In this article, A16z partner Chris Dixon places blockchain in the broader context of Internet history and network economy, discussing the importance of tokens, the casino culture and computer culture of blockchain, and how blockchain redefines the concept of digital ownership. In short, by returning value to the users and creators of the network, blockchain has achieved technological breakthroughs, breaking the model of traditional networks and opening up new possibilities for innovation.
Introduction
The Internet is arguably one of the most important inventions of the post-war era and the technological foundation of modern comfortable life. Although the Internet was originally an open and non-profit network, today most of its value is captured by a few large technology companies such as Google, Meta, and Amazon. However, in READ WRITE OWN, we propose a perspective that sees blockchain as a new turning point in the evolution of the Internet.
(Editor's note: The book "READ WRITE OWN" is written by A16z partner Chris Dixon. The book explores the power of blockchain to reshape the future of the Internet and how it affects all of us)
In this article, we will explore some of the main themes in READ WRITE OWN, such as placing blockchain in the broader context of the history of the Internet and the network economy, discussing the importance of tokens as new digital tools, the "casino culture" and "computer culture" in the cryptocurrency space, and how blockchain is reshaping the concept of digital ownership. In doing so, we will show how blockchain is enabling technological breakthroughs, redefining ownership dynamics, and unlocking new possibilities for innovation by returning value to users, creators, and entrepreneurs at the "edge" of the network.
Network Economy and Internet History
Network stack
To understand the technical and cultural significance of blockchain, we need to place it in the broader context of the history of the Internet. Fundamentally, what we call the "Internet" today is a complex "network of networks" consisting of multiple layers of network protocol technology that form the Internet Protocol Stack. This extends from basic network transport protocols such as IP or Internet Protocol to application layer network protocols such as SMTP (Simple Mail Transfer Protocol) for email or HTTP (Hypertext Transfer Protocol) for the World Wide Web, to more abstract social networks within specific applications such as Facebook and X (formerly Twitter).
Much of the value of the Internet, such as our social networks, financial histories, and medical records, is recorded on these interconnected network structures. Therefore, to understand the modern Internet, we need to understand network design, because the design of these networks directly affects how money and power flow through network systems.
Before the advent of blockchain technology, there were two main network economic designs: protocol networks and enterprise networks.
Protocols and Enterprise Networks
A protocol network is defined by a set of open source rules that describe how different participants in the network interact with each other. Since the protocol is completely open source, any participant can easily use this code to bootstrap an application, and all value belongs to the participants of the protocol, rather than to any centralized entity charging exorbitant network usage fees. Like all networks, the value of the protocol increases as more participants join the network. One of the most classic examples of a protocol network is RSS (Really Simple Syndicate), an open source web feed format that allows users to subscribe to content from other users and websites they follow. This open source protocol is often used to subscribe to content such as blog entries, news headlines, and podcast episodes.
Enterprise networks, on the other hand, are closed-source networks, such as Facebook or Twitter, designed, maintained, and distributed by a single company to promote its own corporate interests. While these enterprise networks support APIs and an ecosystem of external developers and creators on their platforms, their interests are secondary to the core company's profit-seeking motivations. As a result, many enterprise networks have very high "take rates," where the majority of the value created by creators, developers, and other users on the network goes to the platform, not the users themselves.
As the modern internet has matured, we have systematically seen closed enterprise networks like Facebook or Twitter triumph over open protocol networks like RSS. For example, Twitter actually started out as an easy-to-use front end for RSS, but over time users began to rely entirely on Twitter's platform and network, rather than RSS. Eventually, Twitter completely overtook RSS in popularity, and the company decided to end support for RSS feeds in 2013.
One of the core reasons these enterprise networks are able to exploit and displace these open protocol networks is that they are well-funded, well-designed, and able to advance their own strategic interests. For example, platforms such as Amazon, YouTube, and Uber were initially more than happy to incur losses in order to subsidize their growth and attract users to their platforms. On the other hand, many protocol networks, due to their decentralized nature, lack systematic funding to continuously develop and maintain the projects, and many developers maintain the networks out of pure goodwill. Therefore, these open protocol networks cannot compete with the funding of enterprise networks. All of this greatly undermines the fundamental spirit of the Internet as an open public space to share and advance knowledge.
Tokens, Computers and Casinos
On the other hand, blockchain introduces a new form of network economics, combining the openness of protocol networks with funding mechanisms that allow them to compete with enterprise network teams. This is achieved by introducing "tokens" as units of ownership and value in blockchain applications.
