Cryptonetworks and Cities: Analogies

Cryptonetworks are often compared to firms, people, or even coral reefs -- but, observes a16z crypto partner Ali Yahya, they might be much more similar to cities. Where does that analogy fit, and where does it break down? And what can we learn from how cities both emerge from the bottom up and are motivated by a top down vision/design and apply to open source networks such as those in crypto? In this video -- guest hosted by freelance software engineer (and blockchain app developer) and writer (and urban watcher) Devon Zuegel -- a16z crypto partners Denis Nazarov, Jesse Walden, and Yahya share their thoughts on "rough consensus"; shared myths and beliefs; modularity vs. monolithic design; and the rivers and riverbeds that people build cities and code around. At the end of the day, it's all about mass coordination at scale... but what are the incentives for building the infrastructure and ecosystem, for running experiments but also determining governance as well? * * * Please note that the a16z crypto fund is a separate legal entity managed by CNK Capital Management, L. L. C. (“CNK”), a registered investor advisor with the Securities and Exchange Commission. a16z crypto is legally independent and operationally separate from the Andreessen Horowitz family of fund and AH Capital Management, L. L. C. (“AHCM”). In any case, the content provided here is for informational purposes only, and does NOT constitute an offer or solicitation to purchase any investment solution or a recommendation to buy or sell a security; nor it is to be taken as legal, business, investment, or tax advice. In fact, none of the information in this or other content on a16zcrypto.com should be relied on in any manner as advice. You should consult your own advisers as to legal, business, tax and other related matters concerning any investment. Furthermore, the content is not directed to any investor or potential investor, and may not be used or relied upon in evaluating the merits of any investment and must not be taken as a basis for any investment decision. No investment in any fund advised by CNK or AHCM may be made prior to receipt of definitive offering documentation and due diligence materials. Finally, views expressed are those of the individual a16z crypto personnel quoted therein and are not the views of CNK, AHCM, or their respective affiliates. Please see https://a16zcrypto.com/disclosures/ and https://a16zcrypto.com/disclaimers/ for further information. *** The views expressed here are those of the individual AH Capital Management, L. L. C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Sonal?

  Hi, everyone. Welcome to the Asics and Z Podcast. I'm Sonal. Today's episode is on analogies between crypto networks and cities, covering everything from where the analogy works and where it breaks down, to how communities emerge bottom up, but also at top-down vision and design. And what happens when we have mass coordination at unprecedented scale? The discussion is moderated by guest host Devon Zuegel, in conversation with Dennis Nazaroff, Jesse Walden, and Ali Yaya, all of the Asics and Z crypto team. Speaking of, please note that Asics and Z Crypto is an independent fund managed by CNK Capital Management, a registered investment advisor with the SEC. It's separate from the Andreessen Horowitz family of funds. The content here is for information only and should not be taken as legal, business, tax,

• 0:45Sonal?

  or investment advice. It does not constitute an offer or solicitation to purchase any investment, or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor, and may not be used to evaluate or make any investment. CNK is not seeking investors. An investment in any fund advised by CNK may not be made without first getting final offering docs and diligence materials anyway. For more details, please also see asicsandzcrypto.com/disclosures and asicsandzcrypto.com/disclaimers. Finally, you can find this episode as a video as well, with links and more on Asics and Z's YouTube channel.

• 1:21Devon Zuegel?

  Hi, I'm Devon. I am a software engineer and writer, based out of San Francisco. Today, I'm going to talk with Dennis, Jesse, and Ali, who work at Asics and Z Crypto. We're going to talk about crypto networks and their evolution and open source, and it's going to be a fun conversation. So for starters, Ali recently had a great tweet about how crypto networks are similar to cities, and not so much like individuals and firms. Can you unpack that for me a bit?

• 1:48Ali Yahya?

