Ultimate Resource On Web3 And Crypto’s Attempt To Reinvent The Internet
Enthusiasts say tokens can change computing. Is this the real deal or vaporware? Ultimate Resource On Web3 And Crypto’s Attempt To Reinvent The Internet
If you follow the world of cryptocurrency even casually, you know it produces a constant supply of jargon. There’s NFT, dapp, DeFi, and tokenomics, to name a few. Brace yourself for a new one: Web3. The idea is that crypto isn’t just for sending money or speculating with, but could be used to build a whole new web. If the believers are right, this is one bit of cryptospeak worth getting familiar with, even if you never touch Bitcoin.
And by doing so, its boosters say it could supplant corporations with decentralized, internet-based organizations governed by software protocols and the votes of token holders. “It’s the first real consumer penetration” for crypto, says Jeff Dorman, chief investment officer of crypto fund Arca.
“Over time, every company became an internet company. I think it will happen here in digital assets.”
Skeptics—and there are many—say this stuff is a long way from proving its use beyond niche applications, many of them tools aimed at crypto traders. It may also be an attempt to get around regulation, at a time when policymakers are gearing up to set clearer rules for crypto. In sum, Web3 is a heady mix of creative new projects, techno-utopianism, and financial engineering. Here’s a beginner’s guide to what you need to know.
* Why Is It Called Web3? What Were Webs 1 And 2 Again?
The term Web 1.0 generally describes everything from the earliest interconnection of computer networks in the 1970s and ’80s to the first flowering of browsers and websites in the ’90s. In the next phase, Web 2.0, companies built applications on top of that, from social media to search engines to wikis, much of it based on content generated by users.
Although that made much of the web in one sense decentralized, most things still run through big companies. The idea of Web3 is to create software and platforms that aren’t dependent on traditional companies and Web 2.0 business models such as advertising. For example, users might pay for services directly using tokens.
In an ideal world, Web3 services are supposed to be operated, owned by, and improved upon by communities of users. (As to why it’s Web3 and not Web 3.0, chalk it up mostly to changes in how developers talk online.)
* What’s This Have To Do With Crypto?
Bitcoin, the original cryptocurrency, works by having a public database called a blockchain record every transaction. It’s decentralized because this ledger is maintained not by one company but by a vast network of computers all connected to the internet, whose operators are rewarded for the work with the chance to earn more Bitcoin. But you can do more with a blockchain than record transfers of digital coins. You can use it to make contracts and control how software and apps work.
Web3 applications are often based on a technology called Ethereum, which like Bitcoin rewards the users who help maintain its network. Its coin is called Ether, which has a total market value of $511 billion. The apps themselves can also have associated tokens, which may not only pay for services but act like voting shares that govern the apps’ development and even fee structure.
At least early on, much of the incentive for this activity often is the chance for appreciation in the token’s price. It might rise as more users join the community, but of course it can also be inflated by speculation. There’s a lot of that in crypto.
* Why Am I Hearing More About This?
The speculative boom is a big part of it, but it’s also that people are starting to see the tech in real life. As Bitcoin and other cryptocurrencies rallied earlier this year, venture capitalists poured billions of dollars into building and improving distributed apps, or dapps. Many dapp teams also received distributions of coins, which rose in value—spurring more interest.
“We’re at an inflection point that will lead into an even faster pace of innovation and growth in Web3,” says Ali Yahya, a crypto general partner at venture capital firm Andreessen Horowitz. (Bloomberg LP, which owns Bloomberg Businessweek, has invested with Andreessen Horowitz.)
More than 8,700 active dapps are listed on tracker DappRadar. They include lots of crypto trading platforms and games. Sometimes the line between those is fuzzy: Many games involve winning and trading nonfungible tokens, or NFTs, which are virtual characters or collectibles that can fetch sky-high prices.
Operating through a distributed network can be clunky, but the user experience is getting better. “It’s still early, but it’s been transformed in the last six months,” says Jonathan Dotan, founding director of the Starling Lab, a research nonprofit hatched out of Stanford and the University of Southern California Shoah Foundation that’s working on using cryptography and decentralized networks to help preserve and verify documents including sensitive historical records.
One of the group’s projects is to upload more than 55,000 video testimonies of genocide survivors to Filecoin, a distributed network where more than 3,500 providers around the world store files on their computers in return for FIL tokens. The Starling Lab is now able to pour three times more data per day into Filecoin than at the beginning of the year, says Dotan.
In October, Dish Network Corp. partnered with startup Helium Inc. for 5G wireless connectivity. Hotspot providers get paid in the token HNT for offering coverage. “What people are starting to realize is this is a very new opportunity that’s reminiscent of Airbnb or Uber,” says Helium Chief Executive Officer Amir Haleem. The city of San Jose is setting up 20 Helium hotspots to earn HNT tokens to help cover internet access for some low-income residents.
Twitter Inc.’s engineers are working on Bluesky, a decentralized version of social media. Gaming company Ubisoft announced on Dec. 7 it will let players in one game get NFT collectibles such as vehicles for their characters. In other words, decentralized apps will face plenty of competition from traditional web players. “The biggest battle here is with the big tech companies,” says Aaron Brown, a crypto investor who writes for Bloomberg Opinion. “The financial incentive of these companies is basically to hijack Web3” with Web3-like versions of their apps.
* Do I Care If Apps Are Decentralized?
“Centralization is convenient,” says Brown. Web3 is likely to be “a place for niche groups. People who are developing new ideas.” The goal of many such undertakings is to become a DAO, or decentralized autonomous organization—effectively, thousands of users governing a project through chat groups and their tokens. “I think DAOs will be as ubiquitous as companies, clubs, nonprofits, and different kinds of ‘official’ organizations today,” says Maria Shen, a partner at venture capital firm Electric Capital.
* What Are The Downsides?
Although Web3 is often described in terms of idealistic cooperatives, decentralization can also be a cover for business as usual with less accountability. Regulators are raising concerns about some projects, particularly decentralized finance, or DeFi, apps that let people lend, borrow, and trade coins with each other, often without verifying users’ identities or performing anti-money-laundering checks.
Many teams of developers claim they aren’t responsible, because they’ve passed control on to their users. “What are these dirty little secrets that no one talks about?” says Avivah Litan, an analyst specializing in blockchain at researcher Gartner Inc. “Right now, DeFi is run by centralized companies. But the difference is you can’t stop the protocols. You can arrest the people, the regulators can put them in jail, but you can’t stop the protocols.”
There are environmental concerns about the huge amount of computing power some blockchains require, though newer systems may ease that. And with much of the code created in all-nighters, software bugs and malicious hacking attacks abound. Many projects don’t even list contact numbers, though they may maintain online chat groups.
If you accidentally mistype and send money to the wrong account, it may be lost forever. You won’t be able to resolve the problem like you would by calling a bank’s customer service line.
Many Web3 ventures have few paying customers but can gain from the appreciation of the underlying token, making them vulnerable to a wild market. Take Piknik & Co., which employs about 30 people and operates two data centers supporting Filecoin.
It makes money generating FIL tokens, which have almost doubled in value this year. But they’re down 82% since the April peak. CEO Kevin Huynh says he has customers in pilot programs who will eventually start paying him. He’s made a big bet on Web3. He trained as a surgeon before diving into Piknik, and liquidated his 401(k) and gathered small contributions from about 70 relatives and friends to get started. “I think it’s going places,” he says.
BOTTOM LINE – To Web3 boosters, crypto could change how software and companies work. But it also makes it hard sometimes to say who’s in charge.
Jack Dorsey And The Unlikely Revolutionaries Who Want To Reboot The Internet
Members of the tech elite are banding together to bring the Web back to its idealist origins. They call their vision ‘Web3.’
The internet hasn’t turned out the way it was supposed to.
In its earliest incarnation, before some Wall Street Journal readers were born and the rest had fewer automatically renewing digital subscriptions, it was supposed to be distributed, user-controlled and, in a word, democratic.
Then came Big Tech and the attendant centralization, windfall profits, culture wars, misinformation campaigns, Congressional hearings, EU rulings, antitrust battles and techno-nationalism that have characterized the past decade.
What If There Was Another Way?
What if, to take but one example, users of social networks collectively owned them, or at least could vote on how they were run and what kind of speech they allowed?
And what if similar questions could be asked of just about any tech company whose primary product is software and services—whether financial, cloud computing, or even entertainment-related?
These are the questions investors, engineers and more than a few starry-eyed tech dreamers are asking themselves—among them former Twitter Chief Executive Jack Dorsey, whose interest in these questions helps explain his sudden departure from Twitter.
The answers are taking the form of services and apps that are the first outlines of what their creators hope will someday eat the internet completely: a distributed, democratically ruled “Web 3.0” or “Web3” that will rise like a phoenix of 1990s-era Web 1.0-idealism from out of the ashes of the corporation-controlled Web 2.0 that all of us currently inhabit.
Here’s the basic idea: New technologies like blockchain present the opportunity to loosen the centralized stranglehold that companies and governments have over everything from internet platforms to intellectual property to the creation and distribution of money.
These technologies operate by spreading responsibility or ownership among a group of users, who, for example, use their computing power to electronically fabricate—or “mine”—cryptocurrency, or record transactions for digital art.
These technologies represent an evolution of cryptocurrency beyond bitcoin—which some in crypto communities now deride as mere “digital gold.”
In addition to monetary value, the “tokens” that make up these systems are each also encoded with information that has some other use, whether it’s membership in a club, the right to vote on how a company conducts itself, or even just data.
The blockchains that underlie all this are just ledgers of information stored on many different computers at once. This lets any given blockchain be resistant to control by a government or corporation, and lets people exchange tokens on that blockchain securely and transparently.
This future, a second chance to use technology to upend traditional power structures, is being trumpeted by silver-tongued hype-people of every stripe, from venture capitalists to armchair oracles on social media.
Others see the entire enterprise as worse than a waste of time. They view bitcoin as a currency with an outsize (and, many argue, completely unnecessary) energy and carbon footprint.
And they see crypto broadly as a classic, doomed to fail techno-solutionism (the belief that technology can solve any problem) Ponzi scheme pushed by latter-day medicine-show hucksters eager to exit their investments in unregulated securities before the market collapses or the Securities and Exchange Commission gets around to regulating them.
Mr. Dorsey, no quack, is clearly in the believers’ camp—and is, indeed, one of its most prominent members. In July he told investors bitcoin would be a big part of Twitter’s future, and in August he tweeted that it would unite the world.
His departure from Twitter reflects the allure that Web3 has for many of those in the tech elite. Mr. Dorsey is now full-time at Block—the new name he gave to Square, his digital payments company, where he is enthusiastically championing cryptocurrency.
Block—the name was inspired partly by the blockchain—owns Cash App, which allows users to buy and send bitcoin.
It also created a patent alliance to share crypto-related intellectual property and funds Spiral, an independent team of open-source bitcoin technology developers whose most recent promo video includes a muppet version of Mr. Dorsey answering the question “When did you know something was wrong with our financial system?”
Other famed tech seers are excited about Web3, too. In June 2021, Andreessen Horowitz, the venture-capital firm co-founded by Marc Andreessen, announced a $2.2 billion fund—its third—to invest in blockchain and crypto-related startups.
Globally, investment in blockchain startups in 2021 has shattered all previous records, topping $15 billion so far this year, a 384% increase from total investment in all of 2020, according to CB Insights.
Almost every company with “Web3” or “blockchain” in its pitch deck describes its mission as a user-centered quest to empower—and just as often, enrich—its users, making them owners and investors as much as customers.
DeSo—which, confusingly, is simultaneously a not-for-profit foundation, a blockchain and a cryptocurrency token, but explicitly not a traditional for-profit corporation—is in many ways typical of the form.
The idea behind DeSo is that everyone should be able to create their own social media service, but also that they could be interconnected in ways that, say, Facebook and Twitter would never be—including shared accounts and other shared data.
