Why Jack & Elon are so wrong about VCs and Web 3.0
Jack & Elon went up the hill, to start some twitter banter
Jack lost his crown, called them VC clowns
Elon came rumbling after
Let’s first try to understand why Jack is so angry suddenly?
- Is he spending too much time on BTC & Lightning technologies and giving away too much of Squares and Twitters BTC for free? No results to show since?
- Is it that Twitter has lagged its peers terribly while dominating the entire global conversations? Perhaps the Twitter Board decided that the company was not accelerating fast enough vs its peers at Meta, Google or Apple over the years. Maybe that led to Jack’s departure last month.
- For the first time ever he is a free man, and truly hates VC’s in crypto. Btw, Twitter and Block both have been built by the same VCs that he is up in arms against today. “Words”?
Either way, Jack is clearly frustrated at something. What did he say and what did it really mean?
Elon could not let Jack steal the thunder alone when it comes to crypto, so he had to chip in with his own rhetoric about Web 3.0.
Both Jack & Elon are wrong in my opinion. There is some truth in their statements but they both forget that if it had not been for the VC’s, they wouldn’t be in the position to banter in the first place.
Just because Elon says so, and just because VC’s are supporting it, Web 3.0 is not doomed. Silicon Valley was built by VC’s from Google to Facebook to Apple. The VC styles were different and that was a new era called Web 2.0 then.
As Chris Dixon calls it
From a truly read only physical world of web 1.0 , we moved to a more read-write digital world of 2000’s and we are rapidly moving to a truly decentralized world called Web 3.0. That does not mean that Web 2.0 will disappear completely. All worlds will co-exist but you are on a different planet if you believe that your kids will not be addicted to games, virtual worlds, cyberspace (read metaverse) and AR.
New tech is always revolutionary and that is why it is always looked down upon. VC’s and investors are always required for any new tech to flourish in the beginning before it becomes mainstream. From picks & shovel investors in the California Gold Rush, Rockefeller in the Oil boom or JP Morgan to the railroads. Twitter and Tesla won’t have been possible without the so called VC’s that Jack & Elon are up against. The VC’s help thrive a new industry by taking risks and they must earn returns. At least in case of Crypto & Web 3 – you have some honest ones.
As for Web 3, it’s plain vanilla evolution. From Web 2.0, controlled by corporations, to Web 3.0 hybrid or decentralized. You cannot stop it. Jack & Elon are just threatened by it, just like governments are threatened by Web 2.0 and cannot do anything about it (except China of course)
But let’s be pragmatic about it and dissect if there are any valid criticisms to this narrative of “JackOn”.
1. Web 3.0 is a journey, just like Web 2.0 before it
This is just the first year of Web 3.0. There is a long way to go before we see any significant, fully decentralized economies at scale. There are flaws, but then which new technology doesn’t have them? Without criticism, revolutions would be boring.
Critics point out that Web 3 still relies on AWS and Google. Most definitely yes. But the amount of innovation in decentralized data storage alone if awe inspiring. Likes of Filecoin, Bluzelle, Arweave etc are already experimenting heavily with data, NFTs and gaming. It’s when, not if. But that doesn’t mean that AWAS won’t have a hybrid version or Microsoft won’t let Azure trickle into decentralized storage. But isn’t that all evolution? Once technology crosses a certain threshold ( I call it the lazy man matrix), there is no looking back. Once it makes you lazy and with new token economics, if you can be rewarded for using it, there is no looking back. What matters most to the end consumer is:
- Ease (laziness) of getting on board new tech with significant simple and easy UI / UX – we are getting there
- Incentives and rewards – plenty available via tokens
- Trust that all my friends are using it – the crypto community has expanded from gambling only on exchanges to earning on DeFi to P2E on gaming – that is evolution and mass adoption
Jack gets it, but he is not convinced that our intentions are right. There are always crooks and scams, but gradually the good will prevail and we will get there. In the end it’s just better technology that more and more people like vs a handful of governments and corporations. That is the real debate here. Web 3 adds transparency, direct ownership and ability to buy, sell, trade when you want.
Web3 means everyone has a chance to make independent decisions and get in early. You can work hard and be an influencer in your own right to get access to the most best deals and actually beat the VC game. There are 100s of examples in crypto. It’s not there yet but web 3 is far far better than web2. It’s evolutionary.
2. The Perfect Zeitgeist Moment
The world is fed up of centralized corporations whose only agenda is either profit via your data or pleasing their politician overlords in respective nation states. Who in their sane minds even trusts what Twitter and Facebook tell you? Or how many have blind (or any) trust in Tesla or Elon?
Who owns Web 2.0 companies? It’s the same VC’s that Jack is up against for building Web 3. Did retail and non-accredited public ever have a chance to participate in the success of Twitter? Did early users ever get $100K in airdrops of sorts? Jack cannot be beating the VC drum when his own house was built on the very same thesis.