  Yeah, of course. The tweet was basically drawing an analogy between crypto networks and cities. And the inspiration for it was that oftentimes, people tend to compare crypto networks to things like firms, or to things like individual organisms, like individual humans. Or to things even like coral reef, which was a surprising comparison that I think people have drawn. And my sense is that crypto networks are actually much, much more like cities, which could be considered a specific kind of organism, than they are like individual organisms, or firms, or coral reefs. And the rationale behind this is that both cities and crypto networks are,

• 2:31Ali Yahya?

  in the case of a crypto network that is decentralized, like many of the crypto networks that we know and love are, they're communities of loosely affiliated individuals. And so there are communities that come together, and there's consensus about the location in which they will live and work, in the case of cities. And there's consensus about the protocol that they will run, in the case of crypto networks. They also tend to emerge in a bottom-up way. They're organized in a bottom-up way. And I think this is a trait that's common to a lot of the crypto networks that are most successful. I think Ethereum, Bitcoin to a considerable degree, emerged out of communities working together,

• 3:15Ali Yahya?

  as opposed to necessarily a top-down monolithic design that's imposed upon an organization or a group of people who are working together by a single person or a small group of people. And similarly, the birth and the death of cities, and the birth and the death of crypto networks have interesting similarities. Because there's bottoms-up organization, it tends to be the case that the birth of a city occurs when there's critical mass, when people come together and decide to live in a particular place, and some infrastructure starts to be built around that place. And in the case of crypto networks, it's similar. You need a critical mass to provide enough security and enough infrastructure for the crypto network itself. And similarly, with the death of a city,

• 3:59Ali Yahya?

  it's kind of telling that when a government is overthrown, that doesn't necessarily mean that the city dies. The city continues to exist, and maybe there's a new government thereafter, which is an emergent property of the fact that the city is organized in a bottom-up way. In the case of a company, for example, if the company, if the CEO is fired, it's much more likely that the company will fail. I mean, oftentimes, you can replace the CEO, but there's much more of a central point of failure in this top-down hierarchy, as opposed to bottom-up. And so Cities like crypto networks may have this property in common. They tend to live for a very long time because of their bottom-up nature. That makes them sort of more robust and more resilient.

• 4:42Ali Yahya?

  They have fewer central single points of failure. And then finally, if we think about the design of a city, like the role of a city planner or a city designer, somewhat analogous to the role of a crypto network protocol designer in that that person has to keep in mind the preferences and the roles of a lot of other different people who are not under the control of the individual actually doing the designing. And so it's a, I think there is an analogy there to be drawn too insofar as the architecture. There is some amount of top-down design in the case of cities, but it's more of a scaffold.

• 5:24Ali Yahya?

  And then that scaffold allows for the emergence of something greater in a bottoms-up way. And I think it's similar in the case of crypto networks.

• 5:32Devon Zuegel?

  I love that analogy. I think it's really interesting to draw the parallel to the urban planner because there's so much that is out of their control, but there are also initial conditions that you can get right. What are some things that Ethereum or Bitcoin got right early on? Or things that maybe resulted in consequences that the designers didn't notice at first?

• 5:55Jesse Walden?

  Maybe just a way of sort of reframing the analogy to cities is to throw in an element of time. So when we talk about sort of cities being a scaffold and sort of an emergent structure for independent parties to agree about the location of their work and go about their business, it's important to talk about where the scaffold originally emerged from. Like what is the tipping point that creates this?

• 6:26Jesse Walden?

  I guess, sort of maximum interestingness for people to sort of like move in this direction, to converge on a city. And I think, you know, if we talk about a project like Ethereum, for example, you know, early on, there was this amazing white paper, and it described this profound vision about what the platform could enable. And at the time, you know, the code hadn't been written, there was, there was, there was no network, there was no city yet, but there was this grand vision about, you know, basically, the city that we could build, and what it would look like. It described cars, self-driving cars, driving on roads, where they pay the road by the

• 7:08Jesse Walden?

  meter that they drive, and then going to the petrol station, and paying to fill themselves up, and paying a mechanic to fix them, and all of this happening, happening through automated smart contracts. And this vision was, was very compelling, I would say, you know, it, it, it sort of galvanized a lot of people to move in this direction, to, to arrive at some sort of, you know, rough consensus about the direction that this technology was heading, and become, you know, converge in such a way that they decided to help build it out. And so, it was very important to have this sort of, I think, top-down vision in the very early days about, about what the network could become, and then sort of allow the community to, to finish it.

