Ben Horowitz and Balaji Srinivasan on Netscape and Network States

0:00Countries are now seeing kind of tech policy as a way to really compete. but it tends to be the countries that want to grow. A huge strength of the U.S. has been rule of law and the amount of case law and, like, the predictability of the law. But that kind of presumed that you didn't have people who were above the law who were judges and, you know, prosecutors and these kinds of things. People who want the network state in their territory are probably the exact countries that are interested in kind of pushing forward into the future. What the state cares about is power. And as tech kind of rose in power to the level of the state, then they got very, very interested.

0:49Can you build a new kind of country from the internet up? Not a metaphor, not a community, but something that actually replaces institutions we usually think of as fixed. Money, law, governance. A few decades ago, China experimented with this idea physically, carving out special economic zones to test new rules without rewriting the entire system. Shenzhen was once a fishing village. Today, it's a global tech hub. Now the experiment has moved online. Crypto, digital identity, internet native communities, and what some call network states are trying to turn code into coordination and coordination into legitimacy.

1:24But there's a real tension here. Code is deterministic. Societies aren't. So the question isn't whether these systems are clever, it's whether they can actually scale and what they replace if they do. In this episode, A16Z co-founder Ben Horowitz joins Balaji Sreenivasan on the Network State podcast to examine how internet-first institutions form, where they break, and whether network states are a curiosity or the next phase of governance. Ben, thank you for speaking at the Network State Conference. Good to see you, Balaji. Ready to go. Awesome. So, you know, Ben, you've been, you know, a mentor, and I think, I'd say a friend, hopefully, for many years now.

2:05And, you know, one thing is, and the hard thing about hard things, in that book you wrote about your time at Netscape. And Netscape in many ways was like the first internet company. And because it had downloads and so on and so forth, and it went viral and you guys went public and you had an acquisition, all the monodrama, right? And then we worked together on the rise of Bitcoin, which was first internet currency. And obviously we've been very heavily involved in that with A2C and Z crypto and everything, and Coinbase and all that stuff. And now we're building internet communities. So I'd love to hear your thoughts on that as, you know, I think of them as the third kind of thing, startup societies, internet communities, network states.

2:41I'd love to hear your thoughts. Do you think they're the next big thing or could be? Yeah, so I think they're very kind of parallel in the development in that, you know, kind of before Netscape, which was the first thing that kind of brought all of the internet pieces together. You know, there were many pieces. You know, there's FTP and TCPIP and Gopher and this and that. But you needed something to unify all the technology. So it was a little deceptive in that a lot of people deep in the tech kind of saw it as, well, what's new here? You know, like, it's just like you're just putting an interface on it.

3:20And I think that what the network state is in network school is very much like that. in that we have all the primitive building blocks of community. We've got, you know, Discord and WhatsApp groups. And, you know, we've got, we have Bitcoin now and we have many kind of different currencies, stable coins and so forth. But, you know, nobody's brought them all to, we have VR, but nobody's put the whole package together. And that's really when it gets unleashed. I mean, in my experience, that's kind of where you hit the knee in the curve when is that the integration? And it doesn't seem, in a way, it doesn't seem like a lot because all the pieces were already there.

4:02But the pieces as pieces just aren't, you know, it's not actually the thing. It's not the product. It's funny because you're right. The system integration, and the thing is that actually has to happen after all the other pieces are mature. Because if any one piece of those is wiggly, then the whole thing doesn't work. You have to wait for that to be there. So only when all those pieces are mature can you snap them together. Right, exactly, exactly. Exactly. And that's kind of the deceptive thing, because until that point, you know, people might have tried it and failed or, you know, it's kind of like this.

4:34Oh, no, that doesn't work. Right. You know, that kind of thing. Yeah, same with Bitcoin, right? Like it put together like a lot of techniques, you know, peer to peer, cryptography, et cetera, that had been around. But they weren't put together in a way where you could actually have money. Right, because ECVSA existed, hash functions existed, hashcast existed. And in a sense, I think somebody, exactly as you said, remarked, it was a clever integration of existing things, but they all existed before. And they didn't innovate on cryptography, they integrated on the system, right? And, you know, it's funny you say that because I myself actually had not thought of that before in quite that way as the analogy to the web browser.

