This coming Thursday, January 14, 2021, Stacks (formerly known as Blockstack) will launch Stacks 2.0. This is a great milestone for the project, and it is the culmination of a multi-year decentralization process to go from Ph.D research idea, to being part of YC, to publishing the first white paper, to creating an ecosystem of independent organizations (including the Stacks Foundation of which I’m a board member). Stacks has evolved while conducting a multi-year process with the SEC to create and follow a regulatory path to bring the token to the broad retail community without it being considered a security. The team has prioritized getting the key things right, building incredible technology that lays the foundation to a future that is both urgent and prescient.
From the beginning of their journey, the Stacks team had the massively ambitious idea of building a more decentralized internet. While I had heard of OneName back in 2015, it wasn’t until mid-2016 that I finally connected with Muneeb and Ryan, who articulated a vision for an Internet that would be serverless, agnostic to cloud or local storage, where developers could simplify app development and deployment, that would better protect user information and identity by doing away with passwords and relying on blockchain’s hash power to secure it. The vision is so bold that it even inspired HBO’s show Silicon Valley. This new Internet would also enable native value transfer and payment capabilities by virtue of being built on top of a blockchain layer. At that time, Bitcoin had a $10b market cap and Ethereum had barely crossed $1b.
We at Foundation Capital participated in the first qualified Stacks token sale in 2017 and have engaged with the team since. Back then, worrying about the increasing power of the FAANGs was a niche issue mostly popular with libertarians and techno utopian types. Shortly after, Google quietly shed their ‘Don’t be evil’ motto, and Big-Tech ramped their lobbying efforts in Washington and across the world, but the general public still widely admired these companies. User privacy was not a general concern. Crypto was experiencing a phase of euphoria as BTC continued to grow and the ICO boom was in full swing. For many participants in that ‘hot-money’ moment, Blockstack’s approach of working with regulators and taking a long-term view was puzzling (to say the least).
The world at large has changed a lot since that offering. Social media (and big-tech in general) have shown their ad-based business models have a nasty dark side that is exceeding the worst-case scenarios that privacy and personal freedom advocates had feared. The publics’ trust in governments and other big institutions keeps reaching all-time lows year, after year, after year. Regulators keep bringing antitrust cases against big-tech. The tech community is dismayed by the lack of depth and understanding shown by legislators in these questionings and feel that a good solution for these problems won’t come from these witch hunt exercises. Pressure keeps building up and the awful events of last week’s attack on the US Capitol and subsequent ‘de-platforming’ of President Trump and other politicians, as well as the banning of Parler at the platform and cloud provider levels have exposed the extent of control that Big-Tech has over our collective online (and real-life) experiences. User privacy and data protection in the context of broad freedom of speech considerations have now moved to the center of the discussion at a global level. Making decentralization and censorship resistance core to our online citizenship is an item of high urgency now.
In finance and economics, the last three years have also seen one of the most dramatic monetary expansions in history, with a quarter of all USD printed just in the past few months and talks of ‘trillions of new dollars’ barely raise an eyebrow now. Widely seen as a potential inflation hedge and a likely successor to Gold, BTC has continued gaining adoption both from individuals and institutions. The broader cryptocurrency markets have evolved as well, with massive amounts of innovation happening on top of Ethereum thanks to their powerful smart-contract language (and despite the serious limitations in network throughput for both Bitcoin and Ethereum). Many Layer-1 protocols (including some in our portfolio like Solana and Algorand), are betting that speed and other functionality can lure developers to build in their ecosystems too.
Bitcoin holds the majority of the crypto market capitalization, enjoys the deepest liquidity and broadest distribution among crypto assets. Yet, innovation on top of the protocol has been more limited. Stacks 2.0 hopes to enable innovation on top of the Bitcoin blockchain. In other words, the Stacks ecosystem is betting that the bitcoin blockchain will be the foundation upon which this new Internet will be built. Two of my favorite aspects are Clarity, a smart contract language, and Proof of Transfer (PoX), through which the Stacks network derives its security using the hash power of the Bitcoin network. In the short-term, the benefits of Clarity are obvious: funneling developer enthusiasm for DeFi, NFTs, DAOs and other exciting acronyms into Bitcoin. In the longer-term, I suspect that Proof-of-transfer will be a bigger deal than might be immediately obvious: tapping into BTCs hash-rate (already the highest in the world and increasing fast), to secure other networks and assets, would enable trust to be embedded in multiple new cases where it doesn’t exist today.
What will the future bring? For one, I’d be excited to see web 2.0 properties start a transition toward decentralization, levering open cryptographic networks to run parts of their infrastructure and provide broader API access. “Ceding big-tech control” might come in response to regulatory pressures as a way to avoid antitrust designation. I’d love to see mass-adoption of blockchain DNS to replace passwords. There are many more innovations to come: Developers will keep finding ways to move value and Information simultaneously thanks to these technologies. The discussions during tomorrows’ Stacks 2.0 event (registrations still open), will show us what the future holds.
We at Foundation Capital are hopeful that the internet of the future will be powered in meaningful part through open cryptographic networks. We are excited to participate in Stacks consensus to earn Bitcoin rewards, and to stay engaged in the broad ecosystem to keep marching towards the vision of developing a user-owned, more decentralized Internet.