a16z Podcast | Trends in Cryptocurrencies | Summary and Q&A

TL;DR

This podcast episode discusses the bigger picture and overall trends in cryptocurrencies, including the adoption of decentralized protocols, the importance of governance, and the application of game theory in incentivizing behavior.

Key Insights

• 🌷 Decentralized protocols like Filecoin and IPFS optimize resource usage by providing a more efficient and cost-effective solution for storage.
• 🪡 Governance models need to be established to ensure the effective decision-making and evolution of blockchain protocols.
• 👻 Cryptocurrencies have the potential to drive rapid development and capital coordination by allowing crowd-funding through initial coin offerings (ICOs).
• 😘 However, the abundance of capital in the market has also led to a surge in low-quality projects, calling for better curation and standards in the industry.
• 🤑 Game theory has a significant role in the development of cryptocurrencies, as incentive structures can turn centralized systems into decentralized ones and drive innovation.
• 🚙 The scalability and utility of blockchain protocols are being improved through advancements like formal verification and proof-of-stake consensus algorithms.
• 😀 Cryptocurrencies and decentralized protocols have the potential to preserve and enhance the freedoms of the internet in the face of increasing censorship and restrictions imposed by governments.
• 🥺 The future applications of cryptocurrencies may involve the creation of consumer-facing decentralized applications, leading to the disruption of traditional web 2.0 companies.

Transcript

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Questions & Answers

Q: Why are decentralized protocols like Filecoin and IPFS necessary when we already have powerful centralized systems like Amazon S3?

While centralized systems may seem free, storing large amounts of data can be expensive, especially in terms of bandwidth. Decentralized protocols can cut costs and allow everyone to participate in the network as storage providers, creating a more optimized storage solution.

Q: How does Filecoin compare to Airbnb for storage?

Filecoin is similar to Airbnb in that both platforms take advantage of excess capacity. Instead of competing with Amazon or other storage providers, Filecoin allows individuals to trade their spare storage using an algorithmic market mediated by a decentralized token.

Q: Why is decentralization an important security feature?

Trusting a third party with your data means giving them control over it. Decentralized protocols remove the need for trust by enabling individuals to verify that their data is being handled correctly, thus enhancing security and privacy.

Q: How does blockchain governance work?

Blockchain governance is still evolving, but the idea is to use the protocol itself to make decisions and upgrades. Incentive-based governance systems, where individuals can stake money to vote on protocol changes, could eliminate undue influence and create a system where the protocol is governed by its users.

Summary & Key Takeaways

• Juan Bennett, founder and CEO of Protocol Labs, got into Bitcoin in 2011 and later started Poly Chain, an investment fund that focuses on cryptocurrency protocols. He also created IPFS, a distributed file system, which led him to discover more about Bitcoin and decentralized protocols.

• Olaf Carlson-Wee, CEO of Polychain Capital, studied Soviet systems and later founded Protocol Labs. He explains that Filecoin is a decentralized storage network that rewires the proof-of-work function of Bitcoin to create a useful cloud storage service that anyone can join.

• Decentralized protocols like Filecoin and IPFS can optimize resource usage, provide a better alternative to centralized storage services, and enhance security by removing the need to trust third parties.