Who loses in this fiat driven massive debt and unlimited printing? The common man. And for the first time in history, he has a chance to play the even field. This was not born overnight. It was just BTC in the beginning and then ETH Apps and DApps and now L1, L2, DeFi, NFT, Gaming etc. That is adoption. The world is telling you that the common man likes it. Retail is as influential in this as smart money.
NFTs are a classic example. Community comes together and shares similar beliefs. Each on adds value to the product and each one earns. When was this possible in Web 2? Axie has changed the lives of Philippines and now YGG is changing that in many countries. When did Web 2 did that ever?
3. Tokens will eat the world (of Web 2.0)
I don’t think founders get to spit web3 shade if they haven’t given anything of tangible dollar value to their users. If you used DyDx, Uniswap, ENS, played Gods Unchained you’ve been handed over $100k. When’s the last time anyone got paid just for using web2 products?
In the “West,” or so-called liberal democracies, the big tech platforms were threatened with the cessation of the limited liability they enjoy from the content posted on their platforms. The giants like Facebook, YouTube, Twitter etc. have whole departments tasked with censoring what they unilaterally determine to be “fake news”. Should you or your business run afoul of these nebulous rules, you are “cancelled”.
Remember Parler? It was a social media platform that became a home for those on the political right in America. Their users challenged the dominant narratives pushed by many of the establishment media platforms, and the company got cancelled.
The moral of the story is that centralized communication platforms will always tend towards illiberalism, because every nation state has an approved story and its longevity as a nation is contingent on as many citizens believing that story as possible. Freedom tends to be a bit of an illusion, and laws can always police the centralized entities that provide the space for interactions.
As metaverses mushroom, the big global tech platforms must provide a product for the people. Because if the people would rather spend two hours daily in the metaverse rather than on TikTok, Instagram, or Weibo, then big tech platforms must adapt. Facebook is already aggressively investing in hardware to power a virtual metaverse, and every other large social media platform will follow.
The most immersive centralized metaverses will be developed first by corporations. They can unilaterally direct resources at the behest of a small senior management team. Given that big tech companies are the most profitable and well-capitalized entities on Earth, they alone can invest the billions needed to build the infrastructure that powers the first metaverses
Many of us cannot imagine a world where the majority of our waking hours are spent inside a virtual world. Would visiting aliens be perplexed by a race of sentient beings sat in contraptions to illuminate a virtual world, rather than physically interacting with one another? Maybe, but if said aliens spent time studying the civilisation arc of humanity, they would discover that the last 50 years are the exception and not the rule.
Let’s view Web3 from a different lens.
Yes it’s still filled with private investment rounds and yes much of it is currently centralized, but the projects that actually care about decentralizing tend to reserve 50%+ of the token supply for the community (usually it goes into a token-controlled treasury). On top of this, many projects will simply give away a large chunk of the token supply as an airdrop to previous users and the users get to decide whether to sell or use them in governance. Contrast this with web2 companies that give their users absolutely nothing while their earliest investors enjoy a return of anywhere from 100x to 1000x or more and their users have no say in how the platform is governed.
Of course, it’s not only the financial side of things here – it’s the actual ownership of the product/service that makes web3 special. Let’s take a big web2 company, Twitter, as a counter-example to web3 ownership. A bank is the largest shareholder in Twitter with an 8.59% stake in the company followed by a bunch of financial institutions that have stakes almost as large – this is the very opposite of community ownership. Now let’s look at ENS – one of the most popular web3 apps on Ethereum. Their token was airdropped to 100’s of thousands of addresses, they raised no money from VCs/funds, 50% of the supply went to the community treasury and 25% was kept for the core team that worked on the protocol for many years. On top of this, anyone is able to participate in ENS’ governance process or delegate their tokens to someone they trust to act on their behalf.
Finally it’s worth mentioning what the business model is for most of the web2 world today – advertising. The record profits of companies such as Google, Twitter and Facebook come from serving up ads that are hyper-targeted based on harvesting everyone’s personal details. I mean, these apps/services probably know more about you than you know about yourself – and they use this information to get you to buy as many things as possible. Contrast this with web3 where there are many different business models at play and pretty much none of them rely on harvesting user information in order to make a profit.
I think that all of the people rallying against the web3 future are going to be looked back upon as the Paul Krugman’s of the 2020’s – and this is not something you want to be remembered as. On top of this, these people are going to continue missing out on this once-in-a-generation opportunity for wealth creation, changing the status quo, and improving the world in a grand way. I believe that these people will eventually come around but it may be many years down the track when web3 is mainstream and it’s web2 that is slowly fading away.
What’s next with Web3.0?
