0/ Here's an optimistic view of crypto at a time when sentiment about the space is at one of its low lows. This was my "crypto from the ground up" presentation at our @a16z summit last month (:
1/ Throughout history, the kinds of things we have relied on to build trust have evolved significantly. We started as nomadic hunter gatherers, basing our trust on things like facial expressions and body language. This model of trust was Social.
2/ Over the millennia that have followed, human institutions have come along and have helped us scale trust from the very local, where everyone knows one another intimately, to the nearly global, where everyone is a stranger. Let's call this model of trust Institutional.
3/ We are now reaching the limits of purely Institutional trust. It is too often the case that the institutions we place our trust in let us down. Just think back to the great financial crisis of ten years ago.
4/ Our technology has only begun to scratch the surface of the world of trust. Since the creation of the internet, we have begun to discover a new paradigm for trust.
5/ Cryptonetworks are a technology with the potential to catalyze trust and therefore cooperation at an unprecedented scale. They will help bring about a shift away from Institutional trust and onto trust that is Programmable.
6/ Ten years ago, the Bitcoin paper was published. Bitcoin leverages the primitives of cryptography, the open protocols of the Internet, and an exceedingly clever incentive structure to build a collectively owned and neutral database of Bitcoin transactions––of payments.
7/ What is truly novel about the Bitcoin network is that its security emerges bottom up from its users (who can be anyone, anywhere, and participate without anyone's permission). In other words, control over it is decentralized. There are no gatekeepers.
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outlast.me/four-horsemen-…
8/ The genius of Bitcoin is an incentive structure that makes it self-policing. Each participant, known as a miner, monitors the network and votes for the sets of transactions that they believe are valid. The twist is that they vote with their computational power.
9/ Consider Alice––she's a miner. The more computational power she offers to the network, the more secure she helps make it. As a result, the protocol gives her more voting power and a bigger reward. Crucially, the reward that is paid out to Alice is newly minted Bitcoin. So...
10/ In a single stroke, Bitcoin comes alive as a kind of money and, at the same time, as the very source of funding that bootstraps its own security.
11/ The result is an elegant incentive structure that encourages participants in the network to keep one another other in check. And so, even though they do not trust one another, they can come to trust the database that they are collectively helping secure.
12/ Bitcoin is the simplest possible cryptonetwork. It attempts to address the problem of trustless money––money whose legitimacy and backing depends not on human institutions, but on mathematical guarantees.
13/ All of this is great. But someone else came along and asked the question: Could we do something that is more interesting than just money with this idea? In 2015, @VitalikButerin and team launched Ethereum.
14/ Ethereum's provocative insight is that there is no reason why Bitcoin should be a database just for money. And there’s no reason for updates to that database to just be transactions. Those updates could be whole computer programs.
15/ Ethereum is therefore more than just a decentralized database. It's a decentralized, collectively owned, world computer. Programs that run on top of it, once deployed, are in turn also collectively owned. No human institution controls them.
16/ Trustless programs like these can be used as building blocks for enforceable agreements or "smart contracts" between complete strangers without the need for mediating authorities. For the first time, we have the ability to program trust. Some real world examples:
17/ The @MakerDAO team built Dai, a cryptocurrency whose price is stable with respect to the dollar. Because of its stability, it has a real chance to become an alternative to fiat for the two billion unbanked people and the millions of people in countries with hyperinflation.
18/ The @compoundfinance team built a trustless program that acts as a kind of money market. Anyone can lend crypto assets to the program, and the program will then, in turn, lend out those crypto assets to others. No trust is placed on human intermediaries.
19/ The combination of Compound and Dai (along with a friendly user interface) starts to look a lot like a consumer bank, but one that is trustless and built entirely in software, end-to-end. My partner @jessewldn wrote about this kind of composability: jessewalden.com/4-eras-of-bloc…
20/ Beyond finance: The @MineFilecoin team is building a programmable marketplace for storage. I can rent you the spare storage space on my laptop and you can pay me for it in Filecoin. Crucially, you and I could be complete strangers and live across the world from another.
21/ @CryptoKitties are adorable, digital, collectible, kittens that play a starring role in a Pokemon-like game. The key is that my ownership of a kitty is burned into the Ethereal blockchain. This kind of trustless ownership of digital goods opens new paradigm for online games.
23/ Like the protocols of Web 1.0, the cryptonetworks of Web 3.0 are open source, collectively owned, and can be trusted to remain neutral. We see this as the foundation to another wave of innovation that is larger than the startup ecosystem on the Internet so far.
24/ Through programmable trust, cryptonetworks stand to enable cooperation at a scale that is unprecedented. Trust is becoming unbundled, decentralized, and inverted––instead of flowing top down from institutions, it is beginning to emerge bottom up from individuals and software.