5:22But once you do snap all this piece together, then that itself becomes a platform for other things. Yes, exactly. And then you have web apps and you had everything else because then you could, right? And so what we're starting to see is these startup societies, I call them like the parallel physical, are each usually inspired by the parallel digital. For example, there's a startup society that is like a cul-de-sac, which is based on all the microbiability stuff and it wants to be a walkable community, right? And then there's, you know, Prospera, which has MiniCircle, and it's inspired by the biotech innovations.

6:00And then there's another one that's booting up, which is inspired by all the educational innovations. Yeah. And so the digital is inspiring the physical. Yes, yeah, no, exactly. And I think that's going to, I think the number of ideas around that is really going to multiply because, you know, one of the things that, if you look at the primitive version, it's all a kind of, you know, a community around an idea. But what about a community around the intersection of many ideas? You know, just for my own sake, it would be great if there was a tech hip-hop community. But, you know, you could imagine many, many dimensions.

6:41You know, just sort of, you think of every policy that you might be interested, anything you might be interested in or any policy you might vote on, if you took the intersection and found all the like-minded people in the world and put them in a community, that would be a kind of very powerful thing. Yes. And, you know, one thing is some of the other folks we're having speak the conference, for example, the CEO of AngelList read the New York State book, and they've just opened this AngelList Founders Cafe in San Francisco, and he said he was kicking himself for not doing it three years ago. Yeah.

7:14Because on the one hand, it seems an obvious thing, but it's also like a non-obvious thing because people drop in, they give customer feedback, so you can materialize the cloud into land. So many digital things that we have that we think is purely digital have some physical manifestation that might actually be non-obvious. Yeah, for sure. And then when you add the physical, it does add a whole other dimension of possibility for sure. Yes. That's very interesting. So, you know, one way that we've, we started to establish a few templates in the space. For example, the pop-up, which is somewhere in between, let's say a conference, which is like a one-day thing.

7:56And what we're doing in network school is a permanent, where it's like a permanent setup. Yeah, exactly. That's right. So a pop-up, like a one-month thing-ish, right? And so it's longer than a conference because people, you know, they have to bring, you know, change of clothes, laundry to, you know, it's more than that. So do you have any kinds of things that you've been thinking? So you mentioned a tech hip hop thing. And obviously, we're used to thinking about, okay, we could solve this with a new tech company. We could solve this with a new currency. Have you thought about communities that you'd like to see?

8:30Well, there are so many, you know, like there's the kind of, I'm part of like many primitive communities in, you know, the form of WhatsApp groups and so forth. And it would be really nice to see those be much more highly dimensional, maybe have a physical incarnation. It's everything from the LLM community to various different kinds of things. But they're all so primitive because there's no money in them. There's no crypto in these communities. There's no physical dimension. There's no virtual reality dimension. then there's, you know, all you can really do is chat, which is, you know, one of the things you'll do in a community.

9:13But there's many, many, many more ideas that you could have. Yeah, you know, it's funny you say that because the WhatsApp and Signal groups, what I like about them is you have a lot of busy CEOs and investors and so on, and we can remain in kind of lightweight contact with a lot of people. and then you have the physical like you know maybe there's a coffee and you put an invite there a luma invite and 20 of the people or 10 of the people from the group show up there and you can just pick up right where you left off with this long-running group chat conversation so there's definitely this amazing thing there yeah but you know what what uh what's interesting is when you when you when you say what you just said uh you kind of want to be able to boom boom, hold a meetup within the chat or like hit a button and create a meetup or boom, hold a meetup and do maybe like a quick VR talk or something like that.

10:09I don't know, maybe the chat interface will get there or maybe we'll need something completely new. Yeah, yeah. Because right now, again, you know, you can do that, but it's a little bit of a heavy cognitive and like social lift, right? Like it's a little more risky to say, hey, let's all get together. that you don't want people to go, nah. Yeah, yeah, right. Well, you know, there's something, you know, one thing that's interesting about that is, you know, with WhatsApp, you know, a very modern question is, where are you? Because, you know, probably if you analyze text in the 1800s, for example, it's very rare for someone to ask, where are you, where are you?

