Prominent a16z VC talks permissionless innovation and the need for cryptocurrencies

Author: Daniel Kuhn, deputy editor-in-chief of "Consensus" magazine Source: coindesk Translation: Shan Oppa, Golden Finance

The divide between technology optimists and pessimists is growing. Growing up, I vaguely remember a public debate between Bible thumpers and people who wanted evolution taught in schools. Today, the same debate plays out in many different ways—media “Techlash” versus Silicon Valley, humanists versus nerds, progressivism versus material progress—but most recently, in his “Manifesto of Techno-Optimism,” capitalist Mark Marc Andreessen boils it down to a war between decelerationists and accelerationists. That is, those who want technological development to slow down, stagnate, or reverse, and those who want the opposite.

In Anderson's view, this debate has spread to touch almost every corner of human endeavor. In many ways,technology is playing an ever-increasing role in our daily lives as internet adoption continues to increase. More and more of our interactions are through social media and mobile apps. With cash gone, almost all economic activity moves through digital rails run by banks or fintech companies. We watch more streams, play more online games, and even work online.

While many of these developments have made modern life more convenient and efficient, technology has also created problems. Even if you believe that all technology is neutral, merely "tools" that can be used for better or worse, it's hard not to think that there's something dystopian about the technological advances of the past two decades. As many cryptocurrency advocates point out, with the development of the Internet, our lives have been placed in the hands of a few monopolistic companies.

Dixon is a long-time colleague of Andreessen who runs the prominent cryptocurrency firm’s independent crypto division. Venture capital firm Andreessen Horowitz (a16z) traced the network's lineage to identify the problem. What started as an interoperable and open protocol network, now called Web1, has been fragmented in Web2. In this day and age, there are essentially five companies that control who can use what, when, and why. Thankfully, Dixon believes that what comes next, Web3, provides the real solution.

Dixon admits that Web3 is somewhat popular. To him, it can be defined as the hitherto missing layer of "ownership" on the web. While Facebook and Twitter did connect the world in a sense, it never allowed users to have their own identities or accounts. A similar situation exists with digital banks, blogs, or anything online that requires a login and password. With the rise of blockchain, what Dickson calls a virtual computer, users can finally take control of their digital lives—as long as they maintain control of their private keys.

Given the multi-trillion dollar value, minimal adoption to date, and the industry's tarnished reputation in the mainstream, tech optimists may argue that Blockchain can reverse network integration. But for Dixon, in addition to cryptocurrencies’ ability to put control back into the hands of everyday users, blockchain also offers room for permissionless development. We may not know what blockchain is useful for today, but as long as someone is as excited about the technology as Dixon is, we may eventually find out.

CoinDesk spoke with Dixon to better understand the three eras of the web, his work as a venture capitalist funding the next wave of crypto startups, and Whether he thinks direct democracy is overrated or underrated, among other pressing questions. The interview has been lightly edited and condensed.

The overall theme of this book is the evolution of the Internet, from Web1 composed of open source protocols, to Web2, which was isolated and isolated, to Web3 and The re-decentralizing power of cryptocurrencies. Do you see blockchain as part of the broader open source movement? What are the differences between Web1 and Web3?

In the book, I talk about outside technology versus inside-out technology, and the idea is that if you look back at the history of computing, You'll find things like the iPhone and artificial intelligence coming from established institutions like Apple and Google and Stanford, and then there's a completely separate tradition of hackers building things at the edge. Early personal computers - the Homebrew Computer Club was Steve Jobs. They are outsiders. Open source software, Linux, and the entire open source software stack comes from outside. The computing platform has no central casting. Tim Berners-Lee, the creator of the World Wide Web, was a physicist at CERN. Blockchain fits this mold very well, carrying on the tradition of strong believers in openness and shared systems, driven by a unique ethos.

Many people refer to Facebook as a "platform" because technically you can build applications on it. Blockchain won’t drive you away like Facebook did Zynga, is there a better definition of what constitutes a platform?

