Inventing a new (decentralized) Internet
Lux’s investment in Blockstack’s Series A and Token Offering
This piece initially published Dec 2017
I first heard of Bitcoin in 2013. While today’s macro political environment throws one huge story after another, in 2013 large black swan events were still … well, black swan; rare. One of these events had just occurred: Over levered banks in Cyprus banks had rapidly declared insolvency amidst a global recession. The EU and IMF were racing to structure bailouts, including freezing residents’ accounts and tapping into them as part of the process. Cyprus residents had lost faith in the local currency, Euros, spurring large purchase orders (from both domestic and globally aware international buyers) of a little known digital currency: Bitcoin. The bailouts in Cypress led to a large spike in demand for Bitcoin leading to a jump in price leading to mainstream press, for the first time, picking up and reporting on the nascent technology. Sitting in Potrero Hill, San Francisco, I first read about Bitcoin on this CNN article.
Value of Bitcoin spiked in early 2013 as Cypress Banks declared insolvency
While reading this and my subsequent wikipedia blackhole, two things jumped out to me:
I knew embarrassingly little about what “currencies” were, where they came from, and how they had come to be
Bitcoin, the underlying protocol, was absolutely beautiful. It triggered all of the nerd aesthetics and hunger for mathematical symmetry that had pulled me to grad school in Theoretical Computer Science in the first place
Hungry to fill in my gaps in Econ 101 and dive deeper into the rabbit hole of Distributed Systems and Byzantine Generals I went back to the one place I had confidence could help me, Stanford. There I found myself teaching what ended up being the first University level course on Cryptocurrencies, ever. Drawing from my years toiling in Computer Labs at Stanford the majority of the course covered algorithmic analysis of the Bitcoin protocol. I proposed to the students a mission of building a vocabulary for the most basic “atomic units and primitives” of blockchains and how — under various implementations — these could be perturbed with insight to properties the resulting chains would have. In 2013 it was often the case that the air in Bitcoin conversations would be sucked out by speculators bantering “holding” tips. But back then, the students more so than I, developed a thesis in blockchains as an emergent architecture to decentralize various pieces of internet infrastructure: combining sufficiently difficult compute problems, novel currencies, and existing (centralized) use cases.
Fast-forward 3 years to 2016 and we’d held onto this thesis at Lux without meeting a team directly focusing on this point of attack. We’d observed the space as cautious skeptics, ready to invest if the right technology and team came — but OK passing regardless of investor FOMO at various points in the hype cycle. At times we’d get asked “Are you shying away from crypto?”… “Well, no” … “So do you have any crypto investments?” … “Well, again, no…”
I first met in Ryan and Muneeb in 2016 via my partner Bilal who was an early angel in the company since they’d first come out of YC as OneName, in 2014. The two Princeton Computer Scientists had spent the following years building beyond OneName’s initial product (a decentralized DNS), to enable a system of architectures that would allow anyone to create any sort of decentralized web application. The internet, almost by happenstance, had become unilaterally client-server centric. Ryan and Muneeb launched Blockstack to change that.
It’s worth taking a moment to discuss exactly the reasons why it’s an interesting and fruitful endeavor to invest in a team building an entirely new internet. Without going into the technical details (see the video presentation below for greater depth and context), it suffices to give the following bullets :
Client-client architectures enable data privacy and ownership for end users. In traditional client-server networks, we the users **have *become *the product. This is a critical architectural step to disable that from ever occurring again. Similarly, if we own and hold our data locally, **Equifax-like hacks become a thing of the past. In many ways, 2017 has been a watershed year where these particular issues have captured the zeitgeist.
Similarly, a decentralized internet is key for taking away increasing power from large tech network and marketplace oligopolies. Core to this is realizing such companies maintain their monopoly like pricing power and network stickiness by being a central server side intermediary whilst offering their products. As a powerful contrast: imagine a decentralized Uber where the entire transaction goes from rider to driver, without a zero-marginal-cost software intermediary taking >20% of the transaction. Imagine the same with an Airbnb. Even Facebook. Large web networks and marketplaces largely premise their entire business models on an assumption of centralized internet architectures. At the limit, developing robust and functionally at-parity decentralized frameworks for competitive applications poses an existential threat to the biggest web incumbents. In the success case, I imagine we’ll see a defining moment in the coming years as centralized web companies slowly realize this and port alternative applications to Blockstack. Akin to Facebook launching native on iOS in late 2010 we’ll see large companies historically serving users on the centralized internet offer decentralized iterations of their products.
Ryan, Muneeb, and the entire Blockstack team impressed upon us a philosophy void of maximalist rhetoric often implicit within crypto groupthink, but rather a pragmatic vision of balancing necessary decentralization while maintaining a development and application layer that is equally performant, if not more, than the traditional web. For those paying attention, we’re in the midst of CryptoKitties literally grinding the entire Ethereum network (implemented from a maximalist philosophy of decentralization at all costs at all levels of the compute stack) to a complete standstill. On Blockstack’s application layer, this sort of network fail case would be impossible.
At every step of the way, **architecturally, with **governance, and even with **funding**, the Blockstack team pushed aside short term greed and aligned their inceptives with the community’s: indexing towards the long term vision of bringing to bear an alternative Decentralized Web. Their recent Token Offering leaves space for all users not just accredited investors, while maintaining critical checks and balances with publicly announced milestones as gates to unlock the funds raised. This level of maturity and sophistication is exactly why the company very quickly surpassed it’s own fundraising requirements and attracted the world’s smartest crypto investors: USV, Foundation Capital, the Winklevoss twins, and many more in the recent Token Offering.
With that, I’m proud to finally announce Lux’s participation not only in Blockstack’s Series A in 2016, shortly after I first met Ryan and Muneeb, but also our doubling down in the most recent Token Offering during which the company raised $50M. Building an entirely new internet is an ambitious, audacious, goal and one that we candidly could never have suspected we’d arrive at when we first started reading about Bitcoin post Cypress. That said, it’s one that we’re proud and excited to back, and simply put — a mission, that if successful, we see as reshaping much of the global economy. Welcome to the Lux family Muneeb, Ryan and the entire Blockstack movement!