Seven Trends in Blockchain Computing (Spring 2019)

hi is Chris Dixon welcome to the a statistic Z YouTube channel today I'm here with Olaf our good friend Olaf we both longtime crypto-currency enthusiasts maybe if you don't mind it we'll just go back a little bit you were employee one at Quinn base yes back when what year was that 2013 okay and and I guess you've got interests encrypted 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 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 it's very sort of technically yeah but then once I dug into it I kind of thought about this and 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 is that but that was back when the you know when Bitcoin was going to 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 the kind of possibility space at least to me feels like it's expanded dramatically yes it has and and so to me the big moment was when a theory launched for me I started seeing a big like breakthrough in my head was when I realized that if you're even wallets were actually more like browsers then then 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 master coin counterparty we funded this project lighthouse Rio oh yeah oh yeah and that was basically decentralize 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 algorithm language very deliberate though which provides I think perhaps better security and yeah you know kind of it's more conservative development path but as a result is very hard to build like crowdfunding and I remember when a theorem came out it was like literally one of the like 20 line you know things I think people really underestimate how much the developer abstraction matters so it took my Kern something like eight months to old lighthouse using Bitcoin scripting a theory er C 20 a system like you and I could practically do this on 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 you know 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 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 and to me like I mean obviously the iPhone there's a bunch of great things about the iPhone and Android and what made smart phones take off but a lot of it was that they figured out the right abstraction layer for the developers so that so that you could get a million apps right yeah and a whole bunch of kind of creativity that happened and I actually think we're gonna see the next wave of that now with webassembly or wasum because there have been problems with the etherium solidity language huge security problems and there's not actually as much expressivity as people think there is no it's still limited to solidity you know even you know they even one other language was basically found to be totally insecure so um i think that you know these vm systems moving towards awasum compiler and this is like polka dot Definity II was him so like if you're into 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 mischaracterize today as a ledger I think of it as a computing platform so it can put them to a computer and a ledger Ledger's more like a hard drive a computer is a hard drive plus a processor yeah Bitcoin has a processor it's just a processor that has a limited range it but deliberately limited in the applications that can run and it runs and the main application it runs is the thing that moves bitcoins around right a theorem 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 a few but people don't know why azzam so that's web assembly which is now baked into every browser and so sort of you know there are now billions of computers that run wasm natively and it will soon become there already is and and it's going to continue to become the most dominant kind of runtime environment for software in the world yeah and what that means is now that all the block teams are supporting wasm that means that all of these these compilers that are built from other programming languages you know Python rust whatever pick your favorite language you already have all you get to piggyback off of all of the tooling that's been built over the last 20 years other programming languages so you make it a much more kind of familiar experience to developers and so instead of needing to learn solidity which is again this custom language it's it's a pre new language no scheme of things you can use yeah you're off-the-shelf favorite programming language you know to me this is a similar step function that we saw from Bitcoin scripting language then it's also like it's like you know the great thing about Python it's not just like there's there's 10,000 github projects or those formal verification so it's just as an example like why does it take a long time to release an theorum project today like I think at least half the 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 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 yep yeah I mean the big things 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 big but it was sort of the means the only thing really in that first year one of the only things then they're sort of a theory Mira which is 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 twelve months or so maybe 12 to 24 months is the kind of the wave 3 happening right which is taking the ideas of aetherium upgrading the developer experience that you just discussed very importantly upgrading the scalability which means multiple things it means more it probably basically means what what we call on traditional venture capital scale out not scale up so instead of instead of getting scale by adding more a big 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 Swimmer parallelism that lets you run in and and that's what a lot of these new projects or they're doing better developer experience you things like wasum and just all the other tooling around it they're they're building parallelism in from the start right as opposed to having to upgrade later and and what else I think a third one for me is they're often building the ability to upgrade the protocol into the protocol so the governance of the protocol itself and all the governance of the smart contracts yes exactly so so to me Bitcoin and aetherium and may be 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 I think an 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 lawyer you know it's it's an equivalent threat I was 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 a really exciting that's the way I think of that is it's there's always a trade-off between the security of the system and the end of it like the very promise of a blockchain computer to me is that it it's making