Jul 26, 2018 · 45m · a16z
Crypto and Decentralization: Building Blocks
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Host Devon Zuegel joins a16z crypto partners Chris Dixon and Ali Yahya to discuss cryptocurrency as a novel computing paradigm, examining its fundamental building blocks, economic incentives, historical parallels, and the infrastructure needed for decentralized networks.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. How this is scored →
The host as informed peer 2.2 Guest teaching 2.3 Guest disagreement 0.1 The host pushing back 0.0
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 19:21 Complements versus substitutes tech conflict
Chris forcefully reframes standard economic assumptions by arguing that the most vicious battles in technology occur between complements rather than substitutes.
Hardest push from the host ▶ 39:54 Steering conversation toward stablecoinsDevon actively redirects the theoretical discussion on usability pillars to press Chris specifically on the practical importance of stablecoins.
Biggest teaching moment ▶ 34:17 Encarta vs Wikipedia go-to-market mechanicsChris delivers a compelling historical breakdown explaining why open developer flywheels like Wikipedia inevitably outperform polished centralized products like Encarta.
The host holds their own ▶ 18:46 Synthesizing platform network externalitiesDevon demonstrates deep economic understanding by clearly explaining how centralized platforms like Twitter treat third-party clients as negative externalities while crypto networks internalize them.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| Title Sequence and Legal Disclaimers | 2 | 2 | 0 | 0 | Devon opens the episode by introducing guests Chris Dixon and Ali Yahya and posing a broad framing question about why they are excited about crypto. Chris responds with an overview of crypto as a new computing paradigm. | |
| Trust as a Core Primitive and Digital Collectibles | 0 | 3 | 0 | 0 | Chris delivers an uninterrupted monologue detailing how blockchain computers trade performance for trust, creating strong guarantees for users and developers. The host does not speak during this segment, keeping host-side metrics at zero. | |
| Facilitators of Human Collaboration and Adversarial Networks | 0 | 3 | 0 | 0 | Ali details the three facilitators of human collaboration and explains how blockchains solve enforcement and incentive trust but lack social signals. Chris adds nuance regarding adversarial networks. | |
| Solving Identity and the Sybil Problem | 2 | 2 | 0 | 0 | Devon asks targeted follow-up questions about identity, reputation, and data sovereignty. Ali explains the Sybil attack problem while Chris contrasts web2 centralized data exploitation with web3 data sovereignty. | |
| Native Crypto Business Models and Token Alignments | 3 | 2 | 0 | 0 | Devon provides a sharp breakdown of ad-supported web2 business models before asking about native crypto business models. Chris elaborates on token-based network alignment. | |
| Internalizing Network Externalities | 4 | 2 | 1 | 0 | Devon synthesizes Chris's point using the Twitter platform ecosystem as a concrete example of uncaptured externalities. Chris builds on this by explaining why tech battles are fiercest between complements rather than substitutes. | |
| Incentive Engineering and Purposeful Work Proofs | 4 | 2 | 0 | 0 | Devon frames incentives through game theory, pointing out how crypto turns prisoner's dilemma dynamics into iterated games. Chris and Ali expand on how code expresses nuanced incentives. | |
| Infrastructure Stack, Scaling Solutions, and Developer Tooling | 3 | 2 | 0 | 0 | Devon compares IPFS to the AWS S3 of crypto and asks about necessary developer infrastructure. Chris lists scaling solutions, developer tooling, and compares the space to a newly discovered continent. | |
| Historical Parallels: Building the 1990s Web | 2 | 3 | 0 | 0 | Devon notes that early web infrastructure also required extensive buildout. Chris delivers a detailed history of 1990s web limitations and the battle between the web and top-down information superhighways. | |
| Go-to-Market Strategies: Wikipedia vs. Encarta | 2 | 2 | 0 | 0 | Devon asks about contrasting growth curves between centralized and decentralized architectures. Chris uses the Encarta versus Wikipedia comparison to illustrate developer flywheel momentum. | |
| Reaching Peak Centralization | 3 | 2 | 0 | 0 | Ali introduces four key pillars for evaluating decentralization. Devon steers the discussion directly toward usability and stablecoins, prompting Chris to explain pegging mechanisms. | |
| Governance and Decentralization as a Means to an End | 1 | 2 | 0 | 0 | Ali concludes by analyzing governance, security, and explaining decentralization as a means to an end rather than an end itself. Devon thanks the guests and wraps up the interview. |
Statements from this episode (24)
Dixon: Crypto networks are fundamentally a new type of computer
“You know, being kind of, being technology focused, we kind of, we like to look at it or one way we like to look at it is as a, as you can think of a crypto network like Ethereum or Bitcoin or one of the many other new innovative, you know, networks out there a…”
Dixon: Every new computing platform unlocks novel application categories
“Each time you had a new computer, you had new kind of things you could, capabilities that unlocked new applications”
Dixon: Ethereum is less performant than AWS or Google Cloud
“Crypto networks like Ethereum are actually kind of worse in some of those dimensions. So for example, as in the performance side, it's not as performant as, let's say, AWS or Google Cloud Services or something.”
