The Case for Crypto - Chris Dixon

Chris Dixon is the founder and managing partner of a16z crypto andrion horowitz's VC fund for crypto and web3 startups he's also the author of a new book read write own building the next era of the internet we're having a lot of Silicon Valley people on uh of late we had aen Lee on last week welcome Chris thanks Ken thanks for having me so uh so it's been a a rough couple years for crypto and blockchain but you're still making a case for it in this book um actually Scott has two in a lot of way but why don't you why don't you explain why you're still a Believer yeah sure so I mean in the book I try to explain what I would call the productive aspects of blockchains and why I think that blockchains can help us um return the internet to its original ideals as being an open and Democratic Network which is why I got involved I've been involved in the internet for 25 years I got excited by the early ideals of the internet and you know look if you fast forward to today the internet's become very Consolidated the top five tech companies account for half of the nas NC 100 market cap top 1% of social networks 95% of traffic you know Google and apple have a duopoly on mobile operating systems I'm sure you both have talked about this plenty it the internet I worry the internet's at risk of becoming like 70s broadcast TV or something where you have three channels um and I think that's bad for the world I also think it's bad for our business you know we're in the startup business um we we want a dynamic internet but you write about uh blockchain technology and this is a quote from you this this is a chance to create the internet you want not the internet you inherited it's something we talk about a lot like that the same companies are in charge um what is that what do you mean by that it when you say there's lots of opportunities for Innovation here uh that starts from Ground Zero presumably versus starts with Google in charge or Microsoft or whoever I I'm guessing that we somewhat agree on the problem um meaning having five companies control everything is um not ideal um I think there's different ways one could think about solving that and so for example a lot of people talk about regulation I believe there is a role for regulation um I think you know we'll see what happens with doj and apple and things like that um I my proposal is to also try to do it through Innovation and by and and through that we want to create a new wave of Internet services that return power to the edges of the network and so to give you an example one of the reasons that social networks are so powerful is you're locked in right they have Network effects so you know I know I think you switched recently to threads um and when you did you had to give up your audience right you had to go build a new audience I I'm still over there because I got there first but go ahead but okay so you maybe maybe you're the exception but generally you're locked in right to these networks so like and especially if you're like a creator for example and you build a business on Tik Tok or Instagram and and you don't like the fact that they changed the algorithm or did some other thing you're locked in and so one of the key aspects for example in uh in these new blockchainbased social networks which is one category we're investing in is a user owns his or her identity and they own their follow followers in the same way you do in the email world right so if on email if you have a newsletter on substack and you don't like substack you can switch and you can take your followers with you so that's just one example of how a different architecture by empowering users with ownership this is the read write own that's what I mean by ownership is is a user controls their followers not the service that that change in architecture I believe can have sort of profound Downstream consequences on on the ultimate control of these services and the economics and you know these these networks I don't think we knew this 10 or 15 years ago but today we know they control the flow of global money you business culture politics they're very very important um and I and I don't think that having four or five people whoever they might be maybe you know at one point you like the management one point you don't I just am fundamentally against the idea that five people can control those things I think that they should be more like the early web you're talking to people who like to own so Scott go ahead Chris good to see you so and this may be the wrong bucketing but I think of blockchain in terms of front- facing applications as bucketed into three areas there's the tokens you know crypto there's nfts and there's Dows um Dows haven't really gotten any traction nfts I think have lost 90 plus percent of their value I think I'm being generous there and the the token Market's been kind of loosely speaking in terms of market cap and cut in half even with its Resurgence from its peak what talk about those three categories where do you see the opportunity yeah so I think with Dows so a couple things like I mean there there are active Dows um a lot of them are around these defi protocols so for example Unis Swap and compound and um maker are what's interesting about them is they're their networks in the same way that Facebook is a network but the users control those networks um and those are networks that have active Unis swap had trillions of dollars in trading volume and the users decide how to upgrade the code um admittedly that is early those are experiments in my book I have a section on what I call Network governance where I talk about this and my argument is essentially that it's a um a very powerful new way to design Community governed systems I I don't claim that we've fully figured it out I I think that it it requires a lot more work to evolve nfts like the nft standard was the was finalized in 2020 then we had this you know big rise in the market last year in 2023 there were $8.6 billion in sale so I think the sort of decline has been exaggerated but how much of that 8.6 billion do you think is is false Flags is people trying to Pump Up the Volume according to we have a data science team and I asked them to pull these numbers and they they they believe that's