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A16z Partners talk to AngelList founders about Web3: Why it will Beat Web2?

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A16z Co-founder Chris Dixon joins AngelList founder Naval Ravikant on The Tim Ferriss Show

Original title: Chris Dixon and Naval Ravikant -- The Wonders of Web3, How to Pick The Right Hill to Climb, Finding the Right Amount of Crypto Regulation, Friends with Benefits, and the Untapped Potential of NFTs

The Tim Ferriss Show

Overnight porridge, Babbitt

Hosted by angel investor and popular podcast host Tim Ferriss, The Tim Ferriss Show features A16Z partner Chris Dixon and Naval Ravikant, The "granddaddy of equity investing." The podcast covers hot topics like the wonders of Web3, Friends with Benefits (FWB), and the untapped potential of NFT. The full podcast is over 2 and a half hours long and is divided into four sections for ease of reading.

a16z 合伙人与 Angelpst 创始人畅谈 Web3：为何它终将打败 Web2？

Here is the first part (with cuts) :

The miracle of Web3

Tim FerrissChris, I want to quote from a blog post you wrote in 2013: "The smartest people are doing what everyone else will be doing every weekday for the next decade."

I want to ask two questions. The first one is, how do you determine that a math-based currency like Bitcoin falls into the category of what smart people do on the weekend, and what you're currently interested in paying attention to?

Chris Dixon: It goes back to the Silicon Valley legend about Steve Jobs and Steve Wozniak going to the Homebrew Computer Club, and they were smart people, and if you talk to them, they really understood what personal computers were, and they thought very deeply. A lot of that, by the way, involves actually talking to people, not trusting secondary sources. I'm really a big believer that one of the most important things you can do is talk to lots of people, and that's where I get all my information, is talk to entrepreneurs, talk to people smarter than I am.

... By the way, a lot of places are on the Internet right now. This is Discord, this is Reddit. A lot of what I did in 2013 came from Reddit.

Naval Ravikant: This is the current definition of frontier. There was a time when the word "frontier" meant the wild West. There was a time when people were conquerors and sails. Today, Frontier feels like the frontier on the Internet, and on the Internet, the frontier is in Web3 and encryption, because it's the least regulated, most decentralized, permissionless, 24-by-365 self-financing marketplace that hackers from all over the world can participate in.

You can be anonymous or pseudo-anonymous, or just use CryptoPunk as your profile. No one has to know who you are; what matters is the output of the code. If it works, you can make a lot of money. Satoshi Nakamoto could end up as the richest man of all time, and could do so entirely anonymously. It's not the only one. There's a lot of wealth being created and lost along this decentralized, anonymous border. Right now, I think we're seeing "Web3" start to attract all the talent.

All the smartest people in silicon valley seem to want to switch from their 9-to-5 jobs to the 24-by-7 Web3 world and figure out how to get involved. Every non-Web3 company I'm involved with, they call me and ask me about tokens or the Web3 perspective. Obviously, some companies are just trying to make money, but it's also partly the appeal of open source, open platforms, portable data, user privacy, user control, keys, and community-owned and generated networks.

How to define Web3 and why is it a dimension reduction blow to Web2

Tim Ferriss: Chris, can you give us a definition of "Web1", "Web2" and "Web3"?

Chris Dixon: Web1 is what we call the Internet era of 1990-2005. The key to Web1 is that it is dominated by open protocols. So the web has a protocol called HTTP, email has a protocol called SMTP, these are the prototypes, these are the platforms you were building at the time.

So, if you're Larry and Sergey, and you're building Google, you're building it on TOP of HTTP, on top of the Web. The network is open, which means no one controls it. From Larry and Sergey's point of view, it meant that they knew that if they built a successful product, a successful search engine, they would own it and control it. You can't have someone come in and say, "I'm going to take 50 percent or shut you down."

This is the web. It's open. Similarly, in economics, for example, if you talk to entrepreneurs or investors, they will say they like to invest in countries where the rule of law is predictable. The same goes for startups and entrepreneurs, who want to build on platforms they know they can trust.

So that's what was so great about the early days of the Internet, you could have so much incredible innovation and investment, and I think most people today would agree that that was the golden age of innovation. But these products are limited in the sense that they tend to be read-only. I prefer to call it skeuomorphic, where people take things from the offline world (like magazines) and put them on the Internet.

You can look back at the web in the '90s, it was like a magazine, you didn't have things like social networks and user-generated content, and you didn't have nearly the same content. "Web2," as it's known, has been around since 2005, when there were two competing models. Let's take Twitter for example. There's an open protocol called RSS, which obviously does something that competes with Twitter.

