Last week, the Blockstack team formally rolled out their proposal for a new mining mechanism for the Stacks blockchain called Proof of Transfer (PoX). In addition to the blog post, you can read the full PoX white paper and the Stacks Improvement Proposal (SIP-007) that details the idea.

PoX is a way of building new blockchains on top of existing Proof-of-Work blockchains like Bitcoin. The Stacks blockchain has always been built on top of Bitcoin, but has thus far used a proof-of-burn (PoB) mining mechanism, which, while benefitting from Bitcoin’s security, requires burning BTC. Whereas PoX requires a transfer of BTC rather than a burn. This has the added benefit of creating a mining incentive pool denominated in Bitcoin.

At a higher level, one of the coolest aspects of cryptonetwork and blockchain technology is composability — the idea that crypto assets and protocols can be freely interconnected in almost any way imaginable, without barriers or permission. Every (public) blockchain, asset, and smart contract is a de-facto API that can be hooked into, built upon, and extended.

This may seem like a minor feature, but I believe this is a breakthrough characteristic. Today, we are seeing this play out most vividly in the DeFi space, where protocols like Maker, Compound and Uniswap interconnect to build new financial products. What Blockstack is doing with PoX brings this approach further to the Web3 / data space. Ultimately, I believe that this approach will enable a broad explosion of not only tech infrastructure but new experience & features, both for consumers and businesses. Zombies eating Kitties is just the tip of the iceberg.

It feels like consumer development in Web3 is moving slowly, and by the user numbers it is. But composable innovation is compounding, and the work that’s going on right now is creating the tools & patterns for what will certainly be huge, exponential leaps in functionality and experience over time.

Last year around this time, I had a major medical scare which shook me pretty hard. The details don’t matter, but the takeaway was that afterwards I felt lucky to have not had a more serious problem, despite a bad situation that was totally avoidable. I dodged a bullet. It was a wake-up call.

Last week, I was in the Netherlands, and as always, was enraptured by the water. The water is, of course, a major threat to the Netherlands and has been for centuries, so as a result the Dutch have become known for their water engineering prowess and forethought. Thomas sent me this article on 21st century Dutch water management with regard to climate change, which details the Dutch approach to water management. This line stood out:

“During Gustav, the level was all the way up to here,” Van Ledden says, placing his hand just below the top of the wall. “And Gustav was just a friendly wake-up call. In 50 years, if the sea level goes up 1 or 1½ feet, the level for that storm would be here,” he says, holding his hand well above the top of the flood wall. To make sure that doesn’t happen, the Corps is planning to build a giant storm-surge barrier between Lake Borgne and the Gulf Intracoastal Waterway.

A “friendly wake-up call” is something that’s scary enough to set you straight, but not bad enough to do real damage. It is and incredibly useful thing. Hopefully it should never come to that, but I find that it’s human nature to push things to their natural limits until some sort of wake-up call inspires a correction.

I am flying home from Europe today (by way of Reykjavik) and as a result, have a lot of time to catch up on things. I have spent the bulk of the day writing up a handful of strategy docs relating to some of our portfolio companies and subsequently chatting about them.

In every endeavor, whether it’s a startup, a family, a venture firm, or whatever, perspectives drift over time. Things get busy, and we all get focused on executing. And things can get a little out of alignment. A little out of alignment is no problem, and of course we are always course correcting as we go. A lot out of alignment, or little bits of misalignment, over time, that aren’t addressed, can cause problems.

What often happens is that strategy develops piecemeal, over the course of meetings, emails, texts and chats. And while important ideas get discovered this way, it’s also easy to leave ideas half-baked, or questions half-answered (if they are even fully articulated at all). So when I have time, I find that trying to summarize a complex topic in a single document is a helpful step in regaining alignment and making sure we are seeing the whole picture the same way. That’s what I’ve been doing today.

This gets harder the more multifaceted a project is, the bigger a team or company is, and the more money that’s being invested (especially in long-lead-time items like hardware). For a CEO, communicating the vision and strategy of the company to the team is most of your our job. Our job as investors is a little simpler: we need to help the CEO do the above. Not easy, but not a communication scaling challenge on the scale of what a CEO needs to do.

Part of getting alignment is having the right communication channels open. For me personally, I get a lot of that through chat/sms/signal. For the folks I work most closely with, that’s the most open bloodline of ideas in development. I think this is especially true for me since I’m most often not physically together with who I’m working with most of the time. So, as I think about it, I tend to stay most aligned with the people and projects where I have the best chat relationship. A challenge here, of course, is that everyone works in different ways. But that tends to work the best for me, and I think for the people I have the easiest time working with, for them too.