“The thesis behind DeSo is that if you can mix money and social, you can create new ways for creators to monetize,” says Nader Al-Naji, founder and head of the DeSo foundation. “Instead of creators monetizing from ads, they can monetize from DeSo coins.”
DeSo has created a new cryptocurrency (named DeSo) that, for example, could be used to “tip” other users for their posts, replacing likes with actual money—or at least DeSo tokens that can be traded for dollars on the usual cryptocurrency exchanges.
Like other next-generation cryptocurrencies, inspired by Ethereum, these tokens also can store the data that actually makes up a social network, such as the text of posts (one of Ethereum’s inventors, Vitalik Buterin, was involved with bitcoin early on and in 2013 proposed the Ethereum protocol in part because he wanted to create a world in which no single company could control digital assets).
This dual function illustrates the inspired weirdness that is Web3: If money can become code, then money can be way more than a means of exchange; it can also do anything that other software can do.
This core insight, a sort of E = mc² equivalence between money and software, is why true believers in Web3 think it could have such a huge impact. Suddenly every activity humans engage in, from buying and selling a house to liking a post on social media, can be made part of a token-based financial system of a scale and complexity that makes today’s look like an antique.
Paul Meed, CEO of Moonbounce, one of the startups building an app with DeSo, thinks that using crypto to create new kinds of exchange between creators and their fans on social media will ultimately work, but that it’s still early days for the idea and technology.
Making every interaction between friends on a social network into a monetary transaction still feels strange for most people, and he sees a great deal of pushback from young people and fans of creators whenever the idea comes up.
“I have a friend with a couple million subscribers, and he made one test video on YouTube where talked about NFTs, and it was his most downvoted video of all time,” he adds.
Rather than funding DeSo in the traditional manner—by creating a startup and asking the wealthy mandarins of venture capital to part with money in exchange for partial ownership—DeSo instead sold early investors, including Andreessen Horowitz, some of its crypto tokens.
Any social media service or app built atop the DeSo blockchain—there are more than 200 of them so far, all of them tiny—must use the DeSo token. The more people and groups build, the more valuable the DeSo token could become. That’s the company’s business model, rather than charging licensing fees or selling advertising.
Analogies fail in corporate arrangements as novel as these, which is one reason blockchain startups remain obscure to most investors. Critics claim such obfuscation is deliberate, and is as much about hiding suspect financial and technical engineering as it is a consequence of any supposed innovation in business models.
“The current blockchains are like woefully underpowered computers that can only do a very, very small amount of transactions, and the things they can do are shockingly limited,” says Stephen Diehl, a programmer in London whose frequent essays about the pitfalls of blockchain technology and Web3 have made him one of Web3’s most visible and cogent critics.
Even many of the longer-standing attempts to refashion the internet into Web3 are still too inchoate to tell if they’ll ever amount to anything. Before Mr. Dorsey’s obsession with crypto reached its current apotheosis, he announced in 2019 a project begun by Twitter, called Bluesky, to “develop an open and decentralized standard for social media.”
The goal was to make Twitter or some new service into a flexible and easily accessed repository for things known as tweets, which people could sort and view in a variety of new apps built by outside companies. Bluesky—which is to be independent of Twitter, though it currently has no partners other than Twitter—would be more like a service for developers, a role like that of Amazon Web Services.
In this way it would be different than a consumer-facing company with the implicit responsibility for everything that happens on it and the ability to ban current presidents, as Twitter did on Jan. 8 to then-president Donald Trump.
Bluesky was spearheaded by Twitter’s current CEO, Parag Agrawal, but appears to have made little progress since it was announced. Twitter is hiring for BlueSky and remains committed to the project in the long term, said a Twitter spokeswoman. Blockchain could be integral to how the project is made real, she said.
Twitter’s halting attempts to reinvent itself, and its co-founder’s abandonment of it in search of new ways to reinvent the internet with blockchain at Block, illustrate the promise and pitfalls that drive much of the interest in this technology.
“Everybody sees the problems with the malign influence of social media these days, and Web3 has become the messiah technology that’s going to fix all these things,” says Mr. Diehl.
Grand promises notwithstanding, it’s not yet clear whether Web3 and its supporting technologies will be soon-to-be-forgotten vaporware, or the next world-wide web.
In the future everyone might be able to mint a new crypto “coin” at will, whether they’re using it to raise capital for a business, monetize the popularity of social-media creators, or collect money for their school’s PTA.
Or it’s possible regulators, who this month called crypto startup CEOs to appear before Congress, will decide that the downside of companies issuing what can look like securities outweigh the opportunities for new kinds of financial and technical engineering they might enable.
Whatever happens in the coming years, the torrent of money and interest flowing into Web3 companies and projects, and the mainstreaming of blockchain technologies by Block and its competitors, are a measure of just how dissatisfied even many of those who built the current internet have become with it—not to mention how much they think they can profit from solving the very problems they created.
Web 3 Is A Return To The Internet’s Wild Spirit
“I think that’s what audiences want, right?” writer and founder of freelance payments system OutVoice, Matt Saincome said.
Starting at the dawn of the web, retroactively named Web 1, a new generation of writers and artists burst onto the internet independent of any publisher, promoter or label.
In time, many of them would become leading cultural figures: writers and editors Cory Doctorow, Paul Ford and Choire Sicha, musicians Justin Bieber and Adele, comics artists Kate Beaton of “Hark! A Vagrant” and Randall Munroe of “xkcd” and political pundits Ana Marie Cox, Markos Moulitsas and Josh Marshall.
All these and more first came to public notice on personal websites and early, barely-moderated networks like Blogger and Myspace. The heady, anarchic spirit of Web 1 emanated from people like these, many of them deeply weird, who’d come up on their own terms.
Then Web 2 came, and the algorithms ate the internet. Facebook, Google, Amazon and Netflix are now fiercely competing for, recording and monetizing every moment of your attention online, and “influencers” are a mass-market phenomenon operating on a global commercial scale. As the mega platforms’ control tightened, they bled away the internet’s original weirdness – its natural ability to surface the interesting and messy, the restless and far out.
That’s why, just by restoring a way for artists to find and communicate directly with their audiences again, away from the dictates of corporate mega platforms, Web 3 has already recovered something of the wild spirit of the internet’s early days.
These broader cultural possibilities really came home to me in March, when the indie rock band Kings of Leon launched their new album, “When You See Yourself,” as an NFT project offered through a company I’d never heard of called YellowHeart.
This sale connected digital tokens not only to digital art commissioned by the band’s longtime collaborators, but also to physical vinyl albums, to music downloads and to experiences – tickets to shows, in this case, including a very few “Golden Tickets” that entitle holders to four front-row seats at a Kings of Leon headline show in any city in the world, one performance per tour, for as long as the band continues touring.
Also Included: a personal car and driver for eight hours, concierge service, swag bags and a backstage meet and greet with the band.
In addition to a zillion eyebrows, the sale raised in excess of $2 million, $500,000 of which the band donated to Live Nation’s Crew Nation fund for the support of live music crews during the pandemic.
But to my mind, the sale’s signal innovation is the band’s forging of an unbreakable, permanent bond with each token buyer. Kings of Leon will be able to contact each fan, or specific subsets or all of them, for as long as the internet lasts – with airdrops, with art, music, announcements and merch offers – whenever they like, and with anything they like.
Those connections don’t belong to a platform, a label or a publisher. They belong to the band itself. This is a completely new means of cultural connection.
“I’m glad you see it that way,” YellowHeart founder Josh Katz told me in a recent phone call. The Kings of Leon sale was the culmination of many years of his thinking. But had it not been for the pandemic, he said, the opportunity to realize his vision would not have come as it did.
“The world caught up because of COVID,” he said.
Katz had been a music executive and entrepreneur for years, as well as an investor in ethereum and bitcoin. In 2017-18, his worlds collided into the realization that tokenized tickets could combat scalping by setting a maximum price for resale in a ticket’s smart contract.
He founded YellowHeart as a blockchain-based ticketing company to bring this and many other innovative ideas to market. But in the first quarter of 2020, the pandemic hit. Live shows were going away for a long time, and his funders pulled the plug.
“I had to let the entire staff go,” Katz said. “I had to do all this by myself, early summer of ‘20, I just kept going to work by myself every day, with no money.” But it soon became evident that bands like Kings of Leon – unable to support album sales in their usual way, by touring – were running out of options.
“For a band like them, what else could they do?” Katz said. “Originally it was just art, then we got the album, and then supertickets … it just finally kind of worked out, once they understood. They were great partners.”
It’s a real pleasure hearing how someone who really loves and understands culture and fandom, and who was told “no” for so many years, has been able to prove his point. And Katz thinks that these innovations will expand throughout the media.
OK, I asked him, how will this work for, say, magazines?
“My grandma subscribed to The New Yorker, she kept all of them, and she kept TV Guides. That was a form of collecting, and collecting media will happen again,” Katz said. “When you try to gate people [as with paywalls], you gate them out, not invite them in. NFTs [non-fungible tokens] are inviting people in; they’re protected media that allows for ownership authentication; you can take any form of media, and you can say who its owner is.”
“Media companies that have been struggling so much … but when you have compelling content, readers are going to want to own it. You’ll start to see history owned by people. I might own one of the 20,000 copies of The New Yorker, and can pass it on to my kids … It will literally be the memorialization of history.”
Then he shared the very same insight that spurred my own involvement in the media/blockchain space many years ago.
“The best part about watching this happen for creatives is the elimination of the rent-seeking middleman. If I read a great piece, I’ll be able to buy direct from the writer, and it’s because I want you to keep going. Writers, artists, content creators: the consumers want to look after them, and corporate middlemen extract value from that. As a consumer you may start to think – Oh, I don’t like this corporation, I don’t like what they represent.”
“The purpose of YellowHeart is to create a symbiosis between artists and fans. Our job is to get out of the way.”
The Huntington Beach, California, metal band Avenged Sevenfold is currently minting and selling 10,000 “Deathbat” tokens on the OpenSea platform. These tokens are part NFT, part contest and part fan club; they entitle holders to skip the lines at shows, and to receive “ticket stubs” containing show highlights, airdrops, physical giveaways and discounted and/or private merch sales.
Registered fans could mint tokens before the public sale began on OpenSea for .08 ETH (about $326 at the time of writing), but there’s a neat twist: the tokens’ special initial attributes are a surprise that wasn’t revealed to buyers until Dec. 15. A lucky few received extra benefits like special merchandise and lifetime tickets.
At the time of writing, the band’s NFT site indicated that 6,121 of the tokens had been minted, netting the band roughly $2 million (at today’s ETH price) in the first few days of the sale. Good money, for sure, but a lot of people are working very hard for it.
The band’s Discord has a “mint-support” channel showcasing the roller coaster of joy and fury familiar to all who’ve ever seen a crypto n00b board, with fans struggling mightily to buy ETH, to understand gas prices, to navigate OpenSea and so on.
Still, though, it’s obvious that the Avenged Sevenfold community is having a lot of fun. I also know for sure that if an opportunity like this had been available for me to buy Roxy Music, or Siouxsie Sioux or Todd Rundgren artifacts and experiences when I was a kid, I would have crawled on broken glass to do so.
As a musician, and as the founding journalist and editor of The Hard Times satiric punk news blog and the crypto/gambling blog Hard Money, and founder of freelance payments system OutVoice, Matt Saincome is at the exact center of the Venn diagram where crypto, culture and journalism meet. It was he who told me to look into the Avenged Sevenfold sale, in a recent conversation. He is like a volcano of ideas.
“The metaverse stuff now seems like just an over-engineered version of all the nerdy stuff from my childhood,” he said. “I bought bitcoin so that I could buy land in Second Life, which wasn’t an NFT, but it was – you know, Second Life looks a lot like that Meta demo that Zuckerberg showed off.
All this stuff happened, like 10, 15 years ago, right? Habbo Hotel, Puzzle Pirates, all these different virtual worlds; I had gaming clans, I had a Minecraft server running on the same computer that I mined bitcoin on when I was in college.”
