Is the cryptocurrency industry similar to the early days of the internet?

Drawing Parallels Comparing the Cryptocurrency Industry to the Early Days of the Internet

Source: M6 Labs

My dad has a pretty remarkable view of the entire internet technology system – after all, he was there from the beginning.

What does this have to do with encryption? Give me a moment to explain:

When my dad started his Bachelor’s degree in computer science in 1979, he didn’t even directly interact with computers; his courses were purely theoretical (based on textbooks and lectures) or involved programming with punch cards. There was no internet, no HTML, and no standardized protocols at that time.

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The world was completely different, mainly because computers didn’t really impact our daily lives.

These are punch cards (Image source: Flickr’s DullHunk)

In the end, my dad’s career took him on a winding path, from computer-aided manufacturing (one of the earliest use cases for business computing) to teaching systems management at a technical college in the last 10 years of his career. He’s retired now, but that’s another story.

Do you remember the early days of the internet?

– Yes

– No

A few days ago, I called him and talked about business computing, the early days of the internet, and their comparison to encryption. Here’s what he had to say:

1. The Internet and Blockchain are very similar

I never thought there would be a cohesive concept of ‘the internet’ until it was truly defined in the mid to late 1980s. Before that, there were corporate computer networks, interbank networks, and educational networks. Meanwhile, an unlicensed, ‘self-hosted’ network, the internet, was growing and gaining attention.

What exactly is the internet? It’s a series of interconnected servers that are linked together in a flexible, unlicensed, and open manner. What does that mean?

• Open: There is no single gatekeeper that internet users need to go through.

• Flexible: If a ‘node’ in the network goes down, the network still remains active.

• Distributed: The internet is not a single entity, without a single source.

• Unlicensed: Anyone can participate in the network.

These characteristics sound very similar to something else we’re familiar with and love: cryptocurrency and its underlying ledger. Of course, there are some differences, the internet doesn’t have any tokens. Nevertheless, it’s worth looking at the similarities between them.

It’s important to note that none of these characteristics are guaranteed – they are all fought for. Major companies (Microsoft, IBM, etc.) wanted to create their own ‘closed’ internet that they could control and monetize. Other networks were closed for specific industries.

As an interesting side note, the US federal government is the undeniable original source of internet technology and its underlying ideas, a fact that is often overlooked by the cryptocurrency and tech industry.

Conclusion: Blockchain exhibits an incredible analog similarity to the internet. This analogy extends in many ways; therefore, we can draw inspiration from the internet and its development to inform our thinking about the world of cryptocurrency.

2. Protocols, version 2.0

In the early days of cryptocurrency, standards were not yet established. Various ‘standard’ protocols for different applications were developed, resulting in a mishmash of incompatible or non-functional solutions.

Gradually, single-purpose protocols standardize, bringing integration to the field, most notably TCP/IP. But it did not accrue value, with those building the internet technology stack maintaining its openness, never charging rent.

Who profited from TCP/IP?

• Applications built on top of it: Facebook, Google;

• Infrastructure that supports its operation: Cisco, Alcatel;

• Tools to implement the protocol: NVIDIA, TSMC, Apple;

There are two ways to look at this paradigm:

• Cryptocurrency is different because it allows protocols to accrue value.

• Cryptocurrency protocols are ultimately valueless, and applications will be the most valuable in the future. This idea is expanded upon in an article by Joel Monegro, a partner at Placeholder Ventures. You can read it here.

Personally, I believe that both protocols and applications can accrue value: Ethereum needs to have value to be a secure custodian of assets, otherwise it is economically insecure. Similarly, applications can charge fees based on their utility. There is definitely a sense that Ethereum is taking a big step towards changing the ‘thin (valueless) protocol’ paradigm through its net inflation ‘money’ model via burning fees.

Conclusion: Despite many in the cryptocurrency space envisioning a future of multiple chains, TCP/IP is actually an example of a movement towards a single, massive protocol – and that’s an interesting datapoint. Can its counterparts (Ethereum, other L1s) accrue value? Or will applications ultimately be the most valuable assets in cryptocurrency?

3. A shake-up is coming

In the incredible tech boom of the late 1990s, which helped create one of the few budget surpluses in US history, the so-called “dot-com bubble” burst as the internet drove banking and the stock market and valuations detached from reality.

Capital evaporation, weak players exiting: investors, companies, projects, retail investors without commitments leaving, creating a consolidation effect. My dad calls this process “creative destruction” because although it’s painful, it leads to true competition that creates value for the world (and investors), and the initial rise (bubble) is only about how the capital market creates space for speculative bubbles.

Conclusion: Are we in the midst of reshuffling now? Or will we have another rise before the real reshuffling? Either way, weak players will exit (are exiting).

4. This will take a long time

How does my dad see today’s crypto entrepreneurs? He says, “They’re children, until they start looking like grown-ups, that’s when we see crypto changing the world.”

It’s hard to know if crypto’s progress is faster or slower than Web 1.0 and 2.0, or even more difficult to accurately predict how this progress will unfold – but one thing is certain, it will take longer and be more difficult than expected.

I really like this tweet, it brings things into perspective:

The trivial details and daily ongoings of specific projects are foolish – what we need to focus on is the revolutionary, hereditary change.

Conclusion: Patience is key.

5. Marc Andreessen is right, unless proven wrong

One of the major figures in the Web 2 and Web 3 world? Marc Andreessen, co-founder of venture capital firm A16Z. Despite having a certain reputation in the crypto field (hodling, praying, and never selling), the venture capital firm also has another reputation in the Web 2 realm: being one of the greatest tech investors in history.

Really: CBInsights, Forbes, and InvestorRank all agree. Their average annual returns tell a similar story.

Crypto folks may not be aware that Marc Andreessen has already been through some circles, initially as the founder of the first web browser (Mosaic, then became Netscape), then as the greatest tech investor of Web3, now focusing on the crypto field. His views carry weight, and the ideas and concepts he has in owning the internet should not be underestimated.

Although recent Web2 founders like to criticize Web3, it feels like many of the early internet OGs (original gangsters) can appreciate this.

Conclusion: The older generation mostly stands on our side. Overall, critics mainly come from the newest generation of tech founders or those who were not internet enthusiasts from the beginning!

Will things really change?

Although technology cycles accelerate and transform in unpredictable ways, our models for how specific technological innovations develop and diffuse have remained unchanged. Power law distributions combined with exponential growth create billions of dollars in economic growth for founders, employees, investors, and yes, customers too (remember, cryptocurrency also needs them).

Conclusion: The older generation mostly stands on our side. Overall, critics mainly come from the newest generation of tech founders or those who were not internet enthusiasts from the beginning!

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