The a16z Show - a16z Podcast: Seven Trends in Blockchain Computing

Episode Date: May 7, 2019

In a followup to one of our most popular podcast episodes which originally aired in April 2017 (https://a16z.com/2017/04/03/cryptocurrencies-protocols-appcoins/), a16z Crypto Fund General Partner Chris Dixon returns to talk with Olaf Carlson-Wee of Polychain Capital in a free-wheeling conversation about the seven major trends they see happening in blockchain computing now as we shift from basic protocol design to pragmatic product launches: Improving developer productivity Scaling out versus scaling up On-chain governance Proof of Stake Networks, and especially their resilience to attacks 2017: year of of fund raising, 2019: year of launches Autonomous and re-mixable code Killer apps: distributed finance and beyond This conversation was originally recorded for our YouTube channel: https://www.youtube.com/c/a16zvideos The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates.This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investor or prospective investor, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund which should be read in their entirety.)Past performance is not indicative of future results. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Please see a16z.com/disclosures for additional important information. Stay Updated:Find a16z on YouTube: YouTubeFind a16z on XFind a16z on LinkedInListen to the a16z Show on SpotifyListen to the a16z Show on Apple PodcastsFollow our host: https://twitter.com/eriktorenberg Please note that 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. a16z and its affiliates may maintain investments in the companies discussed. For more details please see a16z.com/disclosures. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

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. Welcome to the A16Z YouTube channel. Today I'm here with Oloff from Polychain, our good friend Oloff. We're both longtime crypto currency enthusiasts. Maybe if you don't mind, We'll just go back a little bit. You were employee one at Coinbase back in what year was that? 2013. Okay. And I guess you got interested in crypto before that? Yeah, so I was in college when I got into Bitcoin and I wrote my undergraduate thesis on Bitcoin in 2011. And what first got you excited about it? So when I first read about it, I thought there's no way this is possible to have a native internet money that isn't controlled by any sort of central party.

So I found it fascinating on its face. sort of technically... Yeah, but then once I dug into it, I kind of thought about the nth order implications, and you realize this is a huge deal. It means that for the first time you can have digital scarcity on the internet, and of course you could move to a global, unified financial and monetary system that's outside the scope of any sort of sovereign state, political control, and is really opt-in by all the users.

So the general idea was just really fascinating to me, And I really did right away sort of like buy as much Bitcoin as that. But that was back when Bitcoin was kind of the dominant idea and everyone thought the kind of main thing you could do with this kind of new architecture was digital money. Since then, the kind of possibility space, at least to me, feels like it's expanded dramatically. Yes, it has. And so to me, the big moment was when Ethereum launched. For me, I started seeing a big breakthrough in my head was when I realized that, Ethereum wallets were actually more like browsers than bank accounts.

And I started seeing some stuff get built on Ethereum that people in Bitcoin had tried to do for a long time. In Bitcoin, you only have one asset, which is Bitcoins. People had tried to build other sorts of tokens or assets that would settle to the Bitcoin blockchain. And there were projects like Mastercoin, counterparties. We funded this project Lighthouse. Oh, yeah. Oh, yeah. And that was basically decentralized crowdfunding.

Yeah. It was crowdfunding on Bitcoin. It was just very, very difficult. I mean, Bitcoin has decided, perhaps correctly, to make, sort of, to trade off the expressiveness of the programming language for increased security. So they have a very kind of weak programming language. Very deliberate, though. Which provides, I think, perhaps better security and kind of, you know, kind of, it's more conservative kind of development path. But as a result, it's very hard to build, like, crowdfunding.

And I remember when Ethereum came out, it was, like, literally one of the, like, 20-line, you know, pieces of code on the homepage. This is one thing is I think people really underestimate how much the developer abstraction matters. So it took my Kern something like eight months to build Lighthouse using Bitcoin scripting. The Ethereum ERC20 system, like you and I could practically do this on our cell phones now.

I mean, it's... And that layer of abstraction opens up use cases that I think... I think people underestimate how big a deal it is to extract. It's the same with all computing. Like, you could have done... You know, there were mobile phones that had GPS and cell phone connectivity pre-Iphone, but the iPhone made it so the app developer didn't have to understand any of that stuff worked, right? You could focus on recruiting drivers and building, like, a beautiful UI.

And to me, like, I mean, obviously the iPhone, there was a bunch of great things about the iPhone and Android and what made smartphones take off. But a lot of it was that they figured out the right abstraction layer for the developers so that you could get a million apps, right? Yep. Yep. and a whole bunch of kind of creativity that happened as a result of it. And I actually think we're going to see the next wave of that now with WebAssembly or Wasam because there have been problems with the Ethereum solidity language, huge security problems, and there's not actually as much expressivity as people think there is.

It's still limited to solidity. Even one other language was basically found to be totally insecure. So I think that these VM systems moving towards a WASM compiler, and this is like Pocodot, DFINITY, E WASM, so like Ethereum 2, I think it's a really big deal. So just to explain to people, so Bitcoin comes up with this new kind of architecture that I think of as, I think it's frankly mischaracterized today as a ledger. I think of it as a computing platform.

So what seems to be a computer and a ledger, a ledger is more like a hard drive. A computer is a hard drive plus a processor. Yeah, yeah. And Bitcoin has a processor. It's just a processor that has a limited range, deliberately limited in the applications it can run. And it runs, the main application it runs is the thing that moves Bitcoin's around, right? Ethereum says, hey, let's take that processor and let's expand it a lot.

