This note was originally published in the newsletter The GeneralistMario Gabriele under the heading “Blockspace: An Introduction with Chris DixonMay 15, 2022
Just a few months ago Chris Dixon, general partner of a cryptocurrency company a16z, said: “I think blockchain is the best product to sell in the 2020s.” I remember hearing those words in Bankless podcast and wasn't sure if I understood the scope of what he meant. So I asked him.
Indeed, I asked him practically every question I could think of on the subject. Today's article is the result of those questions and Chris' patience. Also, thanks to him, this is one of the clearest and most complete discussions of blockspace and why it matters. So let's get started.
Mario Gabriele: Okay Chris, maybe we can start with the basics? What is the blockchain space?
Chris Dixon: Blockchain space is a space on the blockchain where you can run code and store data. The blockchain space differs from the traditional computing space in that prior to blockchain, software was always subordinate to the hardware and then ultimately to the owner of that hardware. If you're writing software for traditional computers, then the owners of the hardware control everything. If Facebook writes code and says that any developer can come in and access a certain API, Facebook management can just change their mind and revoke access later. Since Facebook controls the hardware that runs the software, it ultimately controls the software as well.
Blockchains differ in how they are built: the software is responsible for the hardware. If you are writing blockchain software you can write code that makes serious commitments; you can assure users and developers that the software will continue to work as intended. In particular, the blockchain uses a so-called consensus mechanism to make such commitments. The various hardware operators that run the network come together from time to time and vote on the state of the blockchain virtual machine. There is a game theory that guarantees (under most conditions) that software will continue to work as intended and that data integrity will be preserved.
We are now seeing a wave of entrepreneurs and developers creating new classes of applications that take advantage of this new computational property: you can write code that has a strong commitment to how it will behave in the future.
Mario Gabriele: That's an interesting wording. I haven't seen this topic before about the relationship between software and hardware, but I think we're really talking about control, right?
Chris Dixon: Exactly. Hypothetically, suppose that Google is GoogleCoin. Google claims that everything will be released 21 million coins. But the software that powers GoogleCoin runs on servers controlled by Google. Since Google controls their computers, they can simply change the 21 million limit to whatever they want. The software is controlled by the hardware, and the hardware is controlled by Google management.
Compare this scenario to how Bitcoin works. Bitcoin promises that there will only be 21 million bitcoins someday; this scarcity is one of the factors that allows bitcoin to have value. you can believethat there will only be 21 million bitcoins in Bitcoin, because this rule is written in the Bitcoin blockchain - it is built into the architecture itself. Even if a lot of people running the Bitcoin code - the so-called Bitcoin miners - try to break these rules, it is very, very difficult for them to do so. In the entire history of Bitcoin, Ethereum, and other major blockchains, no one has been able to violate these game-theoretic guarantees.
This is what makes the blockchain space different. Developers and entrepreneurs who want to build on top of the blockchain ecosystem know what the rules are. They will not be changed by them in the way that traditional technology companies do. When it comes to blockchain, instead of "don't be evil", it's "can't be evil". The rules of the system are in the code.
Mario Gabriele: Blockspace is a unit of computing power and storage that exists on blockchains and is therefore independent of hardware owners. This definition hides many different manifestations of blockspace and the mechanisms associated with it. What do you think are the most important aspects to consider when designing a blockspace?
Chris Dixon: The blockchain space exists on the blockchain, and the blockchain can be designed in a variety of ways. The most important characteristic of a blockchain is its security properties. How credible are the commitments he makes? Can you trust them? Can you be sure that the system cannot be tampered with or hacked? This is the most important feature.
Another important characteristic is performance. This is due to the fees you pay when making transactions on the blockchain. If you can build better systems, you can lower these fees. On the blockchain Solana, for example, one of the nice features is the low commission, because that's the way it's designed. Some people might argue that you have to compromise on security to get that kind of performance. But it is clear that both security and performance are top priorities.
Another factor is the community surrounding the blockchain. Some blockchains are home to communities focused on software development, new applications, and new valuable internet services. Ethereum comes to mind as an example of a healthy developer community. Other blockchains are more focused on speculation and gambling and are, I would say, less healthy.
