Mind Crunches #12: Going Down The Crypto Rabbit Hole
Alternatively: Witnessing the crypto-driven punctuated equilibrium
“Anything that won’t sell, I don’t want to invent. Its sale is proof of utility, and utility is success.”
Thomas Edison predicting the success of NFTs in 1920s
I am a big advocate of “continuous learning”, especially when it comes to knowledge workers like myself. Many people approach the importance of learning from the point of view that knowledge is virtuous, to which I agree, but there is a much more practical side. Knowledge workers should train and develop “learning plans” exactly like athletes do. It is ironic (and unfair) to expect athletes to train 24/7 when most knowledge workers, in the best case scenario, are doing some random skilling courses every now and then. (The knowledge workers’ training is a concept popularized by Tyler Cowen)
Having said that, one of my plans for this summer was to deep dive and learn more about blockchain technologies and web3. In a way, I consider this part of my job since crypto technologies are already reshaping established digital paradigms. I was already familiar with the basics of cryptocurrencies, I had been following many crypto thought leaders but had never invested time to truly grasp the potential of Ethereum, the mechanics of NFTs and why, for example, everyone was getting excited about DAOs.
Being extremely far from calling myself an expert (especially since I am not a blockchain developer), I am convinced that crypto is neither a “trend” nor a cool technology. It is a powerful movement with technological foundations but with broad extensions on politics, economics and human behavior. The more someone reads about it and follows its evolution, he becomes convinced that we are at an inflection point. In evolutionary biology, there is a theory called “punctuated equilibrium” which describes rapid burst of change that results in a new species and that leaves few fossils behind. This is what blockchain technologies did. They accelerated the pace of digital evolution and we now have the new species of Web3!
Because of my academic, professional and cultural background, I am much more attracted to the dynamism that web3 unlocks for business model innovation, organizational management, marketing, human incentives and art rather than the -indeed powerful- effects it has on traditional financial systems and institutions.
I will be listing below the most interesting web3 experiences I had and my thoughts, observations and predictions on the evolution of crypto but before that I will share some basic definitions of the most important crypto terms which I believe will provide great context, especially if you are not well-versed in this space.
Web3: Web3 represents a set of ideas which together bring about entirely new mental models, organizational structures, community incentives and social trends forcing us to rethink many things that we have become accustomed to.
In Web2 companies, cash usually comes from investors and there is no value returned to them for years. Ownership is largely concentrated in the first handful of employees along with their investors.
Web3 and blockchains bring about entirely new business models, made possible by tokenization and cryptoeconomic protocols.
Decentralized Autonomous Organizations (DAOs): DAOs are the native corporate structure of these crypto economies. Crypto isn’t just a technology, it’s an internet-native economy. Revenue is tracked in Ethereum and key decisions are made with community governance. Transactions are enforced on-chain through smart contracts. And value is captured with tokens.
Instead of being incorporated in Cayman Islands, DAOs are incorporated in Discord servers and blockchains. DAOs provide an internet-native way of making collective decisions, and capturing value.
The org structure of DAOs looks like modern day cooperatives, but over the next decade I believe their scale and impact will rival some of the world’s largest public companies.
Crypto Tokens: In essence, it is how cryptocurrencies are denominated. Crypto tokens represent fungible and tradable assets or utilities that reside on their own blockchains. Crypto tokens are often used to fundraise for crowd sales, but they can also be used as a substitute for other things which means that they represent a certain unit of value.. These tokens are usually created, distributed, sold, and circulated through the standard initial coin offering (ICO) process, which involves a crowdfunding exercise to fund project development.
Non Fungible Tokens: NFTs are unique, non-fungible tokens on the blockchain. Regular cryptocurrency tokens like Ether are fungible and can easily be traded and swapped for one another. They're all the same thing. By contrast, each NFT has a unique identifier allowing it to be paired with metadata that cannot be changed. While an NFT can be sold and transferred like any fungible token, each NFT has its own unique value and worth. This identifier also makes it possible to trace the ownership history for the NFT. It's also possible to prove the scarcity of an NFT and know how many of a certain type exist and how many can exist.
An NFT can never be taken from you. There is no middleman.
These traits of NFTs lead to some unique value propositions and capabilities. They can be used for digital art, content, collectibles and gaming but they can also be used for utilities like .eth domains like with the Ethereum Name Service or even tokenized real-world assets.
Down The Rabbit Hole
I invested some money in crypto. Mostly Ethereum and Solana. The reason is that I wanted to witness first hand how the crypto markets behave, react to signals and differ from traditional markets rather than make money. And the truth is that you can only truly witness something when you have “skin in the game”. (this is NOT financial advice. In case you decide to invest, please invest only what you can afford to lose.)
I set up a crypto wallet. Wallets are the door to the web3 world and they allow you to store crypto, swap tokens, explore blockchain apps, store NFTs and many more. Metamask and Rainbow are good places to start if you are interested.
Web3 addresses are long and complex. This is why it is smarter and easier to register your own Web3 username buying an ENS Domain and centralize all your addresses (if you have >1 wallets), NFTs, tokens etc. Imagine it like a new version of .com addresses. Mine is vassilis.eth and you are more than welcome to send me money if you want :)
I experimented with Solidity, the programming language for writing smart contracts on Ethereum. I don’t intend to turn into a blockchain developer but knowing the basics of Solidity can help you understand the potential -and challenges- of Ethereum in more depth. Nat Eliason’s Solidity course is really good.
