At Andreessen Horowitz, Chris Dixon completed a data analysis research that backed up his theory that every time the price of cryptocurrencies rises, there is a surge in developer, social media, and startup activity.

Cryptocurrency, according to sceptics, is a bubble that burst in 2017 and has since lost steam. However, the data examined by the analytical project reveals that there is order under the chaos.

The Flywheel.

Dixon refers to the order under the chaos as a flywheel, a cycle in which every price increase leads to greater developer activity, startup activity, and social media activity.

Price → Interest → New Ideas → Startups and Projects

If you look at the data below, you'll notice a significant compounded annual growth rate (CAGR) for - from 2010 to 2019.

• BTC - CAGR 196.4%

• Social Media Activity - CAGR 207.5%

• Developer Activity - CAGR 74.4%

• Startup Activity - CAGR 53.9%

Blockchains : a new kind of a computer.

A virtual computer that runs on top of a network of physical computers that provides strong, auditable, game-theoretic guarantees that the code it runs will continue to operate as designed.

Ethereum, for example, contains storage, maintains state, and has a programming language. This could be thought of as a computer.

There could be two types: general purpose computers (like ethereum) and application specific computers (like bitcoin).

A person or organisation using a non-blockchain computer can change their minds at any time, changing the way the system works. That does not happen with blockchain (unless a certain percentage of the network's miners/validators decide).

The most significant distinction is the ability to establish commitments, which is a revolutionary concept.

Previously, digital currencies or digital products were overlooked due to a lack of credible promises, such as a fixed supply (scarcity commitment), no double spend, and your bitcoin is yours (custodial).

People eventually realised that this design might be used to make various sorts of commitments, and not just digital currency.

Architecture of Blockchain Computers.

A blockchain computer is made up of nodes, which are physical computers (such as PCs) that use Proof of Work or Proof of Stake and are linked together via a consensus mechanism.

If you conceive of it as a computer with a wide range of applications, there are a lot of intriguing challenges to solve.

Nodes are techniques by which anyone may join the network and become a part of the blockchain computer without requiring permission.

Each node executes all or a portion of the code needed to make the system work. Although nodes (minors / validators) are encouraged to act honestly, a well-designed consensus mechanism ensures that the blockchain computer runs correctly even if a significant number of nodes do not.

Some blockchain computers offer financial incentives, while others do not. a16z is biassed in favour of those with economic incentives, as we may infer that those with economic incentives will be better protected from attack as we can trust people's capitalistic nature, rather than assuming that people are well-intentioned.

Trust Guarantees.

Something that no other computer architecture has ever been able to provide. A trust guarantee through nodes + consensus mechanism.

The term "trust guarantee" refers to the fact that the system's rules cannot be changed without following the procedures outlined in the system's governance protocols. ‘Don’t be evil’ becomes ‘Can’t be evil’.

Trust guarantees enable the creation of novel computer primitives such as digital commodities, digital money, decentralised organisations, smart contracts, and so on in a credible manner. These were previously impossible due to a lack of a credible trust guarantee, that no single organisation could unilaterally change the rules. It will have to go through it’s due process to change.

These primitives could be thought of as the new system's lego bricks.

For example, the Maker DAO global lending platform is a fascinating mechanism.

The future: You will not be required to know everything.

It may be technical at the moment, but in the future, you should be able to develop apps on the system without having to grasp the underlying technology. In AI, for example, you can create an image classification system without actually programming the algorithm. Prior to the iPhone, if someone wanted to design an app, they needed experts for each piece of component they wanted to use, such as a gps expert and a camera expert. Prior to the iPhone, building an Uber or Instagram would have required a large number of professionals and would not have been as simple. A credible platform helps drive the ecosystem. Blackberry was fantastic in this time period, but they had to create everything from the ground up, including the software, hardware, and network. To some extent, crypto is like that right now, but that is rapidly changing.

You probably need to comprehend all levels right now, but you'll soon be able to focus on just one, such as infra folks working on infra and application people focusing on application.

The early stages are always fraught with challenges.

Consider the era when computers were first introduced; they had many advantages but also many disadvantages. That changed as time passed and individuals continued to improve it. The mobile era was the same. When the iPhone first came out, it had issues such as call dropouts. That, however, altered and improved over time. There are challenges in crypto right now, such as scalability, but as the sector continues to grow, things will change.

It will take 3-5 years for application level entrepreneurs to completely explore the design space and figure out how to make the most of it if a right kind of platform has been built.

PS: This is part of my learning series where I plan to document my experiences & learnings as I progress through the a16z Crypto Startup School.

The goal is to personalise the learnings by using my own metaphors (if they're better) or language rather than simply transcribing the videos. I'll keep things as simple as possible because that's the best way to remember what I've learned. I hope you find them useful, and do let me know what you think.

The goal is to personalise the learnings by using my own metaphors (if they're better) or language rather than simply transcribing the videos. I'll keep things as simple as possible because that's the best way to remember what I've learned. I hope you find them useful, and do let me know what you think.

Let's get started.

• The fundamentals aka - Crypto Networks and Why They Matter