Client Portals

Week 45: Web3.0 Evolutions7 min read

Nov 10, 2021 - Max Osbon ( 9 mins to read)

We’re covering Web3.0 this week because the space is evolving rapidly and we want to mark the progress and evolution for our readers. This article covers some of the most notable and relevant updates that we think everyone will find valuable as we look into the future of Web3.0.

Skepticism is an expensive habit

It feels smart to look at new technology through a critical lens, but optimism and imagination are 100x more valuable in practice. In a famous 60 minutes interview from 1997, Amazon was labeled an unprofitable online book retailer who, “would have to sell every book in the world to justify their valuation.” Jeff Bezos wasn’t selling books, he was collecting customer information and reinvesting every available dollar back into growth. It seems that anytime something grows “too fast,” Wall St. and media outlets get very skeptical and often end up missing the real potential.

Facebook went through this same skeptical filter. Why would Zuckerberg pay $1B for a simple photo-sharing app in 2012 built by a small team of engineers? Most never imagined that Instagram would be worth more than $600B less than ten years later. Optimists believed that social media would be big even if they didn’t know what it would eventually look like. The same is true for Web3.0.

Evolution via experimentation

A historically valuable investing metric is to “follow the flow of human capital.” Invest where the talent is heading. For the last decade, the talent has flowed into cloud computing and software, which turned out to be a phenomenal area for investor opportunity. Today, a flood of talent is flowing into full-time Web3.0 development, where crowdsourced development is welcome. Most of the Web3.0 experimentation is just a few years old, and the results and growth to date are fascinating. Web3.0 and the blockchain-based cryptocurrencies that power it are software-based, which means they can iterate and reach their users extremely fast.

  • In 2018 the team at Helium created a proof-of-coverage protocol aimed at creating a decentralized wireless network.
    Anyone can join by buying a Helium hotspot, plugging it in at home, and providing local coverage in that area for which they are compensated. Within three years, this incentive structure has created a network of 304,122 hotspots in 147 countries. They added 75,000 hotspots over the past 30 days. You can see the coverage map here. If you buy a hotspot yourself (anyone can), you can earn HNT token rewards for providing coverage in your neighborhood. Nothing is impossible. Even the potential for Helium to eventually disrupt a major telecom provider like Comcast is on the table. The scooter company Lime uses Helium to track the location of their scooters. It’s certainly possible the experiment does not scale well, but any skepticism about this project would have been wrong so far.
  • DAOs – Decentralized Autonomous Organizations
    DAOs are the next highly anticipated phase of innovation in Web3.0. A DAO allows people to pool capital, power unique applications and vote on uses for the capital. I like the phrase that a DAO is “like a group chat with a bank account.” OlympusDAO experiments with monetary policy game theory in a clever and curious way. KlimaDAO experiments with pooling capital to buy carbon credits and reinforces its mission to help with the environmental crisis directly. LaoDAO allows users to pool capital and vote on backing new Web3.0 projects via their $70 million treasury. BeatsDAO uses its pooled capital to curate highly sought-after music and art NFTs. There is a lot of potential in the many varieties of DAOs.
  • Crowdsourcing funding via token sales
    This week the Numbers Protocol is selling their first round of “tokens” via an initial sale on MakerDAO. You can read more about their vision here. Due to SEC concerns around securities laws, US citizens are not able to participate, but there are ways around this. Numbers seeks to track ownership of images across the web. If successful, this Web3.0 application could eventually replace Getty Images and ensure that creators are fairly compensated when their videos and pictures are used. Selling an initial round of tokens this week helps fund the next phase of the project. This token sale process could replace venture capital and eventually IPO markets with crowdsourced funding. Token sales level the investor playing field by allowing all types of investors to participate at the ground level. Web3.0 has been funding its growth via open token sales for years.

We refer to the rapid pace of innovation in Web3.0 as the “Roger Bannister effect.” Once Roger Bannister broke the 4-minute mile, high-schoolers around the world started breaking the same previously ‘impossible’ record. Sam Bankman-Fried is one of many “Roger Bannisters” in the Web3.0 world. Within a few short years, SBF generated a personal net-worth north of $20B before the age of 30 by developing FTX, arguably the best brokerage software created to date. You’ve probably seen the Tom Brady sponsored FTX commercials.

We fully expect the pace of Web3.0 development and experimentation to continue to create unprecedented value at unbelievable speeds. This is possible today because the internet made it possible. Software allows engineers to instantly ship new products and services to billions of potential new global customers. Crowdsourcing the talent and capital makes this process faster than ever. Rising stars of the coding world or in the generative art world can easily reach out to people online and join teams remotely to start adding value without needing to interview anywhere.

NFTs and storing value online

NFTs – non-fungible tokens – refers to unique digital assets that exist online. NFT ownership is publicly verifiable via the blockchain. I know what you own, you know what I own, and we both know how much we paid and what it’s worth today. Digital asset ownership might look like owning a picture or video, a video game character’s outfit, digital land in a metaverse, an ‘original’ copy of a blockbuster movie, or a highly valued profile picture like a Bored Ape or a Crypto Punk.

The earliest example of owning something on the internet like an NFT is a URL. The URLs ‘Cars.com‘ or ‘Hotels.com‘ are worth tens of millions to their owners. We’ll need a separate article to cover the full scope of opportunity in NFTs as the creative use cases will impact nearly every industry. By the time your kids are adults, they will likely have accumulated a wide variety of digital assets (NFTs) that are priceless to them. Fast forward another ten years, and the very first digital assets will be considered highly prized collector’s items to the first generation to grow up as NFTs first appeared.

Why now? The next phase of the internet and the slow pace of change by those in power

Cryptography and the blockchain were the secret ingredients that finally opened the door for people to own digital assets. This is a natural next step for the evolution of the internet. Before the blockchain, people couldn’t really “own” anything online other than the URL example above.

Many people are skeptical of emergent technologies, asking fair questions like, “why would anyone need to own anything on the internet?” This statement is similar to, “why would anyone need to carry the internet around on their cell phones?” The answer is abundantly clear in hindsight. There is a benefit to early adopters in that the longer it takes for the skeptics to come around, the longer the opportunity for profit stays open.

Young talented people are rightly frustrated that we are not using technology’s full potential to save valuable time, energy and money. Crowdsourced Web3.0 applications have the power to circumvent stubborn and expensive legacy systems that have been too slow to innovate.

Next

We announced a few weeks ago that we have launched a fund to invest in digital assets, NFTs and the next phase of growth of Web3.0. The start date for that fund will happen before the end of 2021. Please reach out if you have any questions or comments.

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