In other words, there’s a whole generation for whom the world of NFTs is, in many ways, already second nature.
But, Saincome added, an early NFT project at Hard Times didn’t go over well with the readership, which made him refine his strategy.
“I don’t want to always fight,” he said. “If you’re running an entertainment business, you give the audience what they want … Sometimes you want to challenge them, but I don’t want to make it my mission in life to teach a bunch of punk kids, like the kid I was, about crypto. Because you know what, that’s a hard battle to win.”
“So we created Hard Money, where our brand and ethos is all around making money, that’s what the podcast is about. And that’s what our Crypto Ponzis project is, the second version of my NFT project. And that one sold out in an hour,” he said.
He concluded, “People also don’t want this to be environmentally disastrous. I think you could look at Ripple’s $250 million NFT fund as an example of addressing that. Building on the XRP ledger wouldn’t be environmentally dangerous.”
“And then there are projects saying look, you want to be part of a fan club, you want to meet the band backstage, you want to be closer to the band without Facebook being between you, without Twitter being between you; you want a true relationship. This is how you get it. You don’t need to say, ‘It’s an NFT.’”
Which dovetails perfectly with Josh Katz’s remarks, and also with how I’ve felt about this for about forever. It’s almost uncanny hearing people echo one another more and more, reaching the same conclusions. Just like in the days of the old internet.
YellowHeart employs 40 people now, Josh Katz says. “Luckily we had some good people who came back. I was very misunderstood by the entertainment business, by Hollywood and New York. But this is the future.”
Jack Dorsey Backs Bitcoin As Dollar’s Replacement But Questions Web 3
The Twitter and Block co-founder is a supporter of crypto, but not so keen on how Web 3 is being funded.
Bitcoin (BTC) will replace the U.S. dollar Jack Dorsey said on Tuesday, in response to a tweet by rapper Cardi B.
Cardi B broadly asked if crypto would replace the U.S. currency, to which Dorsey replied “Yes, Bitcoin will.”
The co-founder and former CEO of Twitter is a big supporter of crypto, and has expressed his support for bitcoin since at least 2018. In August, he tweeted that bitcoin “will unite a deeply divided country (and eventually: world).”
His enthusiasm wanes, however, when it comes to the way Web 3, the third generation of internet services that has been made possible by decentralized networks, is funded.
Yes, Bitcoin will
— jack⚡️ (@jack) December 21, 2021
His enthusiasm wanes, however, when it comes to the way Web 3, the third generation of internet services that has been made possible by decentralized networks, is funded.
“You don’t own ‘web3′ The VCs and their LPs do,” Dorsey tweeted, referring to venture capital firms and investors known as limited partners.
The tweet spurred the crypto community on Twitter to react, with some criticizing the former Twitter CEO and others applauding him.
There has been a growing number of VCs investing in Web 3 firms. Most recently Andreessen Horowitz led a $36 million Series A funding round for Web 3 infrastructure company Mysten Labs.
Tesla CEO Elon Musk also weighed in, tweeting: “Has anyone seen web3? I can’t find it.”
Dorsey left the social media giant last month to focus on fintech firm Block, formerly known as Square. During his tenure as CEO, Twitter enabled bitcoin tipping and promised it will integrate NFT authentication.
Bitcoin was trading about $48,900 at press time.
Parag Agrawal, the new CEO of Twitter, has been heavily involved in decentralized projects in the company.
Mike Demarais On Design In Crypto and What Web 3.0 Will Look Like
Everyone’s talking about Web 3.0 (or Web3), but there’s a lot of ambiguity about what exactly it’s going to look like or even what it is. Nonetheless, there’s a lot of enthusiasm about a crypto-based, decentralized internet. So to learn more, we talk to one of the most interesting builders in the space.
Hello, and welcome to another episode of the Odd Lots podcast. I’m Joe Weisenthal.
And I’m Tracy Alloway.
Tracy, we’ve obviously done a lot of episodes about crypto, probably doing more and more to say the least, but there are still big aspects of the space — it’s so sprawling and broad and maybe ill-defined that there’s just a bunch of stuff we have yet to cover.
Yeah. I mean, there’s new stuff happening every day, but certainly one of the big things that has been going on recently is this whole idea of Web 3.0, NFTs. The idea of actually building new worlds, new spaces, new identities on blockchain technology.
Yeah, exactly right. So we’ve done a lot about DeFi in the past and maybe, maybe not crypto will have some disruptive effect [it’s] unclear, but then there’s this whole other aspect. And as you mentioned, like NFTs and DOAs and identity and de facto social networking, and I think a lot of people are excited about some alternative to, I guess what I would say is the Web 2.0 tech giants, like there’s this anxiety about the power of a centralized company like Facebook or Twitter, and maybe some hope — even if it’s still not perfectly articulated — of how something that’s decentralized and based on crypto or Ethereum specifically, could create new spaces, new forms, new ways for us to interact in a social manner that aren’t tightly controlled by one entity.
Yeah, I think that’s right. Although I think there’s still a tension there, which we can discuss, but the idea of being able to have your identity on the web somewhere, or have your assets in a wallet somewhere and then be in absolute control of them in the sense that, you know, you can move them. They’re portable from one wallet to the other without actually having to necessarily interact too much with the platform that you’re using. Like, there is something that is very attractive in that proposition.
No, it it’s super cool. And like, you know, the idea of say being able to log into an app or website without saying a password or a username, just connect your wallet. It’s pretty cool. It feels like really powerful. On the other hand, I guess I have to say I have a hard time getting to, okay, yeah, but when does this become a sort of genuine social interaction? Like mm-hmm, you know, I can’t, I can’t tweet in Web 3.0 yet, as far as I know, or no one else is there. Like there’s a bunch of social things that I do…
That’s when everything becomes real for you, right? When you can tweet it?
Yeah. That’s basically the question. No, but literally like all my friends are in Web 2.0. And I get in theory that there’s some Web 3.0 stuff that would allow us to interact. But like, I don’t know what it, quite what it looks like. What social relations look like in a Web 3.0-based world or whatever.
Yeah. Fair enough.
Anyway, I’m very excited about our guest today, because I think he is someone who talks a lot about crypto. He’s in crypto and explores crypto from this angle of like these tacit or de facto social networks. And he’s thought a lot about this. He has a company that he’s building in this direction. I’m very excited. We are gonna be speaking with Mike Demarais, the co-founder of Rainbow.me. It’s a crypto wallet and built around all this stuff, built for this stuff. Mike, thank you so much for joining us.
What’s up Joe? What’s up Tracy? Big fan of the show. Excited to be here
How many Dunkins have you had today so far?
I’m on my second Dunkin right now. Feeling good. I feel it’s a good number. You know, this is pretty early for me. I’m normally, you know, still up at the 5:00 a.m. ‘What’d I miss?’ tweet. You know what I mean? Normally I’m the first reply. So, you know, this is big.
Yeah, right. You say ‘GM’ at one in the afternoon.
Yes, exactly. GM.
So in all seriousness, you know what I think. I don’t know if anyone’s made this analogy before, but I kind of feel like Rainbow.me, your company, it kind of feels like the Tumblr of Web 3.0, because Tumblr is like all the cool Brooklyn hipsters. That was like this very design-oriented, ease of use, social networking, making blogging this thing. And it’s like, rather than installing some boring WordPress template, just have this fun cool way to interact on social media and, you know, did pretty well, I guess it got bought out by Yahoo. What do you think about that analogy?
Yeah. I definitely think so. I think other people, you know, sometimes they say, oh, it feels like Snapchat or, yeah, Tumblr as well. I think that Rainbow stands out for being obsessively focused on fun and delightful experiences and yeah, we’re really a design first company. But yeah, I definitely see the analogy for sure. All the hip kids are on Rainbow.
That’s my impression. Yeah.
So when most people hear, you know, it’s a beautiful app. I think like they don’t necessarily get the importance of that or why you’re so focused on the design aspect of it. But my understanding is you’re very focused on it because in a world of wallets, in a decentralized world of wallets where people have the option to easily switch from one wallet to another — so, you know, I use MetaMask, but if I wanted to, I could easily transfer everything over to Rainbow right now. Then like the thing that you’re offering is basically that design experience. Is that right? Is that the right way to think about how you’re differentiating yourself in this market?
100%. What’s crazy is about like with Web 3.0, there’s just simply no user moats, right? So in the past, the reason you’re using Facebook is because of the network effects that Facebook has built up, you know, all of your friends are there and it’s really hard for a challenger to come in and compete with those network effects. But with Ethereum, you know, and the portability of your keys, a user can eject from a wallet and start using another wallet in moments. And there’s nothing locking them in to a particular product. So yeah, it’s our belief that basically the product itself, which to us means design, is really the core differentiator between these products and really the only way to actually, you know, retain users.
So I don’t think anyone who’s interacted with crypto apps, whether they be wallets, whether they be exchanges, whatever they are, like, there is not a ton of design sense in the space right now. To say the least, I think people complain about usability a lot. It’s really scary. You like click one button and you’re worried you’re gonna lose, you know, expose your private key to everyone. Why don’t you talk to us, just like step back, what do you see as like, what’s your design philosophy? What do you see as the failures of existing crypto designers? And then how you think about solutions?
Oh man. It sounds so, so cliché, but I think that people have been stuck in kind of an old paradigm of thinking where like, you know, they’ve been used to the existing crypto products and you know, everyone in this space is such a big nerd that it’s hard for them to imagine new styles, right? New styles of, of products. What I mean by that is like, you know, MetaMask and other wallets kind of are all following the same almost like utilitarian approach to the product. And no one has really tried to imagine it differently. It feels like, you know, there just hasn’t been a real attempt. It’s so cliché. I think that the example I always point to is you all remember Windows mobile phones?
I think so. I think so. Yeah.
It was like with the stylus, with the little start menu. It’s like, you know, you can say that that’s a smartphone, but really, you know, the iPhone came around and even though on a, on a spec list, right? Oh, it looks like it hits all the same specs as a Windows mobile phone. But in reality it was the design of the iPhone really unlocks this new type of product. Right. It was like the there’s a before and after moment.
And we sort of think about Rainbow in the same way. It’s like functionally, you know, similar or nearly identical to other wallet products in its capabilities. But the way that the product is packaged, we think it’s more, you know, fun and accessible and you know, less scary. But yeah, I mean, the way that we approach design in general is first and foremost, we are trying to make something that my little brother would use, is always my example user. Both my co-founder and I have little brothers and very much Rainbow has been designed to kind of be something that they’d vibe with. So that’s always been our gut check.
So now that we’ve talked a little bit about the design, can we talk about what’s actually on Rainbow or rather what you can actually like store and buy and trade because, obviously you can buy cryptocurrency. You’re also offering, you know, digital collectibles and NFTs and things like that. So what’s the thinking behind that?
Rainbow is an Ethereum wallet and it supports all of the different types of assets that can exist on Ethereum. So that can be everything from ERC20 tokens, some DeFi governance tokens, things like that, stable coins, things of that variety, as well as NFTs. And additionally, it also surfaces DeFi positions that you might have. So if you go and deposit your money in one of these platforms, we recognize that and essentially, you know, throw a custom interface up that lets you see more information about those particular positions because it’s like when you actually deposit your assets in these DeFi protocols, your assets are technically, they leave your wallet — so it’s like, you know, MetaMask is unaware of your money when you go and deposit it into one of these DeFi protocols.
This happened to me on my first DeFi trade. Like it just disappeared from MetaMask. And I only, you know what, I only rediscovered it today and I’m very, very happy that I managed to find it.
Are you rich?
Did you make it?
No, I only, I was just trying to learn a little bit about yield farming. So I think I put in like a hundred dollars and got two hundred dollars out. So no, sadly. I haven’t made it yet.
That’s pretty good. You’re gonna make it.