Facebook may be a platform, but it is very unstable. For a long time, some entrepreneurs tried to build on top of Facebook and Twitter, but felt they were being robbed because of their changing terms and APIs. I think we're seeing this happening with Apple now, with Epic suing them over companies like Netflix and Spotify not creating apps for the Meta Quest Pro or Apple Vision headphones. A platform should be a predictable, secure place on which developers can build real businesses with a level of certainty. If you think about the offline world, like opening a restaurant, when you spend so much time and money, even if the landlord raises the rent, you can still run your restaurant. That's what we have today: basically five big landlords who obviously changed the rules and changed the rents. This creates a very unfriendly environment for indie developers and startups.

In the venture capital business, we invest in startups. We want to see a dynamic internet that is conducive to startups. One of the reasons I'm excited about blockchain is that I see them as a way to return us to predictable platforms where entrepreneurs and creators can build direct relationships with their audiences. This is what the internet should be like. I'm really worried that the way we're going right now, there's going to be three or four big platforms like broadcast television was in the '70s -- ABC, NBC, CBS. Everyone spends their time on one of these silos. To me, this is a tragic outcome for this once open, democratic network. We should do everything we can to deal with this situation.

Would you like to say something about Oculus? You've hinted in interviews in the past that you're somewhat dissatisfied with the way Meta is being managed.

I made this investment for us back in November 2013. I'm glad Facebook is investing in VR, and I'm glad Apple is investing in VR. They did a great job overall and spent an incredible amount of money. I'm worried, similar to the topics I talk about on the internet, that we will end up with two new giant enterprise platforms and no open source alternative. There is no Linux for VR yet. They all seem to be running the same strategy of tightly controlling the App Store and paying 30%, just like the iOS ecosystem.

I am very optimistic about VR. I think this is going to be a big thing. I just worry that we will continue to repeat the same cycle. Everyone initially viewed technology as a toy, and then suddenly realized that two companies controlled a very important resource—like social media. We should have sounded the alarm earlier this time.

One of the key differences between Web1 and Web3 is the role of government and academia in developing the underlying Internet protocols. Does Web3 need another DARPA-like company to succeed?

I don’t think so. There are ample funding sources, this is not a drawback. We need more entrepreneurs, we need more academics, and we need clear policies. Because many policy decisions are made in court, which takes many years; it creates uncertainty and disincentivizes entrepreneurs.

We want to be as inclusive as possible. If people in academia and government want to engage in a constructive way, that's great. Our research team, led by Columbia University professor Tim Roughgarden and Stanford University professor Dan Boneh, writes academic papers and conducts workshops—all open source. We strive to get more people involved. Unfortunately, there is a lot of misunderstanding surrounding the blockchain space, which is a big reason why I wrote this book. People are far more skeptical than they should be.

"All technologies have advantages and disadvantages"

You wrote, Software is more like a novel and says that information is expected to be free. Does this mean that novels or other creative works should be priced at the level of commodity input or be broadly devalued?

I don’t think I said information should be free.

You have suggested this in previous interviews.

Okay, let me maybe add some nuance. I don't know exactly what context I'm saying this in; I firmly believe that creative people should get paid for their work. There’s a chapter in the book about the business of media where I call attention to the attention monetization trade-off, which is the trade-off in media between letting people see what you do and charging for it by sharing it on the internet.

The video game industry was the most pioneering in discovering that it was better to charge for compliments of games (such as virtual goods) rather than for the games themselves. Good business. Two of the most successful games, League of Legends and Fortnite, are free. I suspect that as AI makes it possible for anyone to create high-quality illustrations for free, it will put downward pressure on the price of illustration. So it's more important than ever to think about new business models for creatives that involve more than a simple sales game. They sell other things.

Information can be free, just like content can be free, and creative people still get paid. NFTs are an obvious example, right? How do artists get paid in the offline world? Artists do not receive compensation for copyrighting images of paintings; they wish to disseminate such images and sell original paintings or photographs. They are essentially selling a signed, authenticated version of the image rather than the image itself. NFTs bring similar ideas to the digital world. You can reconcile sharing content on the Internet (bringing the price of content down to zero) with a business model that ensures creatives get paid.

