The Crypto Thesis

Historically, new models of computing have tended to emerge every 10-15 years: mainframes in the 60s, PCs in the late 70s, the internet in the early 90s, and smartphones in the late 2000s. Each computing model enabled new classes of applications that built on the unique strengths of the platform. For example, smartphones were the first truly personal computers with built-in sensors like GPS and high-resolution cameras. Applications like Instagram, Snapchat, and Uber/Lyft took advantage of these unique capabilities and are now used by billions of people.

Blockchain computers were first proposed in 2008 by Satoshi Nakamoto in the Bitcoin whitepaper. Those original ideas have since been dramatically expanded by developers and researchers around the world. Blockchain computers are new types of computers where the unique capability is trust between users, developers, and the platform itself. This trust emerges from the mathematical and game-theoretic properties of the system, without depending on the trustworthiness of individual network participants. In exchange for these new capabilities, blockchain computers trade off other capabilities such as transaction scalability. This can lead people to dismiss them, in the same way people dismissed early smartphones because they traded off computing power and screen size for portability and new sensors.

Trust is a new software primitive from which other components can be constructed. The first and most prominent example is digital money, made famous by Bitcoin. But, as we’ve discovered over the past few years, many other software components can be constructed using the building blocks of trust. Smart contract platforms like Ethereum enable the creation of, among other things, application-specific currencies, digital property rights, open financial instruments, and software-based organizations.

From these components, in turn, new infrastructure and applications can be constructed. For example, developers are working on upgrading the core infrastructure of the internet, including storage, networking, identity, and distributed computation. Stablecoins can enable more mainstream user experiences for digital payments and financial services. Cryptogoods can unlock new experiences and business models for games and other forms of media. Entrepreneurs are developing crypto-powered financial services like the tokenization of traditional assets, and payment services for the unbanked. Many other applications are expected to emerge in the coming years.

The new primitive of trust also means that 3rd-party developers, entrepreneurs, and creators can build on top of crypto-powered platforms without worrying about whether the rules of the game will change later on. In an era in which the internet is increasingly controlled by a handful of large tech incumbents, it’s more important than ever to create the right economic conditions for developers, creators, and entrepreneurs. Trust also enables new kinds of governance where communities collectively make important decisions about how networks evolve, what behaviors are permitted, and how economic benefits are distributed.

There are other important trends happening in computing, including the emergence of next-gen computing devices like VR & AR, self-driving cars, drones, and IoT devices. Recent developments in artificial intelligence are extremely exciting and will enable computers to more intelligently interact with the world. Andreessen Horowitz believes that just as the last three megatrends—mobile, social, and cloud—intersected and reinforced each other, so will the next three megatrends—next-gen computing devices, AI, and crypto.

Although the Bitcoin whitepaper is now almost 10 years old, Andreessen Horowitz believes we are still early in the crypto movement. The infrastructure needs to be improved and the applications are difficult for non-early adopters to use. Many crypto applications still get dismissed as toys. Andreessen Horowitz believes this will change quickly. For one, crypto is purely a software movement and doesn’t depend on a hardware buildout, in contrast to, say, the internet, which required laying cables and building cell towers. Second, the space is developing extremely rapidly, partly because the code, data, and knowledge is largely open source, and partly because of the increasing inflow of talent.

Finally, Andreessen Horowitz is optimistic because they are deep believers in the power of software. Software is simply the encoding of human thought, and as such has an almost unbounded design space. To A16Z, crypto currently feels like the early days of the internet, web 2.0, or smartphones all over again.