Yeah well, so that behavior is exactly what we think more people should be doing. We think that the best way to learn about this stuff is to honestly just play around the product. Rainbow has been designed honestly to encourage that.
So I wanna go back to something you said comparing the Windows phone versus the iPhone. So the Windows phone is essentially started from the premise, I think, that the things that you would do on your computer, you could do on your phone, just smaller, just with a smaller screen and a sort of crappier keyboard. But you still do the same things. You send emails. Maybe you try to like zoom in on a spreadsheet and surf the web or something like that. With the iPhone, on paper it’s kind of the same thing, except the design of the iPhone opened up these new worlds. And we obviously know that in the iPhone era, we started using phones fundamentally differently, new things emerged. And I thought that was interesting the way you stated, what is the sort of like new forms of interaction that can emerge or that you envision, or how people use it when there is a sort of design and user friendly wallet that actually brings delight?
We actually think about crypto today as being really like a Trojan horse for getting public key cryptography into the hands of regular, you know, average people. So right now it’s like the things attracting people to crypto is kind of, you know, speculative finance and there’s nothing wrong with that. That’s great. But in the future, what you can do once you have keys in your pocket, a.k.a. like a wallet in your pocket is do more things, like use it as your identity to various degrees. So some of the more exciting things happening with that right now is yeah, like using your Ethereum wallet as a login. You know, if you’ve used Uniswap, you’ll notice that there’s no login experience, you’re simply connecting your wallet. That’s been taking off, that user flow has been taking off a lot lately, this concept of token-gated communities, which is something popping on Discord these days. So, you know, on Discord, you can have a channel where, you know, people can join your channel only if they hold a token of a certain type. So whether that’s an NFT, whether that’s Unisocks, whatever. Basically you can have communities online now that you have to, the contents of your wallet are your ticket to enter the community. So I’d say the best answer to your question is yeah. wallets kind of being used more and more closer to the concept of keys.
Are we gonna see, in your view, things that resemble what we think of as social networking in this model of my only login is my wallet? So maybe something that represents a photo-sharing app or something that represents chat, like what does, because I think people intuitively, like I said, in the beginning, they like this idea of social interaction. That’s not on some centralized company’s servers, but can you talk a little bit more about what you envision that looking like?
Yeah. I definitely think that it’s gonna be iterative, right. I don’t think that crypto-centric, social networking is ready to go. Right now where we’re at is basically people are really loving this idea of portable social profiles, which I guess is really a subset of social networking, right? So you don’t have your entire social graph today on Ethereum. You don’t have all of, you know, friends and followers, etc. But what you do have is essentially a user profile that you can share across applications, right? So you can have your avatar, your user, your user bio, you know, relevant links that you have, your Twitter, your Github etc. You could fill that all in once on your ENS name and any application that would like to is able to then respect that data. And essentially use that as the prefilled data in your profile on all of those various sites. Social networking will begin to get eaten away by crypto. But I do think that there’s fundamental things that need to happen before that’s really viable.
So I have two questions on this, but you know, if I have TracyAlloway.eth and I have this identity that’s tied to Ethereum, how portable is that, if say, you know, suddenly Solana or I don’t know, Dogecoin or something like that becomes like the de facto blockchain that the entire internet is using? Like is my eth identity, my ether identity suddenly useless?
And then secondly, I get that decentralization and portability is like one of the big offerings of this technology, but on the other hand, a lot of it is still going through a platform of one sort or another. And I just saw right before we started this podcast that OpenSea, which sells NFTs, it just took down like some sort of alt-right NFT that someone had put up there. So there’s still some sort of censorship and control because these things are still going through a platform of some sort. So I guess my question is how decentralized is this really?
Great question. So to the first part of your question, what happens if a contender blockchain, you know, unseats Ethereum and what happens then? So that’s a good question. ENS, which is really what I guess the community is rallying around and has seen the most adoption so far, it’s actually designed and implemented in a way that is agnostic to Ethereum.
So, yeah. Basically Solana could read that data off the Ethereum blockchain, and even today with Solana you are able to configure essentially any blockchain’s address and have it attached to your ENS name. So ENS is actually less hyper Ethereum-centric as it might seem. But in the end, it’s our belief that Ethereum is here to stay, whether or not other platforms continue to see growth. That’s secondary that we think that Ethereum is here to stay and therefore, you know, building a profile on Ethereum is, you know, the most conservative long term centric place to do it.
The second question is, as far as like, you know, how decentralized is this? What’s nice about ENS and this whole concept of Ethereum as a login is, again, it puts the control in your hands, and whether or not a third party application is actually decentralized or neutral, etc. That’s up to them. And you as a user can choose to use that platform or not. So OpenSea definitely has taken a strong approach with, you know, DMCA takedowns and I guess, you know, moderating the content on OpenSea, but in no way does that actually take away from the power you have as an ENS user?
So yeah the data on your ENS name is actually decentralized and immutable, so what you can do is even, you can configure your ENS name and actually destroy the ability for that data to ever be updated into the future if you’d like, right? So what that actually means is that you can kind of like set it in stone and truly make it, you know, unalterable if you so like. There’s a number of these platforms and there, you know, OpenSea also has their own profile system, right. They have their own username system and their own bio system. So I don’t know if they’re the best example of a compatible platform with this portable profile concept. I’d say like Mirror and Uniswap are better examples of applications that, you know, are more tightly integrated with this idea of a portable profile.
Can you actually explain Mirror a little bit? And so, I mean, you know, we’re not even talking about Rainbow right now, but I feel like, because the idea is that you want to be someone’s entryway into this sort of decentralized… Do you like the term Web 3.0? I forget.
You know, I think the term Web 3.0 was a brilliant idea. I don’t have any issues with it. I think it’s fine. Honestly, it’s pragmatic, you know, I think that perhaps to a certain demographic, certain nomenclature maybe has been tainted right? By bad preconceptions about, you know, use cases etc. Like is crypto just for drugs and terrorists or whatever. And that’s, you know, obviously a poor framing because that’s just not the reality. So Web 3.0 is nice in that regard.
So what are we gonna do with Web 3.0? Cause like, okay, I’m aware of Mirror and it kind of seems like a little bit like Medium or Substack, but with crypto, but you know, Medium and Substack seem to work well. And people are making money and finding ways to get paid and not have to be on, you know, work for some major news operation. What are we gonna get out of Web 3.0?
So, I mean, it’s a couple things. Right now, Web 3.0 is about having fun. It’s about having fun the same way that playing around on the early internet was very fun. It really sparks your curiosity and it, and it kind of, yeah. Right now Web 3.0 is about like remixing and having fun. Now broadly, I’d say the big difference is the ability for content creators to monetize directly with their audience in a super streamlined and undisturbed way. As far as like there’s no middlemen. What is Mirror? Mirror is like a content platform. It’s similar to Medium. In the beginning, it was essentially kind of gated, where it wasn’t open to everybody. And it was instead something that you had to use tokens to vote on which writers, you know, were able to actually write on the platform. So I think that, I don’t know, Web 3.0, I’d say it’s kind of this like fun living kind of like democratic experiment in a lot of ways. So it’s as a user, you’re able to kind of, it feels like you’re participating in every step of the way.
Can I ask another slightly technical question? Just going back to the notion of identity and, you know, digital assets, which are yours and tie to your wallet. My understanding is that you own the token, right? So you own basically a database entry that is somehow connected to a JPEG or somehow connected to your identity. How do you link, like how do you actually link those two such that they’re immutable and incontrovertible without having a third party have to do it? So, you know, if I buy, I don’t know, one of those like Ape NFTs, I know it’s an Ape NFT because it was listed on OpenSea or whatever. But once I own the data entry, what actually proves that it goes to that particular JPEG?
Let me think. There’s two approaches to NFTs and the way that the data is actually stored. So there’s one path in which the content itself, right, whatever the graphic or media is, so that can actually be stored directly on chain using SVGs. So, you know, SVG as like an image format, you know, it’s similar to PNGs except it’s like lossless. So examples of NFTs that are completely on chain with SVGs are things like Loot or Blitmaps, you know, Avastars and that’s ideal because those are the most immutable and the most permanent. The other path for storing NFT data is essentially keeping a record on Ethereum that points to the third party location of where that NFT data is stored. Right? So, you know, for example, CryptoKitties, one of the original NFTs. The data for the CryptoKitties images are actually being stored on something similar to Amazon web services.
Now that might seem problematic. But in fact, there’s actually a number of ways that that’s really not that problematic. So say the CryptoKitties community, you know, so they all love the kitties. Everyone is obsessed with the kitties. If Dapper Labs, the creator of CryptoKitties went out of business tomorrow and stopped paying their AWS bills, the community itself could easily recreate the entire thing. Meaning as long as one person or a couple of people have essentially like, you know, mirrored, or, you know, archived all of the images and the associated token IDs that they’re matched with. It’d be pretty trivial for the community to like reboot the storage of that media type, right. So, yeah, I think that as far as like the permanence of that data, that’s something that people are very, very interested in and there’s a number of, you know, novel improvements that people are working on right now. You know, so it’s like, it’s an ongoing kind of like R&D effort.
So you just mentioned CryptoKitties, which reminded me of gas fees on Ethereum because I remember back in the olden days CryptoKitties used to like clog up the entire chain and this is still an ongoing issue for anyone who’s actually doing stuff on DeFi, or trading. And you know, you might put in a trade or you might say that you wanna buy something and then suddenly your gas fee goes up and that’s not much fun for everyone. So I’m wondering, given that your goal is basically to create an enjoyable wallet and to make the internet fun once again, how much of an impediment is the gas fee issue?
Yeah, it definitely sucks how expensive gas is these days. So it is an impediment. Meaning, you know, if everyone in the world used Ethereum today, it’d be bad, right? So it’s almost like it is inherently not ready for everybody. There are a number of solutions that are very exciting that we think, you know, will largely solve that problem, you know, and the timelines on those things are anything from six months to a year and a half. Right. In the meantime though, we really think that it’s okay that, you know, gas is expensive and we largely view this as perhaps a little bit of like a luxury experiment, right. That this is really like, this is experimental stuff. Maybe it’s a little bit of a luxury good as far as like the affordability of playing around with these things.
It’s our strategy to really focus on creating the most unbounded featureful product, kind of at the expense of the affordability. And the reason why is because once these technologies come along that allow Ethereum to scale more affordably, our product will be able to easily adopt those things. Right. Whereas if we focused exclusively on making gas fees cheaper in Rainbow, it would actually mean that Rainbow would have an extremely, you know, small subset of its current features. Because only so many things actually work on those, you know, layer twos, etc. Interesting. So we’re of the belief that it’s okay that, you know, gas is a little expensive and that we would rather have yeah, like as many cool little things to do in Rainbow as possible, you know? And if that potentially limits its immediate user base, we think that’s okay. We’ve been here for years. Honestly, it’s blown my mind, the interest that Rainbow has gotten over the last year. We wouldn’t have expected this, you know, level of adoption to have happened so soon. So honestly, if anything, yeah, like we’re excited and this is going, you know, way better than we thought. So the gas fees, you know, they’ll go down. We’re sure.
So I have a question about NFTs. So like I’m a boomer obviously, and by and large, when I look at like various NFT projects, I guess in some sense, the idea of like buying into like, I don’t know, some collection of art and then having like a gateway to a Discord where maybe I could talk to people or do stuff with them. I guess maybe it kind of seems cool in theory, but in practice, I have to say none of it appeals to me. And I’m not an NFT hater and I’m not like, oh, I’m just gonna like right click and save that. Like I get, okay, you own this. But like, I don’t care about the apes. I don’t care about the kitties. It’s not my thing. What is gonna be like a type of NFT thing that, well, what am I gonna like? When’s there gonna be something that sort of appeals to normies like myself?
So I think that, yeah, NFTs it’s either you kind of get them or you don’t. I think that, well, Joe, are you a collector of anything, I guess? Do you identify as a collector?
No, I guess that’s the thing.