NFTs can help monetize work and build alternative revenue streams, but they don’t necessarily solve the problems of distribution or building an audience. This is an idea you brought up in a conversation with Bob Iger, who argued that if you have a brand identity, it doesn't matter what technical medium you use to distribute your work. Do you see a potential solution to this problem?

I write about collaborative storytelling—people coming together to create narrative worlds. Think Star Wars, Harry Potter, and future versions. Creators collaborate to create storylines, Wikipedia-style. You've seen this happen on Reddit, where people criticize Star Wars and bring up storylines. I've read some stuff like this; people do have good ideas. Imagine if the narrative world was successful, those people would be rewarded with NFTs and tokens, thereby reaping the financial benefits? This also solves the distribution problem, right?

"My hope is that blockchain becomes synonymous with new Internet innovation"

Hollywood Only make sequels to existing IPs because marketing new IPs costs hundreds of millions of dollars. If you have a million fans who own tokens and they helped create a narrative universe, they now have an incentive to spread that universe. You can fork Star Wars and create your own version. It’s an internet-native way to build real fans and keep them engaged. Think about how people get excited about Bitcoin or meme coins or whatever, and apply that to narrative stories to spread and generate movies, video games, and comics.

Some high-profile employees have left a16z. Why did you stay instead of going it alone?

Well, look, I've been here for over ten years. Beyond that, I'm very close to my partners Marc Andreessen and Ben Horowitz. What we try to do at the firm is the best of both worlds: a larger firm with a platform that helps us save money on overhead and leverage our business as a network with Fortune 500 companies, limited partners and policymakers — all different type of relevant electorate. At the same time, through our cryptocurrency fund, we're able to really go deep and vertical and bring experts into our team.

Do you have any fundamental differences with Mark?

We approach debate in a very friendly manner and strive to encourage a culture of healthy debate within the company. The unifying principle we share across the company is that we are "Technology Optimists." Frankly, I am my whole life. It is important to realize that all technologies have advantages and disadvantages. You can use the hammer to build or destroy houses. We also believe that smart regulation can balance innovation and consumer safety. But we believe technology is a force for good – that’s our mission. Additionally, we believe startups are an important part of technology and the formation of new companies has always been an important part of the U.S. economic engine, and we want to play a role in that. There are not many scale institutions that strongly support technology and startups.

I generally agree that technology is neutral, but also believe that certain things are designed to cause harm. Do you disagree at all with the company's investment in military technology?

Silicon Valley has long been supported and supported by the U.S. government. Our overall view is that we support the United States and its allies. We want to support the U.S. government as much as we can, foreign policy is not our decision. We don’t have our own State Department.

You describe a blockchain as a "near-Turing-complete" computer, while others usually just call it Turing-complete. Why split hair?

I have smarter people on my team, and computer scientists get angry at me when I say Turing complete. I think there are some features you can't do - recursion, random numbers, things you need an oracle to do. So I'm just trying to be academically precise. As a developer, you still have a very rich design space.

You say over-reliance on advertising is "the original sin of the Internet." Advertising brought about many good things: a once-thriving newspaper industry; great television, movies, and more. Why is online advertising uniquely toxic?

I'm not against all advertising, but the pendulum has swung too far toward advertising, creating an adversarial relationship between companies and users. You are constantly being followed. You click on a lawnmower and see more and more ads for lawnmowers forever. Google defaulted to all my preferences without asking me, permanently storing all my searches. There’s also the argument about ads paying for free services: there are other ways than freemium. This is how most SAAS software works – Slack, Discord, Spotify, etc.

The game also has a free tier and upsells you stuff. This is essentially their way of giving the software away for free to the 95% of users who won't pay. I probably play too much Clash Royale; it's a free-to-play game. But a certain percentage of users, myself included, end up buying upgrades that others pay for. So I think there are other ways.

Free software is a very important thing. We want software in the hands of billions of people. But I don’t think advertising is the only way. The two largest pure-play Internet services, Meta and Google, are entirely advertising-based.

