The problem for us was that Web 1.0 was mostly static webpages and it was all a bit clunky in the early days with dial up modems and lots of glitches and frozen web pages.
As these glitches got fixed, a new Web 2.0 was built on broadband and mobile and this facilitated the social media and e-commerce “walled gardens” of the Big Tech companies.
Much of this was useful, fun and connected people. In return, the founders and investors in Web 2.0 companies (Amazon, Facebook, Google, Uber, Air BNB etc etc) got immensely wealthy. Web 2.0 is what most of the web is today.
But nothing is all good (or all bad). There was a dark side to Web 2.0.
These companies created quasi-monopolies. They got us to give up privacy, give up our data and provide user-generated content for nothing. We thought we were getting news but what we got was clickbait. Then they used our data to sell us
shit stuff via advertising.
We played along like naive children because it was “free” (ha-ha) and we got smiley faces and likes 👍 on social media (bless).
Web 2.0 companies became immensely powerful. They control what the public sees and thereby influence behaviour and even elections. Governments started to take notice and apply pressure. In turn, Web 2.0 started to censor their platforms and this meant that anyone who built a business based on those platforms could be shut down overnight. They did all this whilst believing that they were the good guys.
The Escape Artist got clobbered by the Google algorithm last year when I wrote an article that mentioned going to the pub when lockdown came to an end. Overnight I went from getting ~10,000 page views per day to ~1,000 page views per day. I’m not looking for sympathy, I don’t rely on web traffic or advertising income, thank God.
But this is a very real problem for other small scale writers / bloggers / creators / musicians / Youtubers etc. The advertising model is broken because its inefficient and leads to dumbed down content. Creators live and die (economically speaking) according to the whims of the Big Tech alogorithms. And in most cases they die.
Big Tech got too big, too greedy and too powerful. Can crypto fix this?
Web 3.0 is defined by Chris Dixon of A16Z as a new internet owned by users and builders organised via tokens.
A lot of the new stuff in Web 3.0 is being built on Ethereum, a software platform with its own native token (ETH). Ethereum is programmable so developers can create “smart contracts” that form a new system of decentralised finance (amongst other things).
Ethereum is an open source network and a large community of software developers has sprung up around it to build new applications on it. Composability is to software what compound interest is to finance. A thousand flowers are blooming.
So now developers can build new social media sites where people who contribute valuable content get rewarded via the native token of the platform.
Just as Reddit users currently have the ability to up-vote comments, what if users could donate or vote to award tokens with real value to providers of the most useful content? Reddit is reportedly looking at converting Karma points into tokens.
Tokens are important because they provide a mechanism by which value and voting rights can be given to the users: ordinary customers and developers…rather than centralized corporations having all the power and keeping all the profits.
Maybe Web 3.0 will beat Web 2.0 because people get really excited and involved when they actually get meaningful rewards to participate?
Take Uber as an example. Imagine a New Uber: a de-centralised Web 3.0 business owned by the taxi drivers and customers who are incentivised via Ubercoin, a crypto token. New Uber operates more like a mutual and less like a quasi-monopoly that extracts all the value from drivers and customers. Token holders get a share of the cash flows and governance & voting rights.
Customers pay drivers with the native token and, as token holders, customer and drivers benefits from price growth in the token. Token price action turbo-charges marketing via word of mouth as customers tell friends and family about their gainz. Token ownership aligns the interests of the customers with the interests of the drivers and outside investors. All are owners of the business.
As a result, maybe New Uber out-competes Old Uber? Most crypto companies don’t need to spend on marketing because tokens are self-marketing. When somebody owns something and feels skin in the game, they want to go talk about it and tell their friends. This helps explain the success that Vanguard enjoyed for many years without needing to spend on advertising and marketing.
New Uber taxi drivers will own a stake in the business right from the start. They (rather than venture capitalists) benefit from growth in the overall business…so they get much more than a minimum wage job. They are part-owners and get passive income as well as wages. The workers part-own the means of production and so this mutual model combines the dynamism of capitalism with the fairness that socialism promised (but never delivered on).
Who loses? Owners of the index funds that own Old Uber…and the gatekeepers of the old regime (e.g. traditional venture capitalists, lawyers and investment bankers).
So what happens if Web 3.0 organisations disrupt the Web 2.0 companies that have contributed so much to the growth of our much loved equity index funds?
It’s going to be interesting (to say the least) to see giant companies that once seemed all-powerful getting eaten alive…just as Amazon crushed bricks and mortar department stores. Equity index funds may capture some of the new growth as existing companies buy crypto. But they will not capture all of the value growth.
Where firms organise as Decentralised Autonomous Organisations (DAOs) owned by token holders, that will NOT be part of your current equity index tracker fund. DAOs are lower cost, leaner versions of traditional companies (or mutual organisations or charities) that use software (rather than people) to run their operations. Token holders own the DAOs and benefit if they out-compete traditional companies owned by index funds.
Index investors should not panic though because a) this will happen over a period of years and b) in future there will be crypto index trackers. In fact these already exist and are available in traditional fund form right now in some places. It’s inevitable that these will spread everywhere before too long.
We are gonna make it and, although it’s going to be a bumpy ride, I think this will work out just fine in the end.
But a response to crypto and Web 3.0 that relies on holding your hands over your ears and humming LA-LA-LA-NOT LISTENING! is not a strategy.
It’s really hard to switch people on to Web 3.0 without sounding hypey and triggering people who think this is all evil speculation.
But if you’re a believer in diversification, passive investing and market cap weightings, it seems odd to rule out an asset class that now accounts for ~0.5% of global financial assets and rising. To match market cap weightings, someone with a £100,000 portfolio should own roughly £500 of crypto.
There are no guarantees that “number will go up”. Sometimes number will go down; crypto crashes can be brutal. ETH went from $1,400 down to $82 back in the crypto winter of 2018. Some projects will turn out to be “vapourware”.
But I think we need to keep an eye on this space. So this week I’m doing 3 podcasts for the crypto sceptics where I debate the pros and cons of crypto with people new to the space…all without pictures of my rented Lamborghini or using the phrase “HAVE FUN STAYING POOR”
If you are on my email list 📨 👇 I’ll send you the links as soon as these podcasts are published!
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