But as you're saying it does, it did it. They developed their own programming language solidity, which is kind of JavaScript-like, but it's kind of eccentric. And just so people don't know, WASM, so that's WebAssembly, which is now baked into every browser. And so it's sort of, you know, they're now billion. of computers that run WASM natively, and it will soon become,

there already is, and it's going to continue to become the most dominant kind of runtime environment for software in the world. And what that means is now that all the blockchains are supporting WASM, that means that all of these compilers that are built from other programming languages,

you know, Python, Rust, whatever, pick your favorite language, you already have, you get to piggyback off of all of the tooling that's been built over the last 20 years to the other programming languages. So you make it a much more, kind of familiar experience of developers.

And so instead of needing to learn solidity, which is, again, this custom language, it's a pretty new language in the scheme of things, you can use your off-the-shelf favorite programming language. You know, to me, this is a similar step function that we saw from Bitcoin scripting. Well, see, it's not just a programming language then. It's also like, it's like, you know,

the great thing about Python is not just like there's 10,000 GitHub projects or, you know, formal verification. So just as an example, like, why does it take a long time to release in Ethereum project today? Like, I think at least half the development, development time, probably a security audits. Yeah. Right.

And that's because, you know, you've got this really kind of this new programming language. People don't fully understand it. There aren't these kind of tools around it. Yeah. And suddenly you switch to something like Python. And you've got just like 20 years of, you know, for whatever, 15 years of incredible tools that are built around that environment. Yeah, that's exactly right.

And so to me, this is one way that we're building useful abstractions to make this even easier to ship like end-user applications. Yeah. Yeah, I mean, the big thing's happening now, so I guess kind of jumping forward. So I think you and I probably see it similarly. There was kind of the first era, which was Bitcoin, but it was sort of the main, the only thing, really,

in that first era, one of the only things. Then there's sort of the Ethereum era, which just sort of takes this idea of digital money and expand it to blockchain computers, right? And now I think what we're seeing over the next 12 months or so, maybe 12 to 24 months, is the kind of the wave three happening, right, which is taking the ideas of Ethereum,

upgrading the developer experience like you just discussed, very importantly, upgrading the scalability, which means multiple things, it means more. It probably basically means what we call on traditional venture capital, scale out, not scale up.

So instead of getting scale by adding more a beefier computer, you can get scale by adding more computers to the network, right? Which lets you kind of expand linearly with the demand. And that requires what's known as sharding or some sort of parallelism

that lets you run. And that's what, a lot of these new projects. They're doing better developer experience with things like WASM and just all the other tooling around it. They're building parallelism in from the start, right, as opposed to having to upgrade later. And what else is...

I think a third one for me is they're often building the ability to upgrade the protocol into the protocol. Yeah, yeah. So the governance of the protocol itself and also the governance of the smart contracts. Yes, exactly. So to me, Bitcoin and Ethereum, and maybe, you know, very much intentionally, have not had formal systems to upgrade themselves.

And that's because it does open up a potential security threat to the system. If it can upgrade, then who controls that upgrade process? But if you can adequately design an upgrade process that is controlled by the same people that already control the consensus layer, you know, it's an equivalent threat as baking a bad block or something like that. So to me, you know, the ability to say, actually, there's a better system, let's upgrade and move to that system in a coordinated manner. You know, I think that's really exciting. The way I think of that is there's always a trade-off between the security of the system. And the very promise of a blockchain computer to me is that it's making a commitment that the code will continue to run as designed. There's sort of game theoretic guarantees.

And you want to, of course, maintaining that commitment is very, very. important. But there's a trade-off because software also, as we know from, you know, decades of experience, A, has bugs and needs to be fixed, and B, benefits from, you know, from sort of iterative upgrade cycles, right? And so how do you balance those two things? And so Bitcoin Ethereum kind of took the extreme kind of conservative route, which said the only way to upgrade is to kind of get a whole bunch of people to just literally upgrade their software simultaneously, which led to all these kind of offline things, including sort of famously the Bitcoin Civil War and then the Ethereum fork, which was very contentious. And so they were kind of built in a way to be very

conservative with their governance method, I think of it as. And so how do you find the right balance and the people are experimenting and trying new systems to get a better balance, maybe? So I think a big part of this is there are actors in the Bitcoin and Ethereum and other other crypto systems that are part of what defines like the reality of those systems. And so you could call these node operators in Bitcoin. Minors obviously have rolled a plane in proof of stake protocols. It's very much the token holders who are staking. And we've seen really, really strong participation. So in a lot of these delegated proof of stake protocols, you see, you know, 70, 80 percent of token holders participating in consensus.

So they're already defining what is the latest. block in the blockchain, they're already defining the rules of that computer. So in my mind, you know, how can we say we're going to use a decentralized mechanism to come to consensus about the computer state, but we're going to also say it's impossible to come to a decision about how to change the rules of the computer. So I'm very skeptical that we can't achieve very secure on-chain governance. I think we can. And to me, it's a very big deal, because if you get governance right, in theory, everything else should be a sort of waterfall down from that. And you can do very exciting things that I think we haven't done.

You know, I think a big problem for both Bitcoin and Ethereum has been funding of core protocol development. So application developers have found all sorts of ways to monetize. You can go raise a VC round. You can do a token sale. There's lots of money sloshing around in general if you're building on top of these protocols. But Ethereum has this weird problem where there's probably 100. the number of developers building apps on top as there are building core protocol stuff for Ethereum. And so to me...

