Published February 18- March 13, 2022
A few weeks ago, I started thinking about two ideas: atomic rewards and attention, and how a decentralised autonomous organisation (DAO) could create a new political platform as a genuine alternative to India’s political parties. There were two common themes that came out as glue: the need to leverage network effects for scaling, and creating an incentive mechanism (“tokens”) for the actions that people will perform. I realised that I knew very little about both these topics. So, what better way to learn than to write a blog series?! That is the genesis of this exploration. Let me begin by stating the two problems I was trying to solve.
As I have written earlier, one of the big challenges brands face is the diminishing attention span of their prospects and customers. This “attention recession” leads to most push messages sent by marketers to get customers to the brand’s properties (website/app) being ignored. This in turn leads to “retention recession” – customer churn. The outcome of this is that brands end up overspending on reacquisition on Google and Facebook. This 90:10 skew in adtech:martech (acquisition:retention) spending presents a big hurdle for brands on the path to profitability.
What if brands could fix the attention recession problem? Instead of paying Google and Facebook, what if they decided to pay their customers for their attention? Can that lead to more attention and engagement? This has been the thinking behind an idea I have termed “Atomic Rewards” – micro-incentives for marketer-desired behaviour. These rewards are delinked from transactions; many brands have loyalty programs which take care of that. Atomic Rewards focus on the upstream of transactions: attention, engagement, habits and subscriptions. Atomic Rewards needs a pan-brand “token” solution which can enable brands to easily reward their customers for non-transaction actions. If such a solution can also help drive virality in adoption, even better.
The second problem is in the world of politics. As I have written previously, India needs a Nayi Disha, a new direction. Those who are non-aligned and non-voters need to unite to transform India – what I have termed as United Voters of India (UVI). The challenge is how to create UVI such that it doesn’t replicate the centralised nature of India’s political parties and eventually become hostage to the wishes and whims of one or two people at the top. A digital platform, borrowing from the world of D2C (direct-to-consumer) brands, structured as a DAO could be one possible solution.
What are the incentives that will drive actions in such an organisation? What will make members persuade others to sign up? What will make candidates decide to contest? How can donors fund candidates? Why will volunteers help with campaigning? Incentives – in the form of “tokens” – are what can drive actions, and create the network effects needed to scale membership rapidly. Winning in elections will require support from at least 30% of the voters who also turn out on election day and vote as one for their chosen candidate.
So, how do we start thinking about the solutions to these problems?
Albert Einstein said: “We can’t solve problems by using the same kind of thinking we used when we created them.”
If we think about this quote in the context of the problems of Attention Recession and Voter Aggregation, then one possible interpretation is that we need to change the level when we design the solution. A fundamentally different approach and thinking is needed to solve sticky problems. We see this in innovations all the time. For example, the problem of access to a wide array of goods in the physical world was not solved by building more stores. It was the Internet which provided the answer. The problem of relevance in search results was not solved by Yahoo with its human-organised directory and brute-force keyword search, but by Google with its PageRank algorithm which ranked pages based on incoming links. Apple’s iPhone did not just build an incrementally better version of the Nokia or Blackberry phone and keyboard but entirely rethought the interface building by using a touchscreen. Elon Musk completely rethought the car and got rid of the Internal Combustion Engine (ICE) entirely. If we look at the big advances around us and through history, we will find the essence of Einstein’s point. Entrepreneurs understand the problem, and then craft solutions by thinking at a very different level.
When I wanted to solve the problem of making information available to Indians globally in 1995, I did not do so with a better printed newspaper or magazine. Instead, I focused on building a portal on the Internet, which eliminated geography as a barrier to accessing news and other content. In 2011, when I started thinking about how the BJP could win in 2014, I did not think how to increase their seats from their previous peak of 182 to 200-225 (which would have still resulted on a coalition government), but how it could get to a majority on its own by winning 272+ in the 543-member Lok Sabha. This meant thinking of a “wave election” rather than improving efficiency at the local level in a “sum of states” election.
Similarly, when we need to address the problem of attention recession, we cannot do so in the Web2 world in which the problem has been created. We cannot reduce the messages sent or increase the attention span of humans. We need to think of the solution at a different level – which is where the Web3 idea of creating an “attention crypto-currency” comes in. The voter aggregation problem cannot be solved with a new centralised political party but with a decentralised approach where leaders are chosen bottom-up.
The two problems (Attention Recession and Voter Aggregation) and the solutions seem to have a common thread linked around the Web3 ideas of decentralisation, disintermediation, and tokens. I knew very little about these new ideas, so I decided to set upon a journey to explore this new world, share my learnings, and probe the emerging ideas.
Before we get to Web3 and tokens, we need to understand network effects and solve what Andrew Chen calls the “cold start problem”.
Investopedia: “The network effect is a phenomenon whereby increased numbers of people or participants improve the value of a good or service. The Internet is an example of the network effect. Initially, there were few users on the Internet since it was of little value to anyone outside of the military and some research scientists. However, as more users gained access to the Internet, they produced more content, information, and services. The development and improvement of websites attracted more users to connect and do business with each other. As the Internet experienced increases in traffic, it offered more value, leading to a network effect.”
Wikipedia: “In economics, a network effect (also called network externality or demand-side economies of scale) is the phenomenon by which the value or utility a user derives from a good or service depends on the number of users of compatible products. Network effects are typically positive, resulting in a given user deriving more value from a product as other users join the same network. The adoption of a product by an additional user can be broken into two effects: an increase in the value to all other users ( “total effect”) and also the enhancement of other non-users’ motivation for using the product (“marginal effect”).”
It gives the example of credit cards: “The credit card system at the network level could be seen as a two-sided market. On the one hand, the number of cardholders attracts merchants to use credit cards as a payment method. On the other hand, an increasing number of merchants can also attract more new cardholders. In other words, the use of credit cards has increased significantly among merchants which leads to increased value.”
Harvard Business School Online offers examples of network effects from the US:
- E-Commerce: eBay, Etsy, Amazon, Alibaba
- Ticket Exchange: StubHub, Ticketmaster, SeatGeek
- Rideshare: Uber, Lyft
- Delivery: Grubhub, DoorDash, Uber Eats, Instacart, Postmates
- Social Media: Facebook, Twitter, Instagram, LinkedIn, Snapchat, Pinterest
It adds: “What each of these companies has in common is that the value they provide to customers increases as they scale and acquire more users. Etsy and eBay offer vastly more value to users if one million, instead of 100, sellers use their platforms. Uber and Lyft provide greater convenience and reliability to riders when more drivers join their platforms. When it comes to social media sites, users find the channels more interesting and varied as more people sign up… According to Economics for Managers, the underlying principles of network effects imply that the business, website, or platform with the highest market share will be more successful in the long run. This means that its market share is likely to grow more substantially. For this reason, markets in which network effects play a major role are often referred to as winner-takes-all markets.”
Cold Start Problem
Andrew Chen’s recent book, “The Cold Start Problem”, explores the topic of network effects in great detail. Here is how he defines a “network effect”:
The network effect can be defined by breaking the term into its constituent parts—the “network” and the “effect.”
The “network” is defined by people who use the product to interact with each other. For AT&T’s telephone network, it literally consisted of the wiring that spanned between homes. In the digital age, for YouTube, the network is defined by software. It is the content uploaded by creators and the viewers that watch them—and the software platform sits in the middle, making recommendations, organizing the video with tags, recommendations, and feeds—so that the right videos are shown to the right consumers. We love using networks when the right people are on them, whether that means marketplace sellers who list the right products and services, app developers who are building our favorite games, or our favorite celebrities, writers, and friends. In turn, they participate in the network because we and millions of other consumers are on them. It’s circular, because after all, they need an audience and a customer base, too.
