Sequoia leads $400 million investment in crypto project Polygon

Sequoia Capital is playing catchup with arch-rival Andreessen Horowitz in the race to invest in what could be the future of the internet — so-called Web3.

The Silicon Valley venture capital firm led a $450 million investment in Polygon, a blockchain network.

Blockchains are the distributed logs of transactions that underpin many of the world’s major digital currencies. They are maintained by a network of computers, which have to reach consensus across the whole system to confirm transactions and mint new units of currency.

Polygon serves as a support layer to Ethereum, the platform behind the ether cryptocurrency, helping it process transactions at scale.

The Ethereum network is different from bitcoin’s in that it supports applications for things like non-fungible tokens (NFTs) and decentralized finance (DeFi) services, not just peer-to-peer transfers.

Over the years, the Ethereum blockchain has become congested as more and more users have piled in, resulting in slower transaction times and higher processing fees. This has led to the creation of so-called “Layer 2” network like Polygon, which aim to take a load off the main blockchain.

Polygon sits on top of the Ethereum network as a proof-of-stake blockchain. Whereas Ethereum uses power-intensive crypto mining to verify transactions, participants in Polygon’s network just need to show they hold some tokens — in other words, a “stake” — to become validators.

The result is much faster transaction times — in the thousands per second, according to Polygon. In comparison, Ethereum’s network can handle about 15 transactions per second. Polygon says it’s completed over a billion transactions to date and has around 2.7 million monthly active users.

Ethereum is embarking on an upgrade, called Ethereum 2.0, that would make it faster and more efficient. The upgrade still has a way to go before becoming reality, but some experts fear it poses a threat to Polygon. For its part, Polygon says it expects demand for blockchain scaling services to remain strong even after Ethereum 2.0 is implemented.

Polygon co-founder Sandeep Nailwal says he sees the company becoming a decentralized version of Amazon Web Services, the e-commerce giant’s cloud computing arm. Polygon’s grander ambitions form part of a movement in the crypto world known as “Web3.”

Web3 is a hazy concept in tech that refers to efforts to build a more decentralized version of the internet based on blockchain technology.

It’s generated quite a bit of chatter in Silicon Valley. Twitter co-founder Jack Dorsey has criticized it as a “centralized entity” controlled by venture capitalists, while Tesla CEO Elon Musk said it seems like more of a “marketing buzzword” than reality.

“Web3 for me means ownership, censorship resistance and verified compute,” Nailwal told CNBC. Whereas companies like Facebook or Twitter control their own computations,…