a commitment that the code will continue to run as design they're sort of theoretical tease and you want it of course that 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 aetherium kind of took the extreme kind of conservative route which said you 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 theory of hork which was very contentious and so they were kind of built in a way to be very conservative with governance method I think of it as yep and so how do you find the right balance and the people are experimenting and trying new systems yep - to get to get a better balance maybe yeah so I think a big part of this is there are actors in the Bitcoin and aetherium and other other crypto systems that are part of what defines like or the reality of those systems and so you could call these note operators in Bitcoin miners obviously have ever Alta plane and improve of state 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 estate protocols you see you know 70 80 % of token holders participating in consensus so they're already defining what is the the latest block and blockchain they're already defining the rules of that computer so in my mind you know how can we say they're gonna we're gonna use a decentralized mechanism to come to consensus about the computer state but we're gonna we're going to also say it's impossible to come to a decision about how to change the rules that computer so I'm very skeptical that we can't achieve very secure on chain governments 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 aetherium has been funding of core protocol development so application developers have found all sorts of ways to model you can go raise a VC round you can do a token sale yeah you know there's lots of money sloshing around in general if you're building on top of these protocols but if here iam has this weird problem where there's probably a hundred X the number of developers building apps on top as there are building core protocol stuff for aetherium and so to me well that has to do with the history of a theorem right so there was a Foundation which has a certain amount of money but there was never kind of structure so there's no yeah there's no structure and set up to continuously fund the development basically the taxes yeah where if I contribute to the core protocol and create all the Z cash does what they have inflation yanked into the protocol and some portion of that goes goes it which is sort of crude because they did their system is you know it's designed around one team I don't think it's designed to last a hundred 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 as an MVP do it better yeah to a better system yeah and and so in 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 can be created it's like dilution basically for the existing holders and they're gonna 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 to the protocol it's actually in the token holders best interest to pay them and and say okay we're going to pay you guys you know what I accept as an a theorem holder like a 1% dilution to ship aetherium - absolutely right that it's a no-brainer - and so if you could create 1% of the etherium tokens you know and grant those to the development team today that's like what two hundred million dollars it's it's a it's a large what do you what do you say to the skeptics who think that proof of stake will governance will devolve into either like a plutocracy on one hand where the big you know the big investors or whatever like you know whatever doctor see like I control for their own interest and then or or alternatively are vulnerable to bribery tax and other kinds of yeah so I just think that we have relatively at scale proof of sake systems today this is this argument seem better 12 months ago but yeah that's my thing is like you see taze us and cosmos it's like if you can get away with these attacks there are hundred million dollar bounties to go through there's bug I'm just yeah I'm a big believer in economic incentives for these bug bounties I mean if you can attack Tasos and break consensus and get bad blocks through heaven follow the Taser so go to the other people I'm sure they're people trying to attack it oh I'm sure there are and I'm just like if you'll turn attack Bitcoin I'm talking 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 no to 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 interests in mind like there's not a perfect overlap for their interests yeah and so in a way you could argue there's like a check and balance or something like that but in a system like chased us or cosmos those are the same people right 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 blog reducers and and the token holders the second thing is that if you attack a proof of state network mitigation of the attack after it happens is significantly easier so if you come in with you know 51% of the coins and in most previously it's actually 34% but 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 attackers validation was interrupt protocols like within the protocol so you can delete their 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 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 forever and so you have to basically punish the good guys and the bad guys to mitigate a proof-of-work so in a proof of work system summarize that ana proof of work system the worst case scenario is you your attack doesn't work and a proof of stake system the worst case scenario is you lose all of your not only your attack of some work but you also lose your entire life savings yeah so it's a much more punitive its measured well it's it's it's it's it's disproportionately punitive to the back I mean proof of stake yeah by the way and so ad also the other thing about proof I mean besides also like the energy uses Oh like it doesn't you know Bitcoin mining destroys all this use waste energy it deliberately does but it's still bad also very for me is a critical thing is you talked about like developer experience and user experience you just simply can't have like sub second transaction finality and a proof of work system yeah like so Bitcoin like you really need to wait you know each block is ten minutes and 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 sixty minutes if not longer and from a user experience point of view you know if I send you and it same with the theorems days proof of work you know and you go you if you download quitting this wallet and you try to use some these apps there's a lot of really cool apps it's early but you got to wait 30 seconds