Well, that has to do with the history of Ethereum, right? So there was a foundation, which has a certain amount of money, but there was never kind of a structure set up. Yeah, there's no structure. And in reality... Set up to continuously fund the development. And in reality, there needs to be some sort of... Basically, like a tax system. Yeah.

Where if I contribute to the core protocol and create all of this value... What Zcash does, what they have inflation baked into the protocol. and some portion of that goes to... Which is kind of crude. Because their system is, you know, it's designed around one team. I don't think it's designed to last 100 years and its current implementation.

In their defense, I don't think they do either. Yeah, yeah. I mean, I think that they think of it as a MVP to a better... Yeah, to a better system, yeah. And so in my mind, the ability for developers to contribute new protocol suggestions

and basically add a build to them. Yeah. So then I could say, if this gets merged in and this actually becomes the new version of the protocol. Me and my development team are actually going to inflate a certain number of coins. They're just going to be created. It's like dilution, basically, for the existing holders,

and they're going to be rewarded to us. And because this is a long-term iterative game between all the token holders and the developers who are going to contribute code of the protocol, it's actually in the token holder's best interest to pay them and say, okay, we're going to pay you guys what I accept as an Ethereum holder, like a 1% dilution to ship Ethereum 2? Absolutely, right? It's a no-brainer too.

And so if you could create 1% of the Ethereum tokens, you know, and grant those to the development team, today that's like, what, $200 million? It's a large amount of money. What do you say to the skeptics who think that proof of stake, governance will devolve into either like a blotocracy on one hand where the big, you know, the big investors or whatever, like, you know, whatever, autocracy, like, you know, kind of control for their own interests? and then or alternatively are vulnerable to bribery attacks and other kinds of... Yeah, so I just think that we have relatively at scale proof of sake systems today. Yeah, this argument seemed better 12 months ago before... Yeah, that's my thing. It's like you see Tezos and Cosmos, it's like if you can get away with these attacks,

there are $100 million bounties to go do them. Yeah, I'm just... Yeah, I'm a big believer in economic incentives for these bug bounties. I mean, if you can attack Tezos and break concerns, census and get bad blocks through. I haven't followed the taso. So that's mostly other people. I'm sure there are people trying to attack it.

Oh, I'm sure there are. And I'm just like there's people trying to attack Bitcoin all the time, right? And these are our highly adversarial environments. But in my view, proof of stake to me has a few features that I really like about it. So one, you have node operator and minor type participants and token holders. And in the Bitcoin system, we've actually seen cases where these parties don't have the best interest. in mind, like there's not a perfect overlap for their interests. And so in a way, you could argue there's like a check-in-balance or something like that.

But in a system like Tezos or Cosmos, those are the same people. So the token holders are the validators. And I think that just means in general there's going to be a better alignment of interests between the block producers and the token holders. The second thing is that if you attack a proof-of-stake network, mitigation of the attack after it happens is significantly easier. So if you come in with 51% of the coins, and in most previous sake, it's actually 34% of the coins is enough to attack, and you start doing bad things, right? Bad blocks and stuff like that.

The minority people here can really just hard fork the chain and delete your coins and keep going. However, the reason they can do that is because that attacker's validation was intra protocols, like within the protocol, so you can delete their stuff and move forward. If you do that with hardware and proof of work systems, you actually have to change the hashing algorithm for the entire proof of work chain and burn everything to the ground, like for the good guys and the bad guys. Because you have to fork so that the hardware is now bad for everyone. And so you have to basically punish the good guys and the bad guys to mitigate a proof of work for the next.

So in a proof of work system, summarize that. In a proof of work system, the worst case scenario is your attack doesn't work. In a proof of stake system, the worst case scenario is you, lose all of your, not only your attack doesn't work, but you also lose your entire life savings in that protocol. So it's a much more punitive measure. Well, it's, it's, it's, it's, it's, it's disproportionately punitive to the bad guy. Yeah, yeah, yeah. By the way, and so I'd add also the thing about proof, I mean, besides, there's also like the energy use is not, yeah, like, doesn't, you know, Bitcoin mining destroys all this, use waste all this energy, it deliberately does, but

it's still bad. Also, very, for me, is a critical thing is, you talk about, like, developer experience and user experience, you just simply can't have, like, subsecond transaction finality and a proof of work system. Yeah, yeah. Like, so Bitcoin, like, you really need to wait. You know, each block is 10 minutes, and it has to do with the coordination among the network and the network propagation latency and things. But also, it's a probabilistic method, so you really have to wait probably 60 minutes, if not

longer. And from a user experience point of view, you know, if I send you, and it's the same with the theorem today, it's proof of work, you know, and you go, if you download a coin-biz wallet and you try to use some of these apps, there's a lot of really cool apps that's early But you've got to wait 30 seconds after you click a button. That's not a modern user experience. And the only way we're going to get to modern user experience is through these kind of proof of stake systems. They have all these kind of different methods that get much faster transaction.

So just I think a whole bunch of reasons why. Sharding, you can't, no one that I've ever heard of knows how to do sharding and proof of work. So perilous of scaling, all these other things we're talking about. There's a reason that every, you know, I think 2017 was a major year of fundraising. And 2019 is a major year of launches. And there's a reason that every blockchain that's launching today is mostly using proofs stake. I mean, with the exception of Grin and things like this, right? Yeah.