The “effect” part of the network effect describes how value increases as more people start using the product. Sometimes the increasing value manifests as higher engagement, or faster growth. But another way is to think about it as a contrast—at its beginning, YouTube didn’t have any videos, and neither viewers nor creators would find it valuable. But today, YouTube has nearly 2 billion active users watching a billion minutes of video per day, and this in turn creates engagement between creators and viewers, viewers and each other, and so on. People stay on the network and use it more, because other people are also using it more.
Given these definitions, how do you tell if a product has a network effect, and, if yes, how strong is it? The questions to ask are simple: First, does the product have a network? Does it connect people with each other, whether for commerce, collaboration, communication, or something else at the core of the experience? And second, does the ability to attract new users, or to become stickier, or to monetize, become even stronger as its network grows larger? Does the user face a Cold Start Problem where retention is low when there’s no other users?
Here is how he describes the Cold Start Problem: “Most new networks fail. If a new video-sharing app launches and doesn’t have a wide selection of content early on, users won’t stick around. The same is true for marketplaces, social networks, and all the other variations of consumer (and even B2B) products—if users don’t find who or what they want, they’ll churn. This leads to a self-reinforcing destructive loop. In other words, in most cases the network effects that startups love so much actually hurt them. I call these “anti-network effects” because these dynamics are downright destructive—especially in the early stage as a company is getting off the ground. Solving the Cold Start Problem requires getting all the right users and content on the same network at the same time—which is difficult to execute in a launch.”
The graphic below from the book shows the stages of the Cold Start framework:
Let’s keep the ideas about Network Effects in mind as we think about the two problems: Attention Recession and Voter Aggregation.
Web3 – 1
2021 was an explosion in interest and investing around Web3. While the general interest focus to a large extent has been around the cryptocurrencies (Bitcoin, ether, and thousands of others), there has also been a lot of work going on in building the infrastructure for a new type of Web. It is like the early days of the Internet in the 1994-95 era. The true impact of this buildout will manifest itself in the years and decades to come. Understanding the foundation of the Web3 ideas is important for us to explore solutions to the twin problems of Attention Recession and Voter Aggregation.
Let us begin by understanding what Web3 (or web3, as some put it) is.
Wikipedia: “Web3 is an idea for a new iteration of the World Wide Web based on blockchains, which incorporates concepts including decentralization and token-based economics. Some technologists and journalists have contrasted it with Web 2.0, wherein they say data and content are centralized in a small group of companies sometimes referred to as “Big Tech”. The term was coined in 2014 by Ethereum co-founder Gavin Wood.”
InfoWorld: “Web 1.0 was the first iteration of the modern internet, from 1990 until around 2004. In the Web 1.0 era, users typically engaged with static web pages where read-only content was created and distributed by a small cohort of gatekeepers like Yahoo and AOL. Web 2.0, which broadly encompasses 2005 to the present day, is the dynamic and interactive web, in which static web pages are joined by apps and user-generated content. Web 2.0 is ruled by a set of dominant platforms, as represented by the market power of the FAANG companies—Facebook (now Meta), Amazon, Apple, Netflix, and Google, all of which exchange services for personal data to some degree. Where Web3 purports to differ from Web 2.0 is by eliminating these powerful gatekeepers and empowering a more egalitarian internet, where users are repaid for their contributions with ownership through a variety of tokens, all while keeping their data private and secure on a shared, distributed, tamper-proof ledger… This idea has naturally given rise to decentralized autonomous organizations—or DAOs—which are highly democratic internet communities with a shared goal and no leadership structure.”
Olga Kharif: “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…Many Web3 ventures have few paying customers but can gain from the appreciation of the underlying token, making them vulnerable to a wild market.”
Dave Peck writes:
“Web3” is the name given to a suite of peer-to-peer technologies — particularly blockchains and distributed filesystems (like IPFS)— that are used to build modern “decentralized apps”, or dApps. Blockchains are databases built from three parts:
- A tamper-evident historical log (the “chain” itself)
- A trustless distributed consensus protocol
- A system of incentives to compensate participants and ensure they play fair
It’s expensive to participate; incentives are necessarily financial. At the same time, blockchains are an ideal data structure for managing trusted ledgers.
…Blockchains are great for maintaining ledgers: simple lists of who owns what.
The “who” is an account. In the case of programmable blockchains, that’s either a person holding a private key, or it’s a smart contract.
The “what” is either a coin or a token. The distinction has somewhat fuzzy boundaries but, roughly speaking, a coin is a blockchain’s intrinsic currency, like Ether, Bitcoin, Sol, or Dogecoin. A token is an asset defined on top of a programmable blockchain.
Nader Dabit writes that Web3 is:
- Distributed and robust
- Native built-in payments
He lists the characteristics enabled by Web3…
- Decentralized web infrastructure
- Ownership (of data, content, and platform)
- Native digital payments
- Self-sovereign identity
- Distributed, trust-less, & robust infrastructure
- Open, public, composable back ends
…and outlines the Web3 stack:
- Blockchain development environment
- File storage
- P2P Databases
- API (Indexing & querying)
- Client (frameworks and libraries)
- Other protocols
Preethi Kasireddy writes about the Web3 architecture: “Unlike Web 2.0 applications like Medium, Web 3.0 eliminates the middle man. There’s no centralized database that stores the application state, and there’s no centralized web server where the backend logic resides. Instead, you can leverage blockchain to build apps on a decentralized state machine that’s maintained by anonymous nodes on the internet. By “state machine,” I mean a machine that maintains some given program state and future states allowed on that machine. Blockchains are state machines that are instantiated with some genesis state and have very strict rules (i.e., consensus) that define how that state can transition. Better yet, no single entity controls this decentralized state machine — it is collectively maintained by everyone in the network.”
Here is a graphic from Preethi that shows what it all looks like:
Web3 Views – 1
There is a diversity of opinions on Web3. Here are a few:
First, let’s look at the problems with centralized platforms.
Centralized platforms follow a predictable life cycle. At first, they do everything they can to recruit users and third-party complements like creators, developers, and businesses.
They do this to strengthen their network effect. As platforms move up the adoption S-curve, their power over users and third parties steadily grows.
When they hit the top of the S-curve, their relationships with network participants change from positive-sum to zero-sum. To continue growing requires extracting data from users and competing with (former) partners.
Famous examples of this are Microsoft vs. Netscape, Google vs. Yelp, Facebook vs. Zynga, Twitter vs. its third-party clients, and Epic vs. Apple.
For third parties, the transition from cooperation to competition feels like a bait-and-switch. Over time, the best entrepreneurs, developers, and investors have learned to not build on top of centralized platforms. This has stifled innovation.
Now let’s talk about web3. In web3, ownership and control is decentralized. Users and builders can own pieces of internet services by owning tokens, both non-fungible (NFTs) and fungible.
Tokens give users property rights: the ability to own a piece of the internet.
…Tokens align network participants to work together toward a common goal — the growth of the network and the appreciation of the token.
This fixes the core problem of centralized networks, where the value is accumulated by one company, and the company ends up fighting its own users and partners.
Before web3, users and builders had to choose between the limited functionality of web1 or the corporate, centralized model of web2.