yeah for like a after you click a button that's not a modern user experience yeah and the only way we're gonna get to modern user experience is through these kind of proof of state systems they have all these kind of different methods that that give much faster transaction so just I think a whole bunch of reasons why let's get sharding you can't you know one I that I've ever heard of knows how to do sharding and proof yeah I mean I'm so perilous of scaling all these things there's a reason why every you know I think 2017 was a major your fundraising and 2019 is a major year of launches and there's a reason that every blockchain that's launching today it's mostly using premier but the exception of grain and things like this right yeah but those are all just simple transactional they don't have some are contracts they don't have scaling solutions yeah a grain is not it is very much focused on private payments and scalable payments it's not trying to open up a suite of new applications that we're not possible we have folded protocols which to me is the really exciting thing though you know it's it's what is possible there that we haven't seen today because even the etherium developers you know when they ship the protocol in 2015 I don't think any of them could have conceived of the whole ICO wave yeah and you know that was like 12 to 18 months away and it was still hard to see that that was coming to me this is what makes computing interesting right is is there's this interplay if you go look at the PC the internet smartphones I think we're gonna see it's the crypto I think we're gonna see the VR in a couple this year in a couple years there's interplay where you get the platform's get better like in this case we're talking about layer 1 some our contract platforms right which are the ones we're talking about that haven't like coming out of the next 12 to 18 months and those are kind of equivalent of the Apple 2 or the iPhone or whatever in this world but the median 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 imagined it's really funny if you go back and look at the early like Apple to add so Appleton came out in 77 you know pcs didn't really take off for six years and for those like six year people try and figure what do you do with you say and all the old ads are really funny they're always have like people at the kitchen table doing the recipes and like yeah your 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 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 the platforms the layer ones Marc contract platforms just aren't there yeah right so we can't you can't really I mean we're seeing cool stuff we'll talk about it today like in d5 for examples finance where the maybe the the performance parameters are looser and things they don't need is the kind of kind of form change for other things but what's really gonna get exciting to me is that period of like yep hopefully a year or two from now when we've got a great platform 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 and people talked about a lot it's basically cost savings of remittance or cost savings of micro payments or something like that but that's really looking at existing use cases and applications that like a recipe book yeah and saying oh let's put this on the computer it always happens about it yeah like you look at early web and yeah they took magazines and they or they put brochures and they put them on the web but that's just how people think and then only it took you to Google 10 years to realize wait this is a two-way medium yeah all things to generate a content in YouTube and what I really care about are what are going to be the native apps that are only possible with blockchains and they're also that 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 a round question right but you know to me I think the reason everyone was so focused on di use for web 2 was because the main business model was advertising and that was driven but it was a proxy for what the business model was all right but but ultimately if you have a business model that is not depend on da use that's not your manager yeah exactly and so it to me I just think we're gonna 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 what have 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 a 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 code you know Google code control stuff - 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 execute their will here the code itself actually is autonomous right and is no longer controlled it's controlled this is the this is the sort of idea to me the key idea of a blockchain is that the code continues to run as designed and it has sort of game theoretic guarantees it will yep right yeah and that gives code this autonomous these autonomous not in the sense of like AI sense of like having money and self-control and runs forever as we speak right now these contracts on a theorem of 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 theories that it kind of runs forever and management can turn over and there's different types of capital formation to keep it funding in a rhythm and it's all through legal contracts and you in certain regions right so the the corporation as a legal entities always sort of registered with the state in a specific geographic region and it's all papered through legal contracts but you know 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 when you think about this sort of history of the corporation and the liquid stock markets that we have you know the all these concepts that we think of as that you know they've been around forever they're really only about 100 hundred years old or something like this to me then an obvious question is why would you want that and to me the answers are one it one is very important you mentioned before it's open source the fact that all this all of these things were discussing they're all available by definitely you they have to be if they're on aetherium like they have to be open you can go read the github code yeah 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 is this what we call compositionality our 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 take a reference is it yeah and I know I can do it and that's the only reason I can do that a couple things one is it software that can you can actually like all the functions and things like that 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 but you know by the owners of the exact wish to me like that that like it's just that I guess and this is informed partly through my experience