If shorter days, earnings season and general year-end fatigue have left you tired of reading, then you might want to make your way through this exceptional podcast from Tim Ferriss, Chris Dixon (a16z general partner) & Naval Ravikant (co-founder and chairman of AngelList). Taking a philosophical perspective, the trio discuss the internet’s ongoing evolution, cryptocurrencies and NFTs. If these buzzwords inspire an eye-roll, then there’s even more reason to check out the 2+ hour conversation. Think of it like a workout that will improve the fitness of your perspective. It’s undeniable that our lives are becoming increasingly entwined with technology and these gents have been on the bleeding edge of media & innovation for over a decade. While they withhold any headline-grabbing predictions, their way of pondering the digital revolution is inspiring.
Back in 2013, Chris Dixon wrote a blog post, which like so many other pieces from Andreessen Horowitz partners, has been widely quoted. He proclaimed:
If you think back, many breakthrough technologies started out as hobbies. Bill Gates & Paul Allen learned to code during their extracurricular time and while it’s mostly folklore that Jobs & Wozniak built the Macintosh the from a garage, Google really was launched from one. Other hobbies make money too. For example, blogging is a career now, YouTubers make millions and so on. Unsustainable bubble or not, the cryptocurrency market emerged from obscure internet chatrooms to become the multi-trillion dollar market that it is today.
A search for “Who is the world's youngest billionaire?” will display that it’s 29 year-old Sam Bankman-Fried, whose net worth is estimated at > $20B. He’s the founder of FTX (a major cryptocurrency exchange) & Alameda Research (a quantitative trading firm). SBF started his career as a high-frequency trader at Jane Street. Intrigued by the opportunities in crypto, he & some friends would trade after work and… on the weekend. If you’d like to hear how this young entrepreneur looks at the world, then check out this podcast with Patrick O’Shaughnessy where the pair discuss key enablers of properly functioning markets, why equities should be traded 24/7 and more.
SBF’s skillset is well-suited for success in crypto. He attended math camps in his youth & earned his stripes algorithmically trading in much more efficient markets. I came across an interesting idea that might have some relevance here too – The Cantillon Effect.
Richard Cantillon was an Irish-French economist and philosopher. Inspired by his experiences as a banker during the speculative bubble of John Law's Mississippi Company, he wrote “Essay on the Nature of Trade in General” which introduced the notion that the flow of funds into an economy provides disproportionate benefits to those who receive it initially. “First receivers” spend money into a comparatively cold market. As their buying enriches merchants, trades people etc. those later recipients also want to spend, but the scarcity of resources drives prices higher and this erodes their relative purchasing power.
Back in the day, being close to the king was the way to get access to these early money flows, but today’s royalty are asset owners and innovators. How does this relate to SBF? He was early to crypto and reinvested his winnings when others were uninterested. Significant demand followed which catalyzed Bankman-Fried’s vision and acumen
As an aside, it’s been hypothesized that the Cantillon Effect is driving a wider gap between rich & poor. Portfolios are near all-time highs as we approach the holidays, but those without savings are forced to reconcile prices rising faster than their wages. This might be something to think about as seasonal charity campaigns circle around
Click this link for a good breakdown of the internet’s evolution over time, but to summarize:
Web1 was the first commercial iteration of the “information superhighway”. People viewed slow-loading websites using a PC and content was static (mostly text & pictures). As a result, users didn’t interact much
Web2 ushered-in a social revolution where faster connections made for collaborative & dynamic sites/applications. Smartphones meant that people carried computers and cameras everywhere, which led to a boom in user-generated content. Pictures, videos and blogs were uploaded seeking “likes” or “little red hearts” and this captured our attention for some reason. Machine learning techniques transformed prediction into a cheap commodity and this revolutionized advertising. Fintechs and innovation in logistics led to an ecommerce boom too
Over the past decade, the pioneers that built the Web2 platforms have been handsomely rewarded with monopoly-like profits, but people have begun to push back. Facebook, Instagram & Twitter don’t share ad revenues with the content creators that attract eyeballs to their apps. YouTube is more favorable, but like other social media giants, they own the user-generated material and can cancel an account at any time – this is agreed to in the terms & conditions.
The next phase of the internet is referred to as Web3 and it’s characterized by digital scarcity, open source & composability; features that are underpinned by smart contracts. When work is coded to a public & immutable blockchain, then its owner has a form of online property right that doesn’t belong to a platform. The ability to enforce this title offers leverage, which creators can use to monetize their output. Open-source and composability, as they relate to code, provides those who are so-inclined the ability to build off the success of others. For example, rather than spend hours writing a script that serves a certain tricky purpose on the road to a bigger solution, a programmer can use code that someone else has already written. It’s similar to using Lego blocks to build stuff that doesn’t come with the instructions. Operating this way tends to add security too, because there are more eyeballs looking for vulnerabilities.
Have you been paying attention to the shifting social discourse towards technology businesses? Newsreels often feature politicians grilling executives about abuses of power or whistleblowers flagging dubious internal practices. Beneath the surface, communities are being formed online that use a disparate stack of technology to coordinate along a shared vision. Sometimes they’re united by a passion for protecting the environment and others love video games, but they share the traits of decentralization and autonomy, which are meant to result in self-managing, transparent & more efficient organizations. Interestingly, many participants contribute their efforts during their free time… Sound familiar?
The Bored Ape Yacht Club ecosystem is estimated to be worth about $1B USD. Interestingly, the NFTs they minted come with commercial rights. Enterprising purchasers have incorporated their apes into branding in a variety of use-cases like a children’s colouring book, an IPA at a Michigan craft brewery and Timbaland even intends to launch an animated music group like the Gorillaz or Alvin and the Chipmunks. Post Malone buys a Bored Ape NFT in a new music video with The Weeknd too.
A week ago, Sotheby’s announced that a privately-owned copy of the US constitution was going up for auction. Within hours, a mobilization was underway to secure the necessary capital to buy the timeless artifact as a demonstration of Web3’s potential. Packy McCormick joined the cause, calling the developers in the group a “Liquid Super Team” who would be nearly impossible to hire full-time since many are founders themselves (again, this weekend thing…). On Thursday, the group was outbid at $43M, but they still made history & quite a media splash as well. The smart contract will now be executed to refund the donations, but they can keep mine, learn from this & try again with something else.
It’s all so cool - a random group of people on the internet raised > $40M over a few days in a coordinated effort to buy a piece of democracy. Imagine what could be done over a longer time horizon.
If all of this sounds crazy that’s because it is. However, I’d like to pitch you on not ignoring these shifts because traditional finance is mixing with internet culture. Like this $20M loan that SocGen is working on with MakerDAO or these comments in Hayden Capital’s latest investor letter:
Which Web3 inning are we in? Tim Ferriss says: “it’s like the anthem before the game has even started.” This was evident following last week’s Sotheby’s auction when the communication was so bad that people were celebrating the successful purchase on Twitter while other followers lamented a loss on Discord at the same time. However being early matters, so you’ve still got a chance to jump in & let curiosity guide. Until there’s enough tangible benefit to working on this during your day job, maybe you can do it – on the weekend…
Enjoy the break.