Yeah. So I think that…
But I like the idea, when people talk about like a community or it’s like, oh, you buy this and you’re part of some scene, I guess like, you know, oh, the apes, like to hang out with each other IRL.I guess I kind of get that in theory. You know, they’re not my scene. That’s fine. It’s a different scene. But like, you know, I don’t hate the idea of like a scene per se or like buying into some community. I just haven’t seen anything that looks very fun to me.
Yeah. I think that NFTs are just like crypto in general, which I find to be an asset that almost comes with that scene built-in, right? Like from the beginning, crypto assets tend to kind of evoke almost a religious zeal from people, right. Where it’s like, you’ve bought into this thing and you have this vision for the future of that thing. And it, you know, it comes with it ideology, it comes with it, whatever belief system. And I think that NFTs are largely similar to that. NFTs will be a part of people’s lives, whether they realize it or not in the sense that, you know, the ENS names that we were talking about before, you know, those are actually NFTs. That’s how they functionally work is that they are NFTs. You know, whether or not Joe you’ll be collecting cartoons, who cares?
I think that there’s other things you can do with NFTs as well, purely from a functional perspective. For example, Rainbow’s interested in potentially doing, you know, a KYC NFT, right, where essentially once you’ve been KYCed, you know, to access our fiat onramp, we could issue an NFT that says, Hey, this is a real human who has gone through the KYC process. And third parties could use that token, or the existence of it, for example, you know, to unlock further functionality in their app. Right. So you might have some feature in your app and you really don’t want it to be botted, right. You don’t want it to be like, you know, someone in an automated way to take advantage of it. And you could use the KYC NFT to, to only let you know humans through. That whole concept was really, you know, pioneered by this company Wire a few years ago, but no one ran with it. NFT is, yeah, you really have to be a collector of something to really get them, I think, or at least in the current trends.
So what’s the deal. Are people really paying a $105,000 for a pair of socks?
Yeah. I mean, people are paying a lot of money these days for the Unisocks..
Yeah. Could you explain that? Why is the price of Unisocks, what is it and why is it $105,000 for a pair of socks? If I’m reading this right.
Yeah, so Unisocks are somewhat similar to NFTs and really they’re collectibles. Really that’s what an NFT is. And that’s what Unisocks are. Unisocks are instead what’s called an ERC20 token, so they’re more of like, you know, a currency than an NFT is. But yeah, what Uniscocks are, was this really silly experiment done by the Uniswap team back in 2019, as a demonstration of the Uniswap protocol. So what Unisocks are is basically like merch for Uniswap the, the company. It’s branded socks. And what they did was they created 500 pairs of socks and then 500 socks tokens, and put them on Uniswap, which is a decentralized exchange. Then anyone in the world can buy and trade the socks token. And at any time you can take one full socks token and redeem it, meaning it gets burned, and then the Uniswap team will mail you a pair of the socks.
So that whole system ends up with something looking like, kind of, it essentially creates something close to Yeezys, right. Or kind of like Supreme, where you have this limited edition run product that, you know, it’s like, yeah, it’s like, you know, memorabilia, but what’s cool about Unisocks is instead of, you know, buying, Yeezys and then sitting on them and hoping that the price appreciates and then like having to mail the physical box, what’s nice with Unisocks is you can just trade the token back and forth. You know, if you’re there to purely speculate on the price of that thing, instead of having to custody the box, you can just trade the token back and forth and the box sits, you know, where it is. Right. So it’s a really interesting experiment in kind of like bringing markets or making markets more efficient, in, you know, non-traditional markets. I think the closest analogy to Unisocks is like high-end sneakers and that whole culture. You know, it’s, it’s something that crypto OG is like, you know, used as a status symbol, I guess.
Yeah. So just on this note, I saw a really great description of NFTs today, and I wish I could remember where it was from, but I’ve forgotten. But the basic argument was that like forever, or like throughout all of history, there have been rich people who have a lot of money that they can spend on whatever they want. And traditionally, those things that they’ve been buying have been status symbols, like, I don’t know, watches or sneakers or fancy clothes or bags or whatever. And now there’s a whole different class of people who’ve made a lot of money out of the crypto space. And for them, the status symbol is now NFTs. Like, that’s the thing that shows that you know who you are and how much money you’ve made. And it’s basically sort of like digital bragging rights for nerds. Does that make sense?
Yeah, very much. It’s similar to, I don’t know, it’s like you meet a hipster and they’re like, yeah, I liked that band five years ago. Right. And it’s like, if you own some of these NFTs and you’ve had them for years, I mean, you could have bought crypto punks a few years ago for like a hundred dollars. And they’re now I don’t even know, like 60 ETH or something. Like Joe I’m sitting, you know, my day is mostly sitting on Twitter. And, you know, how do you express yourself on Twitter and in these digital places and NFTs are a really great way to do that. I don’t exclusively tie them to like wealth or status. I think of it more as self-expression to a degree, but yeah. I mean, I think honestly that they’re just like fun collectibles, you know, some people collect anime dolls or, you know, baseball cards, like whatever. And, yeah, NFTs just like are a new thing.
So speaking of NFTs, and this actually relates to Tracy’s question about, you know, will Ethereum be the chain that wins out. Literally while we were recording this episode, I see that former first lady Melania Trump is launching an NFT project, but it’s on the Solana blockchain. And also I saw last night, Michael Jordan and his son, they’re also launching some sort of like fan experience NFT thing on the Solana blockchain. And I guess temporarily, at least, you know, you mentioned like gas fees on Ethereum, like you think it’ll be solved, but temporarily other chains like Solana are much cheaper. And furthermore, I think if you are like, just a Jordan fan or a Melania Trump fan, you probably don’t care. You might not be that much interested in like, you know, various aspects of decentralization and other pluses or minuses. You just want to have a cheap way to buy something from a celebrity that you like. How much of a threat is like, you know, all these people are just like, yeah, let’s just put it on the cheap chain? How do you think about like that competition and the sort of threat that poses to Ethereum as the scaling and as the layer two solutions, you know, they’re still not really built or widely available yet.
There has been some interesting traction happening over in the world of Solana. One of the things to consider when assessing one of these chains is simply the ecosystem itself. One of the biggest values about, you know, Web 3.0., so it’s like I have an Ethereum wallet. The nice thing about an Ethereum wallet is that it’s compatible with so many different things. It’s like all of the assets within it are interoperable with each other and all of the applications, you know, targeting Ethereum can interact with those assets. And if most of your assets are over here in Ethereum, but then you wanted to go buy that Michael Jordan NFT over on Solana that actually creates this like weird fragmentation where now it’s like you have assets over there, assets over here that are incompatible with each other. I think that there’s an appeal right now for these systems that have cheaper gas fees. But, you know, it’s not truly just about decentralization. That’s not the like, you know, the only trade off, there’s like the reliability aspect as well. And you have to think like, you know, which one of these systems will definitely exist in five or 10 years from now?
I guess, as you sort of applied also the interoperability so that in theory you want different NFTs on the same chain to create the possibility that somehow they could interact with each other or work. And so there’s sort of like a network effect.
Yeah exactly. There’s a network effect there. And I’m not a crazy maximalist or anything, if anything, I honestly kind of consider myself like, you know, approach this stuff pretty conservatively. When we started Rainbow, people were trying to pay us to integrate various chains, right? Like, why don’t you support EOS? Why don’t you support Tezos etc.? And it would’ve been a bad idea to have supported those things out of the gate because, you know, it comes to the detriment of the product, right? It’s just like additional scope that you have to add. It takes away from your focus. There’s other chains that are cheaper, that are more compatible with Ethereum, right. That actually that like, you know, respect the interoperability. So things like Polygon, things Arbitrum, etc. And we think that that’s where a lot of this more like, you know, low value type of activity is going to happen.
And when I say low value, all I mean is like, you know, low dollar amount, right. Where, you know, if you’re paying half a million dollars for a crypto punk, the transaction fee is really not something you’re thinking about. Whereas if you’re talking about, you know, $25 NFTs from a major brand that you are a fan of, you know, that activity, we see that more likely happening on one of these two gains with cheaper fees. But yeah. I mean, we’re just really big believers in the network effects of Ethereum, which is something that I feel like is under discussed. Yeah. I mean, all these other chains like Solana are really starting their network effects from zero, which is, you know, totally fine. It’s just that it’s gonna take a lot for these other competing platforms to really build up the same level of ecosystem that Ethereum has, right?
Like how many Solana wallets are there? Well, in the world of Ethereum, it’s like as a user, you can choose from 10 wallets. You know, obviously Rainbow’s number one, but you actually have a number of pretty solid alternatives. Whereas some of these other chains, you really don’t have anything to choose from right? There might only be one platform for, you know, buying and selling NFTs. Whereas at Ethereum there’s like already a competitive, you know, ecosystem. So yeah. I don’t know. I think that like big brands are attracted to some of these other chains as well because of their ability to handhold them through the experience.
So you mentioned before the amount of interest that Rainbow has gotten, and I’m curious how much interest you’ve gotten from venture capital and potential funders. Because it just feels as if there is so much money pouring into the space right now, and it almost feels like people are keen to buy anything related to the crypto market. You know, regardless of how well it’s designed or how usable it is. So has that been your experience?
Yeah. They are very thirsty right now. There’s been a lot of attention. I think that all of a sudden this year, people who hadn’t been paying attention realized that the stuff is real and not going away. You know, people are, you know, I got VCs in my DMs, you know, pretending like they’re willing to quit their job to come join the Rainbow team, but then, you know, halfway through the conversation, they switch it up and they’re like, Hey, actually, nah, can we invest? And I’m like, what are you talking about? So yeah. I mean, there’s a lot of VC attention.
What’s crazy though, is that Rainbow in particular, we had very little interest from kind of the crypto OG money, right? Like the big crypto funds really didn’t understand Rainbow and broadly have like misunderstood the wallet product and the wallet opportunity. So Rainbow’s raised money mostly from consumer social investors. But yeah, I mean the space is definitely heating up. People are trying to get us to raise more money right now. We’re not interested. People are, you know, are trying to acquire us right now. We’re not interested, but yeah. I mean, it’s definitely a good time to raise money, I’d say so.
Can we just go on this further? I think it’s really interesting what you said about VCs who want to invest pretend that they want to be employees of Rainbow and then they change the conversation. Is this like a sort of broader phenomenon where startups or projects in the crypto space find themselves more starved for labor than they are capital ergo the way to get your foot in the doors to pretend to be the worker?
Honestly, I think that this experience is pretty unique to me because I’ve kind of okay, you know, part of my recruiting tactics has been to really turn it into a meme. I think that that’s kind of what’s happening here is. I do think that labor is the bottleneck and not capital. Honestly, there is an abundance of capital. Most of it is undifferentiated capital. Yeah, from, you know, the labor side of things, t here is a huge talent drought. But more and more people are jumping ship from FAANG and, you know, joining this space, which is really exciting. But yeah, I think that I kind of asked for this whole, like, you know, VC trickster games, I kind of brought that upon myself with my recruiting memes.
I was gonna ask when you tweeted that you were looking for like CIA agents with psychological warfare experience because you want them to be able to create high potency memes. How serious is that?
I mean, I don’t know. I heard that Reality Winner is outta jail or whatever so, you know, if she’s looking for a job she can hit me up. No, I mean, listen, I think that memes are fundamental to crypto. I think that it’s honestly what keeps people involved is just like, Crypto Twitter is one of the funniest places and yeah. I mean, we have somebody on the team today whose title, you know, it’s like our official job offer to them. Their title is memes, etc. Right? So it’s like memes are a super vital part of building in crypto. It’s essentially our flavor of marketing, whether, you know, any CIA agent is, you know, looking to leave the agency for a career change. I mean, we’re more than happy to talk. Memes are a skill, you have to be good. And some people out there are playing some real good 4D chess with the memes and, you know, we respect that. Yes. If you’ve got the skills.