Web3 offers a new way that combines the best aspects of the previous eras. It’s very early in this movement and a great time to get involved.
I love the idealism of the Web3 vision, but we’ve been there before. During my career, we have gone through several cycles of decentralization and recentralization. The personal computer decentralized computing by providing a commodity PC architecture that anyone could build and that no one controlled. But Microsoft figured out how to recentralize the industry around a proprietary operating system. Open source software, the internet, and the World Wide Web broke the stranglehold of proprietary software with free software and open protocols, but within a few decades, Google, Amazon, and others had built huge new monopolies founded on big data.
Clayton Christensen generalized this pattern as the law of conservation of attractive profits: “When attractive profits disappear at one stage in the value chain because a product becomes modular and commoditized, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage.”
Blockchain developers believe that this time they’ve found a structural answer to recentralization, but I tend to doubt it. An interesting question to ask is what the next locus for centralization and control might be. The rapid consolidation of bitcoin mining into a small number of hands by way of lower energy costs for computation indicates one kind of recentralization. There will be others.
Web3 Views – 2
Fred Wilson: “It all comes down to the database that sits behind an application. If that database is controlled by a single entity (think company, think big tech), then enormous market power accrues to the owner/administrator of that database. If, on the other hand, the database is an open public database that is not controlled and administered by a single company, but instead is a truly open system available to all, then that kind of market power cannot be built up around a data asset. As Albert says in his post: “It is difficult to overstate how big an innovation this is. We went from not being able to do something at all to having a first working version. Again to be clear, I am not saying this will solve all problems. Of course it won’t. And it will even create new problems of its own. Still, permissionless data was a crucial missing piece – its absence resulted in a vast power concentration. As such Web3 can, if properly developed and with the right kind of regulation, provide a meaningful shift in power back to individuals and communities.””
Moxie Marlinspike: “web3 is a somewhat ambiguous term, which makes it difficult to rigorously evaluate what the ambitions for web3 should be, but the general thesis seems to be that web1 was decentralized, web2 centralized everything into platforms, and that web3 will decentralize everything again. web3 should give us the richness of web2, but decentralized… I have only dipped my toe in the waters of web3. Looking at it through the lens of these small projects, though, I can easily see why so many people find the web3 ecosystem so neat. I don’t think it’s on a trajectory to deliver us from centralized platforms, I don’t think it will fundamentally change our relationship to technology, and I think the privacy story is already below par for the internet (which is a pretty low bar!), but I also understand why nerds like me are excited to build for it. It is, at the very least, something new on the nerd level – and that creates a space for creativity/exploration that is somewhat reminiscent of early internet days. Ironically, part of that creativity probably springs from the constraints that make web3 so clunky. I’m hopeful that the creativity and exploration we’re seeing will have positive outcomes, but I’m not sure if it’s enough to prevent all the same dynamics of the internet from unfolding again.”
Dror Poleg: “Crypto and web3 promise to increase my freedom to switch between the platforms I rely on and my likelihood to survive a hostile action by one of them. This promise is only partly fulfilled at this point, and it might never materialize in full. Unlike some, I do not believe that web3 will be more just or equitable or even more free by default. But I do believe it offers the possibility of increasing our freedom and agency. And, in light of general and personal history, this possibility is enough to pique my curiosity and garner my support. To most users, the freedom to pack up and move your digital assets and identity does not matter. But it might matter one day, and when it does, it will matter a lot.”
Scott Galloway: “Web3 has different-colored hair, but the same DNA as earlier web paradigms, which decentralized services at an unprecedented scale to centralize wealth and influence at an unprecedented scale. Ninety-three percent of intentions and two thirds of decisions are influenced by two firms. Is that a good thing? Pro tip: Ask someone with teen girls. So far, web3 is web2.01.”
Albert Wenger writes: “Web3 can, if properly developed and with the right kind of regulation, provide a meaningful shift in power back to individuals and communities. And if widely adopted Web3/crypto technology will also start to improve along other dimensions. It will become faster and more efficient. It will become easier and safer to use. And much like the PC was a platform for innovation that never happened on mainframes or mini computers, Web3 will be a platform for innovation that would never come from Facebook, Amazon, Google, etc.”
Web3 to DAO – 1
The DAO (decentralised autonomous organisation) is an essential construct in Web3.
Nathan Baschez writes in Every: “The first phases of the internet, web1 and web2, were respectively defined by static one-to-many broadcast websites (e.g. Yahoo) and centrally controlled social networks (e.g. Facebook); in the long arc of history they will come to be seen as a fundamentally flawed and transitory technology, like the digital camera and MP3 player were to the smartphone, or how the Articles of Confederation were to the Constitution. To these crypto degens, web3 is the true and final form of the internet … [DAOs] believe “ask the audience” is the winning strategy, and if you set up the right decision-making systems, collective wisdom is greater than individual vision. One way to think about it is the next wave of democratization. First, we devolved power from monarchs and dictators to elected representatives in the management of nations.”
The Economist explains: “DAOs [are] collectives that use automation and crowdsourcing to make decisions. They do not rely on a single central authority, like a boss. Instead members typically use cryptocurrency to buy tokens, granting them voting rights. Jonah Erlich … has likened a DAO to a group chat with a bank account.”
Youssef Faqir-Rhazoui, Javier Arroyo and Samer Hassan write: “A DAO is a blockchain-based system that enables people to coordinate and self-govern themselves mediated by a set of self-executing rules deployed on a public blockchain, and whose governance is decentralized, that is, independent from central control. DAOs are organizations in the sense that they mediate the interactions of a group of people, typically an open community that joins as members. In some DAOs, members are token holders of a certain token that enables DAO participation, similar to corporation shares. DAOs are considered autonomous because, unless its code explicitly says so, they are independent from their creators. Their operations follow the rules embedded in its code, together with the (human) governance of its members. Moreover, being deployed on a public blockchain, they are censorship-resistant, since there is no central controller that may turn off the DAO and its provided service. Thus, as long as there are members willing to execute their code, DAOs will continue operating, e.g. providing services, purchasing/selling resources or hiring people.”
Arianne Flemming and Jelena Djuric provide a historical perspective: “DAOs are en vogue; the promise and ethos of DAOs are novel but not new. Over 200 years before their transfer onto the blockchain in the form of DAOs, cooperatives have solved governance problems in a democratic and accessible way. Globally and historically practiced structures for corporations, largely ignored by Silicon Valley and technology enthusiasts to date, co-ops are an autonomous association of people united voluntarily to meet common economic, social, and cultural aspirations through a jointly-owned and democratically-controlled enterprise … Little of the operational aspects of what we now call a DAO is new. DAOs don’t need to reinvent the wheel; they can improve on the work already done. Existing cooperatives are useful case studies for DAOs and places to draw inspiration and experience, having stood the test of stable time. What is different is the complete digitization of the cooperative organization, now called platform cooperatives, and the application of blockchain for governance, and cryptocurrency for monetary activities. These are the novel aspects and growth accelerants. The relative ease of use and digitization of trust creates a unique kind of organization when properly leveraged. There are long-standing cooperative business models to learn from and build upon.”
Web3 to DAO – 2
Kyle Chayka wrote in the New Yorker about an example of a DAO: “F.W.B., for instance, is an online community driven by a currency of the same name, which functions as something of a digital V.I.P. lounge for creatives. In order to join, you have to buy the token. Members chat on Discord, participate in physical meetups, and develop projects together, such as a crypto-ticketing app or a new beverage. The result is a kind of decentralized brand identity. Holders vote on ratifying codes of conduct, approving monthly budgets, and collaborating with other companies. Because the blockchain records are transparent, the results of every vote are public.”
