents now see blockchain as a top-five priority within their respective organizations:

Additionally, blockchain patents continue to be filed at staggering rates. Companies with over 20 patents include: Visa, Sony, Facebook, Barclays, Coinbase, Intel, JPMorgan, Walmart, Nasdaq, PayPal, Dell, Microsoft, and Thomson Reuters. Below are the top five organizations globally by blockchain patents filed:

Geographically, China leads the way, primarily driven by the US SEC being much more stringent than China’s regulatory bodies:

Market data

IDC is forecasting the $1.8 billion global blockchain market to grow quite robustly, reaching $12.4 billion by 2022. In terms of startup funding, we’re seeing more rounds and bigger rounds, as deal count and capital invested in crypto / blockchain projects have hit all-time highs:

However, financings continue to filter in as Seed and Series A rounds. This casts a slight shadow on the space from a VC perspective since investors want assurance that Series B, C, and D rounds will be attainable down the road if we invest early. Today’s landscape has failed to portray this — a telltale mark of a more nascent, risk-tolerant space:

M&A activity has also picked up, with Coinbase acquiring over 10 companies to date, while traditional tech players, such as Airbnb, Facebook, and Spotify, have entered the fold as well.

Sectors of interest

Although over 2,000 digital projects / tokens exist currently, three key sectors intrigue us today:

  1. DeFi (decentralized finance) / fintech. More and more applications are coming forward to disrupt parts of the tech stack here. Anything disintermediating transactions via the removal of middlemen, trustees, and agents is probably worth a deeper look — à la our investment in Figure.
  2. Gaming. Non-fungible items can sell for massive returns. Interoperability between games (i.e., taking your 2D cryptokitty or Marvel character or FIFA created player, which perhaps you’ve spent time and effort to enhance, and transferring its 3D version over to Fortnite) may drive retention in unprecedented ways. And enabling active gamer participation to vote on and alter metaplots feels like the next wave of gaming.
  3. Stablecoins. Bitcoin is durable, resilient, tradable, and portable. But it’s also volatile. Getting to a point where sending $7 doesn’t equate to sending $9 two minutes later is essential. This is similar to the WWW era — perhaps the first mover won’t get it right, but someone will.

Security plays (on-chain identity verification, code analysis, and marketplace detection) and lot lineage / provenance (Starbucks using Microsoft Azure to track coffee from bean to cup) are both areas we’re keeping an eye on as well.


The crypto / blockchain arena is still incredibly nascent, portraying a higher risk profile than even traditional VC, which already represents a higher beta than nearly every other asset class. However, this isn’t the wild, wild west of 2017 anymore. Advancements are being made, protocols are being thoughtful of long-term implications, and Fortune 500 enterprises have begun investing in and building projects in the space. Consequently, we have become cautiously optimistic. While we at Thomvest aren’t going all-in quite just yet, we remain intrigued by what this digital, tokenized future holds in store.

Special thanks to Adam Mastrelli, Darion Lee, and Sebastian Zhou.

If you’d like to chat, please shoot me a note at kareem[at]

The evolution of crypto and blockchain — a VC perspective was originally published in Thomvest Ventures on Medium, where people are continuing the conversation by highlighting and responding to this story.