The Generalist - Blockspace with Chris Dixon

Hello friends,

“I think blockspace is the best product to be selling in the 2020s.”

Chris Dixon, head of a16z crypto, said those words in November of last year on the Bankless podcast. In the months since I’ve returned to them many times over, looking to better grasp their significance.

In large part, that is because Chris Dixon is among the world’s very best crypto and venture investors. Not only is he the founder and head of a16z crypto, but he was recently listed at the top of Forbes’ Midas List. He has been one of the industry’s most thoughtful exponents for some time. The other reason is that given the brutal market conditions of 2022, it is an opportune time to focus on the fundamentals.
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Beyond a basic definition: what is blockspace? Why does it matter? And what makes it the “best product” of the 2020s?

Initially, I planned to try and answer that question in a classic Generalist deep dive. But in trading thoughts with Chris, I quickly realized he could provide more astute analysis than I could hope to.

That’s what today’s piece is: a Q&A with one of the world’s best investors on the product he thinks will define a decade. Jump in or scroll to keep reading.

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BLOCKSPACE: AN INTRODUCTION WITH CHRIS DIXON

Actionable insights

If you only have a couple of minutes to spare, here's what investors, operators, and founders should know about blockspace, according to a16z crypto’s Chris Dixon.

• Blockspace is exactly what it sounds like. It is space on the blockchain that can be used to store information and run code. Critically, it differs from traditional computing space because the hardware is subordinate to the software, the blockchain code. These systems, when sufficiently decentralized, are more trustable — as in they can make stronger commitments — than ones controlled by centralized parties.
• Security, performance, and community matter. When it comes to blockchains, the most important feature is security – but that is not the only important characteristic. Blockchain performance is also critical as it improves the user experience and reduces fees. Finally, a vibrant community is another key strength.
• There are different ways to scale. Blockchains must scale to meet rising demand. “Layer twos” are one solution. They sit on top of “layer one” blockchains like Ethereum, inheriting their security properties and allowing greater throughput. Additional layer ones are also emerging to meet demand.
• Financializing blockspace may be a challenge. While blockspace is sometimes thought of as a commodity like oil or grain, it might not be easy to financialize analogously. That’s because blockspace has different characteristics based on the chain it is a part of. That non-fungibility might limit the creation of a true blockspace market.
• Blockchains may be on the cusp of finding their super app. After the dot-com crash in the early 2000s, many questioned the need for all the bandwidth that had been built out in the years prior. What was the point of getting emails a little faster? In the mid-2000s, applications like YouTube were made possible through that greater bandwidth, kicking off further innovation. Blockchains and blockspace may be in a similar place, with a breakout on the horizon.

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Bull markets are for earning; bear markets are for learning. As crypto craters, this is the ideal moment to learn about one of the industry’s foundations: blockspace. Though it may sound self-evident, understanding blockspace is fundamental to understanding the worlds of crypto and web3. It may also be good preparation for a potential future resurgence.

Just a few months ago, Chris Dixon, General Partner at a16z crypto and recent topper of the Midas List, said, “I think blockspace is the best product to be selling in the 2020s.” I remember hearing those words on the Bankless podcast and being unsure whether I grasped the magnitude of what he meant.

This week, I asked him.

Indeed, I asked him just about every question I could think of on the subject. Today’s piece is the result of that pestering and Chris’s patience. It is also, thanks to him, one of the clearest and most comprehensive discussions of blockspace and why it matters.

Before getting to my conversation with Chris, a brief thanks to Alex Obadia, Tarun Chitra, Etienne Brunet, David Phelps, and Leo Zhang for sharing their perspectives on the space and helping improve my understanding. I am very grateful.

With that, let’s jump in.

OK, Chris, maybe we can start with the basics. What is blockspace?

Blockspace is space on a blockchain where you can run code and store data. Blockspace is different from traditional compute-space in that, until the advent of blockchains, software was always subordinate to hardware – and then, ultimately, to the owner of that hardware. If you write software for traditional computers, it’s the hardware owners who are in control. If Facebook writes some code and says any developer can come along and have access to a certain API, Facebook management can just change its mind and revoke access later. Because Facebook controls the hardware that the software runs on, it ultimately controls the software.

Blockchains are different in the way they're architected: the software is in charge of the hardware. If you write software for blockchains, you can write code that makes strong commitments; you can assure users and developers that the software will continue to run as designed. Specifically, blockchains use what's called a consensus mechanism to make these commitments. The various hardware operators that run the network come together every so often and vote on the state of the blockchain virtual computer. There's game theory around it that guarantees – that makes assurances under most conditions – that the software will continue to run as designed and that the integrity of the data will be maintained.

What we're seeing now is a wave of entrepreneurs and developers who are building new classes of applications that take advantage of this new computing property: that you can write code that makes strong commitments about how it’s going to behave in the future.​
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IN A MEME
​​​​​For the pictorially inclined, here's the whole piece — all 2,900 words of it — in a single meme.

PUZZLER
​​​All guesses are welcome and clues are given to anyone that would like one. Just respond to this email for a hint.

Austin V vaulted into first place last time around, narrowly beating a field of others, including Krishna N, Jim W, Samuel R, Tim S, Lauren B, Keshav J, HTI, Sukumar R, Steven R, Aaron M, Robert H, David P, Kaitlyn R, Massimiliano B, Tamar L, Ian B, Thomas K, John G, Regis M, SM, Russ W, Grant B, Eric C, Nate M, Joshua A, and James M. That full crew found the answer to this previous puzzler:

The answer? A double “L,” of course! Nicely done everyone and thank you for playing.

A final note: every month we make curated connections for members of The Generalist’s private community. It’s proven to be an extremely popular and effective way to make sharp, impactful connections in the tech, crypto, and financial industries. We’ll be kicking off May’s match ups soon: if you’d like to expand and upgrade your professional network, come join us. I’d love to have you aboard!

See you soon,
Mario