But those are all just simple transactional, they don't have smart contracts, they don't have really scaling solutions. Yeah. Grin is not, is very much focused on private payments and scalable payments. It's not trying to open up a suite of new applications that were not possible with folded protocols. Which to me is the really exciting thing. You know, it's what is possible that we haven't seen happen today. Because even the Ethereum developers, you know, when they shipped the protocol in 2015, I don't think any of them could have conceived of the whole ICO wave. And, you know, that was like 12, 18 months away.

And it was still hard to see that that was coming. No, and to me, this is what makes computing interesting, right, is there's this interplay. If you go look at the PC, the internet, smartphones, I think we're going to see it's with crypto. I think we're going to see it with VR in a couple of years. There's this interplay where you get the platforms get better. In this case, we're talking about Layer 1 smart contract platforms, right, which are the ones we're talking about that are like coming out over the next 12, 18 months. And those are kind of the equivalent of the Apple 2 or the iPhone or whatever in this world.

But to me, and that's cool. That's great. And we're into that, right? But the really cool part is all of the crazy stuff that people, like no one imagine. It's really funny if you go back and look at the early like Apple 2 ads. So Apple 2 came out in 77. You know, PCs didn't really take off for stuff. six years. And for those six-year peer, people were trying to figure what do with these things.

And all the old ads are really funny. They always have people at the kitchen table, doing their recipes, and, like, computer companies didn't really know. But then the developers came along and invented word processing, spreadsheets, you know, all this other cool stuff. And so that, that to me is what's really, like right now we're seeing a little bit on the application side, but it's limited because the platforms, the layer one smart contract platforms just aren't there. Right? So we can't really, I mean, we're seeing cool stuff. We'll talk about it today, like in DFI, for example, to the centralist finance, where the, maybe the performance parameters are looser and things.

They don't need is the kind of performance you need for other things. But what's really going to get exciting to me is that period of hopefully a year or two from now when we've got a great platform and then we just see this explosion of creativity. Yeah, well, and the big thing is people need to untether themselves

from thinking only in terms of efficiency improvements of existing processes. So like early use cases for Bitcoin that people talked about a lot is basically cost savings of remittance or cost savings of micropayments or something like that. But that's really looking at existing use cases and applications like a recipe book and saying, oh, let's put this on the computer.

That's how it always happens, by the way. You look at early web and they took magazines or they put brochures and they put them on the web. But that's just how people think. And then it took people 10 years to realize, wait, this is a two-way medium. You could generate a content in YouTube and Facebook. So what I really care about are what are going to be the native apps that are only possible with blockchains. And also, you know, the other thing is people are very caught on the web to, model. People are talking about daily active users, but of like financial products. It's just

odd thing. So like, are you a daily active user of your mortgage? Right? It's like the wrong framework. It's just the wrong question, right? But, you know, to me, I think we need to. Well, the reason everyone was so focused on DAUs for Web 2 was because the main business model was advertising and that was proven. So it was a proxy for what the business model was, right? But ultimately, if you have a business model that is not dependent on DAUs, that's not your main metric. Yeah, exactly. So to me, I just think we're going to see this iteration and explosion of basically, you know, financial services and finance, but at the speed of open source software development, which is really, really fast. And it's highly iterative. And it's like a big shared, you know, open code repository that people are building on.

So to me, the innovation here is going to be very, very fast. I mean, it already has been, but it will continue to be. And the thing I look forward to is what, you know, what's going to happen that is sort of unimaginable today. And sort of by definition, wasn't possible with the old architecture. I think, you know, to me, one of the, there are many kind of cool sci-fi things in crypto. I think one of the coolest things is the idea of kind of code software that has an agency or sort of autonomous software. So you think about, you know, maker today or compound. and this idea that the code itself actually controls money and has business processes and logic.

And it's not the code that's run by, it's not like Google code control stuff too or PayPal does, but it's not really the code that does it, right? They're just the instrument through which the management of that company executes their will. Here the code itself actually is autonomous, right, and is no longer controlled. This is the sort of idea to me, the key idea of a blockchain is that the code continues to run as design. and it has sort of game theoretic guarantees that it will. Yep. Right?

Yep. And that gives code this autonomous, he's autonomous not in the sense of like AI autonomous, but in the sense of like having agency and self-control and runs forever. As we speak right now, these contracts on Ethereum are running and doing things and, you know, distributing money or collecting money or running other business logic. A rough but potentially useful analogy is thinking about the corporate structure. So like the idea of a corporation in theory is that it kind of runs forever. And management can turn over, and there's different types of capital formation to keep it funding and everything.

And it's all through legal contracts in certain regions, right? So the corporation as a legal entity is always sort of registered with the state in a specific geographic region. And it's all papered through legal contracts. But could a system like that that coordinates capital from many, many different people and outlives any of the individual people, could that move to a pure software system? using, as you said, sort of autonomous software. Instead of these legal contracts that are based in specific geographic regions, can it be sort of sovereign to the internet?

You know, these are the types of ideas that it sounds crazy today. But when you think about this sort of history of the corporation and the liquid stock markets that we have, you know, all of these concepts that we think of as, you know, they've been around forever, they're really only about 100 years old or something like that. To me, then, an obvious question is, why would you want that? And to me, the answers are, one is very important you mentioned before is open source, the fact that all of this, all of these things we're discussing,

they're all available by definition. They have to be, if they're on Ethereum. They have to be open. You can go read the GitHub code. If you can't do it yourself, you can have somebody else do it. Right. So it's completely open. But then another very important feature is this, what we call compositionality,

or composability, is the idea that you can have one organization here, and I can take that. and I can build another one on top of it that references it. And I know I can do, and that's the only reason I can do that a couple of things. One is it's software that you can actually call the functions and things like that. And it's open source, and so I can audit it and trust it. But the third thing is because the code itself sort of exists on its own, I know I can build on top of it and like the code will continue to operate that way.