But whatever the method or mechanism, the key moment is recognizing that you’re out of alignment in the first place. This almost always feels like an “aha” moment — like, oh yeah, you’re right, we do feel out of alignment on that. It’s actually a good feeling, because its a signal to do some work.

So with that, back to work!

I am in the Netherlands this week, catching up the Leap engineering team which is based here in Utrecht, and attending an IoT conference that Helium will be at in Amsterdam.

I have always loved it here, primarily because of the close relationship to the water. The Dutch have for centuries harnessed the water, both for commercial purposes (extensive canal network for shipping) and for defensive purposes (flooding out the attacking Romans).

At present, more than 15% of the country is below sea level, and only about 50% of the country is more than 1 meter above sea level (according to Wikipedia).

Amsterdam and Utrecht, where I have spent the most time, are intensely connected to the water. Canals weave between all the streets, most of which are also lined with houseboats (including the one I am staying in, thanks to Airbnb). Whereas walking around most other cities where what you notice are cars and trucks, here, you notice boats and bikes. It’s just incredibly beautiful.

I was at a dinner last week and got into a conversation about what is it, exactly, that makes the water connection so powerful. I don’t know if everyone feels this way, but when I am near or on the water, I feel different, better. Whether it’s a beach, lake, river, or canal: being on the water just feels freeing and awesome. Something about the flowing openness of it, I guess.

Of course, being close to the water is perilous. Venice, parts of the Midwest, large parts of Southeast Asia, are all flooding. A quarter of Manhattan was underwater after superstorm Sandy. Water is dangerous, and more is coming.

As far as the Dutch are concerned, I sincerely hope that they can figure out to protect the beautiful way of life they have established here, closely connected to the water. It is beautiful and unique, and I feel lucky to be able to experience it while it lasts.

Azeem Azhar has a great post up about the brewing conversation about regulation and the tech industry.

There are two main points that stand out to me:

1) In digital systems, ML/AI and data network effects create feedback loops that enable the biggest companies to keep getting better, faster:

and, 2) Regulation favors large incumbents over smaller challengers:

“Regulation is complicated. Dealing with it means dealing with lawyers, hiring compliance people, changing your product roadmap, building new code. Regulation raises barriers to entry. The most regulated industries, finance and health, have seen the deep consolidation and weak flow of new entrants for decades. Regulation favours the large.”

This has created a conundrum. The instinct is to apply thorough and tough regulations to solve for #1. But the chances are, doing so will only reinforce the lead that the big companies have, as per #2.

A good example is the GDPR privacy regime in Europe. As reported in the WSJ (paywall), the advent of GDPR has increased the market power of the big ad players (Google and FB), because they have the best ability to capture user consents and to implement complex compliance procedures:

“GDPR has tended to hand power to the big platforms because they have the ability to collect and process the data,” says Mark Read, CEO of advertising giant WPP PLC. It has “entrenched the interests of the incumbent, and made it harder for smaller ad-tech companies, who ironically tend to be European.”

The solution, we have long argued at USV, is to give simply increase data portability and interoperability. In other words, don’t add burdensome regulation that startups can’t comply with. And don’t break up the tech companies, break up the data. And the simplest way to break up the data is to give users a right to access it in a programmable way. This is what the proposed ACCESS Act would do. I talked about this previously in the Adversarial Interoperability post, where I also showed this diagram:

What this shows, is that throughout the history of computing, what has broken the monopoly power of each era’s dominant firm is the emergence of an “open” technology on top. Open source systems like Linux and open standards like HTTP.

Today, the set of open standards that need to be cultivated are cryptonetworks, cryptocurrencies and blockchains. These are the standards that make it possible to re-architect the data economy, including giving more control to individuals and removing it from companies. By design, crypto protocols replace certain things that companies do with things that any group of computers can do, like this:

So, the ultimate point we have been making is that if you’re worried about the problems with the tech economy, one of the solution paths is through crypto.

That brings us back to regulation, and the current state of play around the regulation of cryptoassets globally. The situation we are in right now is such that within the US, there is a lot of regulatory uncertainty, and as a result, a slowing of the crypto economy. Whereas outside of the US (particularly in Asia), the crypto economy is booming — not just tokens, but exchanges, wallets, and other infrastructure.

Because of all this, I worry that not only do we have the potential to miss one of the most important solution vectors to some of the issues facing the tech industry, but at the same time we (meaning the United States) may also be missing the opportunity to play a leading role in what has the potential to become one of the next major economic and technical platforms.