So I have two questions, one is very short and one’s a little more substantive. The very short one is, are you sitting still on TheStalwart.eth and TracyAlloway.eth and do you have those?
I have both of those…
Oh yeah. You said you would send it to me.
You know, Tracy, I gotta get my assistant to get that over it to you. I’m so sorry. But yes, I have been keeping those safe for you guys for a long time. I knew that someday you would want them.
Thank you, I do want mine.
And I do too. The other more substantive question is, you know, there’s this other question about Web 3.0 and I’ve seen people debate it, which is like whether all of the services that we sort of think about with respect to Web 2.0 will eventually be like on a blockchain, like Uber on a blockchain where it’s a DAO and there’s a token and no company, or Airbnb with a token, etc. Is that something that you envision?
I think in the far off future that it’s definitely, you know, an inevitability. I think that the biggest obstacle there is actually regulation. Personally, I think that that stuff is a little bit of a pipe dream today for two reasons. One is technical and the second is regulatory. I think that there’s a lot of improvements needed to the tooling and infrastructure available to DAOs to actually enable that, like using a DAO today is pretty clunky and would not scale to this size of like, you know, imagine if every Uber driver wanted to vote on some sort of company policy today. That would be really difficult to do via a DAO. But I think that there’s merits to the idea of new corporate structures enabled by tokens. That’s honestly how I’ve thought about this from the beginning, right. Is like this technology can honestly enable like a new Renaissance in capitalism where there’s entirely new corporate structures available to everybody.
So whether you’re a small business, whether you’re trying to create some sort of like, you know, large network, like Uber, there’s advantages to the flexibility of, it’s like remixing your corporate structure with a click of a button, right? Doing that today is incredibly difficult. You know, changing around how, you know, your corporate structure works today is difficult. It requires lawyers. And honestly, if you’re like a small all business, you don’t really know how to do that. So I think that that is definitely within our future, but I think that, you know, our politicians don’t really know how to use email today. So I think that in reality, there needs to be, it’s gonna take some time for regulatory clarity to happen on kind of like real world Dao experiments.
Mike, that was awesome. That was really fun. I’m looking forward to us getting our .eth handles. And thank you for coming on Odd Lots.
Thanks, Mike. That was fun.
Thank you. Have a good morning. Gm.
You know, Tracy, I really liked that conversation. I was thinking about our recent episode that we did with Matt Huang of Paradigm. And I do kind of think that the more compelling crypto visions that you hear are sort of, the parallels that I see is like organic and unique to crypto. In other words, like the models where it’s like, oh, this is going to replace X or Y or, you know, I don’t know, like DeFi, like, I don’t know whether that’s what’s gonna happen there, but the idea of just things that are totally new to crypto, like some sort of token-gated community, even though there’s not any community that I really wanna be part of that I’ve seen, or something related to interesting art with NFT is like, I have to say, the idea of like new stuff seems compelling to me even if I don’t know what it is.
Yeah. I think that’s right. And also Mike’s idea of like, just making the internet more fun once again. I think that’s a big part of it because I think there are a lot of people who are maybe in their thirties or late twenties now who can remember what it was like, you know, when they first started going online maybe they were on something like AOL or Netscape or whatever. And it was genuinely a fun time. And you were discovering new things, chatting with new people.
I don’t think people in their twenties remember AOL.
Oh, okay. I don’t know. I’m getting my like timeline mixed up. I remember AOL, but anyway, I think what’s nice about Mike’s approach and others like him is they’re not taking it so seriously as some of the maximalists who are like, we’re creating a brand new financial system with its own ideology. This is about actually creating things that people want to use.
Yeah. And, you know, I loved his point in the beginning about the difference between the iPhone and the Windows phone. You know, it’s like the first iPhone, there wasn’t even an app store at the time, but I think everybody sort of intuitively recognized that because of this new highly usable phone, that it would like open up these new possibilities, like it would create new things. And so I sort of see what he is saying is like, if you get design right and if you create just a better experience, then maybe like these new things that people want to do that aren’t the same as just like, oh, we’re like shrinking a spreadsheet with the Windows phone. Like that will open it up in some way.
Yeah. Or just being able to see where your DeFi Ethereum has got to, that would be useful.
And decentralized identity. Like the idea of, you know, we both played around with Uniswap, the idea of being able to log into an app with a wallet as opposed to I’m gonna like set up my name and password and mother’s maiden name and all that stuff. The idea of just being able to do that with a name or .eth handle or a wallet is like pretty interesting and potentially seems powerful. And I could see that actually appealing to a lot of people.
Yeah. I agree. All right. Well that was a fun conversation. So shall we leave it there?
Yeah, that was a good one. Let’s leave it there.
Who Owns Web3?
The phrase “Web3” has taken the technology world by storm. It is used to describe the next iteration of the internet, which includes the belief of Web3 proponents that decentralized protocols and tokens will be core features of a new system.
There are thousands of entrepreneurs and investors betting their time, money and energy that this new iteration will be the future of technology. There are thousands more who believe that the entire Web3 system is unsustainable and simply a way to enrich the proponents.
Regardless of where you fall on the debate, I thought it would be interesting to investigate the question “who owns Web3?” In order to do this, we can look at the token supply breakdown of various projects. First, here is Solana’s initial token distribution (source: Messari):
These two examples highlight a few takeaways. The team’s normally hold between 20-30% of the token supply, private investors are somewhere between 15-50%, which depends on how much of the token was sold before launch.
And the remainder of the token supply is used for various activities, including premined rewards, airdrops, yield farming, ecosystem funds, and many others.
This is interesting because in a recent study it was concluded that founders in “Web2” companies held approximately 15% of their company’s equity at the time of the IPO. The comparison isn’t perfect (not all of the founder/project token allocation goes to the founders specifically), but it appears that Web3 founders are able to hold on to more of the economic value for what they create compared to Web2 founders.
But This Still Doesn’t Answer The Question Of “Who Owns Web3?”
There are three specific groups of people who own tokens in these ecosystems. They are the team, private investors, and the community. In the legacy Web2 world, only the team and private investors end up owning equity in a company, so the Web3 world has a structural advantage in their ability and desire to get economic incentives in the hands of their community.
Web2 companies have tried this before, but were largely unsuccessful. Airbnb tried to give equity to the hosts on their platform and Uber tried to give equity to their drivers. The explicit acknowledgement of the asset being equity meant that regulations prevented these companies from doing it.
Ok, back to the owners of Web3. The team is fairly straightforward. If you are the founder, early employee, or a contributor to the project, you are compensated for your efforts in a way that is determined by the team. This is no different than a traditional equity.
The big debate in the Web3 world is about investors. Obviously, the more that a project claims that they are decentralized, the more critics will complain that any ownership by large investors (venture capitalists and private equity) is antithetical to that mission. Maybe this is true or maybe not, but it is important to remember that the actual investors are not the VC firms themselves.
For example, if Sequoia Capital invests in a company or project, then the ownership mostly lies with nonprofits and schools.
Here Is An Excerpt From The Sequoia Website:
“Sequoia invests primarily on behalf of nonprofits and schools, with organizations such as the Ford Foundation and Boston Children’s Hospital forming most of our limited partner base. Working for them gives us a greater sense of responsibility and purpose.”
The average VC firm takes 20% carried interest on their investments, so if a firm owned 30% of a project’s tokens, the non-profit LPs would have 24% of the tokens and the venture capitalists would have approximately 6%. This doesn’t mean that venture investors owning large stakes of tokens is right or wrong, but it is important to understand the economics of who actually owns these tokens, rather than who purchased them.
The next point is that Web2 companies are all owned by large venture capital and Wall Street firms. Chris Dixon of A16Z made this point last night when he tweeted the top 10 holders of various public company stock:
As you can see in these breakdowns, most of the largest holders are passive investing vehicles from Vanguard and their peers. These passive vehicles are usually owned by retail investors and/or pension funds, etc. So in a crazy way, the VC fund LPs are nonprofits, foundations, pension funds, etc.
These same investors are the owners of the Web2 companies through these passive investing vehicles as well. The more things change, the more they stay the same.
The difference is whether Wall Street or Silicon Valley are getting to charge fees for the privilege of allocating the money.
Lastly, the bitcoin community hangs their hat on no venture capitalist investment needed to launch the network. This is one of the strongest arguments that is put forward by the community.
But the start of the network does not necessarily reflect the current state of the network. What do I mean? There is billions of dollars now in the hands of Wall Street and Silicon Valley.
Take the Grayscale Bitcoin Trust as the first example. They currently hold more than 3.4% of the outstanding bitcoin supply. Just one investment product, which is also the world’s largest bitcoin investment product, holds a material percentage of all bitcoin in circulation.
We also must mention that Satoshi Nakamoto is believed to hold approximately 1 million bitcoin, which would make him the largest holder of bitcoin in the world.
Next let’s take a look at the public companies that hold bitcoin. MicroStrategy holds over 124,000 bitcoin on their balance sheet, Tesla holds more than 43,000 bitcoin, Square owns 8,000 bitcoin, and the various bitcoin mining companies own a few thousand more bitcoin combined.
This means that publicly traded companies around the world hold approximately 1% of all bitcoin that will ever be in circulation.
This analysis also doesn’t take into account that a large portion of cryptoassets are actually held as IOUs in centralized custody or exchanges. For example, Coinbase is reported to have more than $90 billion of assets under custody and at one point held 11% of all cryptoassets in the market. Mindblowing numbers.
So What Is My Conclusion On Who Owns Web3?
Simply, the same people who own Web2 companies and the same people who own bitcoin. Out of the three of these types of assets, bitcoin appears to have the most decentralized ownership, but Web2 and Web3 aren’t as far behind as the public narrative would tell you.
Ultimately, ownership of an asset is predicated on the ability to convert other assets, whether they are fiat currencies or not, into the desired asset. Essentially, wealthy people and organizations have the financial resources to acquire significant chunks of an asset.
We shouldn’t compare the asset ownership percentages today as a snapshot in time. We should instead look at how the trend is evolving. The legacy Web2 companies are becoming more and more concentrated in ownership. Bitcoin has shown to become more decentralized in ownership over time.
Web3 tokens are still up in the air. Will they become more centralized or more decentralized over time? No one knows yet, but that is going to be the most important question when it comes to answering “who owns Web3?”
A16z Publishes Web 3 Policy Proposal For World Leaders
The venture capital firm has already spoken with “key leaders on every populated continent,” according to a16z’s Global Head of Policy Tomicah Tillemann.
If you’re a world leader hoping to transform your country into a global Web 3 hub, Andreessen Horowitz wants to show you the way.
On Friday, the venture capital firm – often called a16z for short – released a policy agenda aimed at global governments with 10 guiding principles on how to “build a better internet.”
In the agenda, a16z encourages world leaders to think proactively about Web 3 policy, starting by establishing a clear vision, providing clear and fair tax rules as they apply to digital assets, embracing multi-stakeholder governance and more.
Web 3 refers to a possible next generation of the internet that encompasses decentralized protocols and aims to reduce internet users’ dependency on tech giants like Facebook and Amazon.
The policy agenda is not a first for Andreessen Horowitz.
Last October, the VC firm put out a similar 35-page report aimed at U.S. lawmakers called “How to Win the Future,” as well as recommendations to the Senate Banking Committee on clarifying the laws around digital assets.
A16z’s policy push is mirrored by similar efforts undertaken by Coinbase, which released its Digital Asset Policy Proposal calling for the creation of a new regulator to oversee the crypto industry. Meanwhile, cryptocurrency exchange FTX has published several blog posts on what regulatory policy could look like.
The globally-reaching policy agenda, penned by former U.S. diplomat Tomicah Tillemann – now the global head of policy for a16z – is the product of what Tillemann described as a “demand driven effort” to respond to an influx of global leaders reaching out to a16z for help shaping policy frameworks for Web 3.
“We are seeing a growing number of governments approaching us saying that they want to be Web 3 republics,” Tillemann said.