And there won't be some whimsical change in business strategy, you know, by the owners of the code, right? Exactly. Which to me, like that, like, it just, I guess, and this is informed partly through my experience in non-cryptotech is just so much, there's so many issues created around platforms and around trusting platforms. And so you think about, you know, Zingo building on Facebook and like the hundreds of entrepreneurs who tried to build on top of Twitter. And just like, it would have been so cool if, to me, if Twitter, you know, were the sort of open protocol, the way SMTP email is.

And you could have, you know, someone could build the, you know, the superhuman of Twitter as opposed to, you know, and the anti-span. People are complaining about spam on Twitter. Why aren't there, Why isn't there a third-party marketplace or spam filters the way there is with email clients, you know, or this used to be? And just like all the kind of cool stuff that you get, like, and you see in the open source world now where it's like Lego bricks and you're building these buildings out of the different bricks. And every piece of code is a new Lego brick. And then you get this kind of combinatorial explosion of innovation. Yep. Well, and this is, I think a lot of people get caught up or confused on this.

Decentralization is not an ideological thing. It's an architecture to support that permissionless building. This is why the Internet was so big. if there was like an intranet and Microsoft owned it, like Microsoft MSN, your Microsoft Net back in the day, we would never have seen Amazon, Google, and all these companies grow like they have. So to me, that decentralized architecture of all these systems,

it's not like an ideological thing. It's really just an architecture that allows developers to build anything they want. And as you said, it's all sort of permanent. It's like if every data structure on the entire internet was open and had an open API. We've seen the power of the kind of composability in the open source world now in the traditional open source world, meaning like Linux and Apache and all this other stuff. You know, that has been a phenomenal success. 90 plus percent of the software in the world today is open source. Every, you know, the bulk of the software in your iOS phone, bulk of your software in your Android phone, every data center.

Why is open source done so well? Because you can remix it, right? You can take the piece of code and you can do stuff with it. And it just gets this, you know, it starts off. If you go back to like when Linux came out in like whatever early 90s, it was definitely worse than wind. But then it just followed this much faster innovation curve because of the fact that you can compose these Lego bricks together. And you had just anyone in the world could come contribute, some smart person in some random place can see some bug and fix it, just like all those effects. And now, but the problem was open source still depended on the goodwill or the financial interest of somebody to actually run the code.

And that's, of course, where AWS and Google Cloud stepped in. Like, we're going to actually run it because open source was just code, right? Whereas blockchains are code instantiated, right? It's code that's running. And it doesn't depend on the kindness of strangers or capitalists to run it. And therefore, it can't be usurped in the same way. And it's just much more powerful because it keeps state and has data and has computing ability and just all these other things that open source didn't have.

So to me, it's like the best of those two worlds. It's like all the power of a modern computer and then the composed ability that made open source are successful. Yeah. And I do think that people underestimate just the scope of types of applications that will come out of this. I think that, you know, this idea of a global unified internet money is one of the basics. And it's a very, very big deal. And if we do have these sort of decentralized autonomous corporations or something, they're going to be using the internet money in order to communicate among each other

and create financial contracts and things like that. But this is why this is such an exciting area, because it just feels like the possibilities are sort of limitless. So let's talk about the kind of the city of the world right now, too. So, you know, I think the New York Times just talked about how, you know, they think the crypto's over and there's all these sort of negative articles about it. As you feel. Yeah.

I've been reading these since. I've been reading these for almost 10 years. I've been reading these about the Internet, too, for even longer. Yeah. Yeah. technology for the longer. But it has been, there has been a price down turn, you know, I don't know, maybe some of the excitement's down or something.

I don't know. So kind of like, it's what I'm getting at is sort of where are we in the life cycle of this kind of? Yeah. So I do think that 2017 was a year of new financial instruments. And it was actually, I think a lot of people underestimate how small of an amount of money was available, 2016 and before that, for cryptocurrency and blockchains. The whole universe was just pretty small. You know, there was no billion-dollar company anywhere.

It was really just a sort of nichey thing. And for that reason, there just wasn't a lot of capital available. Now, the people that were very excited, though, about cryptocurrency are the people using cryptocurrency. But I do think that we saw a huge amount of funding and projects that had been in the works for many, many years, had a funding moment. This file coin, TASO, stuff like that. that. And so then, you know, I think 2019 is turning out to be the year of launches. We've just seen

these hugely ambitious projects actually get across the finish line. And Cosmos is a great example, launched just about a month ago. And it's sort of the first system we've ever seen that will allow cross-block chain interaction. So we've always had these kind of siloed logic and state in, say, Ethereum. And now you could have smart contracts or tokens on ath century. Ethereum transfer like to other blockchains, potentially. It also gives you a scaling story because you can have multiple blockchains. It's almost kind of like sharding. You have different blockchains that can sort of.

