Posts from blockchain

The Dangers Of Being Too Early

I have been reading Whiplash, a book I recommended here last week. It starts with the story of the Lumiere brothers, who are credited with the invention of “the moving picture.”

As told in Whiplash, the Lumiere brothers started showing films to audiences in 1895 using their patented cinematograph. But by 1900, they were out of the film business and had moved on to color photography. The industry they helped to start went on to be one of the biggest new industries of the 20th century.

I often think of the formative years of the Internet, in the early/mid 90s. There are a lot of people from that era that remind me of the Lumiere brothers.

I was in a Board meeting on Friday in my office and one of the executives of the company that was having the Board meeting left to get coffee or use the rest room. When he came back, he said “why do you have one of the Josh Harris Gilligan paintings in your office? I explained that the reason Gilligan hangs in my USV office is to remind me that being first to something doesn’t mean you will profit from it. Josh Harris was the first person to show me audio streaming over the Internet. Josh was the first person to show me video streaming over the Internet. He did both of those things at his Pseudo Programs company that he started in 1993. Around the same time, 1993 ish, Josh predicted to me that auctions would be one of the first big businesses to take shape on the Internet. That was roughly two years before eBay was founded. Josh didn’t profit much from any of his visionary efforts or insights. But there is a Josh Harris painting in my office because I respect being early more than I respect making profits. I think the latter is easier than the former.

Which takes me to some things we have been thinking a lot about at USV recently. Things like Blockchain and Genomics. We think we are very early in these two important technological revolutions. We are investing actively (but not heavily) in one of them (blockchain) and trying to find the right entry point to the other one.

I think that the investing we are doing in these sectors right now is more likely to be like Psuedo Programs than YouTube or SoundCloud.

But I also think that you have to be early to learn the technology and the markets and build the networks and relationships that will allow you to see, understand, and invest in YouTube when it shows up. What you don’t want to do is lose patience or interest and move on, like the Lumiere brothers did.  Early stage VC is a marathon, not a sprint. That is true in everything, from the hold periods, to the work you do with a portfolio company, to the patience you must show towards a sector you think will be important. It is hard to sustain the enthusiasm sometimes, but if you have conviction about something, you have to stay the course.

SegWit

There’s an interesting thing going on right now in Bitcoin land. The core developers have released a new version of the core Bitcoin software which includes a number of updates and the “segregated witness” approach to scaling the Bitcoin technology. This release won’t be “confirmed” until 95% of nodes adopt it. That 95% is a choice that the core developers made.

Right now “SegWit” is at roughly 1/3 of nodes (based on this tweet which I have no idea if its valid). The Internet is for fake news after all 🙂

I am curious what all of you Bitcoin folks out there in the AVC community think of SegWit’s prospects and what it means for Bitcoin if it is not confirmed.

Marketing The Blockchain

Longtime AVC community member Jeremy Epstein (who launched the first AVC Meetup in the summer of 2008) has been working on bringing marketing to the blockchain sector.

He asked thirty-three leaders of the blockchain sector to write short one or two page descriptions of why blockchains are important.

They are compiled in a free ebook that is available here.

I read the entire ebook (which is roughly 55 pages) over the past weekend and I was struck by how uneven these short blurbs are.

Some, like the ones by Naval and Jake Brukhman are excellent. You really should go read them. They explain some really important things about the blockchain.

Some, like the ones by William and Joel are solid. I have featured their writing and talks on the blockchain here at AVC a number of times.

But many of these short blurbs are awful. They are full of platitudes and jargon and don’t help the reader connect to why this is important to them.

I told all of this to Jeremy and he was disappointed to hear it. But he also recognized that it was an uneven read.

For me, this ebook highlights the challenges of marketing the blockchain. We have done a poor job of it to date and the sector is full of technologists and mostly empty of marketers.

That needs to change. We need more people like Jeremy and William who can popularize deeply technical stuff and make it make sense to the average person.

I’ll know we are getting somewhere when my Mom understands the blockchain and why it is important to her.

We aren’t anywhere near there right now.

Video Of The Week: A Crypto Economy

AVC community member William Mougayar traveled to Amsterdam a couple weeks ago, along with some USV folks, to attend SteemFest. He delivered this talk in which he sketches out a vision of an economy powered by blockchain technology. It’s a fairly concise but expansive vision of what is possible to build with open public blockchains.

