194 - How Crypto Saves The Internet | Li Jin & Eugene Wei

I think there's no better time to build in Social than now because we have all of the factors that I talked about we have a new business model in the form of ownership we have a new Computing platform in the form of crypto and then we also have a new generation of users who I feel like have this sense of frustration and resentment towards the existing social Paradigm and are just like so ready and craving something new so all of those factors mixed together really makes us Prime for something new

to arise welcome to bankless where we explore the frontier of Internet money and internet Finance this is how to get started how to get better how to front run the opportunity this is Ryan Johan Adams I'm here with David Hoffman and we're here to help you become more bankless a message to the elos we're not your dance monkeys because what's been one of the most important hidden forces shaping our world over the last decade engagement algorithms we've gone from social networks to social feeds without without any of us noticing and the

social feeds that part that's powered by a very powerful engagement algorithm we become a bunch of monkeys dancing to the latest Tik Tok algo how much autonomy do we even have is this the promise of the internet if so how come so many of us feel trapped we're like ready for something new and the question in today's episode can crypto fix any of that that's the context and to discuss this topic we brought on Eugene we he is the author of status as a service he's one of the SM arest product people in web 2 social that we know and also Leen

she is a crypto investor she's a thinker who popularized the term ownership economy to describe the future of crypto a few things we talk about number one the history of web 2 the origin its development and all of its goodness and all of its sins and why web 2 is stuck number two business models why business models are Destiny number three what parts of web 2 are actually worth keeping and what parts are we throwing out and number four why Le Jen has abandoned the term web 3 altogether she

doesn't like it anymore that was news to David and I five fame versus love six what is psychological ownership and why does crypto need more of it and seven Eugene's best advice for crypto settlers David uh why is this episode significant to you are you feeling like a dance monkey these days dancing for the ELO well since I've never succumbed to a dance monkey I've never been elevated by web 2 I've had to do it the oldfashioned way the old dancing yeah dancing for Theos so you don't dance for any elos I have not

danced for the elos yet yeah are you sure I feel like I feel like our tweets are dancing for elos I feel our tweets I definitely well on I I no longer dance for the Twitter algor anymore but once upon a time I definitely did I you're the one with you're the one with daughters do your daughters play the dance algo game they don't I don't so I don't dance and I think like genetically that probably carries forward actually my youngest daughter she's an incredible dancer but it's more like B she hasn't gotten into the Tik Tok not Web Two dancing actual dancing but like dancing for elos that's a metaphor for all of

the crazy things that we do that shape Society for like adapting our Behavior so that we can get um Instagram famous or YouTube famous or you know spreading our content and message in those feeds that that's what we mean by dancing to the elos yeah there's this um Trend going around in New York of uh people influencers filming themselves danc on the streets of New York just completely cut off from reality not caring about where they are and then the trend has gotten so big that now people are

filming you know influencers in the wild and everyone's just like on the street corner dancing like who is the Puppeteer Behind these people that are making them dance oh it's it's the Instagram algorithm it's the Tik Tok algorithm uh this algorithm is making us do things and we don't have control over it if there's one thing that crypto web 3 being on chain is here to do is it's here to to set us free um the banks control our money and our finances but web 2 controls our behavior and our social engagements I would like to break

break free from both of these things um and that that we need a new form factor we need a new substrate to build this new social landscape uh if we're going to do the thing that Eugene is saying we need to do which is get out of the dead end that is web 2 and hop over into a new fertile landscape of experimentation with web 3 one of the big themes I think in this episode is understanding how web 2 came to be what are the components of web 2 like the ad model the feed model

um the but some of these components are going to persist some of these things are just true about the way that the Universe operates so some of these things are forces that web 3 will also be shaped by but some things we can throw out some things we can just jettison and not take with us uh and learning about the history of web 2 and applying that as a pattern to match upon layer on and understand the future of web 3 is what you bankless listener are going to get out of this episode once you see it you can't unsee it the algorithms that shape society and how to

break free let's get right to the conversation with Lee and Eugene but before we do we want to thank the sponsors that made this episode possible bankless Nation we are incredibly excited about this episode because we have two Giga brains on today one from web 2 social and one from web 3 talking about the future of status as a service psychological ownership and the future ties between crypto and social um many of our listeners will be familiar with our first guest she is Leen she's an investor and co-founder of variant fund and she's one of our favorite thinkers

on crypto and the Creator economy in fact she recorded with us a legendary episode in the Cannons of bankless called how to own the internet Lee welcome back to bankless thanks so much for having me back it's great to be here thanks it is very exciting to have you back and you brought a guest you brought a friend with you uh someone that we at bangas have admired for quite some time Eugene wey is a web2 product Visionary and listeners might be familiar with some of his incredible blog posts such as this is one of my all-time favorites

status as a service also invisible ASM tootes and why information grows what Eugene does very well is make sense of the growth of social media and predict what's about to come next Eugene welcome to bang list for your first time it's a pleasure to be here thanks for having me okay so I set this up and I and I hyped you guys up for this conversation so uh we've got our two brains here one one from web 2 social one from web 3 crypto and we're talking about the future but I think in order to talk about the future