I think we think of it as heterogeneous shards as opposed to homogenous shards. Yeah, yeah. So each shard can have run its own language and its own environment. That's exactly right. And so the development momentum feels very strong to me, and we're going to see a lot of very, very exciting launches in 2019. However, I think that will be to very little fanfare. It's kind of like Ethereum launched in, you know, the middle of crypto winter in 2015,

and nobody cared. You know, it's not like Ethereum launching was a New York Times store. And it's not like you're going to launch it and it's going to be an overnight success. You need to then. I think if this is a two-step go-to-market,

so the first step is getting developers, right? And so, and you've got to build that community and they've got to build tools and you got to build, like, you just think about all the stuff that we take for granted, probably in Ethereum world of like, you know, wallets and, you know, IDs and debuggers

and just like, you know, Ether scan and just like the whole other thing, right? Like caching, you know, alchemy style. Caching tools. or whatever. There's a whole set of infrastructure, right? So that's got to get built. You've got to get people fired up. You've got to have like hackathons.

You've got to, people got to learn the, you know, do tutorial. Just there's a whole set of things that have to happen. And so even when you launch these new layer ones, I think it's probably, I don't know, at least 12 months, probably before you see like higher quality applications coming out. And the other thing about, as you know, with these, because the code is autonomous, because once you write it, it's out there, you really have to get the security right. And some of those improvements will come through better programming languages and tools. But it also just takes longer.

I think here people compare it to kind of hardware development versus software development. Like you can't, if you build faulty hardware, you have to recall it physically. You build a faulty SaaS software. You can fix a few things and deploy. And so it just takes a while. So I think, yeah, I do. I share your feeling that this will be a year of launches. However, it will be more of a developer kind of phenomenon than an user phenomenon.

I do think it'll take, yeah, 12 months. as you said, before we see a lot of the ways that these will be used in surprising manners, right? I do think that. Ethereum was very exciting when it came out, but I really do think even the people that built Ethereum couldn't properly predict exactly how it would be used. And these use cases are like 18 months down the line. It's not that far around the corner. This is one thing I love about cryptocurrency is if you miss like three months, you're already

behind on... the scope of kind of what is possible and what is happening. So when you talk about applications, so what are you, so like I think the thing that's working the most probably on Ethereum today is D5, essentialized finance, right? And I don't know, maybe let's talk a little about that and what you're excited about and then like other types of applications. So I do think that one of the very big things being built on Ethereum that's exciting are stable coins.

And particularly for me, it's crypto collateralized stable coins, where the stable coins, where the stable coin that's paid to, say, the dollar, but it really can be anything, any asset that's not endogenous of the blockchain. So it could be Google stock or it could be S&P 500. It could be a bond, whatever it might be. The backing for that value is a smart contract that's holding, you know, Ethereum compatible assets. And this is like the MakerDAO system. I think it's a really, really big deal.

Because a lot of the use cases that people originally envisioned for cryptocurrencies, related to financial services or payments have this significant problem, which is just the volatility. So even e-commerce with something as volatile as Bitcoin, you said like the one hour you wait until you have to actually close and receive those bitcoins. I mean, margin on e-commerce often is pretty low, right? You might be getting four or five percent. Well, the volatility in an hour in Bitcoin can be more than that. So I do think that these stable coins are critical for other types of applications. And so the Auger prediction market, you know, other, even just like token trading, you know, what is the base pair you're trading against in a decentralized exchange? Is it ether

against some other coins? I think also like you just think about lending, for example. Yeah. Exactly. If your costs, if you're buying a house in dollars, you want your, you want your stable coin peg to dollar. And then the stable coin can actually then act as collateral in other types of use cases. So I do think that stable coins are like, I think also, the other thing about MakerDAO that's interesting is just how it's a very interesting kind of economic structure for how they enforce the peg and how they kind of incentivize the ecosystem. And the fact that that runs in a smart contract, which holds a significant amount of money,

is just a, it's just a real, I think to me, a testament to the power of the Ethereum design and the sort of what smart contract platforms can do. It's one of many examples, but. And one, and it's gotten traction. Like, it's gotten more traction I think people realize, as in it's about 2% of all ether is held in the MakerDAO contract. And now that's hard capped by the protocol. So they could take off that cap.

And when I say they, I mean actually the MKR holders who vote on these changes. And so if they wanted to potentially massively increase the amount of ether locked in that contract, they really could. Now, I do think it almost starts to create systemic risk at around, say, of all ether. I mean, for the Ethereum protocol, for the MakerDow protocol. So you don't want half of all ether

held in this thing. But in just sheer dollar terms, you know, there's hundreds of millions of dollars locked in this protocol that people are basically using to get a loan. And so it's, while these defy things are very, very hard to use, it's kind of a disaster from a UX perspective.

You have to download all the software. You have to have ether, you know, and you have to click through a million different things and have a mental model for what you're doing. You have to be, I mean, it's just, it's a testament to how hardcore the enthusiasts are that. Yeah, yeah, exactly. And, you know, I think a lot of them are arbitrageters and folks like that that are just doing kind of profit-seeking behavior. But it's, yeah, I mean, to me, we are seeing kind of the early success of some of these low-level stable

coin systems. And I think that stable coins are going to be a critical part of the recipe for a lot of more abstracted higher-level use cases? I think of it as our friend Bology has a kind of framework I like, which is, you know, you think about, he would say, I think is that the idea that you'd buy a cup of coffee using a cryptocurrency is sort of the one of the least interesting use cases. And he has this kind of model where it's kind of U-shaped, where it's, on the one hand, there's about a billion and a half people that have smartphones but are unbanked, are not part of the internet economy. And for those people, that's the, It's very interesting to have a digitally native currency, right?