removing wash trading if that's what you're referring to um so so so they do believe that but look admittedly that you know it's hard to get the exact numbers but but um I think that's a pretty accurate number um and so um the so nfts so and look I think nfts went through I the way I kind of look at these things is like the internet we all I think live through the internet bubble right I kind of began my real career post internet when everyone thought the internet was over and the way I view it is a lot of these new technologies go through these Cycles where people get overly optimistic and I think that probably happened with nfts and now I believe they're overly pessimistic all right let me let me ask you about that because you talk about the casino culture of crypto which has become the dominant narrative and obviously the law the binance thing s bankman freed Etc talk about the less nefarious side and what about the impact of that those those cases and also the SEC did approve Bitcoin ETFs a few weeks ago that the price of Bitcoin has been falling the casino stuff yeah so overall it's sort of in that moment and I would agree with you there was a lot of real scammy stuff at the beginning of the internet for those who weren't there um and it went on for quite a while for quite a while actually um but talk about sort of that how to shed it because I think people think of it now with FTX even though they made a great investment in anthropic it was mostly not a good story for crypto or in general in my book book I have a long section where I talk about this what I call the casino and I am and I'm again very against it and I think it's destructive I think it's destructive primarily to Consumers who are victims of things like FTX but I also think it's quite destructive to what I'm trying to work on which is to to build a productive side of these Technologies but look the way I would describe it is a blockchain is a tool tokens are a tool right and just like any tool you know you can a hammer can build or a hammer can destroy and there's two sides to the tool and I i' I think there's been lot of attention paid to the casino aspect there are you know like we have dozens of startups in our portfolio who are working on the on the productive side and I and I the reason I wrote the book partly was to tell that story because I do think it's a bigger story than people realize I I also think that we need um more proactive policy we've been calling this for this for years since before FTX to put guardrails around the casino stuff to eliminate the offshore activity I look I was involved I mean the reason we were not investors in FTX is I was involved with coinbase for years coinbase contrary to I think some some popular perception it was heavily regulated their Bank secrecy act regulated they do full kyc and all customers there's a there's a whole series of regulations they're audited they're public us company um binance FTX there's a whole series of companies that were offshore not audited all these other kinds of you know all these running exotic prod products I mean that's the kind of stuff that I think we need to clean up and have very clear rules what about the Bitcoin ETF it does sort of introduce consumers to it in a safer feeling way you know if I'm getting it from Fidelity I certainly trust them more than even coinbase for example yeah and and I think I think the bigcoin ETF was a I mean in my mind is a net positive in the sense of it sort of more institutional acceptance oh you say net positive what what's the negative no it's good sorry I mean it's good overall I look I I'm very focused on the Utility side of building applications and so it's a new Financial instrument so it's for me it's less of a focus that's what I mean um and it's just not you know like I would love for to more of the new Cycles to be focused on hey this person just came up with a cool new way to fight deep fakes this person just came up with a cool new business model for Creative people I think specifically with the rise of AI I see a lot of blockchain applications as the counter measure in many ways so like just to go back to maybe if I could talk about the def fakes for a second the um you know we're now going to have an internet a wash with fake video a wash with you know very Advanced fishing um yeah we have it actually yeah we probably have it um talk to Taylor Swift this week Taylor Swift can you can simulate people's voices perfectly now they can take your voice from the podcast yeah they can they can then call I actually had a partner Martine who they called someone called his parents using his voice to try to get money this is actually like a real thing happening so in that world we need to use I believe tools like cryptography to authenticate things and I think you know for example one one way to do that is you one thing a blockchain's very good at doing is storing an immutable audit Trail and so you can have an immutable audit trail that says this video is attested to by you know it came from Caris Wisher um and it was attested to her by her as an example and so it gives you this ground truth in a world in which you lose that I think also blockchains allow for new business models for Creative people in a world where like generative AI will put significant downward pressure on you know the ability for let's say an illustrator to sell things right if you can just go to a mid Journey or something um and so you know I think it becomes more important um in in an AI world so when I think about U kind of the consumer facing Tech technologies that it built so much value in Tech and I think about the leadership there I think about the original gangsters I think about Gates and jobs and then the new you know the new guys and they were all guys Brin Paige Bezos these say what you will about them were they're all Visionaries and and I and I would argue at their core they were all I'll go on I think they're good people and the the two kind of iconic figures in blockchain are either in jail or going to jail and and my question is who are the new who's the next generation of leadership that you would point to that will quite frankly to sort of clean this mess up because right now from a public perception standpoint it feels like a