But is there something unique about the network's architecture that makes advertising a problem?

This is just a historical event. I mention it in the book, but payments took a long time to evolve. First you need encryption. People forget this, but Netscape introduced a very controversial technology, SSL (Secure Socket Layer) encryption, which sparked a debate about encrypting Internet communications. E-commerce didn't exist, and neither did online banking, so it seemed the only potential users were terrorists and criminals. This is a common argument. Netscape was classified as a firearm and was illegal to export; they had to provide a special version for international users.

There was also a heated political debate in the 1990s over the Clinton administration's Clipper chip, which would have forced everyone to use weak encryption. So, as crypto technology takes a long time to develop, payments technology takes a long time to develop, and advertising fills that gap. Then as social networks and search grew, it almost became the norm in the 2000s.

The pendulum has swung very strongly over the past decade. The vast majority of unicorns in the past 10 years have been paid services, enterprise software, prosumer software. But we are still overly reliant on advertising.

I want to talk about a lot of stuff, do you want to do a round of overestimation/underestimation?

I always want to add some nuance.

If something happens, don't worry. Web2 Community.

Are you referring to things like Reddit and Discord?

"Individual companies will find high-quality technology solutions"

Yes Ah, overestimation/underestimation?

I think it's like I think we've built a system where 5 billion people can communicate and gather around common interests, which is a great thing. It was a great achievement and I was very professional.

Direct democracy? You mean in a DAO or in the real world?

Either you are considering a DAO.

I have a chapter in my book about network governance. It is an important development direction. Having community-owned networks and digital services is a huge improvement over having corporate-owned networks and digital services. New ways of doing this governance are being explored, including through Uniswap and Compound’s DAO. BTW, I don't think this is figured out yet. I don't think this problem is solved in the real world either. If you talk to governance experts, it's a constant struggle to get a large group of people together to govern things in an orderly way, and I think we see something similar in the online world.

Airdrop points system. Overestimate/underestimate?

I think this is an ambiguous word. From what I understand, it's a non-transferable token that people use in different ways. There are just a lot of people trying. There are also regulatory reasons why points may be advantageous. They clearly behave more like Starbucks points or more traditional rewards.

CBDC?

I am not optimistic about these. Take the case of USDC; the stablecoin shows how popular the digital dollar is, right? I mean, trillions of dollars worth of transactions are done through stablecoins. There is already a lot of great work being done on the infrastructure layer, including L2s [Layer 2] and other blockchains, and I think the private sector will find high-quality technical solutions. Clearly, we need to regulate the use of the U.S. dollar. But that's not the same as having the government try to actually build the software.

Venture capital funding in crypto. Overrated or underrated?

I mean - I know we get a lot of crap on Twitter, but my point is, especially in crypto winter … Let me tell you, we started our first cryptocurrency fund in late 2017-18, but there wasn’t a lot of financing in the crypto space at that time. We did Compound’s seed round and Series A financing, and we also did Uniswap’s Series A financing. We've funded a lot of NFT projects, I think going back to 2017. I co-led Series A rounds for Dapper and CryptoKitties. So I think venture capital can play a big role in funding things. That might not be popular. The nature of venture capital is that we have a very long-term time horizon - a 10-year fund - so we're able to provide funding when others can't. This persistence and commitment can sometimes go unnoticed, especially during boom times when money flows. Of course, venture capital can mean many things, and there are many different companies - some call themselves venture capital firms, but really they are more like hedge funds or traders. But we roll up our sleeves and I think play a valuable role in the startup ecosystem.

Your fund at a16z operates independently. Hypothetically in 10 years, if cryptocurrencies grow, do you see crypto foundations diversifying further to have multi-billion dollar funds focused exclusively on DeFi or blockchain social media?

I hope that blockchain will become synonymous with new Internet innovation. In this case, I don't know how exactly we structure it, but if you compare it to the Internet in the '90s, there were Internet funds and Internet investors, and then, over time, more focused consumers emerged Internet, fintech and corporate investors. Ideally, this would happen here.