a16z Podcast - a16z Podcast: The State of the Bitcoin Ecosystem, and a Theory on Satoshi

Episode Date: March 20, 2014

Andreessen Horowitz's Chris Dixon and Balaji Srinivasan discuss the state of the Bitcoin ecosystem now that the Mt. Gox dust has settled. What's next in crypto-currency, and a theory on Bitcoin creator Satoshi (not Dorian) Nakamoto.

The content here is for informational purposes only, should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, this is Chris Dixon. I'm here with Bologi, Shrna Vosson. This is the A16Z podcast. Today, hi, Bologi. Hi. Hi. We are going to, we have a list of topics. topics. However, one of the topics is Bitcoin, and knowing you and me, we should probably just talk about that, since that's all we ever talk about. That sounds good to me. So what do you think, so I'm looking at my list here, now that Mount Gox has settled, what's your sort of assessment of the current state of the Bitcoin world?

I think, you know, that'll be viewed as a historical speed bump, really. I think that Bitcoin is an international phenomenon, and the momentum behind it is just so strong. What do you see is the key driver of the momentum? So, for example, like right now, one metric that we're tracking is the number of users of Bitcoin, right? And if you look at blockchain. Not info, it's got charts of the number of people who are using wallets. Coinbase has disclosed some numbers. Probably the number of worldwide user of Bitcoin is on the order of like 3 million-ish, maybe 5 million.

And so it's still very early days, right? Ultimately, you know, you're going to get to 10 million, then 100 million, then maybe a billion Bitcoin users. And so you've got, like, room for 1,000 X growth left. So it's still very early days in this space. What would you say to people, though, who say, yeah, the 3 million geeks using it, how are you going to get 100 million normal people using it? Well, because, you know, to quote Chris Dixon, the things that geeks are doing today

everyone will be doing in 10 years. If we recall, you know, back in 2000, there weren't. that many people who had mobile phones. But what do you think the driver will be? Will it be payments? Will it be store of value in countries that have unstable currencies? Absolutely. So I think that – so the Goldman Sachs report that came out about, you know, a few days ago, I think is a really good –

I think illustration of what at least one of the first major applications is going to be. So while the report had people who were skeptical about Bitcoin and had people who were positive on Bitcoin, the graphs were pretty interesting. And one of the graphs showed that there's an opportunity for $210 billion, with a B, in savings for payments going through Bitcoin in the space of retail, e-commerce, and remittances. And so that's a large number. And so that's the kind of thing where, you know, hundreds of billions of dollars says first application is pretty good. So payments, I think, and just reducing credit card payments is one definitely major application for the next few years. but um and so what and what do you think we need as a community we need to be building to get there um so for example one thing mount gox would point to is better um sort of uh you know compliance slash security for um you know sort of custodial services for bitcoin better exchanges like what would you yeah so i definitely think there's going to have to be like a u.s exchange at some point that is you know regulated and and so on and so forth.

In terms of technology, I think that one thing where I have yet to see a really good one, or at least one that I like, is a really good mobile wallet. I think that's a very important component of... Well, it's because it's Apple bans them. Exactly, that's right. So you're not going to get them on iOS. I mean, Coinbase is an awesome mobile wallet. I have it, but you had to have gotten it before they banned all Bitcoin.

Exactly. That's right. So this is actually one of the things I think that, you know, is going to actually lead to a, I mean, it's a killer app, right? Like, you know, locking down Bitcoin on the iOS platform. is going to be, I think, seen in like three years as one of the more short-sighted things that could be done because it's going to be such a big deal. And so it's the kind of thing that could push people off of the iOS platform and towards other things, I think, because it's being banned.

But I think... They banned even, it was the website the Fancy accepted Bitcoin payments and they banned them accepting them in their app. Yeah, because, I mean, anything that is a route around 30% kind of tax is something which which is going to be disadvantagedism in the short term, but there's other ways to monetize, and I think that will be seen as a bad decision in hindsight. But, yeah, so I think a really good mobile wallet,

so that's why, you know, cyanogens and investment of ours, right, like something like that, an open source Android that permitted not just mobile wallets, but no app store approvals and so on and so forth. I think Bitcoin... But Android, Android, the store, they allow Bitcoin. They do, but, you know, the... You still have to go through an approval process and whatnot for it.

like a totally unlocked phone that also had unlocked payments. I think we're going to see something like that, whether it's Cyanogens and the OPA, whether it's a Firefox OS, whether it's something else. I think there's a real interesting aspect to having an unlocked phone with unlocked payments in the future. So, but yeah, so in terms of... So we need an exchange, we need a killer, sort of killer mobile apps.

