One could conclude that the cryptocurrency industry is a highly unscrupulous venture based on a review of headlines from the previous few years.
Swindlers stole billions more from hackers than from legitimate businesses. A few of the biggest cryptocurrency exchanges were sued by regulators. Several well-known companies declared bankruptcy. The collapse of cryptocurrency banks, a disastrous experiment, was the result of risk. Founders were convicted of forgery. At God’s command, a Colorado pastor even claimed he was charged with running a million-dollar scam.
By extension, claims that blockchain technology—which powers cryptocurrencies—can transform social networking and gaming, fund the arts, or create innovative new forms of organisation appear dubious. It’s getting harder for proponents of blockchain technology to convince lawmakers and regulators of its benefits as time runs out. Chris Dixon, the chief cryptocurrency investor at Andreessen Horowitz, or a16z, a venture capital firm based in Silicon Valley, asks everyone to accept blockchain technology one more time.
Dixon contends that blockchain technology is ethically neutral in his most recent book, ‘Read Write Own: Building The Next Era of the Internet,’ despite all the drama, frauds, and lost fortunes. According to him, to prevent wasting the technology’s potential advantages, regulators must distinguish between risky misapplication and fruitful experimentation.
“Please don’t discard the book; it is a self-serving warning against being overly cautious,” Dixon said in an interview with WIRED.
Dixon describes a rift in the crypto industry’s culture. He refers to one group as the “crypto casino,” which is made up primarily of con artists and money launderers and is only interested in financial speculation. The other faction believes that blockchain is not just a form of accounting ledger, but a new computing platform that opens up horizons far grander than just new forms of financial trading.
“So far, the first faction is winning. The attention-grabbing behaviour of the global crypto casino, threatens to suffocate both the technology’s development and enthusiasm for its potential. The casino is the flashier story. Its fortunes won and lost. It’s a scandal. The productive side is slower-moving. It is crowded out with all the noise,” he said.
According to Dixon, who has sold startups to eBay and McAfee and worked in internet software for 25 years, new technologies usually evolve in fits and starts over several decades. Then a breakthrough occurs, something like an iPhone or ChatGPT moment, which establishes the new product’s indisputable value. Blockchain, in Dixon’s opinion, is still in the early stages of development.
He asserts that the negative perception of the cryptocurrency space cannot be ignored by business owners, as it influences lawmakers to consider more stringent regulations. As it stands, strict regulations will be implemented “very, very quickly,” he claims. Dixon contends that this should worry the general public as well as cryptocurrency enthusiasts.
Trust busting
Although blockchains take many different shapes, they are essentially public information records that are hosted and updated by many individuals rather than by a single entity. To ensure the project’s overall trustworthiness, entries are added and confirmed through frequent cross-checks, a process that is motivated by rewards in cryptocurrency tokens. With crowdsourced governance provided by a voting system, blockchains can also support software applications that follow predefined rules and use its entries as a kind of backbone.
According to Dixon, society is more in need of this technology than its employer, which is trying to find a way to recoup billions of dollars invested in four different cryptocurrency funds. Dixon argues that profit-hungry monopolists are strangling the internet and that users are suffering as a result. However, blockchain technology has the potential to wrest some control away from the biggest tech companies in the world and bring the internet back to its original egalitarian roots.
The following thesis is explored in the book: Initially, the internet was accessible but constrained. Private businesses made the web more interactive and prospered financially from it, but this also made it more difficult for users to switch networks and for rivals to enter the market. Big Tech’s consolidation of power sparked a trend known as “enshittification,” in which businesses prioritise boosting profits over user interests and reducing the amount of money they share with content creators.
According to Dixon, creating internet platforms based on blockchain technology, which upholds predetermined regulations that can only be altered by popular vote, has the potential to “reverse the trend toward internet consolidation and restore communities to their rightful place as stewards of the future.” It may sound abstract, he admits, but since the internet is “where we live our lives more and more these days,” it matters who gets to establish the guidelines.
It is possible that less personal information would be collected, fewer creators would face shadow banning, content feeds would contain fewer advertisements, and product searches would return the most relevant results rather than the most lucrative ones, and so on if everyone had a voice.
Naturally, the prospect of blockchain potentially breaking the hold of established tech companies offers a new opportunity for a venture capital firm such as a16z. There is a better chance of making the next internet start-up successful now that a path has been cleared for new rivals. As Dixon puts it, “keeping the internet open” equates to “smart capitalism,” which benefits all parties involved by encouraging experimentation that results in new, useful technology.
However, in reality, efforts to provide a blockchain-based internet have encountered their own difficulties. Consider decentralised autonomous organisations. Dixon suggests token-based voting structures that would allow users to veto changes made to internet platforms, thereby enabling them to “share in control.” DAOs are ineffective and unduly bureaucratic, functioning as democracies only in theory since the concept was tested in 2016.
In reality, the decentralised model’s goal is undermined when participants can’t agree on which changes to suggest, don’t show up to vote, or heedlessly follow one another’s lead. When voter turnout is low, it becomes easier for a single party to accumulate enough voting credits to turn democracy into a plutocracy. Large quantities of voting tokens in several blockchain projects are held by a16z itself.