I mean, it still exists, but it's not as popular as Twitter and Facebook and all that other stuff. In the 2000s, there were open ways to build social networks, and then there were closed ways to build them. I won't go into all the details for a variety of reasons, but the closed approach, a lot of it has to do with ease of use. I think it's Web2, and the open protocol just limits what they can do.

If you wanted to build a website in 2008, let's say you wanted to mimic Twitter's capabilities, you had to go find a web hosting provider, buy a domain name, and do a bunch of other things, which were all very technical. On Twitter, you click a few times, select your name, and you're in, and your friends are joining. Then the cell phone came along, and the whole thing accelerated, and we now have five or so companies controlling the Internet.

So, Web3 is emerging, as I define it, as an Internet owned by users and builders, and tokens are part of it, and this new concept of tokens is the key concept of Web3. It's kind of historical, it comes from the movement that started with Bitcoin. Although, I think it's another branch of genealogy or something.

A lot of this stuff is actually built on an encrypted network called Ethereum, and there are other alternatives. The biggest innovation in Ethereum is that it's completely programmable, it's a computer... This is a very powerful computer with new features that previous computers did not have. One of the things you can do on top of that is you can create something called a smart contract where the code will continue to run a certain way. You can also create something called tokens, which can be fungible (homogenous) like cryptocurrencies, or non-homogenous NFT.

Tokens are so important because they now also provide a mechanism through which value and control can be given to users and builders, rather than simply to centralized companies. So you can now use open protocols and use this new philosophy to build something that looks and feels like Facebook or Twitter, where the value or control goes to the users of the network, not the companies, because there are no companies, right? You're going to see more and more of these products, and initially there's some sort of r&d organization that helps create these protocols, but over time they disappear, just like bitcoin doesn't have a company, ethereum has a non-profit foundation that supports research and development, but there's no Ethereum company.

I believe the most important Internet products of the future will be created in this new way. Why is that? One, it would be better, wouldn't it be better if drivers on Uber's network owned Uber's value and were more involved in value creation, as well as the control and governance of the system? I think it's obviously a good thing for society.

I also think it's going to be the winning product because people love it, and if you look at these people in the Web3 community, they don't want to see Web3 companies and crypto companies spending money on marketing, including Coinbase. I've been on the board for years, no marketing. Why is that? Because tokens are self-marketed. When someone has something down, they want to talk about it, they want to spread the Gospel.

So, I think not only is Web3 better for the world, but it's going to beat Web2 because it's going to be more popular, because people are going to be so excited to actually participate.

Tim Ferriss: I'd like to try and explain it in Muggle terms, if you'll agree, and then I'd like you to correct me. First of all, I would say, I'm relatively new to this area, but as you say, once it starts to fall or sink, I feel something, and it may sound strange, but it's like a physiological acceleration, and I haven't been sleeping well for a week.

This only happens to me every 5-7 or 5-10 years, because I start to see some possibilities, some beneficial social changes, etc., and other things that are not only possible, but in a sense, already a byproduct of this paradigm shift. So tell me if this captures something, and then either of you can correct it.

As a result, one might expect Web1 to be read-only (mostly read-only) and open. Then we had Web2, which was read-write, but as we saw, it became more centralized because of the big companies. Like you said, you can't own anything but a domain name, you can't control your destiny, your rights are few, your reputation is not transferable, if you're on a platform like Twitter, you can choose not to use it, but it's centralized. Many people will use these platforms for convenience, ease of use and so on, as you said.

Web3 seems to introduce a lot of things, including property rights and decentralization. I want to give you a specific example based on what I've seen, just to point out a very small group of people that I've clearly seen the benefits of, and that's artists.

I want to talk about this, because I have a photographer friends, graphic artist, musician friend, they are economically due to the outbreak of the new champions league paralyzed state, when they are not able to tour, when they are not able to do things (because in the music streaming service, every play can only bring them $0.01). They created unique properties and launched projects in the form of NFT, and their future was completely changed. I want to highlight some things for you, for example, the writer model, the musician model all have some royalty component, but you can pay a little money up front, and then you can get a little bit of a percentage from the back end. But with smart contracts, as you say, if we think of Ethereum as a world computer, with smart contracts, you can pre-set certain things to happen automatically and not rely on the middleman who takes most of the profits.

In the traditional art world, if you're an artist and your work is resold, and resold again, and resold again... You'll get paid once, and that's the end of the story. Now, artists get a percentage, or a large percentage, of the revenue from these secondary sales, and it's all done automatically. They don't have to trust an agent, broker or curator to pay their fees. They don't have to audit accounting because it all happens on blockchain.