• 7:50Jesse Walden?

  And Chris Dixon, in his post on why decentralization matters, has a really interesting framing of this, that the, the sort of, one of, one of the amazing properties of open source is that someone can put an idea out there, and then galvanize developers to finish the idea, and that's, that's in fact, one of the features of open source, that, you know, you get, and it gets to this idea that Dennis talked about recently, about, about why worse is better, about why getting an idea sort of half-baked, but, but, you know, compelling enough to galvanize people, is actually a really good strategy in the space.

• 8:22Devon Zuegel?

  Yeah, I think this is a really interesting, one place in which analogies can be useful, is that you can also see where they sort of break down a little bit. With, with cities, they usually start because they happen to be like at a river basin, or like they have a really good port, and so people just naturally start coming there. And then over time, this community builds up, and they realize, oh, we're a thing now. Or, in San Francisco's case, the gold rush happened. People came there for the gold and then it turned out that like, oh, I guess we have all, we have to put in sewage systems, we have to put in roads. And so I think to contrast that with crypto networks, with crypto, it's, you know, it's starting in the ether. There's like, there's nothing there. And so having that core vision

• 9:07Devon Zuegel?

  early on is really critical to get people to come there. Yeah, it's like the river. Yeah, it's like, it's like creating that river out of almost nothing.

• 9:14Ali Yahya?

  It's like the idea of proof of work based consensus, like Nakamoto consensus could be that river basin along, around which like people converge, communities emerge. And then the development of Ethereum is kind of like a, it's another city that's being established that's inspired by the first city that was Bitcoin. And of course, I think it's a very good point to clarify that analogies only go so far and they're like a, a good tool to explore the maze of ideas, but ultimately when we actually have to make decisions or rigorously think about something, we should think about those things from first principles. And so in the case of, like when we talk about what makes sense for crypto networks, now that we've been to some extent inspired by the analogy to cities, we can now think,

• 9:58Ali Yahya?

  okay, well, in the case of the development of open source, what actually is what makes the most sense? And we can talk about things like modularity versus monolithic design.

• 10:09Devon Zuegel?

  Can you dive into that a little bit, the dichotomy between modularity and more top down design?

• 10:14Ali Yahya?

  Yeah, I think exclusively in the world of software, we could, we could talk about the dichotomy that exists between something like the Unix philosophy, which is very much about modularity, is very much about bottoms up, and say the Apple philosophy, which is much more about vertical integration and top-down monolithic design. So you have the Unix philosophy telling you, you should build software in a way that is very well scoped, it's narrow, narrowly focused, has very clean interfaces and is optimized for modularity. It can be built around, it can be composed with other pieces, other tools that other people may build. And in the case of Apple, it's a, it's a very different world. It's

• 10:52Ali Yahya?

  much more about I, Steve Jobs, know what's right for people and I will design a phone end to end. And then I will build it and ship it and it'll, and it'll work. And it's interesting to see that in different contexts, both strategies have worked.

• 11:10Ali Yahya?

  And then there's a question, like, how does this apply to things like crypto networks? And I think we are already seeing examples of both strategies. Like Ethereum, I think, as Jesse was saying, is more an example of the bottoms-up modular approach, where there's a kernel of an idea, there's that riverbed along which people get together. But then there's also a community that's building all sorts of tools around it, and a lot of those tools are projects in and of themselves, and so there's a certain amount of modularity therein. And then there are also other projects that have a much more top-down vision for the way that things should go, and spend a hell of a lot of time building in-house before releasing something to the community.

• 11:53Ali Yahya?

  And you can say that they are much more opinionated about the way the system will ultimately look. And both of these seem to have significant merits.

• 12:00Devon Zuegel?

  Yeah, for sure. I mean, both Unix and Apple have been massively successful in their own ways. What are some of the trade-offs that you make on one side or the other?

• 12:09Denis Nazarov?

