How AI and encryption technology will change the future of the Internet?

David George, a16z Growth partner, engaged in a conversation with Chris Dixon, a16z crypto partner, discussing their vision for the new internet, including encryption cryptocurrency decentralized AI infrastructure; initiating network effects, and how AI will become the native media form of this era. This conversation also explored why the original business models of the internet are collapsing and how the new internet is introducing entirely new business models for creators.

How Technology Has Evolved

David George: You are now focusing most of your time on the encryption field. What is your view on the relationship between encryption technology and AI?

Chris Dixon: My macro view is that technological waves often appear in pairs or threes. Fifteen years ago, mobile internet, social networks, and cloud computing were the three major trends. Mobile internet increased the number of users with computing devices from hundreds of millions to billions; social networks were the "killer apps" that attracted users; and cloud computing was the infrastructure that supported all of this. These three are interdependent and indispensable. At that time, people debated which was better, but it turns out that they are all important.

I think AI, encryption technology, and new devices ( such as robots, self-driving cars, and VR ) are the three most interesting trends today. They also complement each other and develop together. Encryption technology is something new; it provides a completely new way to architect the internet for building networks. It has some unique characteristics that make things that were previously impossible become reality. When many people mention encryption, they think of Bitcoin or meme coins. But for me and many professionals who truly understand encryption, its essence goes far beyond that. It intersects with AI in many ways. One of the most fundamental ways to combine them is to build AI systems using encryption architecture. We have already invested a lot in this direction.

We have discussed a core issue within the company: Will the future of AI be controlled by a few large companies, or will it be jointly managed by a broader community? The primary question here is: Is AI open source? The AI field has become so closed that it really shocks me. Ten years ago, all AI research was public and published in papers. But later, this industry suddenly became closed off. They claim to do this for safety reasons, but I believe it is for their own competitive advantage. Fortunately, there are still some open-source projects now, such as Llama, Flux, and Mistral. However, I am a bit concerned that this open-source model is somewhat fragile because many projects do not publicly share their model weights. Does this really count as open source? Some models are open source, but their data pipelines are not. Can it really be freely reproduced? They might change the model tomorrow, and there’s nothing you can do about it. These AI models are improving every month, but if they no longer stay at the cutting edge, I really don't know what to do.

David George: At least for now, AI is heavily reliant on large companies.

How Cryptocurrency and AI Interact

Chris Dixon: Some of the projects we invest in focus on building a decentralized internet service architecture suitable for the AI ecosystem. For example, there is a project called Jensen that is constructing a decentralized computing resource network. Its model is similar to Airbnb, allowing users to submit computing tasks that are allocated to idle computing resources around the world, thus optimizing the supply and demand of computing power. This network acts like an economic ledger, managing the supply and demand of computing resources.

Another example is Story Protocol, which is a new way to register intellectual property. Suppose you are a creator; you can register images, videos, or music on the blockchain, which will record the media and its ownership rights. It uses existing copyright laws to clarify copyright ownership. This way, anyone can use this content under the premise of complying with the agreement, and you might say: "You can use this remix, you can create derivative works, but you must pay me 10% of the income."

David George: ......or any proportion.

Chris Dixon: In blockchain, you can set terms and create an open market. But in the current market, you can only contact companies yourself and try to negotiate. This leads to people either stealing content, not using it at all, or only large companies being able to reach copyright deals. Blockchain creates a broadly democratic resource where small creators can set their own terms.

A core advantage of encryption technology is composability(. Open source software has been successful largely because it allows developers to build innovative solutions on top of existing modules. Linux is a great example of this, growing from nearly 0% market share in the 1990s to over 90% of the server market today, due to its composability. People contribute) even the smallest( improvements to the system, making it better. This is similar to how Wikipedia functions as a knowledge integration system.

Speaking of Story Protocol, it also allows creative content to be freely combined like Lego building blocks. For example, someone creates a character, another person writes a story, and yet another uses AI to generate animations. You can create a new superhero universe, and as long as the funds flow back, everyone can share in the profits.

David George: The key to this model is that the flow of funds is transparent and fair.

Chris Dixon: This way, creators can utilize AI tools to enhance efficiency while also obtaining economic returns, rather than being used for free. This is a great vision------it motivates people to use these new tools while providing an economic model. In our investments, we often think about how to find new economic models for creative workers in an AI-driven world. This is the area at the intersection of AI+Crypto that excites me the most.

David George: In the past, social platforms have captured 100% of the advertising revenue, while creators could only rely on traffic monetization. What we hope to see is a new system where creators can freely set prices and trade, which would promote more innovation.

Chris Dixon: Based on this, we are seeing more of this 'crowdsourcing' approach to AI. From a data perspective, AI needs more data. The breakthrough point of encryption technology is that it can design new incentive systems. The key is how we can use these systems to collect more AI training data? Data can serve as input for AI, as well as for model evaluation or other purposes. This is similar to what Scale AI does, but the difference is that we want to achieve this in a decentralized manner, rather than having a centralized company control the entire process.