levered Ponzi scheme I think there's just two very different worlds Scott so I think there's the the SP SPF world and then I think there's you know like people like vitalic bararan and bethereum well you mentioned Brian Armstrong or you alluded to him I think look I think look Brian like Brian got you know he got Flack for years years for being slow I mean their market share got low single digits um they were getting crushed by binance and FTX if you talk to any Silicon Valley VC it was like why is coinbase so slow stocks aren't crazy they're doing really well now and then and and Brian like Brian kept I I mean I think what he did was admirable he really kept his head down he never changed what he does he invests very heavily in security and compliance um and and you know he's not he's not he hasn't gotten all the market share yet but I think that approach has proven correct I think Brian has done a great job I think there's folks like metallic and there's a lot more like there's these conferences like you go to Devcon it's an ethereum conference and there's like tens of thousands of very Earnest kind of you know um uh thoughtful technologists and it feels to me kind of like I don't know 2005 web 2 movement when I was you know I was part of that and you go to these things and and yeah and look they weren't I mean like you never know who the Larry Page is at the time I mean obviously Larry pagee is I'm sure brilliant and everything else I didn't know him over time these folks will emerge I do I do I would say I think there's a very strong productive positive movement that I think just gets kind of crowded out by all of the you know the coverage of the casino stuff um but I think it very much exists and that's why look that's why I wanted to write the book I wanted to go through in detail and explain this and make the case let me ask that then I was just looking at coinbase stock which is up recently but it's certainly down from to 2022 like quite a bit like or 2021 especially um when it was in the you know what is it two I was 330 2 and then it's now 131 it was down in the 80s and 70s and stuff like that that using them not as an example of you know Scott called them the AOL of blockchain but nonetheless um it's that a good thing no I don't think so it was for a while it was a great thing for a while it was great though it wasn't um but but it has been around for a while and the main does it have to be mainstream because AI suddenly is everywhere mainstream you know it's it's it seems ubiquitous every everywhere does it have to be mainstream or just where the electricity where the in where the where the I don't know the drywall or whatever I don't know yeah I in my book I analogize blockchains to Steel in the sense of like it's a it's a building material right because people sometimes say what problem does it solve and I really see it as a building material for building better internet services so I think ultimately if the movement that I'm part of succeeds it will be it won't be some parts it will be visible the fact that you can hey there's a social network where I can exit you know there's a I can sell digital merchandise as a musician directly to my fans like you'll see parts of it but you won't see all the plumbing and I think most of the plumbing is behind the scenes and it and by the way it may may happen with AI too maybe AI is just sort of baked into everything I think it's probably a likely outcome AI feels more like the internet right it feels more like or a web or or something like that but if you if people wanted to get into crypto right now where would you tell them to start I think look I think there's a lot so some examples of things I'm excited by we have um a few things around music so there's a project called sound XYZ where musicians so musicians today don't make money on the internet they make very little money on streaming a lot of them if you ask them we'll say they go offline and they tour and they sell merchandise um to to support themselves and so um there's various projects like sound XYZ that let you musicians sell backstage passes and digital merchandise to their consumers and add additional income stream so that's one interesting area there's a social network called foraster that's a lot like kind of something like Twitter or Facebook except the user controls their name and their followers and can move around and developers can hack on it car you remember early Twitter how it became like a developer platform like I was very excited by Twitter at that point those are two examples um the the um look there's also stable coins are quite popular um in the developing World there were something like $600 billion dollar in stable coin transactions last month so there also other you know as I mentioned nfts I think are bigger than most people realize that there's yeah there's a bunch of interesting games that are launching like we have one at sort of as Style game called pirate Nation where you have nfts is digital Collectibles Eve online the the popular is a very popular video game they're launching an nft version soon which let's kind of have more of a peer-to-peer economy where users can create spaceships and sell them to their users so I think there's a really interesting wave of new companies that are much more accessible um Blackbird is one in New York where it's a restaurant um it's actually the founder of resi and eater um Ben lethal you may know him experienced entrepreneur yeah so he's doing an nft it's like a restaurant thing where you can use nfts as a way to kind of reward loyal loyal patrons um so I I feel like we're having this kind of out of the downturn there's a there's a it feels to me like a lot of people are kind of saying hey we got to really level up our game and have really great product experiences and we're seeing a an exciting wave and like I'm excited about it there was a fear that a lot of these crypto projects were essentially VC's financing a group of intelligent guys who had found something they thought claimed was new technology the VC fund would lend its capital and create this project they'd issue a coin because and then kind of leveraging the fact this fomo of Main Street Americans who wanted to participate in what was hot they then buy these