Dixon’s argument is further undermined by the unsatisfactory usability of blockchain-based software. According to him, technology could make it possible for social media platforms and the content creators who use them to split profits more fairly by granting the creators the ability to see and reject changes that would negatively impact their relationship.
On the other hand, as individuals such as Moxie Marlinspike, the developer of the secure messaging app Signal, have contended, the inefficiencies of blockchain technology may actually encourage individuals to turn to new, simpler middlemen, thereby displacing the previous, profit-driven gatekeepers.
Dixon acknowledges these shortcomings and more in his book. But he insists that the emergence of even an unpolished alternative for governing internet platforms is a step forward.
“Blockchain is messy and imperfect, but the alternative is worse. We are going to have an internet that is siloed off. That is a depressing, dystopian outcome, and we are heading to it quickly. I think people should care,” he said.
Internet reboot
Dixon differs from a16z founder Marc Andreessen in that he frames his argument for blockchain in terms of the dangers of the status quo rather than just the technology’s advantages.
In “The Techno-Optimist Manifesto,” an essay that was published in October 2023, Andreessen claimed that “technology is the glory of human ambition” and that people who oppose it are involved in a “mass demoralisation campaign” that is based on antiquated socialist theories.
Some technologists praised the manifesto as a “breath of fresh air,” but other publications, such as The New York Times, Financial Times, and WIRED, criticised it as being overly dramatic, narrow-minded, and even harmful.
According to Dixon, there is a lot of agreement between him and Andreessen on the idea that “building, rather than being afraid of technology, can solve a lot of our problems.” He spares a few jabs in the book for the “establishment” and its “myopic” dismissal of blockchain technology.
He also takes aim at the media, accusing it of engaging in a “disingenuous form of criticism” by “cherry-picking the worst examples of an emerging technology.” Whereas Andreessen is uncompromising, Dixon allows for some scepticism: he claims that the internet has been “hijacked” and that blockchain technology may offer the most effective means of “building our way out of it.”
Dixon argues that there is a threat to blockchain’s potential to play the role he suggests, which is to help rebalance the economic relationship between internet users, creators, and service providers. The casino mentality of the crypto industry is to blame. Dixon claims that the excesses of the casino culture have sparked a backlash, including potentially harmful responses from lawmakers and regulators.
Many nations are moving forward with comprehensive regulations tailored to the cryptocurrency space. One such nation is the European Union, whose historic Markets in Crypto Assets (MiCA) law is set to go into effect in December 2023.
The United States is lagging somewhat behind, with only narrow bills having been proposed in Congress to date. The Securities and Exchange Commission and the Commodities and Futures Trading Commission, two US financial regulators, are battling it out over jurisdiction over cryptocurrencies in the absence of a new policy.
As a result, there is a great deal of ambiguity regarding the laws that crypto companies must abide by and the legal classification of tokens based on blockchain in the US.
Dixon claims that while he fears the regulators’ clumsy execution, he agrees with them on certain points. “Slowing down the casino would be the best course of action,” according to him, the current strategy is having the opposite effect, with genuine business owners being reluctant to develop new products while con artists are largely going unpunished.
Dixon worries that recent high-profile cryptocurrency mishaps, such as the demise of cryptocurrency exchange FTX and its founder Sam Bankman-Fried, will prompt US lawmakers to believe that further stringent legislation is necessary in the future.
Dixon states that he doesn’t anticipate that everyone who reads Read Write Own will become enamoured with the fantastical blockchain concept. However, he hopes they understand that going overboard with regulations could stifle innovative ideas that could revitalise the internet and everything that has been built on it—basically everything.
“This is a critical moment. I don’t think we can wait much longer to think about designs that could return us to the original promise of the internet. Something has to be done, right?” Dixon said.
A new beginning
Dixon even believes that in terms of the crypto industry’s growth, the United Kingdom may get an edge over the United States very soon.
While the value of crypto deals globally plummeted over 67% in 2023, according to the capital market giant PitchBook. However, the European Union saw the passing of its ‘Markets in Crypto-Assets’ law (MiCA) last year, which will help the continent to regulate the virtual currency.
Also, the United Kingdom government plans to create similar legislation in 2024.
For the analysts (including Dixon), these laws will be positioning Europe as a bigger hotspot for start-ups in the coming months.
It is worth pointing out that Andreessen Horowitz will be opening its first office outside of the United States in London.
The Silicon Valley venture capital firm is looking to take advantage of what it sees as a more welcoming environment for crypto entrepreneurs in the United Kingdom.
“The prime minister’s leadership is critical, but we have seen a wonderful openness to the promise of the technology across parties, as well as a strong interest in whatever regulatory regime comes online that focuses on consumer protection and fostering innovation,” Brian Quintenz, head of policy at a16z Crypto, Andreessen Horowitz’s crypto arm, told CNBC in 2023.
“Frankly, I don’t think this current administration in United States is doing either — it’s a moment in a time when the U.K. acts nimbly and quickly, but robustly,” the official continued further.
“There’s a little [regulatory] uncertainty still, both in the EU and in the UK. We’ve been having conversations with policymakers, and they’ve been productive and we’re optimistic, but there’s still a lot of grey area. That grey area ambiguity is a big problem, because good entrepreneurs have been terrified; they don’t want to enter a space where there’s some possibility that they get sued,” Dixon told Sifted in February 2024, while shedding light upon Europe emerging as the next crypto hub.