In the six-or-so months since the monumental collapse of Sam Bankman-Fried’s crypto exchange, FTX, media attention on cryptocurrency cooled significantly. However, the technology behind the scenes, called blockchain, could change how the world handles data. And its use-case in the internet is touted as an evolution similar to the dot com boom, known as web3.
Although, this upgrade to the net is undoubtedly going through a rough patch. The SEC recently charged FTX’s biggest competitor, Binance, with selling unregistered securities. However, the jump from web1 to web2 had issues, as the dot com bubble eventually burst. But it recovered to become the global infrastructure that is the internet we use today.
What was the dot com boom, and how did it crash?
In the late 1990s, everyone raced to get their business onto the internet. According to Investopedia, the advent of the commercial internet was the most significant and fastest capital growth the US ever saw. At the turn of the 21st century, venture capital firms had inflated the Nasdaq to a bubble on the brink. By March 2000, the index had over 5,000 listings thanks to speculative funding in hopes of turning a profit.
Many businesses had seen their stock prices inflated to two, three, and sometimes four times the IPO in hours. However, like the recent crypto crash, the hype eventually died, and the bubble exploded in a spectacular catastrophe. Many of these companies had no method to generate revenue, let alone profits. And once the initial funding ran dry, companies started folding seemingly overnight. According to Time Magazine, the Nasdaq lost nearly a trillion dollars in less than a month.
Web3 is going through similar growing pains.
The dot com bubble should sound familiar if you’ve followed cryptocurrency through its massive rise in popularity and subsequent crash. The advancement of decentralized financial technology created hype surrounding tech not seen since the dot com era.
Throughout 2021, the cryptocurrency market saw unprecedented media attention and a massive explosion in crypto investments and startups. Billionaire tech mogul Elon Musk’s vocal interest in the Shiba Inu-themed cryptocurrency, Dogecoin, largely drove the hype machine.
And on the day Musk appeared on NBC’s late-night sketch comedy show, Saturday Night Live, Dogecoin hit its all-time high. The altcoin went from $0.009 at the beginning of the year to about $0.73 in around four months. Now, a little over two years since the “moonshot,” Dogecoin sits at just over $.065.
Post-moonshot and the throes of crypto winter
However, Dogecoin’s rise and fall only paints a small part of the picture. Beyond the media frenzy around Doge and, eventually, Sam Bankman-Fried, crypto investment firms started bleeding funds. The burst began with the de-pegging of the Terra USD stablecoin. The instability led to the collapse of Terra Labs and an international search for its founder, Do Kwon.
In the aftermath of the Terra Labs meltdown, several crypto hedge funds and investment firms fell like dominos. After the collapse, Three Arrows Capital (3AC) defaulted on a nearly $670 million loan from the DeFi broker Voyager Digital. Both companies closed their doors shortly after the default, and 3AC’s founders, Su Zhu and Kyle Davies, briefly went missing. Davies and Zhu recently announced a new crypto venture using the 3AC name to extreme skepticism from the crypto community.
Like the dot com boom and eventual bubble, crypto startups with large loans in initial funding couldn’t pay them back. Although, several high-profile crypto executives have recently run into trouble with the law. Regardless, blockchain and web3 remain incredible advancements with nearly limitless use cases for decentralization and data management. But its misuse and hype-fueled funding caused it to experience growing pains like the dot com boom.