in a non crypto tech it's 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 we're the sort of open protocol the way SMTP email is yeah and you could have you know someone could build the you know the superhuman of yeah Twitter as opposed to you know and the anti people are complaining about spam on Twitter why aren't there why isn't there a third-party marketplace with spam filters the way there is with email clients you know 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 one and this is I think a lot of people get caught up or confused on this decentralisation is not an ideological thing it's an architecture to support that permissionless building this is why the internet was so big is is if there was like an intranet and Microsoft owned it like Microsoft MSN your Microsoft and app back in the day we would never have seen it I was on Google and in all these companies grow like they have so to me that 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 and it's like if every data structure on the entire Internet what's open yeah and except had an open API we've seen we've seen the power of the kind of composability in the open source world now in the in the traditional OpenSocial world meaning like Linux and Apache and all those other stuff you know that 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 bulkier software Android phone every data center why is open source done so well because 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 you go back to the like when Linux came out and like whatever early 90s it was definitely worse in Windows but they just followed this much faster like innovation curve because of this this this the fact that you can compose these Lego bricks together and you had just anyone the world could come contribute some smart person and some random place can see some bug and fix it just like all those effects and now but but but the problem was open source still depended on the goodwill or this financial interest of somebody to actually run the code and then that's of course where AWS and Google cloud stepped in like we're gonna actually run it because open source was just code right yeah but and whereas blockchains our code instantiated right it's code that's running and doesn't depend on the kindness of strangers or capitalists to to run it and therefore can't be usurped in the same way and it's just much more powerful because it keeps state and has data and does and as 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 is like all the power of a modern computer and then and then the composability that made open source is successful yep yep and I 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 it's 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 it's it's this is why this is such an exciting area because it just feels like the possibilities are served limitless so what um so let's talk about the the kind of the state of the world right now too so you know I think the New York Times just to just talk about how you know they think the crypto is over and there's all these sort of negative articles about it as usual yeah I've been reading these since I've been reading these for almost ten years I've been reading these about the internet too for even longer and technology longer um but but it has been there has been a price downturn you know I don't know some maybe some of the excitements down or something I don't know but so kind of I guess what I'm getting at is where are we in the in the lifecycle of this kind of yes 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 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 Nishi thing and for that reason there just wasn't a lot of capital available now the people that were very excited though about cryptocurrencies 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 how to funding my this coin 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 to 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 blockchain interaction so we've always had these kind of siloed logic and state in say aetherium and now you could have smart contracts or tokens on aetherium transfer like to other block chains potentially it also gives you a scaling story because you can have you can have it's almost kind of like chart you have different block chains that can sort of I think we think of is it heterogeneous shards as opposed to you sure yeah yeah sweet shard can everyone its own language that's exactly right and 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 two very little fanfare it's kind of like if you're iam launched in you know the middle of crypto winter in 2015 and nobody cared you know it's not like if you're in watching was it well it's not your times it's not like you're gonna launch it and it's gonna be an overnight success you need to then it's it I think of these is a two step go to market so the first step is getting developers right and so and you got to build that community and I got to build tools and you got to build like you just think about all the stuff that we take for granted probably in the theorem world of like you know wallets and you know IDs and debuggers and just like you know ether scan and just like the whole like a secret like caching you alchemy stopped cashing tools or what is a whole set of again structure 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 have to happen and so even when you launch these these new layer ones I think it's probably I know at least twelve months probably before you see like higher quality applications coming out the other thing about about as you know with these with these because the code is autonomous because once you write it it's out there you really have to get security right and some of that those improvements will come through better programming languages and tools but it also just takes longer I hear people compare it to kind of hardware development versus software development like you can't do you build faulty hardware you have to recall it physically hey ya know faulty SAS software you can fix a few things and deploy and so it just takes a while so so I think yeah do I share your feeling that this will be a year of launches however it will be more of a developer kind of phenomenon then yeah yeah I do think it'll take ya twelve months as I've said before we see a lot of the ways that these will be used in surprising manners right i I do think that aetherium was very exciting when it came out but I really do think even the people that built aetherium didn't couldn't properly predict exactly how it would be used and these these use