  On the top-down approach, I think we give too much weight to the beauty of top-down. You know, we only see it when it works. There's the genius, there's the genius iPod product, there's a genius iPhone product. But, you know, how many hundreds of products that the Apple team iterate, you know, whatever Johnny Ive's office, the white box that you have to have high clearance to get into? What were the crazy ideas that didn't go to market? And how efficient can a top-down organization be in terms of, you know, catalyzing, you know, tons of experiments to try different ideas? And I think what's amazing about this distributed approach that Ethereum laid down the vision for, what was amazing about the vision, that it was an unattainable vision.

• 12:53Denis Nazarov?

  You know, the self-driving cars, like, clearly, we weren't going to be building that on Ethereum in the next few years, but this high mark created this, you know, wide space of, you know, shorter-term kind of improvements that we had to make. And Although Ethereum is just one example, there's many projects that are maybe competing with Ethereum. And I think a great analogy there is that we can think of them as it's a different city, trying to have its own kind of structure and governance. But ultimately, you can say we're contributing to one country. Ultimately, these are still parallel experiments, where Bitcoin may be the mother project and where everyone is taking their own vision. They think that maybe I don't want to live in this city. I want to start my own city. But ultimately, it's still co-evolution, you know, parallel experiments.

• 13:39Jesse Walden?

  Yeah, so maybe one thing that's interesting to talk about is when we talk about the evolution of cities and the evolution of crypto networks, to talk about what level of granularity. This is to Dennis's point about the city level versus the country level. Ethereum recently announced a big pivot. They had long planned to upgrade to a proof-of-state consensus. Casper FFG was the name of the specific consensus mechanism. In fact, when the protocol initially launched, there was actually a time bomb hardcoded into the protocol that if they didn't make this change, the system would explode. I forget exactly what the constraints were. They removed it.

• 14:23Jesse Walden?

  And just about 45 days or so before Casper FFG was set to be deployed, the Ethereum Foundation decided that they were going to pull that recommendation to the network in favor of a joint update between Casper FFG and Sharding, which is another project that an independent team was working on. And so what's interesting about this is it's sort of...

• 14:54Jesse Walden?

  If Ethereum is a microcosm of a city, you have these independent parties that live in that ecosystem, working independently of one another on projects that they think are the most important. So you have one team working on Casper, one team working on Sharding. And independently, they arrive at some convergence. In fact, the independent paths that they're on, they share some common features that allow the... The two teams to agree that, hey, like, there's a better path forward if we work together on this.

• 15:25Devon Zuegel?

  You were talking about how the Ethereum community has been able to converge on really a huge change, changing the entire approach for Casper, some fundamental architecture for the whole system. And yet, it's this big decentralized system, no one person gets to make these choices. It requires a lot of consensus to make any of these shifts. Can you talk a little bit about the, what about the community enables them to do that despite not having the central point of control?

• 15:56Jesse Walden?

  Yeah, yeah, that's a great question. So I think there's this idea of rough consensus, and this was actually a term coined by the Internet Engineering IETF. I can't remember what the T's stands for.

• 16:11Denis Nazarov?

  Task Force.

• 16:12Jesse Walden?

  Task Force, that's right. Internet Engineering Task Force. They first came up with this term, rough consensus. And the idea of rough consensus has these like four sort of properties. One is that the consensus can't be constrained by the limited resources of like one organization or sort of one sort of top-down vision. It has to emerge from sort of like a soup of people, individuals potentially, or individual organizations that are working in their own direction of whatever they think is sort of most interesting.

• 16:44Jesse Walden?

  And the process of arriving at this consensus can appear very messy and sort of unfocused because these parties are moving in their own direction. But what's serendipitous about it is when these parties independently converge on the same idea, this rough consensus sort of is the result. And in order for this to happen, of course, there needs to be sort of a philosophy, an operational philosophy of strong views weakly held. So people are opinionated, they're working in their direction, and they're able to convince others that that is the right direction, ideally through working code. By the way, when we keep talking about this idea of rough consensus and sort of the direction of maximum interestingness,

• 17:25Jesse Walden?

  these ideas actually came from a post written by Venkatesh Rao in a series called Breaking Smart. And so Ethereum has been able to do this a few times. Maybe sort of the most well-known example is the DAO Hard Fork or...