Thus, blockchains, on the one hand, are computers, and their security and performance properties are important; but they are also social networks and need healthy, creation-oriented communities.
Mario Gabriele: When it comes to blockchain, a lot is discussed in terms of block space and its scalability. We've all seen what happens to Ethereum when demand goes up: congestion and high gas fees. What do you think are the most interesting and promising ways to scale blockchains and expand the blockchain space?
Chris Dixon: You are correct that the so-called blockchain scaling problem is a hotly debated topic. Some blockchains, such as Ethereum, are of the opinion that the best way to increase the blockchain space is through the so-called L2, or “second layer”. L2 are systems that sit on top of the “first layer” (L1), such as Ethereum. If properly designed, L2 inherits the security properties of the lower layer — so you still have strong Ethereum security guarantees — but they provide additional capacity in the blockchain space where applications can be run at lower fees. At present, there are several well-known L2: optimism, Arbitrum, zkSync, Aztec And starkware. All of them use different approaches and are at different stages of development.
L2 is one way to increase supply; the other way is system design. Company Solana, for example, tries to bring all scaling to the first level.
Another way that I think the blockchain space is growing is by simply increasing the number of L1 blockchains. A number of trusted first-level blockchains are currently in development. Also bridges appear - ways of interaction between blockchains, allowing you to send assets and messages back and forth. Imagine a world of the future where you have this canvas of blockchains, they are all interconnected, and you seamlessly transition from one to the other, depending on various technical compromises and community considerations.
There are philosophical and technical arguments as to what is the best way to expand the blockchain space. I personally bet on some kind of mixture of all three of the main methods that I have just described.
Mario Gabriele: I love this blockchain canvas image. Perhaps because it sounds like a different reality, it makes me think of one of my favorite articles I read about the blockchain space, “Capital Markets Consensus” written by Leo Zhang and Sunil Srini. In the article, Zhang and Srini argue that the blockspace will become “the central commodity of the metaverse.” There is nothing that does not require scaling as much as the operation of a parallel reality on the blockchain. However, I'm wondering if this makes sense to you? Is the metaverse an important player in the blockchain debate?
Chris Dixon: First, let's define the term "metaverse.” Metaverse is a general phrase that describes a range of emerging technologies. It includes web3, new interfaces such as VR, and just the overall development of the internet as it becomes more and more exciting and takes up more of a place in our lives. Simply put, the metaverse can be seen as the next wave of the internet.
The really big question about the next wave of the internet is whether it will be controlled by one big company like Meta, centrally, or will decentralized how is the early web? In a decentralized case, control would be held by a group of developers, creators, and other community members who work together through common standards and systems, including the blockchain. If decentralized concept will win, the blockchain will become an extremely important way to establish the rules of the network, the storage of assets and virtual goods, and other general information. Blockchain is the first way to store “state” data (in the sense of computer memory) on the internet that is owned by a community, not a corporation.
Back to the question, I see the blockchain space as a new, emerging, critical computing resource alongside traditional computing resources such as bandwidth, storage, computing, etc. If the concept of web3 is implemented, blockspace is likely to be the most important new computing resource of the 2020s.
Mario Gabriele: We use analogies based on traditional calculations, but I wonder what you think of other approaches. For example, some argue that the blockchain space should be seen as a commodity, like land, oil, or grain. (This approach is suggested in Zhang and Srini's paper.) If we start from this perspective, new ways of thinking by analogy will emerge. For example, since other goods have markets, will the market be a blockchain space? To what extent will we see how this new “substance” will be financed?
Chris Dixon: Most of the blockchain space, in my opinion, will not be interchangeable, which will limit the scale of capitalization.
While the blockchain space can be interchangeable within the same chain, there will be technical trade-offs between blockchains in areas such as security and performance. More importantly, different blockchains have different communities around them. Therefore, virtual goods or games on one blockchain will have a different meaning compared to others, just like placing information on LinkedIn, Facebook And Twitter. Different networks, different contexts and communities.
