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A Summary of

Why crypto tokens matter

by
Fred Ehrsam, Chris Dixon
a16z
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For the First Time, We Are Adding Economics to the Internet

  • Crypto allows people to pay for goods and services directly through a protocol without involving a middleman.
  • Crypto can make its way into far more systems than a centralized company ever could.

It Changes the Incentive Structure

  • Participants of the new crypto network have aligned incentives (unlike competitive tech giants).
  • The new incentive structure allows the network to grow at a rapid rate.

A Universal Solution to the Bootstrap Problem

  • Many startups fail because they can't overcome the bootstrap phase.
  • Crypto incentivizes early users when there isn't enough network value by giving the\m financial value.
  • As the network grows, users get less financial value and more network value.

Allows for the Experimentation of New Systems

  • Each token is like its own "central bank."
  • Creating new tokens allows us to experiment with thousands of new governance schemes.

Proof of Stake Punishes Bad Behavior

  • Unlocks greater areas of the design space - e.g., Adding negative incentives.

Decentralization

  • Allows for experimentation/divergence from a central path (leads to faster rate of innovation).
  • More people are willing to use a decentralized network despite its early chunkiness.
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