Jeff Kauflin with Isabel Contreras write in Forbes: “By using tokens, DAOs can efficiently allow votes, empower profit sharing and, crucially, supply liquidity, as tokens can be bought and sold.”
Binance writes about the basics of how DAOs work:
1. Rules are created via smart contracts through community voting
DAOs operate using smart contracts, and are decentralized and community-led with no central authority. These smart contracts lay the foundational rules of how a DAO is to operate. And these rules cannot be changed unless they’re voted upon by the DAO’s core community members. As decisions to the DAO’s operational workflows, governance system, and incentive structures will need to be voted on in order to take effect, smart contracts are essential to creating a sustainable and autonomous DAO.
2. Users can fund DAO’s growth by purchasing the DAO’s native tokens
Once the rules of the smart contract are written onto the blockchain, the next step is to acquire funding. Since smart contracts require the creation and distribution of internal property like native tokens, which can be used for voting or incentivizing certain activities on the protocol. Individuals or entities interested in participating in the DAO’s growth can purchase the DAO’s native token which are cryptocurrencies tied to certain projects. Token holders are given voting rights proportional to their holdings and are able to own equity in the DAO to help shape the DAO’s future.
3. Receive governance tokens to influence token distribution and treasury management
Once there’s enough funding for a DAO to kick-off, all of its decisions will be made by token holders through a consensus vote. As the DAO’s stakeholders, community members will then work towards the most beneficial outcome for the entire network. Beyond voting rights, members can also work for their DAOs where they can get governance tokens in return, including roles in token distribution and treasury management.
Alexandre Kandelaft discusses how the DAO could revolutionise decision-making in sport: “What if a collective of people could own or at least invest in an organisation and have a say in every decision? Today many sports teams are owned and managed as publicly traded companies so it might be feasible for a group of fans, organised under a DAO, to acquire shares. Teams would have to make a part of their capital available through tokens, created on their own blockchain protocol. Every person buying them would be financially investing in the organisation and the value of each token would be indexed on the club’s financial health. Part of the generated revenues could be stored in a virtual treasury that would serve to further develop the clubs with the development of new projects. The promise of such an initiative is that these tokens would give fans significant advantages (such as club NFTs, membership plans and exclusive promotions) as well as a level of involvement in the daily activities of the organisation that we’ve never seen before.”
Tokens – 1
One of the key elements of Web3 is the token.
Investopedia explains: “Crypto refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions. Cryptocurrencies, on the other hand, are systems that allow for secure payments online which are denominated in virtual tokens. These tokens are represented by ledger entries internal to the system…For example, you can have a crypto token that represents a certain number of customer loyalty points on a blockchain that is used to manage such details for a retail chain. There can be another crypto token that gives entitlement to the token holder to view 10 hours of streaming content on a video-sharing blockchain. Another crypto token may even represent other cryptocurrencies, such as a crypto token being equal to 15 bitcoins on a particular blockchain. Such crypto tokens are tradable and transferable among the various participants of the blockchain.”
Coinbase provides an overview:
“Token” is a word that you hear a lot in cryptocurrency. In fact, you might hear Bitcoin described as a “crypto token” or something similar, because — technically — all cryptoassets can also be described as tokens. But the word has increasingly taken on two specific meanings that are common enough that there’s a good chance you’ll encounter them.
A “token” often refers to any cryptocurrency besides Bitcoin and Ethereum (even though they are also technically tokens). Because Bitcoin and Ethereum are by far the biggest two cryptocurrencies, it’s useful to have a word to describe the universe of other coins. (Another word you might hear with virtually the same meaning is “altcoin.”)
The other increasingly common meaning for “token” has an even more specific connotation, which is to describe cryptoassets that run on top of another cryptocurrency’s blockchain. You’ll encounter this usage if you become interested in decentralized finance (or DeFi). While a cryptocurrency like Bitcoin has its own dedicated blockchain, DeFi tokens like Chainlink and Aave run on top of, or leverage, an existing blockchain, most commonly Ethereum’s.
Tokens in this second category help decentralized applications to do everything from automate interest rates to sell virtual real estate. But they can also be held or traded like any other cryptocurrency.
Business Insider elaborates: “Unlike coins, which directly represent a proposed medium of exchange, crypto tokens are a representation of an asset. These ‘tokens’ can be held for value, traded, and ‘staked’ to earn interest. Some commonly seen tokens are Tether, Uniswap, Chainlink and Polygon. Tokens are used with decentralised applications (DApps) and usually built on top of an existing blockchain. While tokens get to share the benefits of an existing blockchain, they do so without an independent infrastructure…Some tokens like Tether — a stablecoin backed by commercial paper, which is the promise to repay short term debt by companies — make use of more than one blockchain to gain speed and reduce user costs. So, unlike coins, tokens can choose to not be ‘bound’ to a single blockchain, gaining flexibility and becoming easier to trade.”
Wikipedia writes about non-fungible tokens (NFTs): “A non-fungible token (NFT) is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger. NFTs can also be associated with reproducible digital files such as photos, videos, and audio. NFTs use a digital ledger to provide a public certificate of authenticity or proof of ownership, but do not restrict the sharing or copying of the underlying digital files. The ownership that NFTs confer is not legally binding, and is often used as little more than a status symbol. The lack of interchangeability (fungibility) distinguishes NFTs from blockchain cryptocurrencies, such as Bitcoin.”
Tokens – 2
Shermin Voshmgir explains in his book “Token Economy”:
Tokens are the atomic unit of the Web3 and are collectively managed by a distributed ledger. They can be issued with just a few lines of code with a smart contract. Token contracts are rights management tools that can represent anything from a store of value to a set of permissions in the physical, digital, and legal world.
…A token contract is a special type of smart contract that defines a bundle of conditional rights assigned to the token holder. They are rights management tools that can represent any existing digital or physical asset, or access rights to assets someone else owns. Tokens can represent anything from a store of value to a set of permissions in the physical, digital, and legal world. They facilitate collaboration across markets and jurisdictions and allow more transparent, efficient, and fair interactions between market participants, at low costs. Tokens can also incentivize an autonomous group of people to individually contribute to a collective goal.
…The ability to deploy tokens at a low cost relatively effortlessly on a public infrastructure is a game changer, because it makes it economically feasible to represent many types of assets and access rights in a digital way that might not have been feasible before. Examples could be fractional ownership of art or real estate. Such fractional tokenization might improve the liquidity and transparency of existing asset markets.
…Purpose-driven tokens incentivize individual behavior to contribute to a collective goal. This collective goal might be a public good or the reduction of negative externalities to a common good. Purpose-driven tokens introduce a new form of collective value creation without traditional intermediaries. They provide an alternative to the conventional economic system, which predominantly incentivizes individual value creation in the form of private goods.
Phillip Schulz adds:
The term token refers to a unit of value, issued by a private entity, and stored on a blockchain, which is a form of a database. Tokens are digital assets and can have a wide range of functionalities. In a broad sense, there are two main types of tokens:
Security tokens: Security tokens represent a real-world or financial security in a digitalized form. They perform the exact same function and include the same rights as the security they represent.
Utility tokens: A utility token represents the right to a specific, pre-determined functionality within a closed blockchain-based ecosystem.