One of the projects we are investing in is WorldCoin, which was co-founded by Sam Altman. Its core idea is that in a world where AI can forge human identities and content, we need a way to prove that a person exists, and the best way to do this is through blockchain, using encryption technology for identity verification. WorldCoin has designed an incentive mechanism that allows users to register and obtain identity verification, such as the spherical scanner )orb( to scan irises, but this practice has sparked some controversy. Now they offer other methods, such as verification through passports. Once you complete identity verification, you can obtain an encryption certificate on the blockchain, which can be used for various services.

A simple application scenario is to verify )CAPTCHA(. Current CAPTCHAs have become so complex that even humans may struggle to pass them easily. Compared to these cumbersome anti-fraud systems, we can use encryption verification methods. Users can receive an encryption code to prove they are human and then add additional layers of verification on that basis. This is another interesting intersection.

There are many opportunities for decentralized AI at the infrastructure level, such as dismantling centralized AI systems to make them decentralized at both the code and service levels. There are also entirely new possibilities, such as machine-to-machine payments )Machine-to-Machine Payments(. And so on.

I believe the most exciting part is exploring new business models in the AI era, especially those aimed at creators.

Breaking the Economic Contract of the Internet

David George: You pointed out to me immediately after the ChatGPT moment, "Hey, we might be breaking the covenant of the internet," which I think is a very interesting question.

Chris Dixon: There is a chapter in the book about this, near the end. I call it the New Covenant. If you consider incentive systems, one of the main reasons for the success of the internet is that it has a very clever incentive system. How do you get 5 billion people to join a system without a central authority? It's because of the incentive mechanisms of the internet.

ChatGPT has shown people signs that the economic contracts of the internet may be broken. Over the past 20 years, the internet has formed a tacit economic contract: search engines and social platforms gain permission to access content, in return for which creators can gain traffic. For instance, travel websites, recipe websites, illustrations, etc., allow Google to crawl their content in exchange for search traffic. This model has supported the development of the internet. However, now AI can generate content directly, users don’t even need to click on links, and Google no longer has to allocate traffic to websites. As a result, the income sources for creators have been cut off, and the original economic model of the internet has collapsed.

In the past, Google would also divert some traffic, for example, when users searched for questions, Google would display summaries but still guide users to visit websites for more information. However, later on, Google began to "intercept" content, such as that from StackOverflow, by directly displaying answers in the search results instead of directing users to the original website. This has led to a decline in traffic for many websites and affected their monetization capabilities. Google is also doing similar things in industries like travel and dining, even prioritizing its own content over that of independent creators. Although these issues have existed for a long time, the AI era has exacerbated the problem.

But if AI can directly generate illustrations, recipes, travel suggestions, users will no longer need to visit those content websites at all. This may provide a better experience for users, but it is a devastating blow to content creators. In the future, we may only have a few AI giants left, while the original independent websites and creators will lose their space to survive.

This is the question we need to think about: In the era of AI, can the internet still support innovation and entrepreneurship? If we do not solve this problem, the internet may become like the television industry of the 1970s, with only a few giants controlling all the content. This is not the internet future we want.

So how should the new website rise? How should new things be created? We have not really thought this question through.

I do not believe I have the only answer, and the solution to this problem does not necessarily have to rely on encryption technology. But we need to recognize that this is undermining the original incentive mechanisms of the internet. Secondly, we need to think: is this a good thing? I do not think so. We need to find the right solution------should we create new incentive mechanisms?

This is also why I have been focused on investing and thinking about new incentive systems, such as projects like Story Protocol. We need to explore new ways to overlay new economic structures on top of the existing systems to ensure that the internet can continue to innovate and develop.

From mobile internet, social networks, and cloud computing, to encryption, AI, and hardware

David George: One thing you mentioned is the simultaneous emergence of three technological products ------ generative AI, encryption, and new hardware platforms. How do you view the combination of these three?

Chris Dixon: The analogy is of course mobile, social, and cloud computing. In the last wave, they promoted each other and jointly drove the development of the internet. We have already seen some of these combinations today.

We are now in another wave of technological innovation, with the core technologies being AI, encryption technology, and new hardware such as robots, self-driving cars, and VR. These technologies are not independent of each other, but rather complement one another to form a new ecosystem. New hardware devices, such as AR and VR glasses, rely on AI to provide a better interactive experience, like the intelligent assistant in the movie "Her." Self-driving cars, Tesla's robotics technology, and various humanoid robot projects are also deploying AI technology in physical environments applied to the real world. Encryption technology provides a new way for decentralized networks to support these AI applications. Therefore, one area I am interested in is DPIN------Decentralized Physical Infrastructure. The most prominent example is