coins and because there's no SEC requirements on uh lockups or even disclosing when You' sell these coins that then these VCS would basically dump their entire stake and that these projects s were not financing any sort of growth or underlying technology they were essentially Just An Elegant transfer of wealth from mainstream investors to the limited partners of VCS do you think there's any truth to those claims I think it's possible I think that look I mean I would just say that probably the number one thing that we have asked for and pushed for in policy for years is longer lockups okay so we have 10e we're we're Venture F all of our funds are Venture funds including the crypto funds they have a 10-year life cycle um we push for long lockups in the deals we do but we don't have unlimited Market power if we go push too hard they will do a deal with somebody else right and so we have I think the number one thing that the policy makers could do to improve the space would be long lockups on every project because I believe in that that real technology takes years to build and you need to avoid that yes I look I think all sorts of things have happened but Andre hasn't hasn't been subject to these lockups or self-imposed them we in all the deals we do we have multi-year lockups I'm sorry I just want to clarify this when you invest in a crypto project and there's a coin issued you have a self-imposed lockup on when you can sell those coins the lockups in the term sheet it's it's a term in the term sheet yeah we do and the founders do so the crypto projects you you funded in the last few years you have not sold coins you still own those coins we have 94% of the coins that we bought we hold in all our crypto funds today so wouldn't that indicate that andreon has taken an enormous draw down or loss on these projects given what's happened in the crypto Market we're ra I'm not allowed to talk about our returns but I mean we we have 94% of our of our tokens yeah I mean think it's a venture capital is a highly volatile market and then my last case is just give us what you feel is the most compelling use case for consumers or or or Enterprise say it doesn't even have to be now but in three years what what do you think the use cases are outside of speculation sorry to keep pushing my book but I have seven sections at the end of the book where I go through seven uh like deep into seven areas of use cases and I talk about social networking I talk about Finance I talk about uh media businesses like nft media businesses um I'll just give you one kind of maybe a flavor of a cool idea that I like um as that's one of the sections which is an area called collaborative storytelling and that the idea there is it's kind of Wikipedia style is um uh internet fans get together and create narrative universes like the next Harry Potter and the next Marvel and they get rewarded with tokens proportionate to their contribution um and then they go and they the that the narrative universes they can create can then be made into licens and made into movies and comic books and other kinds of things like that's a cool new idea that just sort of couldn't exist before you had crypto but there's just like a bunch of there's games I have a section on games in the metaverse like I look I think that very clearly we're going to have you know the so-called metaverse I know it's jargony is but it is a thing that's going to happen and whether I'm not talking just strictly about VR headsets I'm talking about people spending more time in 3D worlds the video games and things like this that's just we're going to have more and more people in 3D worlds they're more persistent um um it becomes a bigger part of our lives and I think an important question is how is that metaverse structured is it structured with like one company owning it like does fortnite own it or is it structured like the web like where there's a bunch of different you know like it's an open system and you can add a component to it um like that that's another important you know area that I'm focused on um I think as I mentioned before like in a world of generative AI um let's talk about your business the media business um you know the internet has operated on an implicit Covenant between distribution like search engines and social networks and uh websites right what happens in a world where you go to a chat GPT and you just get an answer you don't have to click through anymore right so we're very soon entering a world where you don't click through anymore and you don't go and I was on the board of stack Overflow for years stack Overflow data was used to train a lot of these systems and now stack overflows traffic is way down right so so how do we train how do we create content in the future how do we reward content creators so you know I have a section in the book on this about like different things people are working on and ideas for like new ways to use blockchains to to create business models in in a world of AI systems that give you the answer one of the last things I'm sorry I just noticed Larry fin who was a big um detractor of Bitcoin and stuff of course has done an about face and is calling himself a big believer of course they have they filed paperwork for an ETF too at blockr so it's I think the finance stuff and the speculation might be a little calmer with these new you know it's part of that it'll be part of that presumably that will still I know you're not in that area you're in the tools part but as a speculative tool of ownership I think it's this will change it quite a bit a lot of people feel like um and then they're limiting yeah I think the sort of institutional yeah the institutional people are really piling in a lot more because it feels safer and that makes sense that makes sense from a lot of perspectives anyway uh really fascinating book actually and we love to we love to own we Chris we're owners um and you know I am you know I'm like tired of selling my stuff to other people um anyway again Chris Dixon he one of my favorite Venture capitalists and that's a very short list um and uh the book is read write own building the next ear of the internet is really worth your while to read it thanks Chris thanks Chris good to see her again yeah thanks God thanks K you too