He explains the difference between tokens and coins: “Tokens and coins are two different kinds of units created using cryptography. On the contrary to tokens, coins circulate as a currency and are a medium of exchange, unit of account or a store of value. Thus, one could buy a token with a coin, but not the other way around. Furthermore, coins are not issued by a private entity, and they are running on their own blockchain. Bitcoin, for example, runs on the Bitcoin network. Tokens, on the other hand, are built on an already existing blockchain platform, such as Ethereum.”
Network Effects and Web3 Tokens, shortened as NEWT, offer the possibility of a new foundation for solving problems. I have focused on the two problems of Attention Recession and Voter Aggregation. What I want to explore in the rest of the series is to see how the NEWT ideas can offer creative ways to craft the solutions – Atomic Rewards and United Voters of India (UVI).
We need Network Effects because we want the value of the tokens to increase with and for each additional user. This will in turn attract more users. Atomic Rewards creates a two-sided platform: brands and customers. Network effects will help get more customers which in turn will attract more brands, and also create stickiness. UVI is a multi-sided platform connecting voters, candidates, volunteers and donors. More voters means more candidates. Given the first-past-the-post system in India, a critical mass of voters is needed to have a chance of ensuring the candidate selected can win. The voters-candidates networks need to happen in every constituency, since voting is local.
We need Web3 Tokens because we need to create incentives for participation. Brands reward their customers for their attention. Customers can in turn use their tokens in an online shop. Perhaps, these tokens could also increase in value over time. In UVI, the tokens can help drive a sub-economy that nurtures activities done by individuals to expand the membership base. Donors could buy the tokens and thus inject real money into the system, which can then be used to fund candidates and volunteers.
NEWT is the magic potion that can help create the two ecosystems: for brands and customers to engage with each other, and voters to choose their candidates and build a critical mass to ensure their victory in elections. At this stage, all of this is still speculative thinking. Like in science fiction writings (Foundation and The Expanse series are good examples), what I am doing is imagining the future where technology creates new possibilities to solve existing problems. Admittedly, these are two different worlds – marketing and politics. But there are many similarities. Marketers (brands) and politicians (candidates) want attention (time) as a stepping stone to the transactions (money and votes).
The NEWT framework offers a way to reimagine marketing and politics in the future, and that is the exploration I am doing in this series. Marketing and politics are beset by inefficiencies – most of the push messages sent by brands are being ignored, and the actions by apathetic voters have left India with poor political choices and outcomes. New technology ideas can hopefully help solve these problems and deliver better results to marketers and Indian citizens. And in doing so, what we need to do is to imagine a new “land”.
Metaverse and Virtual Worlds – 1
Over the past few months, there has been a lot of discussion on the metaverse. New York Times writes: “Matthew Ball, a venture capitalist who has written extensively about the topic, said the metaverse represented the fourth wave to computers, following mainframe computing, personal computing and mobile computing. “It’s moving into what people call ambient computing,” he said about the metaverse. “It’s about being within the computer rather than accessing the computer. It’s about being always online rather than always having access to an online world.”” (I have also written about the metaverse in the context of brand-customer relationships.)
One way to think about the brand-customer and voter-candidate interactions is to imagine them in a virtual world. Almost everything can be done digitally, except the final act of voting which needs to happen on election day in a polling booth. So, what we need to do is to imagine a virtual world where brands can engage with their increasingly digital prospects and customers, and prospective candidates can connect with their increasingly digital supporters and prospective voters. What we need to do is to imagine and construct new worlds. Video games and emerging platforms like Decentraland give us a glimpse of this emerging future.
Wikipedia: “Decentraland is an open source 3D virtual world platform. Users may buy virtual plots of land in the platform as NFTs via the MANA cryptocurrency. It was opened to the public in February 2020.”
PC Gamer: “A desert island covered in swords, skulls, plundered loot, and bottles of rum. A picturesque farm on rolling green plains, where any player can pluck the fresh produce off the fields and combine them into a country meal to enjoy with the livestock. An austere, concrete mausoleum, filled to the brim with charts, integers and an echoing voice educating me on the finer points of crypto economics, coin development, and artificial scarcity. A glittering casino, where you can put all of your hard-earned crypto on black. These are just a few of the landmarks I discovered during my time with Decentraland… Decentraland’s gameplay loop is built around the humble act of existing; to explore the works of others, to marvel at the human potential for creativity, to meet and collaborate with other souls… Every piece of content in the game is owned, completely autonomously, by the players. They barter for property ownership, cosmetic gear, and even player names through a real cryptocurrency called MANA that’s powered by the Ethereum blockchain. That desert island doesn’t belong to Decentraland’s publisher. Instead, it’s an environment some player somewhere owns, even after they uploaded it to their tiny slice of Decentraland’s legally perplexing landscape.”
The Generalist: “What is Decentraland? Is it a world? A protocol? A token? A DAO? The answer is “yes.” Decentraland is all of these things and quite a bit more…The virtual world has grown its users by 3,300% over the past year and reached a peak market cap of $12 billion… Decentraland is not yet a thriving city. While it may have plenty of capital and rapidly growing user numbers, for now, it is a metropolis in motion, an urbanity still working through maturation. There is art and commerce, an economy and system of governance, but it is still shy of that ineffable, living quality that animates the real world and the cities that draw us in.”
Metaverse and Virtual Worlds – 2
Brooks Canavesi: “The most prominent representative of the decentralized metaverse is Decentraland, a world built on the Ethereum blockchain, controlled by a Decentralized Autonomous Organization (DAO) made up of individual players who can vote to change the policies that determine how the world behaves. Decentraland has its own cryptocurrency, MANA, and this cryptocurrency can be freely exchanged on cryptocurrency exchanges for other currencies. Other representatives of the decentralized metaverse include The Sandbox and Somnium Space. Together with Decentraland, these virtual reality universes tokenize in-game assets and land parcels to give players the ultimate control over the world they inhabit and help create—the same control they enjoy over their real-world possessions.
Minecraft, Fortnite, Roblox and The Sandbox are more examples of such virtual worlds. Business Insider writes: “[The Sandbox co-founder Sebastian] Borget said blockchain technology is hugely useful for allowing users to own the content they create in The Sandbox, because it lets them mint it onto non-fungible tokens, or NFTs — a sort of unique crypto collectible. It also allows complex networks to exist without any one entity having overall control. For example, the amount of land in The Sandbox is finite, Borget said, and is governed by a so-called smart contract written onto the blockchain.”
Maxwell Strachan: “The ever-growing number of avatar-filled virtual worlds selling digital land, bucketed under the term “metaverse,” share several philosophical and technological similarities. They are mostly enabled through the use of cryptocurrencies and non-fungible tokens, keen to describe themselves as decentralized, and quick to promote the prospect of users making money. But they are often distinct and in different phases of development.”
David Chalmers offers a philosopher’s view in his new book, “Reality+”: “Today’s VR and AR systems are primitive. The headsets and glasses are bulky. The visual resolution for virtual objects is grainy. Virtual environments offer immersive vision and sound, but you can’t touch a virtual surface, smell a virtual flower, or taste a virtual glass of wine when you drink it. These temporary limitations will pass. The physics engines that underpin VR are improving. In years to come, the headsets will get smaller, and we will transition to glasses, contact lenses, and eventually retinal or brain implants. The resolution will get better, until a virtual world looks exactly like a nonvirtual world. We will figure out how to handle touch, smell, and taste. We may spend much of our lives in these environments, whether for work, socializing, or entertainment…Virtual reality is genuine reality . Or at least, virtual realities are genuine realities. Virtual worlds need not be second-class realities. They can be first-class realities.”
