2023: 16 Crypto Trends Exciting the a16z Team

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a16z has just released a comprehensive watchlist, outlining the "big ideas" that technology builders may need to tackle in the coming year.

Original Title: "A few of the things we're excited about in crypto"

Original Source: a16z

Original Translation: The Way of DeFi

The top-tier investment firm a16z has just released a comprehensive watchlist, outlining the "big ideas" that tech builders might need to tackle in the upcoming year, covering multiple areas such as consumer tech, gaming, AI, crypto, and more. Below are some things that have excited a16z's engineering, research, and investment team partners about the future of crypto and gaming.

The Blockchain Mobile Moment

"How far or how close are we to crypto's 'mobile moment'? There is a large cohort of blockchain users and others primarily accessing the Internet via smartphones, but relying on centralized infrastructure—it's convenient but risky. Traditionally, users solve this issue by running their own nodes—a time and resource-consuming task requiring at least a machine that stays online, hundreds of gigabytes of storage, and about a day to sync from scratch... not to mention the need for specialized skills. Now, more people are starting to care about decentralized access to the blockchain for all users—even those who can't run nodes themselves. With the introduction of 'light' clients—such as Helios (released by a16z crypto), Kevlar, and Nimbus—users can now directly validate blockchain data from their devices. I hope to see similar trust and decentralization improvements in other parts of the stack, like event indexing and user data storage. All in all, these efforts help achieve true decentralization of the mobile frontend." —Noah Citron, a16z crypto Engineering Partner

Zero Knowledge, Multi-Party Computation, and Post-Quantum Crypto

"Zero-knowledge systems are powerful foundational technologies critical for achieving blockchain scalability, privacy-preserving applications, and more. However, there are many trade-offs between proof efficiency, proof succinctness, and the need for trusted setups. It would be great to see more zk-proofs structures filling the gaps in this multidimensional trade-off space. What intrigues me the most is exploring whether there's a need for trusted setups for constant-size proofs (and constant-time verification), which will further necessitate more transparent trusted setup ceremonies. We also need better threshold ECDSA (Elliptic Curve Digital Signature Algorithm) signature structures. Achieving thresholds eliminates the need to trust a single signer, which is why threshold signatures are crucial for private data's multi-party distributed computation and have multiple applications in web3. The most interesting threshold ECDSA signatures are those that minimize the total number of rounds—a concern that includes presigning rounds with unknown messages. Lastly: as the new post-quantum signatures near standardization according to NIST, exploring which of these can be aggregation- or threshold-friendly would be great." —Valeria Nikolaenko, a16z crypto Research Partner

Zero Knowledge Developer Onboarding

「Zero knowledge systems have been around for a long time, and in recent years, they have transitioned from theory to practice. In 2022, it feels like we've hit an inflection point in ZK developer onboarding. Specifically, we've seen a surge in educational materials and the maturity of high-level programming languages (like Noir and Leo), making it easier for engineers to start building ZK applications than ever before. Given how crucial zero knowledge is for so many use cases, I expect these developments and ongoing theoretical advancements to lead to a rush of application developers. Handing things off to developers often results in unexpected new use cases, and I'm excited to see what comes next.」 —Michael Zhu, a16z crypto Engineering Partner

VDF Hardware

「Verifiable Delay Functions (VDFs) are an exciting cryptographic tool with numerous applications, from verifiable lotteries to leader election to preventing front-running. But the biggest challenge has always been hardware implementation, requiring hardware to be certain that an attacker cannot compute the VDF faster. I'm excited about the emergence of first-generation VDF hardware, which paves the way for real-world deployment.」—Joseph Bonneau, a16z crypto Research Partner

Full-Stack On-Chain Games and Autonomous Worlds

「What if you could create a game world that is uncensorable, un-deletable, doesn't rely on servers, and can exist far beyond the lifecycle of any one of us (or even any organization)? For the first time in history, we can. We are at the dawn of native crypto, fully on-chain games, or—as others prefer to call it, the 'superset'—'autonomous worlds' built on blockchain technology. Whatever you call it, this nascent movement towards maximally decentralized games has opened up new avenues to build these games online. In particular, the ability to put the entire state and logic of a game on a publicly verifiable, censorship-resistant, and decentralized blockchain... and the advancements in on-chain program generation, which not only circumvent storage constraints but are essentially 'the art of compressing a complex world into an executable.' What previously impossible new games and gameplay will become conceivable? Are such games still... games?」 —Carra Wu, a16z crypto Investment Partner

NTT (Non-Transferable Token)

“I prefer the term ‘Non-Transferable Token’ over ‘Soulbound’ token, the latter being a term borrowed by Vitalik Buterin from gaming that applies to tokens where transferring an NFT would not make sense. I'm excited to see a variety of web3 applications not only built on top of this primitive but also using decentralized identifiers and verifiable credentials. While discussions of these primitives often revolve around decentralized identity, there are also many other applications to explore: for example, tickets, digital <> physical, reputation... and more.” —Michael Blau, a16z crypto investment partner