1. The ownership layer for the next iteration of the web must be decentralized.
The foundational underpinning of the next iteration of the web — web3 — is that the users own assets in the ecosystem. True ownership of digital assets cannot exist through centralized overseers. In that scenario, users aren’t likely to be able to take assets with them to different platforms, thus any asset value is trapped in the ecosystem of the central authority. This is the world we largely live in now with the large web2 companies.
Decentralized digital ownership, which is analogous to digital rights, is the paradigm shift of web3. As long as we get that right, a lot of the rest of these arguments are noise.
Hype or not, the ownership layer exists today via Ethereum, and it’s survived the challenge of broad market testing via the various experiments we’ve seen in NFTs. It’s true the use cases are limited for digital assets right now, but use cases are always limited for new technologies. This was true for web1 and web2. Social media skeptics didn’t think users would ever do more than post what they ate for breakfast, leading them to assume social was doomed to failure.
As more creative energy unlocks the potential of persistent ownership of digital assets in the web3 world, the hype will become substance.
2. The average person doesn’t care, and will never care, about decentralization.
Without a decentralized ownership layer, web3 cannot exist as envisioned; however, that doesn’t mean that every participating organization or product in web3 needs to be decentralized. Just like people don’t care about the network effects that lend power to social networks, they won’t care whether some web3-based service is centralized or decentralized. Users just want great products that do things they can’t get anywhere else regardless of the technology or philosophy behind it.
We should remember we’re in the earliest stages of web3 where pioneers must care deeply about the structure of the underlying tech. New tech needs zealots willing to risk everything to build the new world, then it needs evangelists to excite the next wave of users. Zealotry and evangelism — and I don’t use those terms insultingly — cannot happen without deep religious belief in something about the new world. In a few years, when we have 100-1,000x more people involved in the new world of web3, the majority won’t care about decentralization just like today’s Internet users don’t care about TCIP protocols. From an end-user perspective, decentralization is overrated.
The layman’s apathy to decentralization extends to the debate around DAOs vs traditional corporations and VC funding.
It’s fair for Jack to question how on-brand it is for web3 companies to build on VC money, but both centralized and decentralized structures will function in web3. If a decentralized operating structure somehow enables the creation of incremental value for the user base, then the decentralized structure will win, but sometimes centralized will work just as well. For this reason, I find the VC argument irrelevant.
To address Elon’s point, we just need great experiences built on the decentralized underpinning of web3 to give it more substance than hype. It doesn’t matter whether those experiences are centralized or decentralized as the market will gravitate to the services that fit needs best.
3. Recourse is a feature of our current systems, not a bug.
Prior to the Elon and Jack comments, Alex Stamos, former chief security officer at Facebook, made a far more interesting argument around the web3 community not appreciating the security flaws of the movement.
Trying to eliminate recourse through code will probably never work because its antithetical to human nature. This comes back to getting the average person to participate in web3. If someone risks losing their entire life savings not only to a nefarious Russian hacker but merely by losing one’s private key, then the system will never garner mass adoption. If we think that ledgers and cold storage are viable long-term solutions for the layman, we’re fooling ourselves.
Historically, technologies that make lives simpler are the ones that thrive because they’re the ones people want to use. The average person doesn’t want technology that makes life obviously more complex. The past two web paradigms of search and social made it incredibly easy to find the answer to any question and connect to anyone in the world.
If web3 is to make it incredibly easy to create and trade digital assets, users need safe and simple tools to access and protect their assets.
Recourse is a massive opportunity in web3. I think that’s the best way I could describe Coinbase’s opportunity. People want to trust banks, physical or digital, and trust involves taking care of them when they have problems with their money.
Complete non-recourse is a web3 bug that we need to address, not a feature.
Where does Web3 VCs stand?
Web3 VCs are different from the traditional VCs. In Web3 there is no difference between people who allocate capital and the community members. Both share the same position and responsibilities.
The VCs which are focused only on giving capital will be faded out of the system. Captital is cheap, what founders are looking for people who can provide value to the company. Web3.0 VCs need to be part of the community in which they are invested unlike Web2 which is focussed completely on the metrics like revenue, growth, etc. rather than what’s good for the community in the long run.
At the end communities own the projects, not VCs. Well executed projects run themselves. Web3 world levels the playing ground between the users and the investors. This is in contradiction with the Web2 world, where investors make all the money by buying equity in companies in the early stage and later taking them to IPOs.
Crypto users today get airdrops, can yield farm, and can take part in projects for ownership much, much earlier.
Web3 stakeholders are way better off since – Earlier ownership (revolutionary) and incentives vs buying stock post IPO – Anyone can propose changes on a governance forum, vs Web 2 VCs which have unique access to a company’s board.
Providing access to just talent and capital won’t help Web3 VCs survive. They need to be involved in the day-to-day activities like token econ and incentives, future products or use cases and active governance discussions of the projects they have invested.