µniverse and Bharatverse: Web3 Explorations (Part 7)

Web3 Views – 1 

There is a diversity of opinions on Web3. Here are a few:

Chris Dixon:

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.

Tim O’Reilly:

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.

Thinks 419

Economist: “In “The Power Law”, Sebastian Mallaby acknowledges some of the industry’s shortcomings, most notably its shocking lack of diversity. But he zealously defends the overall achievements of the VC industry, which has funded many of the modern world’s most useful inventions (search engines, smartphones, vaccines), disrupted cosy monopolies and generated eye-popping wealth. He even claims that VCs have emerged as a “third great institution of modern capitalism”, combining the organisational strengths of companies with the flexibility of markets. Little surprise that the VC model has now gone global, with particularly striking results in China.”

Shekhar Gupta: “Politics of grievance, we said, had now been replaced by the politics of aspiration. What else could a predominantly young India ask the Gods for? Growth had been brilliant the preceding years, and India was poised to encash its demographic dividend. This was a sentiment that spoke out in the majority given to Narendra Modi in 2014. The young Indians, still riding a wave of optimism, and bitter with UPA-2, bought into his promise of growth, jobs, prosperity. They weren’t just voting against Pakistan, or a new republic where Muslims were to be ‘others’ and ‘allowed to live’ only if they knew their place. Year on year after that, we’ve gone backwards into the angry past…The fate of nations and civilisations, however, isn’t determined by who wins an election or two. It’s defined by what its people, especially its young people, are thinking. Aspirations for the future or moaning over the past?”

George Will: “Today’s Federal Reserve illustrates this axiom: When a government entity cannot, or would rather not, adequately perform its primary function, or when it feels that its primary function is insufficiently grand, the agency will expand its mission, thereby distracting attention from its core inadequacy.”

µniverse and Bharatverse: Web3 Explorations (Part 6)

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:

  1. A tamper-evident historical log (the “chain” itself)
  2. A trustless distributed consensus protocol
  3. 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:

  • Verifiable
  • Trustless
  • Self-governing
  • Permissionless
  • Distributed and robust
  • Stateful
  • 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
  • Blockchain development environment
  • File storage
  • P2P Databases
  • API (Indexing & querying)
  • Identity
  • 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:

Thinks 418

Techcrunch: ““At the end of the day, DAOs are a collective technology as opposed to an individual one,” Syndicate co-founder Will Papper tells TechCrunch. “DAOs are kind of the next evolution of the corporation because they encode both voice and exit into their foundations.””

Javier Corrales: “One challenge in the study of democratic backsliding is that, in the early stages, it is not easy for voters, or even analysts, to discern if backsliding is happening or is likely to succeed. Often, the reason for the confusion is that backsliding, like aging, occurs gradually and piecemeal, rather than abruptly or violently. Backsliding executives do not abolish all democratic institutions and freedoms at once. Instead, they eliminate or distort them one piece at a time, often covertly. In addition, backsliding executives sometimes camouflage their assaults on institutions with people-pleasing measures.”

WSJ speaks to the president of the new University of texas in Austin: ““The cost structure of higher education is scandalous,” says Mr. [Pano] Kanelos. He argues that runaway spending on administrators and student amenities like “sushi bars” serve neither students nor universities, which often try to cut corners with “exploitative” contracts with part-time faculty. Armed with lessons from St. John’s and elsewhere, Mr. Kanelos is now working to create a new, sustainable business model for UATX that will make college more affordable and accessible—“within the range of what a public institution might charge out-of-state students.”…A primary reason for creating UATX is to counter the “intellectual asymmetry” Mr. Kanelos observes on American campuses, which he says creates an atmosphere of fear among those who aren’t sufficiently progressive. But he pushes back against concerns that the school will be, as a Politico article put it last fall, an “intra-right-centrist lovefest.” “I have no interest in an anti-woke university, whatever that means,” Mr. Kanelos says. “When we build this institution, there will be people of every intellectual stripe, or we will have failed.””

µniverse and Bharatverse: Web3 Explorations (Part 5)

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.”

Thinks 417

NYTimes: “Virtual reality is now advancing so quickly that it seems quite reasonable to guess that the world inside V.R. could one day be indistinguishable from the world outside it. [David] Chalmers says this could happen within a century; I wouldn’t be surprised if we passed that mark within a few decades. Whenever it happens, the development of realistic V.R. will be earthshaking, for reasons both practical and profound. The practical ones are obvious: If people can easily flit between the physical world and virtual ones that feel exactly like the physical world, which one should we regard as real?”