Tillemann, one of a16z’s partners, told CoinDesk that the VC firm has spoken with “key leaders on every populated continent,” though he declined to name any countries a16z is working with.
The policy agenda also recommends that global leaders “embrace the role of well-regulated stablecoins,” and provide clear regulatory frameworks for private stablecoin projects.
Central bank digital currencies (CBDCs) might be gaining speed around the world, but Tillemann was adamant that any development of CBDCs should take place in conjunction with “the vibrant private marketplace for stablecoins” and that it would be a “mistake” to focus solely on CBDCs.
“We need the dynamism and the innovation that exists in a private stablecoin marketplace in order to ensure the optimal outcomes,” Tillemann told CoinDesk. “There’s a reason why people benefit from having a choice of different payment mechanisms.”
Tillemann also said that a global focus on CBDCs over stablecoins would put the U.S. at a disadvantage.
“[The U.S. is] behind the curve and other countries, particularly authoritarian countries, are much further along in developing CBDC architecture,” Tillemann said.
The Former U.S. Official Also Took A Jab At American Lawmakers, Saying:
“It’s important for U.S. policymakers and regulators to understand that we are far behind in a race that many of them don’t seem to recognize is underway,” Tillemann told CoinDesk. He believes the fact that a16z published the policy agenda might serve to emphasize this point.
“We think [the global policy agenda] is a useful reminder to policymakers in the United States that other governments are not standing still – in fact, they are moving at light speed in many cases to adopt and embrace these innovations in a way that U.S. policymakers are frankly struggling with.”
Is Moxie Marlinspike Right About Web 3?
Crypto may not be as decentralized as its proponents claim.
“Web 3″ isn’t all that easy to critique, since it tends to mean different things to different people.
Critiques abound, each with slightly different operating definitions of the term, but it’s rare to encounter one with the kind of technical depth you might expect from a crypto developer – someone who’s played around with the code and gotten a feel for how these systems really work.
Late last week, the cryptographer and privacy expert Moxie Marlinspike, who is best known for creating the encrypted messaging service Signal, released a longish essay on the current state of “Web 3″ and the ways in which utopian rhetoric around cryptocurrencies tends to obscure the technical realities of the blockchain-backed internet as it exists today.
For Marlinspike, “Web 3″ is a decentralized internet backed by blockchains and cryptocurrencies. If “Web 2″ is the internet as we know it today, where companies like Amazon Web Services, Google and Microsoft provide the back-end tools for users to make their own websites (i.e. cloud computing structures and rentable servers), then “Web 3″ should be an internet built on public blockchains, without centralized corporate mediators.
But as Marlinspike points out, that’s not how the crypto ecosystem is developing in practice.
Because most personal computers aren’t running a node, and therefore don’t maintain a whole copy of the blockchain locally, they need another way of accessing the data on the ledger. Enter application programming interfaces (APIs): code libraries that offer handy shortcuts for pulling data from a given blockchain.
Infura, a product of the blockchain software giant ConsenSys, and Alchemy, a startup recently valued at $3.5 billion, are the two main purveyors of these APIs, as Marlinspike points out. So-called “decentralized applications,” or “dapps,” like Mirror, OpenSea and Zora rely on those systems to retrieve data from public blockchains – sort of like middlemen.
That is true for most sites that ask you to log in with a “connect wallet” button as opposed to a username and password, and for online wallets like MetaMask, which exist as both dedicated websites and add-on extensions for internet browsers. They live on the centralized internet we’re already used to.
Here’s What Marlinspike Has To Say About Metamask’s Reliance On APIs From Private Companies:
“A wallet like MetaMask needs to do basic things like display your balance, your recent transactions and your non-fungible tokens, as well as more complex things like constructing transactions, interacting with smart contracts, etc. In short, MetaMask needs to interact with the blockchain, but the blockchain has been built such that clients like MetaMask can’t interact with it. MetaMask accomplishes this by making API calls to three companies that have consolidated in this space.”
Those three companies are Etherscan, now the leading explorer service for perusing transactions on the Ethereum blockchain; Infura, which offers a shortcut for accessing a wallet’s balance; and OpenSea, which provides a list of the wallet’s NFTs.
(Though Etherscan is considered a “public good” in the crypto sphere, it’s a Malaysian company that happens to be backed by Digital Currency Group, which also funds CoinDesk.)
Here’s That Command In Metamask’s Source Code, Which Marlinspike Reproduces In His Piece:
GET https://api.etherscan.io/api?module=account&address=[PASTE YOUR ETH ADDRESS HERE]&offset=40&order=desc&action=txlist&tag=latest&page=1 HTTP/2.0
Whatever Etherscan coughs up is then plugged into MetaMask. That isn’t a problem as long as Etherscan – a centralized service from a private company – is behaving correctly. It’s another step in the process, one without which MetaMask wouldn’t function.
The same goes for OpenSea. To prove his point, Marlinspike minted an NFT that displays a different image depending on the server you view it from. For some reason – Marlinspike said he never learned why – OpenSea took it down.
OpenSea, a multibillion dollar private company, is within its rights to take down images, and does so fairly often. The issue is that MetaMask, purportedly a non-custodial, censorship-resistant wallet controlled by its users, stopped displaying the NFT, too.
The token was still on the blockchain, but MetaMask was scanning data only from OpenSea, as opposed to the blockchain itself. And because it’s built to operate without a working node, MetaMask can’t pull the data directly from Ethereum.
This is all a very technical way of looking at a larger-scale issue with the state of crypto infrastructure in 2022. What does it mean for an application to be truly decentralized? Maybe the benefits of crypto are such that mainstream users won’t care whether a few large companies end up playing this crucial role in the data pipeline.
But the reality is that the market is already somewhat consolidated, just like “Web 2.”
Vitalik Buterin, one of the inventors of Ethereum, responded to Marlinspike on Reddit, essentially conceding many of these points. “Moxie’s critiques in the second half of the post strike me as having a correct criticism of the current state of the ecosystem… but they are missing where the blockchain ecosystem is going,” he wrote.
Marlinspike Anticipated That Response.
“Even if this is just the beginning (and it very well might be!),” reads Marlinspike’s blog post, “I’m not sure we should consider that any consolation.
I think the opposite might be true; it seems like we should take notice that from the very beginning, these technologies immediately tended towards centralization through platforms in order for them to be realized, that this has ~zero negatively felt effect on the velocity of the ecosystem, and that most participants don’t even know or care it’s happening.”
On Twitter, Jake Brukhman, the founder of a crypto investment firm called CoinFund, made the bold claim that “Web 3 is in its early stages, it is not built or adopted yet.” Which is to say, the real promise of Web 3 is in the idea that you can run your own node. Even if consumers don’t want to, or don’t even know what a node is, argues Brukhman, it’s the potential that matters.
That’s the thing with crypto: It’s always arriving. Although the total market was worth some $3 trillion as recently as November, we’re still working out what it’s good for, what problems it actually solves for a mainstream audience.
There’s enough money and development going into these systems that it’s not unreasonable to expect certain aspects of the space could become more decentralized over time, as Buterin and Brukhman predict.
But there’s also a huge amount of money to be gained by staking a centralized claim in the new internet, selling the vision of trustless computing from a venture capital-backed private company.
If Buterin is right, Web 3 could offer something genuinely new. Otherwise, it risks enshrining the very power dynamics it’s always tried to escape.
Web3 Just Had Its Emperor’s-New-Clothes Moment
A respected cryptographer pointed to a critical flaw in NFTs and other “distributed” tech in a devastating critique.
Web3, or Web 3.0, has become the latest craze for investors who fear missing out.
Hotter than Bitcoin, harder to understand than artificial intelligence and also painfully abstract, Web3 points to a more transparent, decentralized and equitable web, which in principle is better than an internet controlled by a handful of mega corporations.
This idea for the next iteration of the web is a terrific concept, but one that, like communism, can’t really work in its current form.
The problem is Web3 is not all that distributed, nor is it particularly equitable or transparent. It is highly centralized, despite being touted as a decentralized alternative to the web.
That was the indictment from Moxie Marlinspike, a highly respected cryptographer and founder of encrypted-messaging app Signal, who published a damning blog post about Web3 over the weekend. On Monday, Marlinspike also announced he was stepping down from Signal after a decade of running the company.
But Marlinspike’s post caused waves in the tech industry for its clear-eyed and technical breakdown of why Web3 wasn’t working as promised.
Web3 broadly refers to a next chapter of the internet where the apps and services people use are radically restructured to run on blockchain technology, as opposed to company-owned platforms, meaning their inner workings are made more transparent and content creators have opportunities to take a slice of proceeds.
It has been pushed hard by venture capital firm Andreessen Horowitz, which has invested in several Web3-building companies because the “digital status quo is broken.”
If Web1 was the beginning of the internet with read-only websites, Web2 ushered in the internet platforms on which users read and published, while the platforms consolidated power and proceeds. Web3 is supposed to disrupt the power of those gatekeepers. In actuality, it doesn’t.
Marlinspike created his own apps for investing in NFTs to poke around the current system, and he found a small group of companies that users had to trust in order to access data stored on the blockchain.
In today’s Web3, access to the blockchain is still concentrated among just a few firms. That is something many people who use decentralized apps already knew but didn’t recognize for what it was: a bug in the system’s mechanics and principles.
Marlinspike made an NFT of a geometric drawing of lines. He posted it to OpenSea, a popular NFT marketplace that recently raised $300 million, minting its two founders as billionaires. Within a few days his NFT was taken down and, more concerningly, it disappeared from his crypto wallet.
The reason: End-users like Marlinspike don’t have direct access to the blockchain, and some Web3 companies, such as his crypto wallet provider, had to go through a few, bigger companies to access it too.
To see a piece of art on the blockchain, even one that he owned, his crypto wallet provider had to access the necessary data via OpenSea, which had taken it down “without warning or explanation.” It wasn’t that his NFT didn’t exist anymore — his wallet just couldn’t show it to him.
A spokeswoman for OpenSea said it was against the company’s policy to sell NFTs using “plagiarized content,” which appears to have become an issue when Marlinspike allowed people to mint a token for his NFT.
Marlinspike provided a few other examples in his post to illustrate the point that blockchain services were actually centralizing the flow of data. In other words, the very first applications of Web3 technology are already gravitating toward structures that underpinned the current web.
A quick view on the mechanics and why this is so: Blockchain technology works by creating trust-distributing connections between servers, aka powerful computers, not between people with mobile phones like us. “People don’t want to run their own servers,” Marlinspike wrote.
That is why companies have begun selling access to servers connected to the blockchain, becoming not unlike the companies that built the infrastructure of Web2. Ozone Networks Inc., the owner of OpenSea, is one company doing this, as are Infura Inc. and Alchemy Insights Inc. Many so-called distributed apps, or dApps, link to these firms to access the blockchain.
These companies are not bad. They are simply seizing a business opportunity that exists within the limits of blockchain. While it’s technically possible to restructure the rules of blockchain to make it less reliant on a few firms, that would require getting the consensus of thousands of developers over the course of years.
That is a big, human problem, not a technical one, which makes solving it look all the more unfeasible in the near future. The difficulty of tinkering with software and getting many other people to agree to changes is why one of the world’s most popular protocols, underpinning email, looks no different to how it did a decade ago.
For his part, Marlinspike does not speak about the investment premise of Web3, other than to say that it won’t be a “blip” and there is enough money in the space to keep it going for some time. His bigger concern is privacy — not surprising given his work helping to build the protocol that underpins end-to-end encryption on WhatsApp, as well as his own messaging app, Signal.
In acting as gatekeepers of data, Web3 companies have even more insights into what users are doing than companies like Alphabet Inc.’s Google and Meta Platform Inc.’s Facebook.
That could become a bigger problem if Web3 companies reach the scale of Big Tech today. Given the strangeness of their mechanics, though, it is hard to see that growth happening anytime soon, if ever.