10:55I'm on the other side of the table from you. You know, because there's not that many times, you know, maybe you send a telegram, but the telegram, you know, or, you know, you send a postal message, but it's rare that you wouldn't know the other person's physical location. Yeah, you would certainly know where they are if you're sending a postal message. Yes, that's right. So, but one thing that's interesting, you know, WhatsApp itself is location aware, but an interesting thing that happens is people cycle around the globe and they're kind of, you know, they're in the Spain airport or they're here and they're just kind of sending messages.

11:29And we sort of take for granted the level of mobility there, even though they're in one place in the chat world, they're moving around the physical world. So maybe there's something that would suggest, you know, to reduce the social overhead, as you mentioned, that, oh, these people are nearby, you guys should meet up. But you need to allow it to do that location tracking. That's like one concept, for example. Yeah, that would be super convenient because then you'd also not have to worry, oh, hey, let's meet up. Oh, I'm in France, right? Right. That's going to be hard. Okay, well, that was a waste of a message for me.

12:01Yes, the thing is that the people would have to also want to be location tracked. It has to be done in exactly the right way that they feel good about it. Yeah. So, okay, so internet communities, I mean, there's another angle on this, which is, for example, things like self-driving, things like many of the biotech things that we're interested in. we can potentially have those within special economic zones. And, you know, do you see my post from a few months ago on the special Elon zone? Oh, I didn't see that. I got to look at that. That sounds like a good post, yeah. Yeah. Where just all Elon's tech gets to work for free.

12:41Exactly. Yeah. Exactly. That's right. So my thought was, what is the sort of westernized version of the Asian cause of the special economic zone the special Elon zone, or more generally, the special founder zone, would be find some swath of territory. Maybe it's in the U.S. Maybe it's Elon Salvador. Okay, so Elon gets, you know, because Tesla's a global business and so on. So some country gives or some state carves out a piece of territory and says, okay, Elon, you can move the speed of physics rather than permits. You can crank out all the humanoids you want. You can mine stuff out of the ground.

13:21and what they would do is they'd import existing regulations on, I don't know, graffiti and stuff. You don't have to rewrite every single law. You just allow, however, quick changes to existing laws. And the crucial thing being that it's like essentially an uninhabited territory, as close to Burning Man as possible. Yeah. What are your thoughts on something like that? Yeah, no, I think that's a, by the way, I think it's very doable. There's so many states in the U.S. that would want to do that. I know Nevada would want to do that. And, I mean, they have Burning Man. They would certainly rather have something that was productive.

13:56So I think that's super viable. You know, there are certain sites, of course, you could never do it. But for sure. And I think it could be – it could not only be really productive, but it would also kind of create a very special community. almost of kind of both like-minded people and then people who knew how to build techs. That's right. And actually, the thing about this is, if it worked for Elon, then it could work for Palmer Luckey to have the drone zone. And, right, and you could have, you know, different kind of, you know, like a more mundane thing, manufacturing. Exactly. So on that point.

14:41Rare in my view of mining. Exactly. That's right. Right. So like if you know about how Deng Xiaoping reformed China, when he took over, the country was like all brainwashed total communists. And he couldn't like reform it all at once. So he just set up a few special economic zones, especially Shenzhen near Hong Kong. And actually, he didn't allow everybody in. They actually there was like a membership process or an admissions process where only the most capitalist sympathetic people were allowed in and they weren't going to make trouble. They weren't still diehard Maoists. right? And of course, that became this gigantic, you know, Chinese city there.

15:16And this way, they could gradually reform communism rather than try to change it for the whole country at once. They could experiment with new laws and so on and so forth. So for manufacturing, all of the OSHA, you know, EPA type stuff, right, you could suspend that in this one zone and everybody who came in signed a new social smart contract that would basically say, guess what? I'm coming into this totally desolate peace territory, and I'm coming because of the new rules. Yeah, yeah, yeah. No, I think that's a great idea. That would be very good for the... It would be amazing for the U.S. if we could do it here.

