Whatever you make of it, you can’t avoid crypto. With PayPal embracing cryptocurrency payments, and multi-million dollar NFTs continuing to attract headlines, infrastructure and applications are becoming increasingly tangible. But is crypto really the future of money? And how do we move on from a solution in search of a problem? In our latest Mosaic Patterns Clubhouse, Benedict and Bart chatted with Morgan Beller, co-creator of Facebook’s Diem (formerly Libra) and now General Partner at NFX (and fellow a16z alum!)

To believe a new thing, you have to be a little crazy 

“Crypto is happening,” says Morgan. “The biggest step-change for me is that we’re now seeing  institutional adoption in a meaningful way. PayPal adds support for bitcoin, Christie’s with Beeple, Morgan Stanley coming out saying it’s going to be offering access to crypto funds to private wealth management clients. I think we’ve crossed the chasm with institutional adoption, and there’s no going back.” 

But for all the continued hype (as Benedict terms it, “crypto for crypto’s sake”), we’re still in the very early stages of useful adoption. “There are two contradicting sentiments”, he explains. “On the one hand, clearly, progress and activity and enthusiasm within the crypto world is at a new height. On the other, you could also plot this against a trough of disillusionment, in that we don’t have consumer use cases yet.” 

Crypto offers solutions, but has yet to define problems

The chief argument against crypto innovations as they currently stand is that they largely exist for their own sake. They’re not clearly responding to a market need: rather, the first wave of infrastructure and applications has been built by crypto hobbyists, for crypto hobbysists. Decentralised versions of tools and platforms like Substack exist, but don’t add enough clear, differentiated value to incentivise mainstream adoption.

There’s a suggestion that crypto companies are, as Morgan puts it, “hammers in search of nails” – we haven’t clearly defined what a ‘blockchain problem’ is. Today’s applications offer decentralisation as an answer to existing problems, but real value is likely to emerge on the shoulders of entirely new frameworks and thoughts. 

New mental models are needed to drive value from crypto

We don’t yet have the mental models to know how best to utilise crypto – Morgan likens this to The Wright Brothers not needing an engineering breakthrough to get people to fly, but a new perspective. And while institutions are clearing the regulatory hurdles, they’re unlikely to be the ones who’ll come up with needle-moving ideas. “History would suggest that legacy companies don’t come up with anything interesting”, adds Morgan. “It’s the companies we haven’t even thought of yet, and the ideas we haven’t thought of yet, that will really bring the masses into crypto”.

Not knowing where true value is going to come from is no bad thing – and in fact, when it comes to paradigm-shifting technologies, it isn’t unusual. Take databases. When SQL  was first developed in the 1970s, nobody would have predicted that it would eventually result in the rapidly queryable databases that enable today’s fast fashion. It was not immediately clear what a ‘database problem’ was. Working out what problems it would solve took time, and invariably stemmed from the coalface – not from software engineers. Likewise, the current capability of the internet (with companies like Netflix, Uber and Facebook) was impossible to conceive of during web 1.0, or even 2.0 – and we’re still in the foothills.

Use cases for crypto could take years to realise

This has always been the case. It can take years, or even decades of tinkering around the edges, before the breakthroughs come. But after that, innovation happens quickly. 

Benedict points out that, perhaps increasingly, technology affords us the opportunity to stand on the shoulders of giants: the infrastructure to give everyone in the world a smartphone was there for the manufacturing piece of the puzzle to just neatly sit atop. Another facet of this multi-sided coin is that no business – big or small – will rip out perfectly functional tech stacks in favour of crypto solutions, without serious incentivisation. 

These are tectonic plates shifting: slow, but game-changing. It has taken years to move from mainframes to cloud; and it’s eyebrow-raising to hear how few enterprise workloads have become fully cloud-native, even now. We shouldn’t expect a radically different trajectory for crypto. “There’s a 10 or 20 year process ahead of us, of moving Oracle stuff and even mainframe stuff to modern software”, says Ben. “Machine Learning is a huge part of that, but crypto could also be a huge part of that – if we can work out what we actually do with it.”

The age of plumbing 

Today, we’re laying the plumbing for tomorrow’s innovations – while we work out what the valuable properties of crypto are, how they’ll change behaviour and what new opportunities that will open up. As Benedict puts it: “You’ve got to make a lot of plumbing, and we’re at the stage of making that plumbing.”

That infrastructure means that adoption, when use cases are found, could be rapid and widespread – as with the smartphone. But questions of interoperability, scalability, combined with valid use cases and their economics, give us plenty of unanswered questions to continue to tackle.

And by continuing this conversation, we can get closer to those new mental models.

If you’re building in the space, please feel free to get in touch.