Take Bitcoin, for example, the oldest and best-known blockchain project. The Bitcoin blockchain essentially acts as a massive, decentralized ledger (similar to an Excel spreadsheet) that permanently records all financial transactions on the network. This ledger is maintained and replicated on millions of computers around the world on the network called "miners" or "validators." They are rewarded in Bitcoin tokens for maintaining this ledger, with the specific reward determined through an algorithm called "proof of work." Essentially, Bitcoin is both a unit of value and a measure of ownership to incentivize network participants to act in specific ways, such as maintaining a financial decentralized ledger through the "proof of work" algorithm.
Overview of the Proof of Work Algorithm
Tokens provide a flexible framework to coordinate large-scale behavior, and we can easily replace Bitcoin's proof-of-work reward algorithm with another algorithm in different applications. For example, Ethereum uses a "proof-of-stake" algorithm to scale Bitcoin's Excel-like decentralized ledger to a fully Turing-complete global computer. All of this has created a new discipline in the blockchain industry called "token economics," which combines elements of computer science, economics, and game theory to design effective token reward systems for blockchain applications.
Unfortunately, the concepts of “coin” and “token” in cryptocurrency often conjure up negative connotations, leading the general public to believe that crypto is nothing more than an unregulated online casino. While there are many bad actors in the blockchain space, such as Terra founder Do Kwon and FTX founder Sam Bankman-Fried, who take advantage of the industry’s newness to commit fraud, this behavior obscures the true innovation and technological advancement in the industry.
Broadly speaking, cryptocurrency can be described as having two different cultures: "computer" and "casino." The "computer culture" represents developers, entrepreneurs, and many visionaries who are able to place crypto in the context of the broader history of the Internet and understand the technical significance of blockchain in the long term. On the other hand, the "casino" culture is more focused on short-term gains and profiting from price fluctuations.
Hopefully, the short-sighted and harmful effects of “casino culture” can be mitigated through greater regulation and legal clarity. One potential solution could be to leverage vesting schedules and timeframes, locking tokens for a specified period of time, either through technical means such as staking or through traditional legal means such as contracts. This, in turn, could spur longer-term development in the sector, thereby promoting blockchain technology as a force for social good.
Redefining digital ownership
The key to fostering a healthy, vibrant culture in the blockchain industry is to harness the power of the “computer culture” of the crypto movement. Fundamentally, tokens allow blockchains to redefine the concept of ownership on digital networks. For many blockchain projects, such as Bitcoin and Ethereum, no single individual or company owns the network, because anyone who owns the network’s tokens, such as ETH or BTC, is the owner of the network, and all of the protocol’s code, such as the algorithm that determines the distribution of token rewards, is open source. As a result, blockchains naturally inherit the open, collaborative spirit of protocol networks. At the same time, because tokens such as ETH and BTC represent units of value that can be redeemed for real currency, participants in blockchain networks are also able to fund project development and maintenance, thereby competing with enterprise networks.
Token Incentives and Network Effects
We are already seeing the potential of using tokens and other blockchain technologies as a force for social good and giving back to communities. For example, Helium rewards users with HNT tokens for setting up wireless hotspot hubs, providing wireless connectivity and enabling internet access to communities that are overlooked by traditional ISPs. Through the clever use of token incentives, Helium is able to launch an interconnected network of hotspot hubs and thus enjoy network effects. This is a classic example of how tokens can allow much smaller companies to overcome the traditional “cold start problem” and disrupt much larger giants, such as traditional ISPs. As the project matures, users who own HNT tokens will also be able to actively participate in the governance of the protocol and give these early adopters a voice in the future direction of the project.
Therefore, blockchain structurally redefines the concept of digital ownership, redistributing network profits to the users and communities that first created that value. By creating a new incentive structure for network participants on open protocols, blockchain breaks the “winner takes all” model of “corporate networks” and brings the Internet back to its original values of freedom, decentralization, and democracy.
Protocols, Enterprises, and Blockchain Networks
The future of blockchain
Today, we are at a turning point in the cryptocurrency space. Over the past few years, blockchain infrastructure and technology have made systematic improvements in many areas, such as advances in zero-knowledge proofs, modular blockchains, and interoperability solutions. Just as improvements in GPUs paved the way for ChatGPT's killer app, we believe that blockchain infrastructure may soon enable a killer app in the cryptocurrency space, the equivalent of cryptocurrency's "iPhone moment."
As the cryptocurrency industry turns a new leaf from the series of crashes over the past year and a half, we look forward to seeing the various new blockchain projects that may emerge, such as new types of social networks, games and metaverses, open source financial infrastructure, and a new creator economy centered around artificial intelligence, which will drive the next stage of the Internet.
Ultimately, blockchain represents the cutting edge of computing today, just as the Internet did in the 1990s. Unlike other cutting edge technologies such as AI and VR/AR, cryptocurrencies represent a truly disruptive force, redistributing value to the edge of the network, empowering network creators, users, and participants to become true owners of the protocol, and building a new “Read, Write, Own” economy in the digital realm.