15:55Yes. So here or not there where you are. Well, we could do it there, too. We could do it in Singapore. Yes. So I want to... Of course, it'd be amazing if we could do it in the U.S. And in a sense, if you could do it in the rest of the world, then that gives you a template to bring into the U.S. potentially, right? So we can parallel path potentially. So, okay, on that topic, actually, relatedly, there are a bunch of countries that are pursuing interesting kinds of pro-tech legislation like digital nomad laws, crypto laws, Dow laws. I'd love to know your thoughts on the progressive. For example, in Wyoming, they did the first Dow law.

16:39Tennessee followed up with the Dow law. I'd love to know your thoughts on the jurisdictions, politicians, et cetera, that are kind of pursuing the most technologically progressive interactions with not just tech companies, tech currencies, protocols, startup communities. You must have some thoughts on this. Yeah. So, I mean, you know, in the U.S., it does tend to be like the states that want to do that do tend to be the red states or the purple states at least. So, you know, Wyoming, Nevada, Florida, Texas to some degree. A lot of the southern states are very kind of open to manufacturing and these kinds of things.

17:19You know, around the world, it's been interesting. So, like WorldCoin, I think their most kind of active country per capita is Argentina. And I think half the citizens of Buenos Aires are active users on WorldCoin. And then they also made a lot of progress, surprisingly, with Malaysia, which is pretty good. You know, of course, in the UAE, Dubai has been very, very aggressive. And so they've been good. So I think countries are now seeing kind of tech policy as a way to really compete. But it tends to be the, you know, it tends to be countries that want to grow as opposed to, you know, what's going on in Europe or, you know, some other places or in, you know, California even, where they kind of are like, well, we're rich enough.

18:22And now we need to divide up the pie and protect our children, the people. That's right. They're basically, unfortunately, taking prosperity for granted. Yeah. And then you mentioned this thing about places that want to grow. One of the things I've been most pleasantly surprised by over the last five years or so is small states putting themselves on the map, like El Salvador. Yeah. But also like small states like Palau, Marshall Islands, you know, they've taken very pro-crypto kinds of, you know, approaches. And my general pattern on this is actually that, you know, there's 190 to 193 UN members.

19:05And it's a little bit like a reverse merger or digital asset treasury company where you've got kind of a listed company and it's got a symbol. And you've got a coin and then this guy has a symbol and a sense of political legitimacy but not capital. And it says capital but not legitimacy. And then they merge together. that's a digitalized treasury company or reverse merger. And that can now be done at the level of the state, whether a sovereign state or like a U.S. state. Yeah, no, that is a, it's a very, very smart move, I think, by those states. I mean, I think it's really interesting that you can differentiate just by thinking about how to grow and how to maintain prosperity, that there are whole societies that have given up on that idea.

19:54Yeah, we, Mark and I just had dinner with one of the kind of potential economists for prime minister of the UK. And she was going through like, you know, like, what's your differentiation? She's like, growth, like, we can grow the economy. And I was like, wow, that's a very interesting differentiator. It's interesting also because, you know, historically people have said natural resources is a differentiator. But I actually think it is, you know, human resources, so to speak, or capital, like basically. Right. Letting the human resources do their thing. Yes. And we should come up with a term for that.

20:36But I'd like to at some point organize a conference of small countries and pro-growth jurisdictions. And that's kind of like one side of a two-sided market. And we have all the tech founders and venture capitalists as the other side of the two-sided market and put them together. I mean, Network State Conference is like the V1 of that, right? And we've got a bunch of, you know, folks here who are doing that. Yeah, yeah, yeah, no, for sure. I think that goes together. You know, people who want the network state in their territory are probably the exact countries that are interested in kind of pushing forward into the future.

21:11Yeah, because we can bring talent and capital there, just like crypto, just like, you know, just like tech itself. So now, are there, what has, you know, what has surprised you about the last 5, 10, 15 years in terms of tech and policy? Or maybe there's so many things. But what have you found to be interesting or something that we should look at, pursue, pay attention to? Well, so I think the big wake-up call for me was first kind of how interested, you know, nation states got in technology policy, which is very like all of a sudden. Because we ran my whole career, nobody cared. I mean, you know, like, what were the issues?

