I started my internet career in the early 2000s during the dot-com bust. It's hard to picture this now, but the internet was a thing that people used only intermittently, to check email or plan travel or do some research. The average internet user spent about 30 minutes a day online, compared to about 7 hours today. To use the internet, you had to sit down in front of a desktop PC and "log on" (most people still had dial-up), nothing like the always-on, high-speed mobile internet we use today. In 2001, Amazon's stock price hit an all-time low, with a market cap of $2.2B, about 1/500th of what it is today. A prominent research firm published a study asking Americans if they'd adopt broadband and the majority said no. Email was the most popular internet use case and they didn’t see the need to make it faster. The National Academy of Sciences ranked the internet 13th in its list of great inventions over the last 100 years, beneath radio and telephones. The mainstream consensus was that the internet was a cool invention, but had limited use cases, and probably wasn't a good place to build a business.
At the same time, there was a small but growing movement of developers and founders who were excited about the idea that the internet could be more than a read-only medium – that it could allow anyone to create and publish, to not only read but also write, as we said back then. This movement became known as web 2. The runner up name was read-write web. (These are not after-the-fact terms: there were prominent publications and conferences that used them.)
The key web 2 concepts were: letting users publish whatever they want (“user generated content” was a buzzword), social graphs, APIs and mashups (what we'd call composability today), defaulting profiles and photos to public vs private, and tagging over hierarchical navigation, among other things. There were also technical innovations. A seemingly simple but important one was web pages that updated dynamically without reloading the page, what was usually called Ajax and is now just the way people expect web apps to work. There were mobile devices that could access the open web but they were extremely niche (I was an avid Sidekick user).
One striking thing about that period was the contrast between what smart founders and engineers talked about at dinner and on weekends and what the mainstream tech world took seriously during work days. For example, one popular mainstream trend was enterprise security appliances, which were basically servers preloaded with security software. Many of the very same people would go to work and talk about the “serious” products, and then go to dinner, or hang out on the weekends, and talk about consumer internet products and web 2. It was the most interesting thing happening in tech. But generally, the view was, web 2 products were toys that couldn't be real businesses. They were hobbies, and not something you would take seriously during the workday.
Some reasons to build your startup in web3 🧵
I recently had the chance to meet some great web2 founders considering moving into web3.
Web3 is trendy now, so it’s important to cut through the noise and highlight the right long-term reasons to start a web3 project.
Here are some good reasons to build a web3 project:
Bill Gates had a very clever tactic for responding to open alternatives to Microsoft proprietary tech.
He specifically used these tactics against web1 protocols/standards and open source software.
Of course the modern equivalent would be web3.
A recent criticism of web3 is that it isn’t actually decentralized, because there are centralized services in the mix, such as NFT marketplaces like OpenSea, and data availability services like Alchemy. 🧵
This criticism is based on a mistaken understanding of what web3 advocates mean by decentralization. I’ll try to explain.
There will be centralized services in web3 just as there were in web1. The key question in web3 is whether the network effects accrue as private goods (as they did in web2) or public goods (as they did in web1).
Network effects are the main source of user and developer lock-in. If I try to leave Twitter, I lose the followers I built up over the years. That’s because in web2 the network effects accrued to private companies like Twitter.
How web3 data portability reduces the power of centralized services 🧵
For people new to web3, one thing that can be confusing is looking at user profiles on services like OpenSea. For example, here is my OpenSea profile https://opensea.io/cdixon.eth
If you are used to web2, you might think OpenSea holds the data and NFTs displayed on my profile page.
NFTs make art, music, writing, games, and other creative content more abundant, not more scarce.
Many critics of NFTs claim the opposite — that NFTs restrict access to creative content.
This is not a critique of NFTs. This is a critique of a fictional caricature of NFTs dreamt up by critics.
NFTs add a new layer of value — digital ownership — that didn’t exist in a credible way before NFTs.
Blockchains are computers that can make commitments.
You pay some performance overhead for this property.
If someone says something like “blockchains are slower than traditional computers” — yes that is true.
Seven types of NFTs 🧵
NFTs are new digital primitives, similar in flexibility and generality to past digital primitives like the website.
NFTs are a simple set of blockchain standards that enable genuine ownership in a way that is interoperable, re-mixable, and secure.
There is a widespread view that the internet and software industry is now mature, that the historical pattern of disruptive revolutions every 10-15 years is now over. 🧵
Ben Thompson provides an excellent articulation of this view (as he often does) stratechery.com/2020/the-end-o…
In my experience, this view is tacitly held by most of the establishment: institutional investors, tech execs, policymakers, media, etc. It affects valuations, corporate behavior, media coverage, and policy making.
Let’s say you run a startup that has a successful product, and you are now considering what product you should build or acquire next. 🧵
Something I find useful is mapping out the typical economic loop from start to finish, and then considering the startup’s position within that loop.
I’ll explain by looking at the current internet landscape and the strategic position of Google, Facebook, Amazon, and Apple. (I’ll adapt this to web3 in a future thread.)
Consider the path of a typical internet session, from the user to some revenue-generating action, and then (in some cases) back again to the user.
The myth of "ETH killers" — why demand for blockchains will always outpace supply 🧵
For every important computing resource in history demand has outpaced supply. This includes CPUs, GPUs, memory, storage, and both wired and wireless bandwidth.
The core dynamic of computing movements is a mutually reinforcing feedback loop between applications and infrastructure.
Consider a modern smartphone. The phone itself is much better than a decade ago, and so are the apps. The apps drove the popularity of the phones which gave manufacturers more money to reinvest. Improved phones increased the app design space, and the cycle repeated.