I expect that we will see new innovations that will help make the trading process in the blockchain space more efficient and fair. There are already gas auction systems that finance the blockchain within the same chain, like Ethereum. But I think that in general there will be a mosaic of blockchains. There will be different communities on different blockchains, and typically there will be no fungible assets on different blockchains.
Mario Gabriele: You mentioned improvements in trading, but I believe there are many other innovations that you can expect to see. I'm interested to know what excites you the most these days. Where do you see opportunities?
Chris Dixon: We continue to see innovation in key L1 blockchains. For example, there are several projects that have come out of Meta that we are involved in that have interesting new innovations in distributed systems. There are interesting developments in the field of programming languages. For example, I'm excited about a new language called Move that has good security features. There is a lot going on around zero-knowledge proofs as a way to improve blockchain performance and privacy. We are actively investing in this area. At the second level, as mentioned above, a lot of interesting things happen. Bridges are also very important to tie it all together.
We still need to improve the new user registration process. There are a number of stress points in the user experience with wallets, vaults, key recovery and key management that need to be reduced. There is also a constant need to improve security and productivity.
I expect blockchain to evolve in a pattern similar to previous computing waves: there will be a strengthening feedback loop between infrastructure and applications. As new applications are created, the demand for infrastructure grows. When the infrastructure gets better, it opens up access to new applications. Economists call this "induced demand". That's why when you build another lane on a highway, often the result is more traffic; people are building more shops and buildings in the area, which attracts more traffic. Similar dynamics will be observed in the blockchain.
I believe the next 10 to 20 years will see an unrelenting appetite—and opportunity—for innovation and infrastructure scaling.
Mario Gabriele: This seems like the perfect transition to talking about the statement that originally piqued my interest in this topic. IN podcast Last November, you said, “I think the blockchain space is the best product to sell in the 2020s.” What did you mean, and what should other developers and investors take away from these words?
Chris Dixon: Selling the blockchain space in the 2020s will be good business in the same way that selling PCs and broadband Internet access was in the 1990s and 2000s and selling mobile phones in the past decade. Whenever there is a wave of disruptive computing, there is an intensifying feedback loop that leads to exponential growth. When you're in this cycle, it's usually very good to sell one of the high quality products that people crave. I think it will be the same with high quality blockchain spaces in the next decade.
In the 1990s there was a huge wave of investment in bandwidth, particularly in long haul fiber and switching equipment. Then there was a huge collapse, and it all became little used. I remember very well how in the early 2000s there were many pessimists who said that this infrastructure would never be used. At the time you didn't have streaming Netflix, you didn't have live streaming YouTube, you didn't have real internet video. The internet was mostly email and some web pages. So people said: Why would you pay 50 bucks a month or whatever for broadband internet just to get faster email and websites? Pessimists underestimated the fact that as more broadband access came online, developers and entrepreneurs were inventing all sorts of great things to work with it.
Around 2005 there were things like YouTube. That's when you really started to see this flywheel where apps got better and broadband got more accessible. Then came the mobile wave with iPhone in 2007, further speeding up the process. It all seemed to collide. Cloud computing and social media have suddenly matured and this has led to a decade of really rapid technological improvement and expansion.
Now, when it seems that we are entering a period of financial recession - perhaps by analogy with the early 2000s. I wouldn't be surprised if many pessimists say, "Look at all the stuff we've created, it's not very useful." But right now we can enter the golden age of entrepreneurship. Now is the time to find out: what is YouTube or Netflix for the blockchain space? What killer apps will drive this wave of computing forward? These applications may already exist today. It may be new things that don't exist yet. We do not know. This is what makes this period interesting and exciting.
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Chris Dixon - general partner of the company a16zwhere he leads the crypto/web3 funds. Previously, Chris was the co-founder and CEO of startups SiteAdvisor and Hunch (acquired by eBay), and an early blogger for cdixon.org.
Mario Gabriele - founder The Generalist, a technology-focused newsletter.
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Translation author thread : Inna