Decentralized Energy

“How do we apply the spirit of decentralization to energy? For example, the grid is aged, centralized, and faces issues like high upfront capital costs and misaligned incentives. There's a significant opportunity in building microgrids and storage and transmission networks by addressing high capital costs and various incentive issues solved through tokens. Renewable Energy Certificates (REC) and on-chain carbon credit markets are also booming. I'm excited to see builders continue to expand the possibilities of such decentralized energy categories coordinated by blockchain.” —Guy Wuollet, a16z crypto investment partner

Web3 Gaming Perseverance and Growth

“We are at the cusp of ushering in a new generation of web3 native games that will be highly engaging, have broad appeal, and uniquely enabled by blockchain technology. Developers typically need a few iterations to learn to build on a new platform. Take mobile games, for instance: ‘Pokémon Go’ was one of the first truly mobile-native games, leveraging smartphone-specific features like GPS and integrated cameras. However, its precursor ‘Ingress’ wasn't released until five years after the iPhone launched in 2007. We can't rush the product cycle, and I believe we will see the emergence of the first web3 native game in the coming years, perhaps sooner than we imagine. In the near term, we also have an opportunity to extend existing game types through an open economy. Historically, the next big games often emerged from player ‘mods,’ such as DOTA (League of Legends) or DayZ (PUBG). Game mods are enhanced through web3 composability, where creators can automatically gain ownership and financial rewards through code, freely leveraging each other's assets.” —Jonathan Lai, a16z gaming team general partner

Generative AI for Various Types of Game Assets

“The biggest revolution hitting the gaming industry in 2023 will be the creation of generative AI models that can produce all types of assets required for modern game development.

Games are currently the most complex form of entertainment, involving dozens of different types of creative assets that are combined in a sophisticated production pipeline. Game asset types include 2D art, 3D models, textures, sound effects, music, characters, animations, level designs, among others. Each asset type has its highly specialized production process, with dedicated tools and artists.

Today, generative AI is most prominent in creating 2D images. But a quiet revolution is underway: scientists are exploring AI models applicable to all asset types, including 3D models, music, sound effects, and more. Most of the work is still in the research phase, but we see startups quickly forming around each model type, with the aim of productizing the work. By the end of 2023, it may be possible to use text prompts to generate nearly any asset needed to make a game. ‘The sound of a heavy woman in high heels walking on gravel,’ ‘A 3D model of a futuristic main battle tank with a laser gun’... This will unleash a level of creativity we have never seen before.”—James Gwertzman, General Partner, a16z Gaming Team

Mobile-Centric Game Creation Platforms

“What will the next big UGC game creation platform look like? What will the next ‘Roblox’ be? I believe we will see more mobile-first games emerge. Let’s say I love a racing game, but I want to change the cars to Santa Claus and his sleigh, add snowdrifts and Christmas trees on the road, and then reconfigure the map. I click ‘remix,’ and I get level and terrain editing tools. I use generative AI to create my Santa Claus, then transition the game from voxel style to claymation style. Click publish and share with my friends. 72% of ‘Roblox’ sessions happen on mobile devices, but creation tools are locked to a PC desktop client, cutting off the flywheel between players and creators. ‘Roblox Studio,’ the PC editing app, remains too technical for most users, which also explains why less than 5% of players become creators. With AI-assisted and cloud-based tools, a new UGC mobile-first platform will emerge, offering a discovery mode user experience more akin to TikTok than Roblox or Netflix, where users feel delighted as soon as they open the app. Mobile game creation mode: unlocked.”—Troy Kirwin, Partner, a16z Gaming Team

Game as Theater

“Red vs. Blue was one of the earliest gaming sensations on YouTube. This 2004 web series birthed the ‘machinima’ style, using manipulated in-game character models and altered camera angles to tell stories within video games.

For dramatic effect, ‘invasion’ of in-game assets—tools and modes invested by creators into Minecraft, Fortnite, Roblox, and Grand Theft Auto—quickly turned games into canvases and brushes for young creatives. Over a decade later, Minecraft remains one of the era’s most enduring games and the first identifiable IP to reach billions of views on YouTube. This is largely due to the IP’s boundless creativity, coupled with updates to the world, physics, and assets.

As the industry shifts towards F2P and Live Ops, developers are no longer as focused on custom rooms, spectator tools, and the concept of game as theater. With the evolution of the metaverse concept, I hope that developers in 2023 will return to this notion, prioritizing creative tools, features, and infrastructure and integrating them as core parts of the game loop.” —Lester Chen, a16z Gaming Team Game Creator Partner

Game as Alternative Social Network

“In 2023, I anticipate games will replace social networks in a new and meaningful way.