I bought a few NFTs on OpenSea. Most of my purchases were made out of pure interest in the project of the artist, how cool the community of other buyers was and not as a quick way to make money. I started with an Untamed Elephant, continued with a Lucky Maneki but my favorite NFT is the Writer’s Room Key. I am genuinely excited to be part of this project because I believe it will redefine entertainment and creativity in web3 terms. There are many things I could write about Jenkins the Valet but this Forbes article is a great summary.
I started “intentionally” using Discord. Discord is not a new platform. I already had an account mostly to explore the product itself (out of pure interest and curiosity driven by its huge success) but I was not active. Despite the fact that it isn’t Web3-built per se, Discord has become a modern version of Agora for NFTs. It is the place where communities are built, people connect, exchange ideas, build cool stuff and procrastinate. You will never get the “real thing” if you dont join a few Discord channels and experience the passion of the users. Highly recommended!
I signed up in Proof of Humanity PoH is a social identity verification system for humans on Ethereum. PoH combines webs of trust, reverse Turing tests, and dispute resolution to create a sybil-proof list of humans. I know that all these terms sound sci-fi but it is mostly the jargon that makes them scary. In simpler terms, PoH is a digital community of (socially identified) humans on Ethereum that own their digital identities and experiment with new forms of governance and income (UBI).
I became a fan of Mirror but I still haven’t managed to gain publishing rights. Mirror is a community-owned and operated protocol economy that is redefining publishing online by empowering writers with the tools offered by crypto. The basic premises are that posting content shall not be centralized, reading experiences should not require trust in Mirror and Mirror shall not own a writer's domain. One of their most experiments is $WRITE RACE, a crypto alternative to the traditional platform invitation system. Instead of having early users invite their friends to the platform, the Mirror community is voting for writers they want to see join the platform next. At the end of each week, the top 10 writers are awarded one $WRITE token, which they can redeem for a publication on Mirror.
Early Thoughts & Observations
Web3 redefines what ownership is. Shared ownership is a characteristic you'll see carried across all areas of Web3, including how we think about companies and incentive structures around how business is done. In a way, there is something deeply anarchist in the fact that crypto promotes community-led rather than individual projects. I was recently reading Proudhon’s “What is Property” and many of his ideas are now part of the public discourse.
Ownership now means equity as well.
Ownership will no longer be associated exclusively with physical objects.
Art and code are beginning to overlap. This has already created some new, and very interesting, art movements which could only come to life in a digital world.
This has also created new ways to appraise art. When it comes to NFTs for example, we value the power of communities, tokens and mutability more than the actual creativity of the artist.
The concept of “skin in the game” is embedded in Web3. Proof of Work (PoW) was just the beginning. The new Web3 apps are built on the idea of “learn to earn” or “play to earn”. I believe that accountability is a major force shaping human behaviors and on average creates more fair “environments”. For example, Rabbithole has the potential to be a game-changer!
Crypto wallets are much more than storage mechanisms. Our crypto wallets will be the gateway to all our digital experiences carrying our unique identifiers, tokens and NFTs. They will be an enhanced version of “login with Gmail”
Marketing has been very slow on adopting any kind of crypto innovation which I find to be very sad and representative of the creative stagnation of the industry. Crypto could revolutionize loyalty programs (tokens), brand trust (blockchain-based sustainable practices), ad spend transparency. It could also inspire more egalitarian ad mechanisms.
Crypto will shake up the enterprise space by bringing into life industry-specific solutions. Coinbase already launched their crypto cloud and I am sure we will soon start seeing some serious action.
RadicalxChange, the next-gen political movement, will become even more relevant and strategic in the near future. Its concepts, like quadratic voting, have been designed to thrive in web3 environments and their philosophy of digital democratic governance can help crypto bridge the gap between the digital and real world. (I had also written about the movement here)
Crypto tokens will create stronger and more meaningful connections between brands and consumers. They will allow fans to own a piece of their favorite brand and enable agencies to build all kinds of exclusive experiences and environments. Friends with Benefits is a great example on how tokens can be the foundation of private communities.
DAOs could inspire a smarter way to manage teams and organizations. Holacracy was an interesting organizational management experiment (you can learn more here in case you are not aware of Holacracy) but it always seemed like a beta version. V2 could be Holacracy + DAOs. The replies in my tweet below helped me discover many interesting projects on this space.
Web3 Mind Crunches
The famous Fred Wilson on how consumer crypto is the opening that a quarterback-VC is looking for.
We are all social monkeys and signaling is probably the most unifying theory of why people behave the way they do. And Web3 is a great signaling online show according to Packy McCormick, one of the most influential thought leaders of crypto.
Video games are now play-to-earn redefining how utility is defined online. Crypto Raiders is a great sneak peek on the future of video games. If you believe that this is just hype, you can read Cowen’s views on the future of gaming.
Predictions from Chris Dixon on why tokens will be the building blocks on Web3.
Recommended book: The Sovereign Individual. This is a 1999 book and it’s not about crypto but in a way it accurately predicted the emergence of information-based societies and how individuals, rather than corporations or governments, would be the “center of the universe” in the near future. (I had written about the Return of the Atom in Mind Crunches #7)
Recommended podcast: Decentralized Autonomous Organizations - The Deep End
Recommended Newsletter: Not Boring by Packy McCormick
Quote of the month: “The blockchain keeps everyone honest”
Photo of the month: Cycladic Art Figurines aka Ancient NFT Collectibles (from my recent visit at the Athens Museum of Cycladic Art)