cases are like eighteen 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 on the scope of kind of what is possible and and what is happening so we talked about application so what do you so like I think the thing that's working the most probably on a theorem today is is defy the centralized finance right and unless maybe let's talk a little your site about and then like other other types of applications so I do think that one of the very big things being built on aetherium that's exciting our stable coins and particularly for me it's crypto collateralized stable coins where the the stable coin that's paid to say the dollar or but it really couldn't be anything any asset that's not endogenous to the blockchain so it could be a Google stock or it could be S&P 500 it could be a bond whatever whatever it might be the backing for that value is a smart contract that's holding you know etherium compatible assets and this is like the maker Dowell 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 ecommerce 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 yeah margin on e-commerce often is pretty low right you might be getting four five percent well the volatility in an hour and Bitcoin can be more than that so I do think that these stable coins are critical for other types of applications and so the augur prediction markets 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 of their anymore I think also like you just think about lending for example people don't you know exactly if your costs if you're buying a house in dollars you want your one yeah you want your stable coin peg to dock and 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 vehicle Billy I mean the other thing about maker Dow 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 that 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 to the power of the etherium design and the sort of what smart contract platforms can do it's one of many examples but 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 is held in the maker Dow 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 5% of all ether I mean for the etherion protocol for the maker tower 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 it's well these defy things are very very hard to use it's kind of a disaster from a UX perspective you have to download all this 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 and you have to I mean it's a testament to how hardcore the enthusiasts yeah but yeah exactly and you know I think a lot of them are arbitrage errs 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 Coyne 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 Balaji has a kind of framework I like which is you know you think about he what 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 abuse 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 it's very interesting to have a digitally native currency right and architectural it makes a lot of sense because one of the key features of cryptocurrencies it's a bearer instrument meaning the recipient can verify that they got they got paid using just sort of math and the internet they're not having to rely on a bank or some third party and therefore doesn't need an ID and there's a fraud risk and everything else so that's sort of the one end that where the stuff so powerful and then the other end is is in the high kind of high end of the software developers and you now have programmable money programmable loans a program it's all these kind of cool new things you can do on the innovation side yeah and I think of it as like what if like here's a sort of a metaphor but like like the fact that that photos are just a file format that you can send the 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 which if it was a service and not a file format like there would have been way less innovation around the kind of media or the last 20 years now now what if money is a file format it's just a string of bits it's just a string a bit 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 I make you get permission and make them get you know and like and disenfranchised and building 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 it is and I I do think that you know the the an interesting feature of cryptocurrencies for me is that the people that become knowledgeable about cryptocurrencies I would say about ninety-five percent of them or more I 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 I was like how how do we get more and more people to recognize why cryptocurrencies have this extremely unique value it's the most misunderstood I've I feel like tech has often misunderstood but this is by far the money so that I've worked in by far the modality between the reality and the perception and partly a self-inflicted wound yeah because of the kind of early crypto movement and it was you know a lot of kind of political anarchist types got into it and things but it's that's lingered and it's just really misunderstood yeah it's very well I agree with you I have this I have this would go over and over again special people that are technical you give them like the theorem white paper or the file and white paper whatever you know just got you the Bitcoin white paper and they come back and they're like oh my god this is totally different than what people described to me and what I exactly nothing like because it's easy to pay attention to of course the bad actors 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 file coin being this low-level building block that's going to enable all sorts of new behaviors because just thinking about file coin like how am I supposed to build any sort of decentralized application I can't do file storage right 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 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 its its international and its permissionless so there's just a lot of crazy behaviors and crazy characters and it's easy to focus on on that stuff yep that's actually one of the good things about the price downturn is I think it's cleaned up a lot of that yeah 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 stopped 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 focused very much on month-to-month or even day-to-day tech volatility yeah so one interesting trend is what would kind of what we call vertically integrated applications and you know something we've been talking about and and I think the way I think about it is sometimes when you don't have the 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 a with an email smart phone in 2003 and the time