Certain categories of web2 websites and apps fall into a usability-monetization death spiral. 🧵
Relying on ads and monetizing at low CPMs, the incentive is to add ever more intrusive ads to increase click rates.
User experience degrades, requiring more intrusive ads, in a downward cycle.
News sites, cooking sites, games, music, Q&A, travel, and many other web2 categories that didn’t figure out subscriptions or high-CPM business models fall into this trap.
What’s next in web3? 🧵
First, where are we today? Let’s start with some anecdotes.
We have an awesome games team led by @Tocelot that invests in founders out of top game studios like Riot, Epic, Blizzard etc. Almost 100% of founders they've met with recently are exploring NFTs in some way, or are already building NFTs into their games
I get regular emails like this from web2 founders (this is verbatim the other day from a top web2 founder) “Hey Chris, hope all is well. I’m going deeper on crypto and now understand why it’s so exciting.” I expect others in web3 are seeing a similar wave of new talent entering.
Composability is to software as compounding interest is to finance 🧵
A very high percentage of the software in the world is open source. Most datacenter software is open source, mobile phones OSs make heavy use of open source, most next-gen devices like self-driving cars, drones, and embedded computers run mostly open source software.
Open source began as a fringe political movement in the 80s and remained mostly a curiosity through the 90s, but started growing exponentially in the 2000s and after.
Why? Because open source unlocked the power composability.
How open lost to closed in Web 2 — and how Web 3 can bring open back 🧵
But with the launch of the iPhone and the rise of smartphones, proprietary networks quickly won out:
The Web 3 playbook: using token incentives to bootstrap new networks. 🧵
The killer app of the internet is networks. The web and email are networks. Social apps like Instagram and Twitter are networks. Marketplaces like Uber and Airbnb are networks.
Networks get more valuable with more participants, which is great when they are at scale, but cuts the other way when starting out. This is the bootstrapping problem.
In the Web 2 era, overcoming the bootstrapping problem meant heroic entrepreneurial efforts, plus in many cases spending lots of money on sales and marketing.
Why Web 3 matters 🧵
Web 1 (roughly 1990-2005) was about open protocols that were decentralized and community-governed. Most of the value accrued to the edges of the network — users and builders.
Web 2 (roughly 2005-2020) was about siloed, centralized services run by corporations. Most of the value accrued to a handful of companies like Google, Apple, Amazon, and Facebook.
We are now at the beginning of the Web 3 era, which combines the decentralized, community-governed ethos of Web 1 with the advanced, modern functionality of Web 2.
1/ Topic: The internet treats bad business models as defects and routes around them.
2/ Let’s start with this fascinating chart (from https://matthewball.vc) which raises the question: why has the video game industry grown alongside new technologies, while the music industry has not?
3/ For a long time, video games and music had the same, straightforward business model: charge money for a perpetual license to the base content — the game or music itself.
1/ New technologies often arrive with flaws: toy-like, expensive, janky, lacking clear applications, etc.
To predict how they’ll develop, it’s important to dig deeper. Here are a few common ways new technologies can be misunderstood.
2/ “It’s just a toy.”
This was the mistake made early on about breakthrough technologies like the telephone, personal computers, and social media.
1/ Topic: Turning networks into economies 🧵
2/ We spent the last 20 years building networks on the internet. Social media platforms like Instagram, Twitter, YouTube, and Discord are networks, which can be divided into billions of smaller networks, consisting of followers, friends, subscribers, backers, etc.
3/ These platforms gave many people an audience who didn’t previously have one. But due to fundamental structural misalignments between the networks and the companies that own them, we’ve seen increasing tension around these networks’ rules and economics.
4/ For example, social media companies that control large networks routinely kill off promising 3rd-party developers, fight cross-network interoperability, charge excessively high take rates, and adopt intrusive advertising models.
1/ Topic: Going from Web 2 to Web 3 - “Your take rate is my opportunity” 🧵
2/ Jeff Bezos famously said "your margin is my opportunity" referring to the way Amazon took market share by lowering prices and eating into competitor margins.
3/ What Amazon did in commerce is what the internet did more generally. Lowering prices and redistributing value back to users has been the internet’s core economic dynamic since the 90s.
4/ Craigslist did this with classifieds, Google and Facebook did this with media, TripAdvisor and Airbnb did this with travel, and so on.
1/ Topic: Blockchains are the new app stores 🧵
2/ If you were an ambitious, risk-seeking founder in the mobile golden age circa 2009-12, you built a new mobile app. That was when Uber, WhatsApp, Instagram, Venmo, Snapchat, and many other top apps were built.
3/ Mobile has since moved up the technology adoption S-curve. Great mobile apps will still be built, but the low-hanging fruit has been picked. The computing frontier of this decade is building apps on programmable blockchains like Ethereum.
4/ Blockchains are virtual computers that run on top of networks of physical computers. They have new properties and new capabilities that prior kinds of computers didn’t have.
1/ Tokens are a new digital primitive, analogous to the website 🧵
2/ Major computing waves generally have two eras: the skeuomorphic era and the native era.
3/ In the skeuomorphic era, the design thinking is largely adapted from older domains. For example, the early web was mostly digital adaptations of pre-internet activities like letter writing and mail-order shopping. Websites back then were mostly read only.
4/ It took about a decade for technologists to start seriously exploring the idea that websites could be read/write, where users generate the content. This led to the growth of web native categories like social networking, crowdfunding, and social productivity apps.