a16z: Seven potential directions for the crypto industry in 2023

Source of this article: a16z

Originally written by Michael Blau & Joseph Bonneau & Noah Citron & Valeria Nikolaenko & Carra Wu & Guy Wuollet & Michael Zhu

a16z lists the “big ideas” that could inspire the crypto industry in the coming year and highlights the problems that startups in their respective segments could be solving in 2023. Here are the seven biggest ideas for the crypto industry in 2023.

The “mobile age” of blockchain

How far away are we from the “mobile era” of cryptocurrency? A large proportion of blockchain users access the internet primarily through their smartphones, but rely on a centralized infrastructure (convenient, but risky). At one time, users solved this problem by running their own nodes — a time- and resource-intensive endeavour that required at least one constantly online machine, hundreds of GB of storage space, and about a day of syncing from scratch.

There is now a growing interest in decentralized access to the blockchain for users, even those who run their own nodes. With the introduction of ‘light’ clients that offer similar functionality to running full nodes (such as Helios, published by a16z crypto), Kevlar and Nimbus, users can now verify blockchain data directly from their devices. I expect to see similar trust and decentralization improvements in other parts of the stack, such as Event indexing and user data storage. These could help enable true decentralization of the mobile front-end.

Zero-knowledge, multi-party computing and post-quantum encryption

Zero-knowledge systems are powerful underlying technologies that are key to blockchain scalability, privacy-preserving applications and more. But there are many trade-offs between proof efficiency, proof simplicity and the need for trusted settings. It would be great to see more constructions of ZK proofs to fill the gap between these trade-offs. For me, it would be most interesting to see if a constant size proof (and constant time verification) requires a plausible setting, which would further demonstrate that a more transparent plausible setting is necessary.

We also need a better threshold ECDSA (Elliptic Curve Digital Signature Algorithm) signature construction. Reaching a threshold eliminates the process of trusting a single signer, which is why threshold signatures are important for multi-party distributed computing on private data and with multiple applications in Web3. The most interesting threshold ECDSA signatures will be those that minimize the total number of rounds, including pre-signed rounds where the message is unknown. Finally, according to NIST, exploring which of these can be aggregation or threshold friendly will boost the industry as the new post-quantum signatures near the end of their standardization.

Developers move into the zero-knowledge space

Zero-knowledge systems have been around for a long time. In recent years, they have moved from theory to practice, but in 2022 we seem to be at a turning point in developers’ entry into the ZK space. Specifically, we are seeing a proliferation of educational content and the maturation of high-level programming languages such as Noir and Leo, helping engineers to write ZK applications more easily. Given the importance of zero-knowledge to many use cases, I expect these developments, along with continued theoretical advances, will facilitate an influx of application developers in anticipation of the new use cases that developers will bring to the table.

VDF Hardware

Verifiable Delay Functions (VDF) are an exciting cryptographic tool with many application scenarios, from verifiable lotteries to leader elections to preventing robocall transactions. I am excited about the first generation of VDF hardware, which paves the way for practical deployment.

Full ‘game on a chain’ and autonomous worlds

What if you could create a game world that couldn’t be deleted or censored, didn’t need a server and could exist forever? We are in the initial stages of full ‘on-chain gaming’, also known as supersets — ‘autonomous worlds’ — which will be built on blockchain technology.

The emerging movement towards maximum decentralization of games provides new support to make it possible to produce these games online. Specifically, the ability to place the entire state and logic of a game on a publicly verifiable, censorship-resistant and decentralized blockchain, and advances in on-chain procedural generation, which not only overcomes limitations such as storage, but essentially compresses complex worlds into executable files. What new games and ways of playing will become possible? It is eagerly awaited.

Non-transferable tokens

I prefer the term “Non-Transferable Token” to “soul-bound” tokens (a term borrowed by Vitalik Buterin from the NFT game). I’m excited to see the variety of Web3 applications that will not only be built on top of tokens, but also have decentralized IDs and verifiable credentials. While the discussion of these tokens usually revolves around decentralized identity, there are many other applications to explore. For example, tickets, digitization, reputation, etc.

Decentralized energy

How can we apply the idea of decentralization to energy? For example, the grid is outdated, centralized and faces a number of other issues such as high upfront capital expenditure and inconsistent incentives. There is great potential for creating microgrids, storage and transmission networks by addressing issues such as high capital expenditure and different incentives addressed through tokens. The market for Renewable Energy Certificates (RECs) and on-chain carbon credits is also thriving. I am excited to see Builder continue to expand the possibilities of this decentralized energy category coordinated by blockchain.