And architecturally, it makes a lot of sense because one of the key features are cryptocurrencies, it's a bearer instrument, meaning the recipient can verify that they got paid using just sort of math and the internet and not having to rely on a bank or some third party and therefore doesn't need an ID and doesn't have fraud risk and everything else. So that's sort of the one end that we're where this stuff's so powerful. And then the other end is kind of the high end of the software developers. You now have programmable money, programmable loans, it's all these kind of cool. new things you can do on the innovation side. Yep.

I think of it is like, what if, like, here's a sort of a metaphor, but like, like, the fact that photos are just a file format that you can send to people, allowed people to invent Facebook and Instagram, and if instead, if, you know, this is, again a metaphor, but like, if instead you had to kind of get permission every time you sent a photo, if it was a service and not a file format, like, there would have been way less innovation around kind of media over the last 20 years. And now, now what if money is a file format? It's just a string of bits.

Exactly. It's just a string of bits. It's no longer a web service that's connected to PayPal or Visa or something, and they can't take their money and screw it up or do whatever they want, and it make you get permission and make you get, you know, and disenfranchised a billion and a half people and everything else. Like, you know, now it's just bits and like, what can you do? It's a very powerful concept, right?

It is. And I do think that, you know, an interesting feature of cryptocurrencies for me is that the people that become knowledgeable about cryptocurrencies, I would say about 95% of them or more think it's a good idea once you become knowledgeable about it. And so to me, a lot of this is just an education process of like how do we get more and more people to recognize why cryptocurrencies have this extremely unique value. It's the most misunderstood. I feel like tech has often misunderstood, but this is by far the most. And Lisa, that I've worked in, by far the delta between the reality and the perception.

And partly it's self-inflicted wound. because of the kind of early crypto movement and it was a lot of political anarchist types got into it and things. But that's lingered and it's just really misunderstood. And it's very rare. I agree with you. I have this over and over again,

especially people that are technical. You give them like the Ethereum white paper or the file coin white paper, whatever, you know, just a bunch of the Bitcoin white paper and they come back and they're like, oh my God, this is totally different than what people describe to me and what I read about.

Yeah, exactly. They're just nothing like what they read about. It's because it's easy to pay attention to, the bad actors and prices and prices and stuff, when in reality the kind of fundamental development, yeah, like you said, from Bitcoin to this more general computer to the more advanced applications that, again, like Filecoin being this low-level building block that's going to enable all sorts of new behaviors, because just thinking about Filecoin, like,

how am I supposed to build any sort of decentralized application if I can't do file storage? It's kind of this basic building block, but I can't build Twitter the protocol or Uber the protocol to compete with the centralized web platform unless I have a decentralized file architecture underneath it, which today is not really possible. And so these low-level systems, it's really remarkable the rippling implications of what will become possible. And I do think that the number one barrier is just very simply education. This is an esoteric and complex area, and there's also a huge amount of smoke and mirrors, right? I do think that there are, have always been in the crypto space. It's international and it's permissionless. So there's just a lot of crazy behaviors and crazy characters.

And it's easy to focus on that stuff. Yeah. That's actually one of the good things about the price downturn is I think it's cleaned up a lot of that. And sort of put the focus back on innovation and technology. Yeah. Yeah, I agree. I think that these sort of builders of all this stuff, never really stop.

But they're also, you know, not who the media necessarily pays attention to. I think that the media tends to be a reflection of the investors and the investors tend to be really short-sighted and focus very much on month-to-month or even day-to-day-day-type volatility. So one interesting trend is what we kind of, what we call sort of vertically integrated applications and, you know, something we've been talking about. And I think the way I think about it is sometimes when you don't have the first, full kind of tech stack built out. Sometimes for a project to kind of get adoption, they need to

build more themselves. So like a good historical example is BlackBerry. They come up with an email smartphone in 2003. And at the time, you just didn't have sort of a great smartphone platform like the iPhone. You didn't have great connectivity. You didn't have great back end. So they built the whole thing. They built this hardware. They built the software. They built the network. They built the back end and they were able to kind of get kind of I think it was like pull the future forward you know eventually you could do this by building an app on the iPhone but like at the time you couldn't so they had to build it all and I think we're seeing some of that pattern now because we don't have all the all the layers you know kind of at the at the ideal state now particularly like the

layer one smart contract platform we're talking about earlier just we don't have kind of a great scalable everything else yeah the I mean the old wisdom was sort of build a low level yeah you know extensible protocol, and developers will come and build all the useful apps. And I think a great example of that was the ZeroX protocol system, which is like token trading on Ethereum using a smart contract. So they said, we're not going to own sort of the end user interface. We're going to build a low-level system, and then different people are going to come build web interfaces.

I think the newer generation of these smart contract developers, we've seen say, we're going to build that low-level protocol, but we're also going to own the user interface. and kind of build that full stack experience. And that vertical integration, as you put it, I think, is potentially going to be a catalyst for a lot of stuff to move a little bit faster than it has historically. And so there's the Project Cello that's working on first a kind of low-level stable coin designed for payments and remittances, as well as an Android kind of mobile first application designed for folks that don't have access

to traditional banking or financial services. And so by owning kind of both pieces, they can kind of iterate a bit faster and potentially understand the full scope of how the customer is using this platform. And provide kind of a modern user experience that you would hope for from a non-kind of blockchain app

and they'll provide kind of a similar user experience, but then also I think have the kind of the, what I think is the modern crypto business model of, you know, they own some of the coins and they ultimately want to see the tokens appreciate and don't need to, and therefore are okay with other people, for example, starting to build their own apps and, like,

and supplanting their app. They don't need to control the end-to-end thing all the way in the future because they have this business model that's aligned with the community instead of fighting the community the way the switch network. The model where like the more you give away,

the better you do for yourself, which is obviously in Web 2, it was kind of own everything and fight. So it's interesting, because the model is sort of start Web 2 like just to get the user experience right, but then have the business model that's sort of Web 3 and therefore lets you have this great property of grow the pie, not fight over the pie.