Yeah, killer mobile wallet. I would say that we... One thing I'm looking at is this sort of white pages for Bitcoin. Right, like, you know, like there's a site that just did this. They saw, like, the tweets that we were putting out and did like one name.io. And so that's interesting. What's interesting there is that the data is actually stored in their own block, in the name coin blockchain. Oh, I didn't know that.

Yeah, one name, yeah, yeah. Interesting. That's an implementation detail. Okay, I didn't realize. No, it's in the name coin blockchain. And so it's, you know, got all the virtues of a distributed blockchain, yeah. That's very cool. So the aspect that I was thinking of it as, which is somewhat complementary, was there's all these different social identities that we have.

We have Facebook and we have Google and we have, you know, Twitter and so on and so forth. And each of these, one thesis is that each of these is going to have each of, so you've got one person and they spread out into K identities across social platforms. Then each identity, one thesis is that they each spread out into N wallets and each of these wallets. basically within these systems, it performs like a different function. So, for example, on Twitter, you'd have some wallets, and they'd be used for tipping people. On Facebook, you'd have some wallets and be used for paying friends, like a Facebook PayPal with Bitcoin. With Google, your wallets linked to your Google account would be used to pay your Google storage, or maybe to send money to people in Gmail and so on and so forth.

And so this concept of taking all of your social identity layers and social aughts and linking them to corresponding Bitcoin wallets would also be interesting because then you could just type in on a web widget, find your friend's name, and it would auto-complete with their Google or Facebook or Twitter or whatever profile that you could enter and you could send them money via BTC. And you never have to see that alphanumeric string, which is not memorable for their Bitcoin wallet. And you wouldn't necessarily even need to see their Bitcoin wallet because the service would abstract that away for you and just pay the person, right? So I think some service like that, like a white page is for Bitcoin, is going to be important

to make it more accessible to normal people and integrate it with existing social services and bootstrap from that. It also makes it more viral. you know, Bitcoin is inherently viral, like PayPal, like email, like Skype, like Facebook, because when you send Bitcoin to somebody else, you're telling them, download the Bitcoin client, right, to accept Bitcoin, just like you say, download Skype to do a Skype messaging thing. Let's talk about the app coin concept. So Naval had, which I think you sort of helped him or co-authored with him, this very interesting blog post, which I think still, like even in the tech community, is this stuff

that we're talking about is seeing as fringe. I predict that we'll be seen as a prophetic blog post in five years because one thing we've seen as VCs is a lot of people come into us. So I think of Erbit, Ripple, people coming in with new business models where it's basically open source software slash services where the monetization happens through some scarce namespace. So Erbit has a, has sort of a URL-like schema. Ripple has their own currency.

I think this would apply to Namecoin, for example, if they caught on as an identity system, the currency would go up in value. So it potentially is a new business model on the scale of, you know, which could lead to innovation on the scale of sort of open source software. So, yeah, so I think that's actually, it's going to be very interesting on a few different levels. One thing I wanted to just do is like, you know, just for the benefit of the audience is just interesting to say Bitcoin apps versus app coins. So Bitcoin itself, there is the protocol for sending BTC back and forth. and, you know, the blockchain and so on.

Then there's apps that are built on top of the, you know, current blockchain and current mining and so on. So, for example, proofofexistence.com, which uses the blockchain as a notary public or some of the tipping apps and so on and so forth. Those are apps that are Bitcoin apps. They're using the Bitcoin blockchain. And then, you know, using your typology, you've got alt coins like dojo coin and light coin and whatnot, which don't really differ from Bitcoin except in parameters like, you know, time between approvals or the number of total BTC that are out there or LTC. Dogecoin does differ in the sense that it's got an infinite amount of Dogecoin, so it's meant to be less stress than Bitcoin, but they

don't fundamentally differ from it. But the fourth category, so you've got Bitcoin itself, you've got Bitcoin apps, you've got old coins, and the fourth category of app coins, the thing is distinct from Bitcoin apps because, A, they're using a separate blockchain, and B, they're implementing a function. So, for example, Namecoin is implementing a function of, like, you know, basically distributed DNS. And the reason is, they're using a separate DNS. And the reason I think app coins are so interesting is that they are a totally new way to do funding monetization and exit. That is to say you can in theory have an open source project that is funded by these coins that are being pre-mined and how would people actually run them, run this open source

project. Let's say you've got a server instance, like a distributed Google, a distributed Facebook, anybody who runs at server instance in order to access it, you have to pay them a small amount of, you know, these diaspora coins, for example, if it's distributed Facebook. And so it becomes more valuable as more people are running the software, and using coins would be a way that it's like not just buying equity in the company, it's also a way to use the services of that company, right? So the reason this is interesting, there's a lot of different angles on this, that's just one angle on how you could use app coins.