• 17:42Jesse Walden?

  The community decided that the right direction to proceed after that, after all these funds were locked up, was to fork the state. You know, the DAO fork was this sort of cataclysmic event very early on in the network's history, where lots of, a very large percentage of the total Ethereum supply got hacked and stolen by an attacker. And so the community, the wide Ethereum community, had to make a choice. Were they going to allow this attacker to keep the funds? Or were they going to try to return them for the general health of the ecosystem? And so this was a very contentious decision because lots of folks felt like, well, you

• 18:26Jesse Walden?

  know, the one rule of smart contracts is that they're immutable and the code is the law. And another group felt that it was more important to, you know, to the health of an early network to restore the funds to their rightful owners and ensure that the attacker did not sort of ruin the community at the outset. And so, you know, a proposal was made on how to actually make this change to return the funds. And, you know, the foundation and its sort of leadership got behind it and the miners of the network decided to adopt it and a minority group decided not to and the community forked into two directions. And so I think that's a very, it's a good example of the foundation and other sort

• 19:11Jesse Walden?

  of prominent people in the community having strong views but being willing to adopt them in the face of new information and sort of being able to sense a rough consensus about what was best for the community.

• 19:21Ali Yahya?

  It's interesting here because the Ethereum Foundation has figured out a way of striking a balance between these two ends of like top-down monolithic design and imposed control versus completely bottoms-up anarchy. And, I mean, the DAO is an example, it's like there was some amount of top-down control, but there's also a pushback and there's also a dialogue, there's also an involvement from the community. And so I think, I mean, that's crucial really because if we think about a crypto network that goes too far on one end or the other, I think you'd end up with, say, for example, if you go too far on the like bottoms-up direction and you just do, everything's modular, everyone just moves in the direction of maximum interestingness and...

• 20:07Ali Yahya?

  To some extent, that's the greatest value, the greatest good, for people to feel free and to contribute in whichever way they want. Then you may end up with something that just simply isn't coherent. This maybe would be akin to a city that lacks basic infrastructure, that lacks like some sort of planning for how the road system should work, or how the plumbing system should work, or how the electrical system should work. And so that's clearly, it was likely not to be the best approach, but also, if you go too far on the other side, then you don't have enough participation from the community, and then you don't get to build the kind of widespread community

• 20:49Ali Yahya?

  that a project like Ethereum ultimately succeeds at building. And what's important about having some amount of modularity and bottoms-up organization is that it maximizes the surface area for experimentation. Like, if you build some component of your system in a way that's modular and in a way that can be built upon, then other people can be creative in the ways that they incorporate that module with whatever it is that they are building. Whereas if you have some top-down vision for how everything should work, then there is very little flexibility and there's very little opportunity for experimentation. So I think that it's a fine balance to try to strike, and I think that is the challenge that's facing a lot of these projects.

• 21:33Devon Zuegel?

  Yeah, looking at past open-source projects, I think is really interesting, again analogy to crypto as it is today. Can you guys dive into some examples of projects that go more on one side or the other, and what the implications were of those?

• 21:46Denis Nazarov?

  I think one analogy I keep thinking of is just, basically innovation in general, startups in general, that there are many, many startups that are formed every year. You know, most of them, 99% of them, will fail. But one of them will succeed, or a few of them will succeed in sort of technology and innovation of sort. And that's sort of the beauty of innovation. But in general, innovation always moves toward. You know, I think to the cities analogy, in New York, if you open a restaurant, it's a very competitive business, it's probably, it will fail. But if you love food, there's always going to be great restaurants in New York. And I think with the technology analogy... The value broadly goes to innovation in general, but it's not captured in some base layer.

• 22:29Denis Nazarov?