Let us combine the ideas of network effects and Web3 tokens (NEWT, as I have termed the combo), and virtual worlds to solve the problems of Attention Recession in marketing and Voter Aggregation in politics. For this, let us extend our imagination to constructing two virtual worlds: µniverse (pronounced mu-universe) and Bharatverse (which probably needs a better name).
|Network Entities||Brands and Customers||Voters and Candidates|
|Problem||Attention Recession||Voter Aggregation|
|Solution||Atomic Rewards||United Voters of India|
As I wrote at the start of this series, what I am doing here is sparking the imagination. For this, we need to create a vocabulary and give labels to what we are mentally constructing. This helps us bring these worlds to life in our mind’s eye.
Good science fiction does this very well. Apple TV brought Issac Asimov’s Foundation series to life. So does The Expanse, based on the books by James Corey (the joint pen name of authors Daniel Abraham and Ty Franck), and available on Amazon Prime Video. For the few hours that we spend reading or watching, we are transported into a different world. In the modern world, some of the digital games that are available do much the same.
My purpose in imagining µniverse is to consider possibilities. What if brands could reward us for our actions? How would that change our behaviour? Brands have always focused on transactions, but not as much on the upstream of attention, engagement and habit formation. How could they do it? Just appealing to our emotions is not going to be enough. This is where the incentives come in – via Atomic Rewards. To make such a system work, it would need to be pan-brand. How can such a mechanism be created so that half the digital ad spending billion being wasted on reacquisition and wrong acquisition via Google and Facebook is channelised to prospects and customers to create a win-win relationship for both sides?
The purpose with Bharatverse is much bigger. The future of a billion Indians has been deeply damaged by our politicians. Freedom, the prerequisite for prosperity, is withering in India as successive governments keep increasing interventions in our personal and commercial lives. No political party is going to do anything different – they are all cut from the same cloth of maximising power of those at the top and their cronies. India’s politics needs a disruption and it is not going to come from within the political class. It needs a people’s revolution. The mobile phone can be the transformation agent. There is a need to educate people, change their minds and channel their votes. Only a Swatantra Lok Sabha can free India from the fetters imposed by politicians and put Indians on an irreversible path to prosperity. How can such a future be realised – not in a generation but with the next election?
Every future begins with an idea in a mind. µniverse and Bharatverse are two such ideas.
µniverse – 1
Brands are faced with three challenges: the rising cost of new customer acquisition driving a “doom loop” of spending on Google and Facebook, attention recession among existing customers which leads to retention recession and continuous churn, and retaining existing customers since competitors are persistently targeting them for acquisition. Brands selling through marketplaces have another challenge: how to build direct relationships with their customers since marketplaces do not share customer information.
These challenges can be reconsidered thus. In the world of martech, the focus needs to be building deep relationships with existing customers so that the need to constantly offer transaction-linked incentives can be obviated. This needs brands to shift the focus to the upstream of attention, engagement and habits to create “hooked customers”. In the world of adtech, the power of the intermediaries (Google, Facebook in digital advertising, Amazon in marketplaces, and Instagram and Tiktok in influencer marketing) drives up spending and creates barriers to profitable growth.
Solutions need to be thought about against the backdrop of three colliding worlds: customer loyalty, gamification and crypto. In other words, how can brand-customer relationships be reimagined in a Web3 world? This is where the idea of the µniverse comes in, with attention tokens as one key building block.
An early foray into the world of “attention tokens” has been done by Brave. From its white paper:
Digital advertising is broken. The marketplace for online advertising, once dominated by advertisers, publishers and users, has become overrun by “middleman” ad exchanges, audience segmentation, complicated behavioral and cross-device user tracking, and opaque cross-party sharing through data management platforms. Users face unprecedented levels of malvertisements and privacy violations. Mobile advertising results in as much as $23 per month in data charges on the average user’s data plan, slow page loads, and as much as 21% less battery life. In response, over 600 million mobile devices and desktops (globally) employ ad blocking software and this number is growing. Traditional publishers have lost approximately 66% of their revenue over the past decade, adjusted for inflation. Publishers face falling revenue, users feel increasingly violated, and advertisers’ ability to assess effectiveness is diminished.
The solution is a decentralized, transparent digital ad exchange based on Blockchain. The first component is Brave, a fast, open source, privacy-focused browser that blocks third party ads and trackers, and builds in a ledger system that measures user attention to reward publishers accordingly. Brave will now introduce BAT (Basic Attention Token), a token for a decentralized ad exchange. It compensates the browser user for attention while protecting privacy. BAT connects advertisers, publishers, and users and is denominated by relevant user attention, while removing social and economic costs associated with existing ad networks, e.g., fraud, privacy violations, and malvertising. BAT is a payment system that rewards and protects the user while giving better conversion to advertisers and higher yield to publishers. We see BAT and associated technologies as a future part of web standards, solving the important problem of monetizing publisher content while protecting user privacy.
…In the ecosystem, advertisers will give publishers BATs based on the measured attention of users. Users will also receive some BATs for participating. They can donate them back to publishers or use them on the platform. This transparent system keeps user data private while delivering fewer but more relevant ads. Publishers experience less fraud while increasing their percentage of rewards. And advertisers get better reporting and performance.
µniverse – 2
Another company working to solve the digital advertising problem is Gener8ads. From a 2019 Forbes article: “Gener8, a U.K. based company is launching … a browser add-on, as opposed to a separate browser, that allows consumers to block ads they don’t want to see but get paid to view those they personally identify as being of interest (see graphic above). Consumers are thus allowed to select the type of ads they want to see and this applies across the web (excluding Facebook). For each ad viewed, the user receives tokens that they can either convert into currency or donate to charity… By using Gener8’s system, advertisers can reach an interested audience and collect additional data in a way that allows for even better future targeting.”
Attention is important. Brave and Gener8ads have focused on new customers and advertising. My starting point is a brand’s existing customers. What brands need is a mechanism to pay for attention (time) because the alternative in the event of a customer churning is to pay 100 times more to the adtech platforms for reacquisition. This is where “Atomic Rewards” comes in.
Search Engine Journal writes about a recent Google which shows 90% of customers will share their email address for a small incentive, such as a discount. “It’s not possible to deliver relevant ads without gathering at least some data on who the ads are being served to. Customers understand this, and are willing to cooperate to a certain extent. The study finds that consumers are most willing to share information they don’t view as invasive and identifying. That can include information such as their gender, postal code, age, interests, and previous purchases.”
In our context, consider an entity (MuCo) which creates a pan-brand attention and engagement loyalty program. Brands can buy Mu from MuCo and reward their customers for specific actions linked to attention, engagement and zero-party data. Customers collect Mu from across their favourite brands and then can redeem them at the Mu Shop.
This is akin to what happens with credit card points today. They are aggregated across spends with multiple brands and can be redeemed at the store offered by the credit card company. There are also other pan-brand programs like Payback and Intermiles which reward transactions and enable customers to aggregate points in a single account. Airline loyalty programs have also expanded their offerings to enable earning via spending at affiliated merchants. All these programs are focused on the transfer of money, while MuCo is themed around attention and engagement (time).