22:08Stock option accounting, H-1B visas, like, real, like, relative fringe stuff compared to, you know, the, like, we're going to ban crypto or we are going to call Google and Meta and tell them what they can publish. You know, that was a real change. And I think that, you know, my big conclusion is what the state cares about is power. And as tech kind of rose in power to the level of the state, then they got very, very interested. So, like, you know, it's always under the guise of safety, but it's really power. Right. And, you know, it's been quite interesting. I mean, like, it took us a long time to unravel, like, why the Biden administration was so keen on banning crypto and, like, taking the U.S.

23:13out of a whole technological space. Probably, you know, one of the two most important kind of technology platforms for the next 25 years. They're also anti-AI. Yeah, yeah. Why would we do it? They're doing it, too. Yeah, anti-AI. Well, both of them, right? Yeah. Why would you withdraw from that? And it really has to do with, well, you know, control. If we can't control the money, then we can't control the speech. And if we can't control the speech, then we can't control the people. And, you know, both AI and crypto are like, well, we better shut them. We better have control of those things. Like, they better not be in control of somebody else.

23:52And that's, you know, it's just a really interesting learning that that's, I guess I had to grow up and learn how the world works, but that is how it works. It is interesting because, you know, for, you know, you're a little bit older than I am actually, I mean, 15 years old. And, you know, during the period where for many years, we had to convince people that tech was important. Yeah. And then suddenly they're like, it's too important. And that happened right in the mid-2010s or thereabouts after about 30, 40 years of building the intranet. Yeah. Yeah. Yeah, no, crazy. It is. It's just so weird.

24:36You know, it's the same with all the, I mean, the first thing, the first sign I got of it was, you know, the big push for, like, women in tech. and like, which was always surprising to me because it was like, well, you guys are discriminating against women. There's enough women in tech. But like, nobody wanted to go into tech. Like going into tech was like a weird ass thing when I went into it. Like I got like ridiculed and my friends, like, what are you doing that for? Like, you know, like really computers, this and that. You know, it's so hard and like, you know, there's not that much money in it and this and that and the other.

25:17And like, all you do is work. And so, like, going in in that world, and then all of a sudden, you know, Google and MetaHit and people are getting so rich. And then people, all of a sudden, it's like, well, you guys are discriminating. You're not letting people in. And it's like, oh, okay, you want in? Okay. No one cares about the demographics of plumbing, for example, right? Like, they haven't, yes. Yes. So now, but the other part about that is tech is actually, in a real sense, very globally meritocratic because we've got people from just about every country that are participating in tech in some sense.

25:54Well, that's how we always thought of it, right? Like, it's like, oh, there's all these Jews, Chinese, Indians, like all these people are coming from all over the world. They're doing tech, you know, like it's not the, you know, kind of canonical white man or whatever who's doing it. But it was all self-selected, you know. It wasn't like there was no – nobody ever cared. Like there was never a conversation in any of the companies that I worked at like that would get you to think anybody cared what race or gender you were. Like it just was never a thing. But nobody applied. So, you know, this is one of those things.

26:34And look, if you were kind of not Jews, Chinese or Indians, you would definitely feel low on the outside because that's what most people were. I mean, it's just like that. Yeah. Well, yeah. I think about the Midwest, too, I guess. Yes, that's right. So, I mean, basically, we have many different demographics. But, you know, the thing about this is one thing I've been formulating is the thesis of the Internet is to America as America was to Britain, like the version 3.0. It's like 10x bigger. And in particular, lots of traditional American values like freedom of speech or protection against search and seizure.

27:12You can protect them on the Internet with encryption in a way that is stronger than the protections of a law, for example. Right. And so like a smart contract is rule of law. You know, for example, Delaware is melting down, but smart contracts are booting up. Yeah, yeah, yeah, yeah. We just actually moved the, we reincorporated the firm into Nevada. And that's an opportunity, right, for many countries. I mean, I know you guys are like are in Nevada now, but the fact that, you know, Delaware was a stable jurisdiction for decades, maybe centuries, depending on, you know, how long you think the chancery court was the main event.