Chris Dixon and Packy McCormick on the future of crypto

By Chris Dixon: general partner, a16z, and Packy McCormick: founder, Not Boring Capital

Because of the success of bitcoin, the pioneering cryptocurrency launched in 2008, many people associate blockchains primarily with money and finance. But the applications of blockchains are much broader. Modern blockchains are fully programmable, like a PC or a smartphone. What makes them unique, however, is that they let programmers write code that can make strong commitments about how that code will behave in the future. Bitcoin’s code guarantees that there can only ever be 21m bitcoins, that network participants cannot spend the same coin twice, plus a host of other commitments that established trust in the currency.

The year ahead will show that blockchains can support a lot more applications beyond money and finance. In 2022 decentralised services will chip away at big tech companies’ stranglehold on the internet. A cluster of new “web3” technologies, such as tokens, will dramatically improve the digital economics of creators, technologists and small businesses.

Ethereum, released in 2015, was the first blockchain to fully generalise the ideas that began with Bitcoin. Ethereum can run programs (known as smart contracts) that enable developers to build almost any application. Services built on Ethereum can offer advanced functionality that rivals the services offered by centralised tech firms, while removing rent-seeking and central points of control. Ethereum also enabled the creation of tokens—software-based units of value that grant users ownership rights and even revenue streams.

Blockchains also made possible the automation of traditional financial functions such as lending or trading. The first Ethereum apps to gain widespread adoption were decentralised finance (DeFi) apps like Compound, Maker and Uniswap. In DeFi, financial functions are handled by fully automated protocols that are owned and operated by decentralised communities instead of centralised companies.

DeFi attracted the money and attention needed to bootstrap the growth of web3, but web3 is about more than money and crypto. During 2021 we’ve seen entrepreneurs expand the ideas that started with bitcoin and DeFi to games, media, marketplaces and even social networking. At the core of this expansion was a new concept, non-fungible tokens (NFTs). These are blockchain-based records that uniquely represent items of digital media, including art, videos, music, games, text and code. NFTs contain documentation of their history and origin and can have code attached to do almost anything (a popular feature is code that ensures that the original creator receives royalties from secondary sales).

Blockchains can support a lot more applications beyond money and finance

Early headlines about NFTs focused on speculation and money. Mike Winkelmann, a digital artist known as Beeple, raised eyebrows and rolled eyeballs when he sold an NFT at Christie’s for $69m. In the six months from April to November 2021, $7.2bn-worth of NFTs changed hands on OpenSea, the largest NFT platform. But the real story is that NFTs are a key building-block for a new wave of web3 services that radically alter the economics of the internet, redistributing value and control from tech giants back to users, developers and small firms.

Web3 applications are wresting market share from centralised incumbents. Braintrust, a web3 talent marketplace that incentivises participants with tokens, works with employers including Deloitte, NASA, Nike and Porsche. And it is gaining ground on public competitors such as Upwork.

Music is also ripe for disruption. Streaming services have created the opportunity for artists to reach millions of fans through an awkward marriage with record labels. Web3 platforms such as Audius, Sound.xyz and Royal will create the opportunity for artists to make millions of dollars by creating new revenue streams that aren’t mediated by record companies. Web3-based competitors to large social networks like Facebook and Twitter will also emerge. Unlike the incumbents, they will share revenue with the creators that fuel their growth.

Let the new internet flourish

In 2022, it will become clear to more people what many in the web3 world already know: the best way to rein in big tech companies is through competition, not regulation. Already, there are policymakers in Washington who appreciate that web3 is about much more than cryptocurrency or speculation. In the coming year more leaders, in America and in other democracies, will realise the need for sensible regulation that encourages responsible innovation while also allowing entrepreneurs to build the next generation of the internet.

Chris Dixon: general partner, a16z, and Packy McCormick: founder, Not Boring Capital ■

This article appeared in the Finance section of the print edition of The World Ahead 2022 under the headline “There’s more to crypto than currency”