Proof Of Stake

There is a lot of cutting edge computer science being used in blockchain technology and, because there are multiple blockchains and protocols being proposed and tested, there are various experiments going on at the same time. This is all very good in my view. We will eventually figure out which technologies are best for which applications and standards will emerge. I think we are three to five years away from that level of market stability, and possibly farther away than that.

One of the most interesting questions to me is whether we can figure out how to implement a proof of stake consensus mechanism in a large decentralized trustless public blockchain (ie Bitcoin, Ethereum, etc). The current consensus mechanism of choice is called proof of work and the specific proof of work implementation that is being used by most public blockchains is mining. Mining has a number of issues, most notably the massive amount of electricity consumed by miners to run these mining data centers. Other concerns with mining are centralization (a few large miners control most of the Bitcoin mining infrastructure) and exposure to 51% attacks (if one miner controls 51% of the network, they control the entire network).

Proof of stake is an alternative to proof of work and there is a lot of work being done to see if it can be implemented in a large public blockchain. The leaders of the Ethereum project have publicly stated a willingness to try to implement proof of stake on Ethereum and they are working toward that goal.

In a proof of stake system, you use the very coins/tokens that are at the heart of these systems as the “proof” that you can validate a transaction. Instead of using your capital to buy computers and electricity to run them, you just use your capital to acquire the coins/tokens and they allow you to validate transactions. This is all very simplistic, of course, but that is the heart of the idea.

I read the Proof of Stake FAQ on the Ethereum Wiki this morning. It’s an interesting (and dense) discussion of the various issues that crop up in a proof of stake approach and the algorithms and techniques that are being put forward to resolve these issues. If you are interested in blockchain technology and want to understand how all of this stuff works under the hood, you might do the same and give it a read.

I am hopeful that we will see a large public project, like Ethereum, attempt to implement a proof of stake consensus algorithm in the next year or two. Mining works. It has validated blockchain technology and allowed it to be commercialized. But my gut tells me that mining is not the best consensus system out there and that we can do better. And so we should see if we can. That’s what forward progress is all about.

Voting On The Blockchain

Blockchains are good at many things that require security, accountability, and rules.

Voting is one of those things.

I don’t expect that we will see Presidential Elections on the blockchain any time soon. Though it could happen in my lifetime.

I do expect that we will see voting happening on blockchains for organizations and efforts that are getting started now and want to do their governance in a modern way.

There is even a project called Tezos which is a blockchain with governance (ie voting) built right into the core protocol.

Imagine if every voter was issued a token/coin and every candidate/issue to be voted on was issued a wallet. Voters send their coins to whatever wallet they want to vote for. And there you have it, a secure, accountable system for voting on a blockchain.

I haven’t placed a vote on a blockchain yet, but it’s so simple to do that I expect I will be doing it frequently soon enough.

What Are App Coins?

Last week Coin Center published a primer on app coins. It is very good.

I particularly like this part:

Open platforms have proved difficult to create because it has been historically difficult to monetize them even if they become successful—by nature they are public goods. Now, however, the developers of a cloud storage service can incorporate a scarce access-token, an appcoin, into the design, distribute that token to users, retain some amount of the token for themselves, and if the platform proves popular, the token (alongside the holdings of the developers) will grow in value and remunerate the developers for providing a public good. This new model challenges the concept of equity as traditionally understood, and carries entirely different risks and rewards.

The idea that we now have a monetization model for creating and maintaining a public good (ie Twitter) is something that makes me incredibly happy and poses all sorts of interesting questions about the future of venture capital.

A New UI For Coinbase

For those of you who buy and sell and hold Bitcoin and Ethereum at our portfolio company Coinbase, there is an entirely new redesigned UI for you at beta.coinbase.com. It will be rolled out to all of the users in the next couple weeks.

Here’s screenshot of what the new dashboard looks like:

The redesign was driven by the move from a Bitcoin only service to one that supports multiple digital assets. Today that means Bitcoin and Ethereum but over time it will likely mean many more digital assets. Literally a coin base.

Fortune did a nice writeup on the new UI (which is where I got that screenshot) and also talked about the evolution and growth at Coinbase in the past year.

It is nice to see an awakening in the media to the changes afoot in the blockchain sector. Coinbase has been riding those changes and has seen strong revenue and customer growth over the last year as a result. As more and more people buy and hold digital assets, they are going to need a trusted, safe, and compliant place to buy them, sell them, and hold them. Coinbase continues to be the best place to do all three of those things.