Games have always been powerful social networks. Both Facebook and World of Warcraft were launched in 2004, with Facebook reaching around 6 million users by the end of 2005 and World of Warcraft boasting about 5 million users. In each case, long-term retention was driven by reciprocal and competitive behaviors. The most enduring games are social network games, as they turn players into more sustainable content sources rather than creating more levels, monsters, and quest lines. Today, games and social networks have become increasingly indistinguishable. Fortnite is a large-scale synchronous battle royale game with independent winners, but it has become part of the zeitgeist, not through balanced gunplay or map design, but through shareable/streamable avatars/emotes and team-based collaboration for self-expression. This year, Ready Player Me signed thousands of partnerships with game developers, offering millions of players hyper-customized avatars. In 2022, we also witnessed the rise of Diablo: Immortal, the first large-scale multiplayer online game (MMO) aimed at millions of mobile-first players. By 2023, I expect players to spend more time hanging out and connecting with friends in games and virtual worlds.” —Joshua Lu, a16z Gaming Team Partner

Games Are an Endless Turing Test

“It is not hard for a computer to deceive a human. From ELIZA to ChatGPT, computers have successfully masqueraded as humans. This phenomenon has also shown up in games through the widespread use of ‘bots.’ Bots have historically been scripted entities but are gradually becoming true neural network-based AI. As AI progresses, games will become larger, more complex, more real, and these bots will increasingly fool humans. Think of the rumored bots in ‘Words with Friends,’ the bots in ‘Call of Duty Mobile,’ or the cheaters/bots prevalent in chess. The next generation of bots will take ‘human-like’ to an entirely new level, such as startups like inworlddai, ConvAI, or Charisma. AI is creating game agents that can understand game states and have goals, emotions, conversations, animations, and more. Imagine walking through the wilderness not knowing if your tribal shaman is a bot, building a town with strangers unsure of the humanity of the local farmers, playing a diplomacy game not knowing if Turkey is an AI with the sole goal of dominating Europe.

In the next year, you may no longer know who’s who, but you won’t mind. Playing games alone is good, but playing together is better. Or so you might think.” —Jack Soslow, a16z Gaming Team Partner

AI-First Games

“Game development has been one of the first industries to be significantly disrupted by generative AI. New tools have allowed artists and writers to offload the initial (mechanical) spark of creation onto generative models and refocus efforts on editing and optimization. But the AI innovation that will impact players is even more exciting than the AI innovation benefiting developers. AI is continually redefining the possibilities of game design and gameplay. I will always remember the initial frenzy of ‘Unreal Tournament,’ the unique thrill of exploring the boundless realms of ‘Minecraft’—the awe they inspired and the inspiration they provided for the next generation of games. What does the next generation of games, designed natively for AI, look like? We will see emergent, procedurally generated worlds, each with its deep history, inhabitants, and mysteries. There will be interactive novels, stories that evolve through player choices and are told through generated visuals, videos, and audio. The possibilities are endless, and what is only possible today will soon be commonplace.” —Justin Paine, a16z Gaming Team Business Development Partner

Web3 Gaming Redefining Fun

「Given the long development cycles of games — ranging from two to seven years — I anticipate the current bear market will lead to a schism between developers and players. Powerful web3 studios have already realized that over time, relying solely on financial returns, great art, and tokenomics is not enough to drive a sustainable game; these games also need to be fun.

Over the next year, developers will figure out what makes their games inherently fun — and why web3 is a necessary component. Speculation and trading are a form of entertainment (see *Runescape* or *World of Warcraft* or even *Wall Street Bets*), but the range of fun in games is vast. Does your game focus on intense real-time team combat and strategic choices, like *League of Legends*? Or an expansive progression system like *Diablo*? Simple, repetitive but delightful puzzle games like *Candy Crush,* or cozy decorating experiences like *Animal Crossing*? Web3 game studios may return to first principles about who the game serves, how they serve those players, and what role crypto plays in their game. Then they'll test, test, and test again to see if they've found the fun.」 —Robin Guo, a16z Gaming Team Partner

Metaverse Setting Fashion Trends

「Players know that in games like *League of Legends* and *Fortnite*, character skins are a significant form of self-expression, as they are part of a player's identity. That's why character skins are big business, even though they provide no gameplay advantage. *Digital Native Generations*, *Gen Z*, and *Alpha Gen* demand that brands be able to self-express in the metaverse. Within this cohort, two-fifths already believe that self-expression through fashion in the digital world is more important than in real life, and three-quarters say they would spend money on digital fashion. Forward-leaning brands like Gucci will reap the rewards of consumers' hearts and wallets (both physical and digital). As physical brands digitize, and more digital-first brands go physical, competition will intensify, and adoption will broaden. Brands that do not commit fully will be left behind.

Consumers will demand cross-experience interoperability in the metaverse, so over time, brands will favor platforms that allow them to wear Nike shoes across different games and virtual worlds. Gen Z and Alpha Gen seamlessly move between the physical and digital worlds, and fashion brands that embrace this will prosper.」 —Doug McCracken, a16z Gaming Team Marketing Partner