EPNS Goes Live In Bid To Bring Notifications To Web 3
Ethereum Push Notification Service provides the basic alert functionality that powers much of the online experience.
A new project is hoping to address a key aspect of user experience that Web 3 currently lacks – the ability for protocols, contracts and users to directly communicate.
On Tuesday, Ethereum Push Notification Service (EPNS) announced the launch of what founder Harsh Rajat calls the “Web 3 communication primitive” with a bevy of decentralized finance (DeFi) mainstays involved.
Version 1 of EPNS, which is now live, is launching with MakerDAO, Aave, Uniswap and dYdX, among others. CoinDesk will also be an early user, with a dedicated channel for distributing crypto news directly to users who opt into the service through their wallet addresses.
In Rajat’s telling, much of the contemporary online experience centers on push notifications – news alerts, sales notifications, ads and work interfaces like Slack.
DeFi protocols, non-fungible token (NFT) platforms and other Web 3 infrastructure providers largely lack the capacity to send these kinds of messages, however, leading to an informational gulf.
“These things are practically absent for user experience because there’s no communication layer to power it,” Rajat told CoinDesk in an interview.
“For example, if you’re liquidated on a lending platform you as a wallet address will not know about it, if your governance proposal passed you won’t know about it, if you’re into NFTs you have no way to reach out to someone who bought your NFTs to let them know a new collection is out.”
The project attempts to solve this problem by enabling protocols to create “channels” – distribution networks that allow dapps to manually send messages or automatically send alerts based on on-chain activity such as DeFi liquidations – and users to subscribe for alerts as well. These messages will be sent directly to Ethereum addresses.
The messages are largely gasless, meaning there is no transaction fee, as the notifications are sent with the EIP-712 standard, a method for off-chain data message signing.
The team has had early discussions with MetaMask with the goal of allowing popular wallets to easily integrate the EPNS communication layer.
The EPNS governance token, PUSH, is up 11% on the day to $2.30.
Web3, Silicon Valley’s New Obsession, Looks A Lot Like Its Last One
Crypto enthusiasts are pitching a decentralized internet. The investors backing their companies have other ideas.
If you’ve spent any time around the tech industry recently, you’ve probably heard the good news about Web3, the presumed next chapter in internet history. The so-called Web 2.0 era, which was dominated by a handful of social media platforms, is over.
Web3 boosters say that instead of relying on Facebook—now rebranded Meta Platforms Inc. to avoid any of the bad vibes associated with social media—we’ll soon be communicating using decentralized services that will make the current fears of censorship by tech monopolies passé.
Web3 applications are based on cryptocurrencies, or digital tokens that are tracked on blockchains. These tokens are distributed to an app’s early investors and users, and can also be bought and sold on cryptocurrency exchanges. In theory at least, they’ll appreciate as an app takes off.
Venture capitalists invested $30 billion in crypto projects last year, according to research company PitchBook.
Much of that went into Web3 startups such as Sky Mavis, developer of Axie Infinity, a blockchain-based video game; BitClout, a decentralized social network whose founder is known by the pseudonym “diamondhands”; and OpenSea, a marketplace for nonfungible tokens, the digital collectors’ items known as NFTs.
To believers—like Marc Andreessen, whose venture capital firm, Andreessen Horowitz, recently raised $2.2 billion for a new crypto fund—Web3 offers the chance to participate in a vast utopian project while simultaneously getting in on a financial boom.
(Bloomberg LP, which owns Bloomberg Businessweek, has invested in Andreessen Horowitz.) Detractors see the movement as a branding exercise designed by tech investors to preserve the mania for cryptocurrency tokens.
They point out that many of the big Web3 investors are the same people who backed Web 2.0. “It’s ultimately a centralized entity with a different label,” tweeted Jack Dorsey, a Twitter Inc. co-founder and chief executive officer of Block Inc., which, until its recent blockchain-themed rebranding, was known as Square.
Andreessen responded to Dorsey’s critique by blocking him on Twitter. When Kelsey Hightower, a principal engineer at Google’s cloud computing division, tweeted that Web3 was just taking existing products and “rub[bing] some cryptocurrency on it,” an engineer at the crypto trading platform Coinbase replied: “Google’s days are numbered. We are coming for you. Tick tock.”
Hightower says he was taken aback. “This whole ‘I’m at war with your employer, and you’re going to be a casualty of this war’—that’s new,” he says.
On the other hand, successful geeks arguing bitterly about web architecture is as much an aspect of Silicon Valley’s culture as the hackathon or the fleece vest. “People are very religious about their beliefs,” says Li Jin, a co-founder of the Web3 investment firm Variant.
For Jin, a web economy in which artists and musicians sell NFTs directly to fans would allow them to reclaim power from Facebook, YouTube, and other companies.
She believes today’s social media and Web3 will ultimately coexist, but the idea that a fully realized Web3 will simply replace it ratchets up emotions on both sides, she says. “We’re reaching a boiling point in terms of popular sentiment against technology incumbents and social media platforms.”
The irony is that today’s incumbents mostly got their start trying to do exactly what Web3 promises now: to disrupt a previous generation of gatekeepers in tech and media.
Last fall the entrepreneur and investor Reid Hoffman described the “wild idealism” of the early Web 2.0 era, during which he started the professional social network LinkedIn.
“The reigning ethos was to minimize rules, institutional hierarchies and gatekeeping of any kind while enabling decentralized networks and peer-to-peer interaction,” he wrote in an essay for a Knight Foundation conference on internet history.
Web 2.0 did usher in an era of decentralization, creating tools that made it easy for anyone—in theory at least—to reach an enormous audience online.
But the companies running the social networks also collected huge stores of personal data, which they milked for massive financial returns. In 2016, Microsoft Corp. bought LinkedIn for $26 billion. Meta is worth more than $900 billion.
To Hoffman, this was the natural maturation phase that came after the revolution. “You have this pattern, where you get a decentralized platform and then recentralize key features that work better technologically, or as businesses, or as infrastructure,” he says.
While Hoffman says he supports Web3, he predicts the same thing will happen. “Everyone says this will be decentralized forever. Well, no.”
In certain key areas, the shift Hoffman predicts is already happening. OpenSea, the NFT marketplace, recently stepped in when a New York art gallery owner, Todd Kramer, complained that a collection of 16 NFTs, mostly cartoon images of bored primates, had been stolen in a hack. OpenSea froze the NFTs, making them effectively worthless.
Although this might seem like a sensible safeguard, some users complained it was a violation of the promise of Web3, which is that no centralized entity should be able to restrict how individuals use the digital assets they possess.
By this logic, OpenSea’s ability to stop someone from selling a stolen NFT is the same as Facebook getting to decide when something counts as misinformation. Allie Mack, an OpenSea spokeswoman, said that the NFTs remain on the blockchain and that the company was simply enforcing the rules of its platform “to ensure the safety of our customers and the growth of the broader NFT space.”
The crypto world’s reputation as a crazy new financial arena where masses of random traders are getting rich may also be overstated. A recent study for the National Bureau of Economic Research showed that the top 1,000 Bitcoin holders controlled about 15% of all the currency in circulation as of the end of 2020.
And Chainalysis, a blockchain research firm, recently found that most NFT profits go to the traders who have access to so-called whitelists, which allow them to buy the new tokens before they’re offered on the open market.
Moreover, it isn’t clear that regular people will be as excited about the disruptive power of Web3 as tech investors are. The currency of the social media era was attention, which encouraged everyone, for better or worse, to go about their lives as if they were celebrities. In Web3 everyone is a day trader.
Some gamers are already expressing hostility to NFTs in video games because they just want to have fun, not manage a portfolio, and companies such as the crowdfunding service Kickstarter PBC have gotten blowback for signaling interest in Web3.
Tim O’Reilly, the investor and entrepreneur who coined the term “Web 2.0,” wrote an essay in December titled “Why it’s too early to get excited about Web3.” So far the predominant way to participate in Web3 is to bet on various tokens; the social networks of the future are still mostly hypothetical.
The history of technology, according to O’Reilly, is a repeated pattern where people get overly excited about something, creating a bubble that eventually pops, sometimes leaving something useful behind. “I love the idealism of the Web3 vision,” he wrote, “but we’ve been there before.”
Stacks Ecosystem Becomes #1 Web3 Project On Bitcoin
There were also 140,000 NFTs minted on the Stacks blockchain during its inaugural year.
On the first anniversary of the launch of Stacks blockchain (STX), which seeks to make Bitcoin (BTC) programmable, the network achieved over 350 million monthly API requests, 40,000 Hiro (development tool for Stacks to build applications on Bitcoin) wallet downloads, and 2,500 Clarity smart contracts.
According to a report by Electric Capital, a venture capital firm focused on cryptocurrencies and fintech, these statistics make Stacks the largest project on Bitcoin.
More than 11,000 users earned more than 100 BTC rewards per month on Stacks due to its unique proof-of-transfer, or PoX, consensus mechanism. Miners bid BTC to verify transactions, execute smart contracts and mine new blocks on the STX blockchain and earn STX as rewards.
Meanwhile, the BTC bids are sent to STX holders as rewards for performing tasks like running nodes. To date, the mechanism has delivered over $50 million worth of BTC rewards and surpassed $1 billion in total value locked.
According to the report, there were also decentralized finance, or DeFi, advancements on BTC created through Stacks. These included the launch of wrapped BTC (xBTC), the Arkadiko borrowing and lending protocol, and Bitcoin Lightning decentralized swaps, allowing users to swap STX for Bitcoin, stablecoins and altcoins.
The first projects to launch on Stacks were New York City’s and Miami’s CityCoins, generating $50 million for their respective city treasuries. Brittany Laughlin, executive director of the Stacks Foundation, issued the following statement regarding the milestone:
The Stacks community has proven the incredible potential of smart contracts for Bitcoin, from DeFi to NFTs, city coins to philanthropic efforts, portable identity to new infrastructure, all in a single year. The technology and resources are all here. What happens next is dictated by visionary builders.
Near Protocol Raises $150M To Promote Web3 Adoption
Ethereum competitor Near Protocol raised funds for Web3 adoption, with Three Arrows Capital and Andreessen Horowitz supporting the PoS blockchain.
Proof-of-stake blockchain Near Protocol has raised $150 million in seed investments to accelerate the adoption of Web3 technologies. The team announced that the fund would be used to develop regional hubs and raise awareness for blockchain and decentralized tech.
Near Protocol aims to use the fresh funds to foster the adoption of Web3. According to the announcement, the funding will be used to “help billions of people learn and use blockchain.” With this, projects building on the Near blockchain will have the opportunity to connect with new audiences.
The investment round was led by hedge fund Three Arrows Capital, with additional participation from Mechanism Capital, Dragonfly Capital, a16z, Jump, Alameda, Zee Prime, Folius, Amber Group, 6th Man Ventures and Circle Ventures. MetaWeb.VC, Near’s ecosystem fund, also participated in the seed round.
Additionally, angels Alan Howard, Santiago Santos and Aave founder Stani Kulechov joined the funding.
“We are excited to support the NEAR team and ecosystem as they scale blockchain applications,” said Kyle Davies, co-founder and chairman of Three Arrows Capital.
Meanwhile, Amos Zhang, founder of MetaWeb.VC, expressed his support by saying that Near Protocol’s technologies are great for fostering blockchain adoption. “NEAR is best suited for empowering blockchain applications for mainstream adoption,” said Zhang.
Back in 2021, Near protocol allotted $800 million for new initiatives to fund the acceleration of decentralized finance while noting evidence that the decentralized finance market is still in its early stages. The move aims to encourage developers by adding incentives to build on the Near blockchain.
Late last year, Near also partnered with Cardano-based stablecoin hub Ardana. The collaboration aims to create a bridge infrastructure that will allow users to transfer assets from the Near Protocol to fellow proof-of-stake blockchain Cardano. With this, Near tokens will also serve as collateral on the Ardana platform to mint stablecoins.
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