you 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 build the whole thing they built this hardware they built the software they built the network they built the backend and they were able to kind of get kind of I think it was like pulled a future forward you know eventually you get to do this by building an app on the iPhone but like at the time you couldn't so they had to build at all and I think we're seeing some of that pattern now because we don't have all the layers you know kind of at the at the ideal state now particularly like the layer one smart contract left one more time with earlier just we don't have kind of a great scaleable everything else 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 0x protocol system which is like token trading on a theorem using a smart contract so they said we're not going to own sort of the end user interface we're gonna build a low-level system and then different people are going to come build web interfaces I think the the newer generation of these smart contract developers we've seen say we're gonna 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 is 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's ello 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 customers is using this platform and and provide kind of a modern user and 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 and therefore are okay with other people for example starting to build their own apps and you 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 case it's being fighting the community the way live was a model where like the more you give away the are you doing for yourself which is obviously in web - it was kind of own everything and fight but so it's cinching because it started to model a sort of start web to like just to get the user experience right but then but then have the business model that's sort of web 3 and therefore lets you have this great property of growth the PI not fight over the PI yeah exactly ok so that's a that's and then 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 file coin and kind of what I would call incentivized infrastructures like kind of new infrastructure that has incentives built in what are some of the areas that that you know kind of application area is one thing with with these crypto protocols is you can build markets for anything yeah and so anything today that's sort of a one-to-one service with for example in the case of final coin Amazon Web Services Microsoft is ooh or whatever Google Cloud you can turn that into a competitive marketplace that sort of unifies all of these and so while file coin 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 a I'd a that would be very interesting one yeah we're a genetic dating right so then you could even where's the AI like excuse me a critical question in the next ten years as where as a idea to 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 forgetting it when an interesting intersection is homomorphic encryption which allows you to train a machine learning system based on data that you actually don't know the plaintext 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 you know and I think it's early on that type of use case but it's potentially you know very transformed I think also you know you could architect social networks marketplaces like ride-sharing all of this 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 but yeah yeah yeah yeah I do think the value accrual when these things succeed go to the entire Lord oh and they're governed by the larger business exactly but 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 it's it's an odd relationship I think that these web 2 platforms have with their user bases I think another interesting area is its its fault its kind of out of fashion in a moment but I think we'll come back is NF TS or you know digital goods it's always been you know there was a hole and if you were around for this but the during when world of warcraft was a big deal there was this whole kind of underground market called 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 it was this whole thing where like people would 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 in legitimated 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 they'll you'll spend all this time earning stuff and it'll all then disappear 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 yeah and yeah and people it's really popular in the offline world I mean they're rippling implications of it are are are big too so if you can own your avatar and you can own the Avatar sword and shield everything other like we tell it earlier everything is 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 in the longer term it's almost like think about every like rupee you've ever earned it in game or every bit of gold imagine if that was actually all unified among like almost every game right and they were like secondary markets between one game in 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 this open and interoperable low level systems do you enable that type of you also the other cool thing is with with the economic incentives you suddenly for example you could imagine funding your game instead of going to Activision and ask him for money you can fund your game by pre selling some of the goods yep you could have third-party creators who are in living some person you know whatever with the smartphone is designing virtual goods and selling them and earning a living okay well in one of the most successful categories on Kickstarter is kick-starting video games because you know gamers are hardcore they and they want to support independent developers now imagine if you could take that from I'm just gonna buy your game so I'm actually gonna invest in your game right it's way more powerful and it aligns the the interest between the gamers and 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 a people who actually want to play the game right that are that are sort of buying those game items but I do think that the interoperability of avatars and items and levels and stuff like that is is a big deal yeah all right awesome thanks things off here yeah thanks for having me Chris

Channel: a16z

Views: 13,823

Rating: 4.8064518 out of 5

Keywords: Andreessen Horowitz, a16z, software, entrepreneurship, startup, Silicon Valley, blockchain, governance, distributed finance, developers, platform, proof of stake, proof of work, Bitcoin, Ethereum, Filecoin, olaf carlson-wee, chris dixon

Id: 1W5ccUV-zKU

Length: 50min 28sec (3028 seconds)

Published: Tue May 07 2019