Is Crypto Like the Early Internet?
First the Leg Up (The Bubble), then Creative Destruction, then Value Creation - Which One Are We At Now?
My dad has a pretty phenomenal view of the entire internet tech stack–after all, he was there when it started.
How is this at all related to crypto? Give me a sec to explain:
When my dad started his undergrad Computer Science degree in 1979, he didn’t even interact directly with computers; his classes were entirely either theoretical (textbook and lecture based) or involved programming on punch cards. There was no internet, there was no HTML, no standards for protocols.
The world was completely different, and mostly because computers didn’t really affect our day-to-day life.
Punch cards are these things (Credit: DullHunk on Flickr)
Ultimately, my dad’s career took him on a winding path from computer-aided manufacturing (one of the earliest use cases for commercial computing) until he spent the last 10 years of his career teaching systems administration at a technical college. Now he’s retired, but that’s another story.
Do You Remember the Early Internet?
The other day, I called him up to chat about the early days of commercial computing, the internet, and how they compare with crypto. Here's what he has to say:
1. The Internet is Remarkably Similar to Blockchains
I never realized that the idea of a cohesive ‘Internet’ wasn’t really defined until the mid or late eighties. Before then, there were corporate computer networks, inter-bank networks, and education networks–alongside those, a permissionless, ‘self-hosted’ network called the internet was growing and gaining traction.
What is the internet, really? It’s a series of interlinked servers, all connected to each other in a resilient, permissionless, and open way. What does this mean?
Open: There’s no single gatekeeper internet users must go through.
Resilient: If you take down one ‘node’ in the network, the network stays active.
Distributed: The internet is no single entity, has no single source.
Permissionless: Anyone can participate in the network.
These characteristics sound an awful lot like something else we know and love: cryptocurrencies and the cryptographic ledgers that they live on. Sure, there’s some differences, and the internet doesn’t have any tokens. Nonetheless, it’s worthwhile to look at the similarities.
Important to note? None of these characteristics was ever guaranteed–they were fought for. Corporations (Microsoft, IBM, etc) all wanted to create their own ‘closed’ internets that they could gate and control and charge to use. Other networks were closed to use and gated to a given industry.
As an interesting side note, the US Federal government is the indisputable, original source of the tech and the idea behind the internet, something that cryptocurrency and the rest of the tech industry often likes to gloss over.
The Takeaway: Blockchains show an incredible skeuomorphic similarity to the internet. This skeuomorphic extends in many ways; thus we can take the internet and its development and use it to inform our thinking about the world of crypto.
2. Protocols, Version 2.0
In the early days of crypto, standards were far from set. Heaps of ‘standard’ protocols were developed for all kinds of applications, mostly a jumble of solutions that weren’t cross-compatible or effective.
Slowly, single-purpose protocols standardized and brought consolidation to the space, most notably TCP/IP. But it never accrued any value, those who built that layer of the internet stack left it open and never charged any rent.
Who made money off of TCP/IP?
The apps that built on top of it: Facebook, Google
The infrastructure that supported it: Cisco, Altacel
The tools that enable the protocol: NVIDIA, Taiwan Semiconductor, Apple
There are two ways to look at this paradigm:
Crypto is different because it allows a protocol to accrue value
Crypto protocols are ultimately worthless, will be the apps that accrue most value in the future This idea is expanded upon in an article written by Joel Monegro, partner at Placeholder Ventures. You can read it here.
Personally, I believe that protocols and apps both can accrue value: Ethereum NEEDS to be valuable to be an effective custodian of assets, otherwise it’s not economically secure. Apps, as well, can charge according to their utility. It does feel like Ethereum’s shift to a net-deflationary ‘sound-money’ model after the merge, completed by burning fees, is a big step to changing the paradigm of 'skinny (valueless) protocols'
The Takeaway: While many in crypto imagine a multichain future,TCP/IP is actually an example of consolidation towards a single, monolithic protocol–an interesting data point to observe. Will its equivalents (Ethereum, other L1s) be able to accrue value? Or will Apps end up being the most valuable assets in crypto?
3. There Will be a Shakeout
With an incredible tech boom in the late nineties helping create one of the only US budget surpluses ever, the economy was smoking hot thanks to the internet buoying up banks, stocks, and when the valuations got too far out of line with reality, the so-called ‘dotcom bubble’ popped.
Capital evaporates, and weak hands fold: investment, companies, projects, retail investors, the ones who aren’t committed leave, leading to a consolidation effect. My dad called this process ‘creative destruction’ because, although it’s nasty, it leads to competitors that truly create value for the world (and for investors), while the first leg up (the bubble) is merely related to how capital markets create room for speculative bubbles.
The Takeaway: Are we in the shakeout right now? Or will we get another leg up before the real shakeout? Weak hands will fold (are folding) either way.
4. This Will Take a Long Time
How does my dad see the crypto entrepreneurs of today? “They’re kids,” he says, “once they start looking like adults, that’s when we’ll see crypto change the world.”
It’s hard to know if crypto will progress faster or slower than Web 1.0 and 2.0, and it’s even harder to know exactly how that progression will play out–one thing is for certain, though, that it will take longer and be harder than expected.
I really liked this tweet to give things perspective:
The minuscule details and day to day of a specific project are ultimately silly–it is the epochal, dynastic change that we need to focus on.
The Takeaway: Patience is key.
5. Mark Andreessen Is Right Until Proven Wrong
One of the main characters in the world of Web2 and Web3? Mark Andreessen, founder of venture firm A16Z. While that Vc firm has a certain reputation in crypto (spray, pray, and never sell), they have another reputation in Web2: the greatest technology investors the world has ever seen.
Literally: CBInsights, Forbes, and InvestorRank all agree. Their average yearly returns tell a similar story.
People in crypto don’t necessarily realize that Mark Andreessen has already been around the block a few times, at first as the founder of the first web browser (Mosaic, later called Netscape), then, as the greatest tech investor for Web 3, now focusing on crypto. His opinion means something, and the philosophy and ideas they have around internet ownership shouldn’t be taken lightly.
While the most recent generation of Web2 founders likes to pick on Web3, it does feel like many of the early internet OGs can appreciate the tech–Elon Musk, Tim Cook, Mark Cuban, Sergey Brin, and Larry Ellison are all crypto acolytes (notable exceptions include Jeff Bezos and Bill Gates).
The Takeaway: The old guard is on our side. By and large, critics come from the newest generation of tech founders, or people who were never fans of the internet in the first place!
Does Anything Ever Change?
While technological cycles accelerate and change in unpredictable ways, the models we have for how specific technological innovation develops and proliferates have stayed static. Power law distributions combined with exponential growth create billions of dollars of economic growth for founders, employees, investors, and yes, customers (remember, crypto needs that too.)
Which Stage Are We At Now?