Vidya Mahambare: “At an all-India level, from 2004-05 to 2018-19, while young adults in farm work as a proportion of their population fell from 34% to 14%, those in non-farm employment remained largely constant at around 29%…Why did the share of young adult employment in industry and services not rise during a largely good period of growth for the economy? A combination of three factors may explain it. First, more young adults are staying in education longer; second, unemployment has risen; and third, more women are either leaving or not taking up paid work.”

Tyler Cowen: “For all the talk about how political and media bias distort people’s perceptions of current events, another kind of bias may have an even greater impact: recency bias. Put simply, recency bias is the practice of giving disproportionate weight to the events of the recent past when formulating expectations and plans. For instance, starting in 2008 the U.S. Federal Reserve increased the money supply sharply, and the rate of price inflation did not rise correspondingly. One result of this recent episode of expansionary monetary policy is that America became less vigilant about inflation — and it is now living with the consequences.”

µniverse and Bharatverse: Web3 Explorations (Part 4)

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.

Thinks 416

Economist: “The idea behind DeFi is that blockchains—databases distributed over many computers and kept secure by cryptography—can help replace centralised intermediaries like banks and tech platforms. The value of assets stored in this nascent financial system has climbed from less than $1bn at the start of 2020 to more than $200bn today. Until recently the Ethereum blockchain was the undisputed host of all this activity. It was created in 2015 as a more general-purpose version of Bitcoin. Bitcoin’s database stores information about transactions in the associated cryptocurrency, providing proof of who owns what at any time. Ethereum stores more information, such as lines of computer code. An application that can be programmed in code can be guaranteed to operate as written, thereby removing the need for an intermediary. But just as Ethereum improved upon Bitcoin, it too is now being usurped by newer, better technology.”

Superorganizers: “No one sleeps enough or perfectly every night. That’s where yoga nidra comes in. Yoga nidra sessions activate the parasynthetic nervous system, or the body’s calming system, and allow us to reach the restful netherworld between wakefulness and true sleep. If you try to make up for a bad night’s sleep with a two hour nap, you’ll throw your carefully calibrated sleep schedule out of whack. If you instead practice yoga nidra or another type of NSDR and stick with your routine, you’ll be better off. ”

Narotam Sekhsaria: “The Marwaris, as is well known, have a unique talent for trading and business, a talent that they have cultivated and put to use assiduously over the centuries. An intangible factor sometimes referred to as baniya buddhi or the ‘trader’s mindset’, has ensured them success wherever they have gone. From running local businesses, to trading with camel caravans that travelled to India from Central Asia and beyond, to funding rulers throughout north India across reigns and kingdoms, the itinerant Marwari traders, moneylenders, financiers and bankers have been involved in every money-related activity throughout the history of modern India.”

µniverse and Bharatverse: Web3 Explorations (Part 3)

Network Effects

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.”

Thinks 415

Economist: Five of America’s biggest firms, Alphabet, Amazon, Apple, Meta and Microsoft—call them MAAMA — have invested $280bn in the past year, equivalent to 9% of American business investment, up from 4% five years ago. Big tech wants to find the next big opportunity, and our analysis of deals, patents, recruitment and other yardsticks shows that cash is flowing into everything from driverless cars to quantum computing. The shift reflects a fear that the lucrative fiefs of the 2010s are losing relevance, and the fact that tech’s titans are increasingly moving onto each other’s patches (the share of sales that overlap has doubled since 2015 to 40%). So they are all looking to swoop into new territory.” More: “Their focus is on the metaverse, cars and health care.”

Shankkar Aiyar on the need to redesign the Indian Constitution: “The fundamental issue India must debate as it rises to be the sixth-largest economy hosting over 1.4 billion people, is how to redesign the constitutional framework to address the deficits in governance. The basic design of the current structure was inherited from the colonial regime. The construct of the division of responsibilities in Schedule 7 stems from the Government of India Act 1919 artifacts from the Government of India Act 1935. The confusion about who does what is responsible was worsened by the amendments during the Emergency.”

Brunello Cucinelli: “There are three things you cannot buy. Fitness: You have to keep fit, whether you’re rich or not. Diet: You cannot pay someone to be on a diet for you. I think that diet is the biggest sacrifice in my life. Then, looking after your soul. No one can possibly treat your soul but you yourself. This is something you can do through culture and philosophy.” [via Shane Parish]