  But in competition in open source and in the blockchain community, ultimately, everyone is creating these open, transparent contributions that anyone else can reuse. So I think you can argue there is a capture of all of the innovation in one place. One way is through the technology that is created for anyone else to use, but another could be that if everyone's building on top of the same blockchain platform, it makes that blockchain platform stronger. So I think it's a very unique feature of the space that the knowledge sharing isn't siloed, it's open. So even though you have the same capitalist free market competition, the fruits of all of that labor are for the public and they do aggregate in one place.

• 23:10Ali Yahya?

  Some examples from the world of open source may be, well, all of which have worked, maybe on the like top-down monolithic side is like Linux. It's still an open source project, but you have like a lot of top-down control, like Linus Torvalds is the gatekeeper, versus something like the JavaScript, like NPM ecosystem, where it's very much bottoms up. And there are a very large, there's a very large number of open source projects that are built by a diversity of people and those get composed in all sorts of creative ways. And both of them have, to some extent, worked. And what's interesting is in neither of those two worlds, at least historically, like pre-crypto, has much of the value that those open source contribute been captured. And to Dennis's point, like how do, how does some of

• 23:54Ali Yahya?

  the value that innovation creates get captured? So what's interesting with this brave new crypto world is that now we can have modular components that are built in an open source way that are granularly incentivized. So people can work on building those modular components. And if there is some crypto-enabled mechanism, like a token or something like it, that incentivizes that work, then they can capture some of the value that they create. And this has been historically a big problem in open source, like for example, in the world of Which is generally open source, for example, the Heartbleed bug in SSL is interesting

• 24:33Ali Yahya?

  because even though SSL is a critical piece of infrastructure and is used by sort of every single person in the world who connects to the Internet, only a couple of people were really in charge of maintaining the implementation of open SSL. And so, not enough of the value that those people were contributing was captured, and as a result, there isn't enough of a strong incentive for the adequate amount of resources to be devoted to that one particular module. So something that's exciting here is that that can change.

• 25:05Devon Zuegel?

  Yeah, I mean, both cities and open source are just a classic example, both classic examples of positive externalities that aren't captured. Everyone benefits from having a city that works really well. You can thrive much more, it gives you this platform that you can live in, infrastructure to get places, but no individual person like wants to fund BART. They don't care that much. Similarly, with open source, these are just fundamental protocols that underlie everything that we do, like the Internet wouldn't work without TCP, Internet wouldn't work without Ethernet, all of these protocols. And yet, most of these come out of like academic research institutions, just people working on them out of the good of their hearts.

• 25:47Devon Zuegel?

  So one of the reasons I'm really excited about crypto is it now can like pump some juice into these, and actually, you get all of those positive externalities, but then also, some of them are more captured by people.

• 25:58Ali Yahya?

  Oh yeah, exactly. I think your point about positive externalities in the case of cities, how people, like no one individual wants to fund like a public good. So that's super interesting. We often talk about how, what's exciting about this new technology is that it brings together two of the most powerful forces in history. There's what makes science tick, say, the free flow of ideas and the universal freedom for criticism and discourse about those ideas on one hand, and then there is capitalism and free markets and economic incentives on the other hand, and those things tend to not coexist, at least they haven't before the emergence of this technology. It has been difficult, like the science aspect is embodied by open source, and historically, it's been difficult to monetize open source. And that's kind of like a public good.

• 26:42Ali Yahya?

  People benefit from the existence of open source, and yet, no one person wants to fund. Development on open source projects. It's only volunteers who ultimately drive that effort. And then similarly, the technology aspect, like the capitalism aspect tends to only really be sequestered within technology companies that have an incentive to keep their secret sauce confidential and away from everyone else as a form of defensibility. And so there's no free flow of ideas. And so combining these two in this new world is powerful because we have a model for funding public good, or public goods, in a sense.

• 27:24Devon Zuegel?

  Yeah, the irony behind open source is it's supposed to be this big decentralized thing where everyone can democratically participate. But because the incentives aren't nicely tied to the contributions people make, all of the funding ends up coming from massive companies, which is wonderful that they're willing to contribute. But the reason they're willing to contribute is because they actually do capture enough of the externalities that it makes it worth their while. So this results in huge centralization and the projects that do get done, that do get completed are just the ones that the really large companies want, or that the government or the NSA wants, which leads down a whole nother rabbit hole.