Yeah, exactly. Okay, so that's, and then I guess one of the thing we haven't covered is we talked about payments, we talked about centralized finance. We talked a little bit about like Filecoin and kind of what I would call incentivized infrastructure, like kind of new infrastructure that has incentives built in. What are some of the other areas that, you know, kind of application areas that you're excited about?

One thing with these crypto protocols is you can build markets for anything. And so anything today that's sort of a one-to-one service with, for example, in the case of Filecoin, Amazon Web Services, Microsoft Azure, whatever, Google Cloud, you can turn that into a competitive marketplace that sort of unifies all of these. And so while Filecoin builds this competitive. spot market for file storage, you could have a similar thing for many of these kind of low-level computer resources. So you could do that for compute.

You could do that. I think AI data would be a very interesting one. Yeah. A genetic data. A federated learning, right? So then you could even... Where is the AI? Like, it seems to be a critical question in the next 10 years is where is AI data live?

Does it live in Google and Amazon servers? Or is it an open protocol where, you know, anyone can access it and there's some incentive model for providing it and for getting it? One interesting intersection is homomorphism. encryption, which allows you to train a machine learning system based on data that you actually don't know the plain text, so you only see the encrypted version. It allows people to say, okay, I'm going to share the data from my Tesla or my smartphone with a major corporation and get paid for that data. And that corporation will actually never learn the data,

but can still train the machine learning algorithm. It's a bit abstract. And I think it's early on that type of use case, but it's potentially, you know, very transformative. I think also, you know, you could architect social networks, marketplaces like ride sharing, all of the stuff could be architected using these methods, and I think there would be benefits to all sorts of community members, kind of stakeholders, including the drivers and riders. And so that's a separate, maybe a longer conversation. Yep, yep, yep.

Yeah, I do think the value accrual, when these things succeed, go to the entire larger base. And they're governed by the larger base, as opposed to by, you know, by, you know, Instead of basically an extractive corporation that owns the platform and at the end of the day has some level of an adversarial relationship with its users. I mean, it's today, yes, Facebook loves its users, but also it wants to put as many ads in front of the users as it possibly can, which actually disrupt the user experience. So it's, yeah, it's an odd relationship, I think, that these Web2 platforms have with their user basis. I think another interesting area is it's fall. It's kind of out of fashion in the market.

moment, but I think it will come back as NFTs or, you know, digital goods. It's always been, you know, there was a whole, I don't know if you were around for this, but during when World Warcraft was a big deal, there was this whole kind of underground market called gold farming. So people wanted to, instead of having to, you know, earn your way up to level 70, people wanted to buy their way. And there was this whole thing where, like, people would, there's these off-game, X-Protocol websites where you could go do this. It was a big deal. And so a similar idea is to sort of take that and legitimate it and say, hey, you can earn, you know, in a game or in a virtual world or in some other kind of experience, you know, what if there are goods that the user can actually own and take from one game to another and buy and sell them and you add economic incentives and you can make a living doing this. And you can actually own these things in a way that you can't today.

Today you're really just kind of borrowing them and these games will come and go and you'll spend all this time earning stuff and it'll all then disappear or you'll forget about it. And this is just a much kind of more, it's much more like the offline. world, like when you get stuff, you keep it. And people, and people that's really popular in the offline world, and I think it's popular in the online world, too. Oh, I mean, the rippling implications of it are big, too. So, if you can own your

avatar and you can own the avatar sword and shield and everything, other, like we said it earlier, everything here's interoperable. It's like an open API. So any developer can then build an expansion pack or a mod on the game. It turns, like, the modding community around various games into, like, a

real economic system. And so then you could actually imagine, like, in the longer term, it's almost like, think about every, like, rupee you've ever earned in a game or every bit of gold. Imagine if that was actually all unified among, like, almost every game, right? And there were, like, secondary markets between one game and another game, and you could actually maybe bring your avatar from one game to another game. There's just, you know, it's almost like turning the universe of video games into Minecraft, right? Obviously, that's a sort of far future, but I do think this open and interoperable low-level systems do enable that type of value. Also, the other cool thing is that with the economic incentives, you suddenly, for example,

you could imagine funding your game instead of going to Activision and asking them for money. You can fund your game by pre-selling some of the goods. You could have third-party creators who earn living. Some person, you know, whatever with the smartphone, is designing virtual goods and selling them and earning a living that way. Well, and one of the most successful categories on Kickstarter is kickstarting video games because, you know, gamers are hardcore, and they want to support independent developers.

Now, imagine if you could take that from, I'm just going to buy your game to I'm actually going to invest in your game, right? It's way more powerful. And it aligns the interest between the gamers and the indie developers. So to me, yeah, it could be a very big trend. And we have seen some level of that. And I think one of the problems was, you know, when you can pre-sell these game items, you get this investor community rather than the gaming community interested. And so I do think it's important to, you know, make sure that it's not, it's like it's people who actually want to play the game, right, that are sort of buying those game items.

But I do think that that interoperability of avatars and items and levels and stuff like that is a big deal. Right, awesome. Thanks, thanks all off here. Yeah, thanks for having me, Chris. Thank you.