So I just want to give you an example, can either of you elaborate on that, or give me another example that you see that excites you?

Naval Ravikant: Yeah, I'm just summarizing what you're saying, because I think you're approaching it in the right way. But basically what you're talking about is digital private keys enabling digital private property. So we finally have private property on the Internet, and we don't need middlemen like Spotify, or even studios and record labels to figure out who owns what private property and share it with their database entries and their lawyers.

Each of us can do this on our own, and Chris has been teased on Twitter for it, and each of us can own a piece of the Internet, but it's absolutely true. We can create digital scarcity, which is a very powerful thing. So we can have digital scarcity and digital private property. In a Web3 environment, there are three key things that you've all mentioned, but I want to summarize them so that the audience really understands Web3.

In a normal model, we are used to thinking of computer programs as applications run by third parties who control the code, own the data and own the platform and economics, and then we get the leftovers. We put out a tweet, we put out a blog post, maybe we get a little shekel from Spotify, maybe we get a few likes and retweets on Twitter, but it's not a lot. Spotify's owners are richer than the creators and musicians on Spotify.

This isn't an attack on Spotify, they're just emblematic of the whole thing. We went through this transition, like Web1, and, well, who won? Microsoft, perhaps Netscape and Google are the big winners of Web1. So Web2, who wins? It's Apple, Google, and maybe Facebook. Will Web3 also be controlled by big companies?

No, the beauty of Web3 is that, for the first time, all data is public. Data does exist in a blockchain or distributed system, but it is secure. It's actually much more secure than the way these companies protect our data, because each data is protected by our own private key. As a result, each of us now has a safe in the cloud that we can selectively access with our private key when we need to and then turn them off again.

So they won't leak in the next big corporate hack. Then, who owns the Web3 platform? As Chris said, its contributors own the platform, not the company. Finally, developers like this because the code is now open, not closed.

So, it's a crazy concept, it's a subversive concept. We've moved from closed code, enterprise-owned platforms to contributor owned platforms, open source and user-owned data. So now these things are completely composible. One of the things that makes Web3 so non-linear, so unexpected, and so fast is that open source means these apps can plug into each other like Lego bricks.

That's how the code on Web3 works. That's how the data on Web3 works. That's how Web3 ownership works.

"Composability" is to software what "compound interest" is to finance

Tim FerrissNaval, you mentioned the word composable, what does it mean and how do people use it?

Naval Ravikant: The beauty is that it's all open source, right? So it's not even an API anymore. I don't have to access through a very limited API, I can connect to code wherever I want.

However, in open source, each problem is solved only once. So, if someone has built a good version that solves a problem, I'll reuse it, and then reuse it again. Maybe I'll fork it, I'll improve it a little bit, maybe I'll put it into a slightly different system, but basically every problem only needs to be solved once. So, composable means it's like Legos, or actually digital Legos, and I can copy Legos and then build on top of them. So, to competitors, this is like a composable type of thing, where all of a sudden all the applications and Web3 can be combined to create whatever application is needed. For example, there is an innovation in DeFi called automated Market Maker (AMM), which doesn't have to have a trading platform pay a fee to the market maker and the company on the other side to ensure liquidity in any market, in Web3 you can do that in code, and once you've done that in code (e.g. Uniswap), Anyone else can copy it, and it can plug in any new application. For example, if you look at the upcoming Web 3-based games, they will have an entire market economy. They will have managed solutions in which NFT can be built. This will be completely composable, because any part from any other application can be inserted into any other application without permission.

So you're building a mansion, it's almost like you're building a civilization or a city, and they're made up of interconnected applications, rather than these islands of data that aren't portable, code that aren't portable, users that aren't portable. So that's probably a longer definition than you want, and Chris can give you a better one, I'm sure.

Chris DixonI like to say that "composability" is to software what "compound interest" is to finance. It's a magical thing that, if you keep it running, it grows like a hockey stick. Related to what Naval said, one thing I think people outside the tech industry might underestimate is the dominance of open source software. Open source software started out as a curiosity in the 90s, and I happened to be reading a story about Microsoft during the 1999 antitrust case, when it was all Java and no PNUx. Of course, what actually happened was that PNUX was the winner. The open source software runs 99.9% of the world's code. So almost every server you talk to in the data center is pNUX, and your Android phone is PNUX. And most of the software on the iPhone is open source.