The reason this interesting is, to relate to something else you posted on recently, it's related to this concept of the full stack startup, but it's like the first full-stack VC. We'd actually control exits as well as, you know, in corporation. We wouldn't have to, you know, like, do an exit on Wall Street necessarily. You would be liquid permanently through the mechanism of the app coin. You'd always know the valuation of the company. It would be a public, in a sense, not a public market in the SEC sense, but just public in the sense of a valuation that was assigned by a global market. And there's a lot of interesting aspects about that. It takes, it fixes a lot of the pathologies in the system right now. So last topic we'll talk about just because it's in the news is Newsweek's article on Satoshi. Yes. That was awesome. That was a great launch event for our new version of News Genius. Basically, as readers may know...

It was funny. If that Newsweek article had appeared on Reddit, it would have been considered like a third-tier Satoshi theory. Yeah. But somehow you stamp the word Newsweek on top and the exact same sort of base of evidence. become something that people actually I thought the whole thing was comical

It was ludicrous I think from the beginning because basically anybody who had a familiarity with what Satoshi had done and his writing and his code

and so on it's almost the inverse of Newton right like Newton had you know seen a he had published

something anonymously and when people I'm not sure actually if it was he published something or he'd seen another mathematician but he said

you know you shall know the line by his paw that is there's a famous solution to an equation and it was clear that the person who was doing it was also a very skilled mathematician Yeah, I think he was talking about it was like Bernoulli's equation

Something like that, that's right I forget the exact details of it But this is the inverse of that, right? You have somebody who is, you know, very nice guy or whatever, but just does not have the anything in his track record I thought the, yeah, the only interesting thing to me was the sort of sociological observation

that people that don't come from computer science It would be almost like saying, wow, that guy speaks in English he could have written War in Peace. Exactly. Exactly. That's right. People don't realize just how. Gradations of talent.

And crypto, for God's sake, is like the ultimate, right? I mean, this is like, you know, there's like 10 people in the world who could, who could, you know, plausibly invent crypto at this level. Plus distributed systems plus, like, internet stuff. The guy was internet native. Like, clearly he'd been posting online. Like, you had to be internet native to write that thing. Absolutely. And the thing is it wasn't just even, so it was cryptography.

and distributed systems, but it's, like, so difficult to build a new distributed protocol given that you're going all the way down to the level of the hash functions and so on, and then all the way up the stack to, like, timing attacks. Well, and you have to game theory it out so many levels, right? Which actually makes me think it had to be a group almost, because, like, the game theory it out against all the different attacks. It's really amazing, but, you know, one of the things is that I don't think that any of the candidates for Satoshi is a real candidate, because there was a remark that Satoshi made

in one of his things where he, Rather than saying six degrees of separation, like in terms of a social network, he said six degrees of freedom. It was a very interesting typo. And that combined with some of the other things makes me think that Stoci is a physicist by training. He's a quant who worked on Wall Street finance and learned proprietary trading algorithms and so on that way. That's a hypothesis that fits with everything that I know. And I think that's like the most likely demographic for who this guy could be. but

anyway Certainly not that poor man His life was ruined Not Dorian I mean like The other part about it It was the most ludicrous aspect is This guy went to such lengths

To keep himself anonymous He used That he used his real name Yeah exactly That he used his real name It's like it's like the most insane Kind of thing It's a third tier Reddit theory

It's like It's like deep throat It was actually This guy named deep throat Yeah exactly That's right But what was it I mean like the

One thing My final conclusion on that one, which was pretty interesting, is I was thinking, isn't there somebody at Newsweek who, like, you know, could say that there was, you know, like an issue here, somebody who knew technology and so on, didn't realize, no. There's nobody who was doing technology. Well, part of it is just their general dismissive view of technology. Like, they always call us geeks instead of, like, computer sciences or something. Like, it's just general dismissive view of it.

And, like, we don't actually need to have people on staff who understand it. And we can just publish random stuff. Right. Corroboration. And related to this is also, you know, one thing I've seen, increasingly is there's a very strong distinction between people who can evaluate code or mathematics by actually looking at the symbols and evaluating it versus people who can only evaluate things by personalities and social proof, right? And if you have the former, you don't need a ladder.

And if you don't have the former, you rely on the ladder as a crutch. And so that's why, you know, people, it was almost like a dual thing. Not only were they relying on Newsweek, they were just relying on Newsweek's, you know, interpretations of this person and who said it was important to say it was him. Whereas we were just looking at the code and we're like, just absolutely no way that this guy could be doing it anyway so okay good thanks thanks thanks