• 28:02Ali Yahya?

  Yeah, and they have very specific incentives in wanting to do that, like Google funding the development of TensorFlow, the open source machine learning library is very strategic.

• 28:11Jesse Walden?

  Something like Ethereum is a great example of there being a very strong incentive to deliver this new technology. There's a market demand for it and those that worked on it did very well with the increase in price of that asset that's native to the network. But there's also this sort of persistent tragedy of the commons problem where now going forward Ethereum needs improvements, like it's not fully baked. We discussed this earlier where it still needs the community to build it out. And so There's this question of, you know, who will fund that? And the answer has been, you know, this boom of ICOs,

• 28:54Jesse Walden?

  like each project starting with its own token and it's, you know, raising tons and tons of money. And not every one of these projects necessarily needs its own token. Some of these projects could be just sort of core infrastructure at the base layer of the protocol. But there's not an incentive or there's at least no mechanism by which the community can formally decide that funding should be directed towards this particular module. And so it brings up this really interesting question of how do we govern these decisions? And, you know, in cities, we have local governments to decide how to allocate taxpayer dollars and what should be the public goods that are built. And I think that question is very much open.

• 29:38Jesse Walden?

  And TBD whether sort of this idea of rough consensus about the right direction is sufficient or a more top-down approach is better in terms of making exponential, you know, progress on public goods and better infrastructure.

• 29:53Devon Zuegel?

  Yeah, the incentives seem much better aligned with crypto networks these days, but there's still some nuances that need to be worked out. Like, I think the fact that you can get rich pretty fast by just having a token sale result in certain parts of core infrastructure being systemically undervalued. Like, as I write solidity smart contracts, like, the developer ecosystem is just not there at all. Like, now, there's a few exceptions. Like, consensus has built a lot of good tooling. But besides consensus, like, basically, no one's building tools.

• 30:27Jesse Walden?

  There's no incentive to build the tooling, the base infrastructure.

• 30:30Devon Zuegel?

  All of the energy is, like, sucked out because everyone who has those skills just wants to run a token sale.

• 30:36Jesse Walden?

  One way I've been thinking about it is, you know, you know, the idea of semantic versioning, you have the major, minor, and patch version. You know, patch is like very small bug fixes. Minor, you know, is a non-breaking change. And major is like when you've significantly changed the protocol. And history has shown that, you know, if you think of Ethereum as an evolution of Bitcoin, if Bitcoin is, you know, blockchain 1.0, Ethereum is blockchain 2.0. You know, Vitalik was active in the Bitcoin community, but he realized that to get consensus from the stakeholders to significantly improve Bitcoin will be impossible. So to go from 1.0 to 2.0 required

• 31:13Denis Nazarov?

  Basically raising money and creating a completely new version that was a fork. So we have this tragedy of the commons that, you know, maybe it's impossible with introducing these new economic incentives to evolve the protocol where we upgraded the protocol significantly without independently raising money and basically creating a fork. So, you know, if you think of a project like Definity and EOS as 3.0, the way the incentives have worked for them is that it's better for them to raise their own money, hire the best teams and, you know, realize all the upside from creating this innovation as opposed to, you know, being part of the Ethereum community.

• 31:52Ali Yahya?

  Well, one of the things that I think is super exciting is that each of these projects represents an experiment as to how governance can work, as to how incentives can be structured. So I think as a result of this space, because each one of them is to some degree self-contained, we'll learn a lot about economics, we'll learn a lot about game theory, we'll learn a lot about monetary policy and political science.

• 32:15Denis Nazarov?

  It's parallel city experiments that make, you know, the country that is the blockchain more robust.

• 32:19Ali Yahya?

  Exactly. So to some extent, like Ethereum hasn't yet succeeded at incentivizing core development or development on the core protocol and has succeeded massively at incentivizing people building on top of it, developers, that is not users yet. And a different experiment may take like the same ideas that Ethereum has implemented and maybe they may extend them a little bit. Like, for example, one idea would be for the base chain to, to some extent, charge a tax from all of the things that ultimately get built on top of it as a way of funding core development work. And one way of doing this could be the supply of any token that is issued on top of the

• 33:01Ali Yahya?

