Every new technology platform has been built around a specific new capability. The Internet connected people and data at scale (“connecting everyone, everything”). Marketplaces, social platforms, and search all leveraged this capability. The next platform, mobile, was about “always on, everywhere.” Mobile helped spark new products that leveraged these capabilities, with messaging and ride sharing being the two biggest categories.

Blockchain/crypto is emerging as the next technology platform. And the key question for entrepreneurs and investors is to figure out the new and native capability for this platform. The answer isn’t obvious, as human imagination is often limited by what we’ve already seen. For example, the initial forms of digital ads in the late 90’s were simply digital versions of traditional print ads.

What’s Blockchain’s core value proposition?  It enables trust without the need of a third-party intermediary and hence lowers the transaction costs for value exchanges between two parties:

• Blockchain enables transactions that weren’t economically feasible before (e.g. selling a $20 stake in your project to some person somewhere in the world)
• Blockchain makes existing transactions more efficient (e.g. by cutting out the middle man and his rake)

Looking at Blockchain through the prism of these capabilities makes it easier to identify which projects are crypto-native and which feel less so. For example…

Strong native use cases

Filecoin: “I can track the work participating computers have done and automatically pay out rewards.”

CryptoKitties (a V1 portfolio company): “My cat can’t be copied – it’s a digital collectible. The game creators can’t change the rules on me.”

Augur: “I can make bets that are automatically settled based on the outcome of a prediction event.”

Less strong use cases

Private blockchains: Participants usually know each other so the transaction costs are already low.

Decentralized versions of existing marketplaces: Operators of highly successful marketplaces usually create tons more value for their customers relative to the rake they take (e.g. Uber, AirBnB).

Tokenization of offline assets: People still need a “link” to the real world, so there’s not much reduction in transaction costs – it provides only more efficient tracking of ownership.

Given all the excitement surrounding crypto today, it’s important to have the right lens when analyzing opportunities in order to filter out the noise and find those initiatives that have the highest likelihood to succeed.