Yahya: Blockchain lacks effective mechanisms for identity and reputation
“The one that is still missing is that of social signals. There's still no real good mechanism for reputation or for identity on the blockchain, and that's one of the things that many people are working on, and that's a building block that will be needed. Going…”
Dixon: On-chain identity systems would vastly expand blockchain application design
“If one were to have a better kind of system of reputation or identity, you could relax that constraint, have, know that participants have some history, you're playing kind of an iterative game and it would enrich, I think it would widen the design space. Of po…”
Dixon: Data is the key scarce resource for AI systems
“The, you know, the really valuable thing that people have that, that, that need for these to create AI systems is they need algorithms, they need computers, but they also need data. And data is really kind of the scarce resource.”
Dixon: Crypto foundations typically retain 10% to 20% of native tokens
“The rule of thumb is 10 to 20% of the currency is kind of held back for funding the operations of the company, and it's kind of the business model of the company, right?”
Dixon: Token models will become the dominant internet business model
“And we've now discovered this great business model, which I think will be the dominant business model of the internet and is the true kind of native business model of networks.”
Dixon: Crypto assets will become more valuable as networks expand
“As more and more networks are built and grow and become more important in our lives, those assets will become more important and more valuable.”
Zuegel: Crypto networks allow platforms to internalize third-party developer value
“If it were a crypto network, they'd be able to capture it.”
Dixon: Tech's fiercest battles occur between complements, not substitutes
“The most vicious battles in tech are not between what economists call substitutes, they're between compliments”
Dixon: Crypto networks will create intra-network harmony and healthier competition
“I think it could lead to sort of more healthy competition and more intranetwork kind of harmony.”
Dixon: Satoshi's Bitcoin whitepaper is fundamentally nine pages of incentives
“I think the best way to think of the Satoshi's original paper is nine pages of incentives. I mean, there's not to this, there's computer science and game theory and other important things, but the incentives are kind of the key part, and those incentives creat…”
Zuegel: IPFS is the AWS equivalent for cryptocurrency infrastructure
“IPFS is sort of the AWS of crypto, or at least the S three.”
Dixon: A major wave of tech talent is migrating to cryptocurrency
“We're seeing just a real wave of talent, of people coming out of colleges, and tech companies, and other places, and saying, you know what, I'm sort of tired of living on this other continent, it's all filled up, and it's gotten kind of mature, and mainstream,…”
Dixon: Late-1990s McKinsey study wrongly predicted broadband failure
“There was a famous McKinsey study, it was like late nineties or something, like, would you want broadband, and no one said, and they surveyed people, and they were like, why would I pay, and it basically, but people said no, and they, people had concluded that…”
Dixon: Bill Gates omitted the word 'web' from his 1995 book
“You know, the idea that today was a fait accompli, and like, it's obvious, like Bill Gates wrote a book in 1995 called The Road Ahead predicting what's gonna happen in the future. It's 95. This is, you know, I think it was, this is well after Yahoo and Netscap…”
Dixon: Crypto will reach mainstream adoption faster than early web
“I'm more optimistic about the crypto stuff happening sooner because it's software-based, meaning the hardware's already built out, and now we just need to like a few quick, you know, a few clever incentives and some nice software, and you suddenly have like, y…”
Dixon: Open web platforms beat centralized systems via developer network flywheels
“The web started off worse, but it got better at a faster rate by getting this flywheel of entrepreneurs, and developers, and users”
Dixon: The internet has reached peak centralization and will decentralize
“I think that that we're, I believe we're at sort of peak centralization, and we're going to see more and more interesting things happening, and there's sort of this kind of, you know, it's like a lot of things in life, like politics and, you know, fashion tren…”
Yahya: Blockchain technology cannot yet scale to billions of web users
“There's scalability because in order to build anything that Is web scale, as Chris was saying, that billions of people can get on. You have to have some mechanism via which technology can scale, and that's not really the case yet.”
Dixon: Stablecoins will drive broader mainstream crypto adoption within 1-2 years
“In my mind, this is one of the really interesting things that, that I think will likely start to become more prominent over the next year or two. And could unlock a whole new wave of kind of applications and just broader mainstream adoption of cryptocurrency.”
Yahya: Crypto networks with lower security than Bitcoin will emerge
“So certain blockchains, like say, like the Bitcoin meme is that Bitcoin is fully decentralized and is extremely secure, secure to the point at which it'll be resilient even against attacks by nation states like China. But there are applications out there that …”
Yahya: Decentralization makes usability and governance harder to build
“Decentralization is a means to an end. It's a means to each of these four things. It provides you with security. If done correctly, it can provide you with scalability of the underlying World computer. And it can help, ah, I think, I mean, usability and govern…”