  Ethereum blockchain may be inflatable by the underlying chain, by the Ethereum main chain, and then paid either to miners to improve security or distributed to developers who are working on the core protocol. And then there's obviously a whole host of questions as to how do you decide who that money goes to? And that's a governance question that needs to be answered. But there is a very, very large space of possibilities that we can explore. It will be very exciting to see what kinds of experiments emerge.

• 33:36Jesse Walden?

  Yeah, I wonder if we can look to history at all and maybe in like ancient civilizations or city-states and sort of at what point did governance emerge? Like, when did the city get to a sufficient point that it became so chaotic that, you know, leaders needed to be elected, taxes needed to be collected, etc. You know, because I think a lot of what we're talking about here is, on the one hand, we've talked about sort of this idea of rough consensus and people sort of organically converging on the right path forward. That's not a formal process. On the other hand, this, what you just described of collecting taxes in order to fund public goods on the blockchain, that sounds like a much more formal process. And so like, again, the element of time may prove to be a very important factor, and I just wonder if there's like, historically, some examples of, you know, at what critical

• 34:20Jesse Walden?

  mass do we need to implement formal governance?

• 34:23Devon Zuegel?

  There's definitely a lot that we can learn from history here. I think I'm even more excited about how, what traditional governance can learn from blockchain governance. For instance, like, I mean, the last few years, we've had a lot of conversations about the Electoral College, how like our voting systems have some flaws, or arguably, but innovating on this is really rough. Like, changing the election system of the entire US is a big, very risky thing to do. If we can experiment with the ways we elect leaders or vote on different proposals within smaller communities, perhaps those lessons can like bubble up to the real world as well. Do you, can you think of any like specific historical examples that you think are useful?

• 35:08Ali Yahya?

  I think one important parameter is probably scale. It's like, as, as communities scale from just like a fam, or like a small group of people, like a tribe, to a broader community, to eventually like something like a nation-state, to eventually a global community, newer and more sophisticated mechanisms for coordination and collaboration need to emerge alongside. And so I think a lot of the governmental structures that have emerged through history are just a response to that need. There's no other way to coordinate that number, that number of people. I think actually Yuval Noah Harari and Sapiens does a great job at articulating this point, and I strongly recommend that book.

• 35:47Devon Zuegel?

  Yeah, in the book, he talks a little bit about how people create these shared myths that allow them to coordinate. What are some shared myths that you guys see the crypto community working towards these days?

• 36:00Ali Yahya?

  I think it's a good question about what are the shared myths or the memes that organize crypto networks? And in the case of, it is, I think, the case that different projects tend to be organized around different memes. And it's kind of hard to speculate or really pin down what those memes are. But in the case of Bitcoin, or at least the later form of Bitcoin, the current Bitcoin, the shared meme seems to be fixed supply, store of value, digital gold. In the case of Ethereum, it's more of a meme around technology. Say we're building a technology, it's not just a financial tool. And what's interesting about forking is that that in and of itself is a mechanism of governance. It's a form by which communities can decide to run a different experiment.

• 36:44Ali Yahya?

  In a sense, if we go back to the analogy to cities, it's like some of the people saying, we no longer want to live in this city. We want to go build a different city and we'll do it our own way. And that's, I think, a very valuable property. It's good that it's expensive because it's good that it's hard to do that because it encourages the participants of a network to try to figure out their differences. But it's also very good that that always exists as a possibility because you don't want to be locked in, especially if there really is a very significant philosophical divide into a philosophy or set of ideas or memes that will no longer, will never be reconcilable.

• 37:19Devon Zuegel?

  Yeah, it'll be really exciting to see these myths evolve alongside the networks and see how these stories change over time. Well, thanks, guys. It was really fun chatting today.

• 37:30Ali Yahya?

  Thank you.

• 37:31Denis Nazarov?

  Thank you.