How did open source win? This is composability, and what Naval says is that you only have to solve each problem once. What Web3 is doing is taking this level of rapid innovation and applying it to Web services beyond software. Because one thing software can't do is it can't run on its own, right? It relies on one company to run it. So a lot of the tech industry today is taking open source software, putting a little extra proprietary software on top of it, instantiating it, running it, and charging for it. That's software as a service, it's great, they provide value, they should make money from it. But the key driver is the composability of open source software. Now, we're going to extend it into the new realm of Web3.

Naval Ravikant: Yes, composability is even beyond software, even though that's the way it's often done. It has even made its way into the media. Today, for example, if I want to in the "Star Wars" on the platform to build something, I must to reach a deal with Disney, but in the world of open source can be combined NFT, artists largely abandoned the notion of, yes, you can always right click and save image or code, and then modify it, you can on the basis of the building. So people will build games, they will build cultural artifacts, new Mblockquotee, new music on top of NFT, and the underlying NFT will generate more value because it's becoming more popular now. Ultimately, the value of a piece of art or media is directly proportional to the community around it, who uses it and who promotes it.

So, it kind of strikes at the idea of copyright intellectual property. Instead, it has created the most powerful Mblockquotee in the world, broadly in music, movies and books, not just the small network mblockquotee that we are familiar with. The media itself has also become composable. The greatest artists will have the greatest circulation. So if you have good ideas, you should want to spread them as far away as possible.

That's why I would never charge for content, and no one in their right mind with a good idea should. You shouldn't limit access, you should want people to rethink your ideas. For example, Akira the Don remixes what I'm saying into music, Smart Nonsense can make videos and cool animations with it, and Jack Butcher does visualizations. It's all free. I don't have to do anything. That's all the composability around media. Now, I have no underlying monetization mechanism. However, I can publish NFT for the original content if I want, and collectors will pay for it. My content is becoming more and more famous, so this is an example of composability beyond software.

Composability is a very, very powerful concept, if you will, for example, I know a lot of your audience create a lot of content, they're content creators, they're innovators. If you want your content to be as public as possible, don't hold anything back. If you have good ideas and you want to spread them as widely as possible, you want other people to come and create them with their own content and create new Mblockquotees and new ideas.

Tim Ferriss: So I wanted to add something here, like you just did, to give some spice and detail to some examples. And further explain why these things keep me up at night.

Naval Ravikant: By The way, The Tim Ferriss Show will be an encrypted podcast.

Tim Ferriss: No, it won't. I promise you, even if I were to be pulled into deep water and spun into a vortex, I would be able to step on the water. I wouldn't be pulling everyone around me, but these things are important and I think it's well worth exploring. It's exciting to me because I see a lot of great creators, musicians who are struggling because they're not very good at marketing, but they have hardcore fans, maybe a small group of hardcore fans, but they have some hardcore fans.

Many listeners know about Kevin Kelly's article "1000 True Fans." I know, Chris, you wrote something about it, too, which you can find at KK.org. I've been recommending this article. What Web3 allows you to do is align your interests with the collective good, other real fans, by allowing fans to own the digital assets you create, right? What excited me was that I saw a lot of experiments. So we're talking a little bit about the advantages of Web3, which is much easier for companies and projects to reach escape velocity compared to the Web2 era.

For example, if they are raising money, they may raise a small amount of money once or twice, and then they have a token that they can control their own destiny through a collective as a stakeholder, right? In addition, if we look at an example like Bored Ape Yacht Club, you can see composability, right? So someone will go out with their particular boring ape and start a coffee company or a craft brewing company. I've never seen anything like it before. Of course, if you are a young, tech-savvy IP lawyer, your services will be needed. It's nice to catch up. But the fact that all of these experiments can be done simultaneously at such low cost means to me that ecosystems are going to produce a lot of things through natural selection and evolution and different types of recombination, and that's going to be very, very exciting. It doesn't matter if 98 percent or even 99 percent end up as junk, because the winner, like finding Amazon or Google in '99 or 2000, will end up being very influential. Maybe I'm just drunk, I don't know, but that's how I feel.

Chris Dixon: Yeah, like Bored Apes, they recently released Mutant Apes, they made $100 million that way, and as far as I know, they didn't raise venture capital, they made $100 million just by releasing one NFT. It's a different economic model, and it goes a step further where commercial rights are acquired.

The next stage, which few people are playing at the moment, is for communities to create narratives. For example, communities like Wattpad. Imagine the next Harry Potter, the future Harry Potter is owned by NFT holders, they get to write all kinds of interesting novels, and then they get to vote on what becomes a classic and what doesn't, right? Imagine the enthusiasm for Star Wars and all other types of communities. Now imagine that they own a piece of it and control a piece of it. This is going to be very, very interesting. I don't think there's been as much creative energy since the '90s. I don't think the mobile Internet can match that.