Let’s look at this from the viewpoint of the end customer. I get push messages from various brands. As I open these emails, click through to the brand properties (website or app), provide personal information, fill out surveys, I earn Mu. I am being rewarded for my attention. Because Mu works across brands, the earning potential in a month can be significant. (Two alternatives to Mu are the use of a brand’s own loyalty program and Brand Tokens, an attention-specific loyalty program limited to a single brand.) The rewards are a form of gamification; marketers can thus influence my behaviour with specific incentives and nudge me along the buying journey. When I have sufficient Mu, I can go to the Mu Shop and redeem the points.
Over time, the ways to earn Mu can be expanded beyond push messages to the brand’s properties and in the physical world. In essence, a brand is paying for my attention, as an alternative to incentivising only transactions or paying ad tech companies to reacquire me in the event that I churn. Today’s B2C and D2C companies spend a large chunk of their capital on discounts and reacquisition; Atomic Rewards in the form of Mu offer an alternative pathway to building loyalty via gamification.
µniverse – 3
The next question to consider: how can Web3 ideas enhance Atomic Rewards?
Three tweaks to the Mu points system can create an even better solution. First, MuCo should think of Mu as tokens. Second, it should put an upper limit on the number of tokens in circulation with clear rules governing their minting – introduction into circulation. Third, MuCo should create an exchange enabling the Mu tokens to be traded between brands and customers. The impact of these enhancements will be that the value of Mu can now increase over time – thus making the Mu token holders (customers) as investors. The key to making this work is the assumption that incentives offered in the form of Mu can indeed nudge customer behaviour as desired by marketers. Games have done this very well; it still remains to be seen whether it can work in the real world.
Since the absolute quantum of Mu tokens is capped, over time brands requiring them will need to buy them via the exchange from customers (or potentially, other brands who have bought them earlier.) This “exchange” will enable the creation of a marketplace where the price of Mu will be determined by buyers and sellers, rather than a centralised entity. It is similar to how bidding on keywords for advertising on Google is determined via an auction.
As Mu tokens acquire value beyond what is set by MuCo, it can become an “attention crypto-currency”. Transactions are stored on the blockchain to ensure transparency. Every customer now has a “Mu Wallet” where they can hold their tokens. And as marketers and customers see value, the usage of the tokens can also diversify. A MuBox (or micronbox, as I have termed it previously) can aggregate all messages with rewards into a single inbox. A MuBrowser can address privacy and generate rewards. These would be the baby steps to creating the µniverse, a virtual world where brands and customers can engage with each other.
Let’s take this further. One of the biggest challenges that a brand has is new customer acquisition. Suppose they incentivised existing customers to help them get new ones via referrals. Let’s take the example of Netflix which is having growth hiccups in India. Suppose Netflix would allow me as a customer to check who among my social network is a customer. If I can then persuade those in my network who are not Netflix customers to sign-up, I can be rewarded with Mu tokens. This makes referrals targeted and rewarding. Each of us is a micro-influencer and we all know the power of word of mouth. What’s been missing is the knowledge of whom to persuade and an incentive to do so. Atomic Rewards in the form of Mu tokens can be the answer. Web3 tokens can thus drive network effects to solve not just attention recession but also the cold start problem that many brands have – in an efficient manner, where the cost of acquisition can be taken as a percentage of the sale value, thus creating an infinite budget for new customer acquisition.
µniverse – 4
I remember the early days of the Internet. I was a failing entrepreneur in Mumbai in the summer of 1994. Two years after my return to India, I wondered if I could be successful after a string of flops. It was then that I started reading about the Internet. Two months spent in the US using a dial-up browser convinced me that this was the future. And thus was born the idea of creating IndiaWorld as an electronic information marketplace to connect Indians globally.
As I read about Web3 now and look beyond the price volatility of Bitcoin and the other cryptocurrencies, there is a similar feeling that there is something new and exciting being created. What is needed is to think about how this can be applied – what are the second- and third-order effects of the decentralised infrastructure that is being constructed?
Just as the early years of the Internet offered the promise of digitisation of all that was not, Web3 can decentralise all that is not. It is up to us to imagine the use cases and the new “universes” that can be constructed.
The Economist wrote recently about the promise of Web3:
The history of modern computing is of a constant struggle between decentralisers and recentralisers. In the 1980s the shift from mainframes to personal computers gave individual users more power. Then Microsoft clawed some of it back with its proprietary operating system. More recently, open-source software, which users can download for nothing and adapt to their needs, took over from proprietary programs in parts of the industry—only to be reappropriated by the tech giants to run their mobile operating systems (as Google does with Android) or cloud-computing data centres (including those owned by Amazon, Microsoft and Google).
The web3 movement is a reaction to perhaps the greatest centralisation of all: that of the internet. As Chris Dixon, who oversees web3 investments at a16z, explains it, the original, decentralised web lasted from 1990 to about 2005. This web1, call it, was populated by flat web pages and governed by open technical rules put together by standards bodies. The next iteration, web2, brought the rise of tech giants such as Alphabet and Meta, which managed to amass huge centralised databases of user information. Web3, in Mr Dixon’s telling, “combines the decentralised, community-governed ethos of web1 with the advanced, modern functionality of web2”.
This is possible thanks to blockchains, which turn the centralised databases to which big tech owes its power into a common good that can be used by anybody without permission. Blockchains are a special type of ledger that is not maintained centrally by a single entity (as a bank controls all its customers accounts) but collectively by its users. Blockchains have outgrown cryptocurrencies, their earliest application, and spread into NFTs and other sorts of “decentralised finance” (DeFi). Now they are increasingly underpinning non-financial services.
It is time to reinvent the world brand customer relationships and rethink them in the context of Web3, blockchains, and cryptocurrencies. There are hundreds of billions of dollars being wasted because of reacquisition and wrong acquisition. Tapping into those is one of the biggest business opportunities in tomorrow’s digital first world. The µniverse, constructed as a DAO with the right rules and incentives, is waiting to be built.
Bharatverse – 1
As the election season once again plays out in India, the politicians are up to the same games: switching parties, muzzling media, uniting their core with dog whistles, and splurging money to buy votes. There is no discussion on how a party once in power will shut down the government-created anti-prosperity machine that has plagued India through the past 75 years. How will the massive surplus of Indians move away from agriculture to better jobs in manufacturing and services? How will they become upwardly mobile? How will the education system be reformed and freed from government interference? How will the discretionary powers that politicians and bureaucrats have be limited so that corruption can be eliminated, and individuals and businesses get the freedom they need to create a better tomorrow? Caste and religion dominate the conversation, as has been the case through the decades. The economic pain and the path to prosperity is on nobody’s radar. Political power is the endgame, not the means for a new direction for India.
Indian Express wrote recently: “In a trend unprecedented since economic liberalisation, the annual income of the poorest 20% of Indian households, constantly rising since 1995, plunged 53% in the pandemic year 2020-21 from their levels in 2015-16. In the same five-year period, the richest 20% saw their annual household income grow 39% reflecting the sharp contrast Covid’s economic impact has had on the bottom of the pyramid and the top.”
Praveen Chakravarty added: “30 million people queued up in November 2021 to ask for work at paltry minimum wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). It is a good reflection of India’s labour market since only those desperately in need of income, demand work. In essence, 15 times more people in penury are pleading for minimum wage work than the total number of people employed by all startups in India combined.”
Andy Mukhejee wrote: “200 million jobs are missing from the economy…Two years of Covid-19 have deepened the dichotomy in India’s production networks. Informal activity, which supports 90% of jobs, was under pressure to come into the fold of taxation and social security even before infections and lockdowns. Since March 2020, it has retreated into a shell. Organized activity has stepped into the breach and lifted output back to pre-pandemic levels, though not yet to its previous growth path. The revival of jobs is proving to be even more challenging because the same output can be produced in the formal sector with less labor. Hiring is muted outside of a few white-collar pockets like computer software. For India’s employment-to-population ratio to be at the global average, nearly 600 million people need to be at work. Currently, only a little more than 400 million are.”
For Indians to experience real freedom and irreversible prosperity, there is a need to look beyond the politicians and their parties. India needs a people’s revolution that brings in new rules, and not just replace rulers. This is where we need to think Nayi Disha, United Voters of India, Web3, and Bharatverse.
Bharatverse – 2
To bring about the transformation India needs, the first step is to gain control of the Lok Sabha to implement the Nayi Disha Agenda. (I have explained this in my Manthan talk.) The “Swatantra Lok Sabha” – a Lok Sabha of Independents – needs unity among the non-aligned and non-voters (NANVs) who account for two-thirds of India’s voting population. If half of them can vote as one in every constituency, the first-past-the-post system will ensure that the candidates they support have a very good chance of victory. This is the decentralised political platform that needs to be created. Bharatverse is about imagining this new world where Indian voters come together on a digital platform to gain power, transform governance, and put in place new rules for the future to finally end the kakistocracy that has ensured Indians stay poor even as the politicians and bureaucrats amass wealth at their expense. Digital is the only way to bring people together in a cost-effective manner; the only physical world action that is needed is the casting of the vote on election day.
Creating a new political party is not the solution because it will also fall prey to the centralisation of power that every politician aspires for. The model has to be one built on the principle of decentralisation from day one. Therefore, it needs to be thought of as a platform, a DAO – decentralised autonomous organisation. The blockchain can ensure transparency and “Bhim” social tokens can create the incentive necessary to bring people together for a common purpose.
Eliot Couvat explains the social tokens idea:
Social tokens are a way to incentivize anyone to work toward joint projects in a DAO, a crypto-based decentralized community, in exchange for a digital currency. This digital currency can then be redeemed in exchange for other cryptocurrencies or special perks within the community the token is associated with, such as access to token-gated content, the right to vote on future strategic decisions, or early access to community NFTs.
DAOs are firstly virtual places where people passionate about the same things decide to join forces to hang out and achieve high-ambition goals. It’s not about work. It’s first and foremost about culture, about vibing together and creating what you’ve always wanted to create. In DAOs, culture comes first, products and projects come second. There are many types of DAOs, some focused on building products for the crypto world and some focused on social networking. All DAOs, even socially-focused ones, are building different products with different ways to organize their work, and social tokens are how they can accomplish these goals.
Social tokens are cryptocurrencies like any other regular cryptocurrency. But the benefit of creating a social token is to give community leaders the power over the distribution of the token.
…The point of creating a social token is to incentivize collaboration by making it easy to collaborate with individuals that you don’t know and that you don’t specifically trust. Instead of setting up contracts and legal status to cover each contributor at the beginning, social tokens enable transactions on a blockchain, meaning there is an irrefutable record of the exchange.
Nayi Disha as the vision, Voter Aggregation as the mission, United Voters of India (UVI) as the DAO which brings together the voters and candidates, Bhim as the social token, and Bharatverse as the virtual world which brings it all together – this is the path forward if we are to truly transform India not over multiple generations, but in the next election.
Bharatverse – 3
So, how would the Bharatverse world in its simplest form work? [I have discussed some ideas in a previous essay.]
The first need is for members to join UVI with a simple pledge: “we will vote and vote as one.” Bhim tokens can be issued to those who join and those who have facilitated the new member to join. Tokens will also need to be awarded to those in the network who can confirm the identity of the new member. The number of token issues will be high for the initial membership (say, the first 10 million). In fact, incentives could be offered to ensure that each constituency gets to a 5% membership base from the eligible voters. This creates the critical mass (“atomic network”) to drive viral growth and also attract candidates.
The second need is for raising funds because eventually some resources will be required for contesting elections, technology development, and physical world events. Donors can be issued tokens in return for their financial contributions. Candidates who need to get work done can also buy tokens by paying money; they can also get tokens as transfers from donors who have bought them.
The third need is for creating an economic value for the tokens. There are two possible approaches here. The DAO can announce a finite upper limit on the tokens issued, after which donors or candidates will need to buy tokens from a “trading exchange” which will determine price based on demand and supply. The second is to give decision-making power to the members based on the tokens they have: quadratic voting can be used for this purpose.
The fourth need is to create a process for candidate selection. This will be done via digital primaries. Every member will have one voting token which is transferable. So, if I am not sure who to vote for, I can delegate my vote to someone else who is more knowledgeable. A combination of ranked choice voting and quadratic voting can be used to improve the voting process.
The fifth need is to train candidates for power. This is where the Sabhas idea comes in. Local communities would elect their leaders to form Jan Sabhas (or shadow governments). This gives an opportunity for non-politicians to hone their skills and get trained in persuasion, debating and policy-making.
The sixth need is for rules rather than individuals to govern the UVI DAO. Simple rules are the key so all members can understand them. Recursion can ensure they flow downwards to the local level.
These are starting ideas to kickstart Bharatverse. A lot more thinking and refinement needs to be done. Hopefully, political entrepreneurs can enrich the ideas and start the groundwork for ensuring 2024 ends British Raj 2.0, and ushers a new era that brings freedom and prosperity to every Indian.
Every idea starts in someone’s imagination and then slowly comes to life. In this series, I have imagined how the Web3 infrastructure being created can be applied to solve two problems: Attention Recession and Voter Aggregation. I have tried to imagine two worlds – µniverse and Bharatverse. Of course, much more work needs to be done to convert the ideas into real-world solutions.
Entrepreneurs are problem solvers. The Web3 world for the first time offers Indian entrepreneurs a level playing field. India largely missed the first two iterations because it did not have the digital infrastructure, the user base and the funding that many entrepreneurs need for their ventures. Web3 can change the game. Even as one set of entrepreneurs work to build the underlying infrastructure, another set of entrepreneurs need to start imagining the world beyond. What can Web3 really enable? What can be made better? What are the pain points today which can be solved 10X better with Web3?
For me (and like everyone I am a creature of my past experiences), the two biggest opportunities are in rethinking the brand customer relationship and transforming a nation of a billion people. The cost of Attention Retention and the consequent overspending on acquisition is $200 billion – half of what is spent on digital advertising. This wasteful expenditure is on reacquisition and wrong acquisition. Imagine this money in the hands of the brand’s customers – as incentives for their attention and network. Brands and customers will not need intermediaries to connect with each other. Web3 innovations – and not anti-trust legislation – is the way to take on Big Tech.
Similarly, in India, the Big Parties have sucked away the prosperity from a vast majority of Indians. Indians should have been many times wealthier by now – like Singaporeans or South Koreans. The average Chinese earns almost five times more than the average Indian – and both countries were at the same level just 40 years ago. It is India’s political parties and their leaders who have denied the people the chance to be free and therefore rich. Their policies of extraction and exploitation were no different from the British, and therefore the outcomes have been no different. India needs a political revolution first to bring in the economic revolution. This is where Web3 offers Indians an opportunity to use digital and decentralised mechanisms to unite their vote and bring about a change in leadership and future policies.
Two different worlds. Two different solutions. But the underlying ideas are the same. Decentralisation, blockchain, DAO, tokens. Can we make µniverse and Bharatverse a reality in the coming years? What we need are entrepreneurs with vision and will.