we have to lay some groundwork we have to maybe take a peek at the past uh so why don't we start with a conversation about web to social so we can kind of get our our groundings and um the primer of web 2 so um there was a time when web 2 social didn't exist when it wasn't a thing we had the internet and it was good for stuff like e-commerce and and PayPal right and it was starting to Peak there and then Facebook entered the story uh Eugene could you take us all

the way back to the early 2000s and explain the story of web 2 why did it take off so the typical way that we hear web 1 and web 2 delineated is that you know web 2 brought with it the ability for users themselves to sort of have um more uh right access uh the ability to publish content um to the internet but I think even back in the web one days we saw that people are social by nature and social is one of the most popular use

cases for the internet so uh there's a legendary story of a very early hackathon when the internet was built and a lot of people submitted different projects and one person built a project uh for mail uh it was like a very early prototype of email and a lot of people said well this is just borrowing a metaphor from the physical world no one's really going to use this this seems um very trivial and it turned out that that was the immediately the application that got the

most use and then we had news groups and you know email and uh all these things were being used uh at at scale with web 2 um I typically Mark that with Myspace just for you know sort of my My Life um that was sort of the first thing that was a little different so you don't you don't start with Facebook you start with Myspace yeah I think of Myspace as like a very you know like the first sort of scaled social network um that I remember

using uh with a lot of friends and became kind of a model for Facebook um but you know suddenly you had uh this idea of a social graph like being to map out people's relationships uh on some service that existed in the cloud um and that service being one where you know people could start to publish content to each other so it was a different way of communicating uh with people that you knew and that really you know it really

took off with Facebook um I think for a variety of reasons you know every Social Service that scales tends to build on the learnings of the previous uh social network but Facebook you know I think uh did a smart thing by building on top of the college graph and specifically in starting out with the Harvard graph a very like prestigious uh rung on the social ladder and then slowly scaling out from

that and uh the the probably the biggest Innovation that um faceb Facebook then brought to social was this idea of a feed so um today we take feeds for granted in this sort of mobile phone Centric era but you have to remember that Facebook started uh before the iPhone the first iPhone the smartphone so we were largely using it on laptops and desktops um and and the very first versions of uh Facebook were like

Myspace in that if you wanted to see what content or updates your friends had published you had to go to each person's uh Facebook called it a wall but essentially you were going to each person's profile to see if they had published an update and so it was very inefficient the more friends you had the more work that was so the feed said well why don't we just bring all those updates into one you know Geographic space so it's easier for you to find out you don't have to go searching around if someone publishes an update just shows up in your news

feed uh it was very controversial at the time but in hindsight it makes a lot of sense that you there's no reason to go to everybody's profile to see if something's changed why controversial Eugene well you know within companies it's always uh controversial when you make such a a wholesale change to the way the site works and you know you hear stories about Zuck getting a lot of push back from different people inside the company and you know as CEO he had the prerogative to push it through and

as with most big changes to any product or service initially a lot of users complained but it was very logical and by the way it made even more sense in the era of the smartphone which has become the dominant Computing interface uh the dominant Computing platform of this era because the smartphone has less screen space and so vertical scrolling news feed is actually just the most efficient um sort of uh way for users to go through a lot of

content like you can just hold your phone in one hand you can use your thumb to just throw the screen up and by the way it's also the most efficient way to uh on a mobile phone to put ads in between posts of content like you don't have to leave the screen to go see other stuff to find ads we know that most users tend to stay on the home screen of whatever app they're on and so for all sorts of reasons may this made sense um but I also think that

if you think about all of you know I'm here I'm referring to Western social um if you think about web 2 as a whole this move to add subsidize social um had a lot of consequences Downstream on the one hand it makes a lot of sense because typically one of the biggest problems for social is the cold start problem how do you get enough people using um your product um to gain the benefits of the community advertising is great for this because it keeps the product uh free so

more users will try it um so it's very logical business model U but I think when we think about the end of this era of social uh the end of the era web2 social I think a lot of it is because the ad business model has sort of um eliminated a lot of other possible ways to build out social so if you think now about in Instagram Facebook Twitter if you think about all of our sort of dominant social products even if you include Tik Tok and things

like that in there um they're all ad subsidized social networks and so that's become this large scale zero some game because we know that attention is is the scarce resource in this economy and so you're almost forced by your competition to fight for that attention if something like Tik Tok comes along and becomes more entertaining and addictive then you're going to see Instagram and Twitter and everybody else start to copy Tik Tok

because it's a zero sum economy we know that um cpms for advertising online have tended to go down over time at least uh um that's been the trend thus far and so to raise your Revenue as a a social media company you have to drive the M part up because the C is going down and that means uh more and more we see um all these companies fighting to be more addictive um and

entertaining and I I want to highlight one thing which is that um there was a big transition when we went to the feed which was initially the feeds were deterministic that is if I was friends with Lee on Facebook and she published something I would just see it in my newsfeed uh or if I followed Lee on Twitter and she posted a tweet I would get it um but at some point if you have enough friends and you follow enough uh people on

Twitter you start to get a signal to noise problem you're like oh okay yes I'm friends with these people but not everything they post is interesting to me and so the way to combat that um to keep these products from being um too noisy all the companies started introduce algorithms over the top of the feed these algorithms try to determine what stories you would enjoy more than others which were more engaging than others and this I I think of as the transition from social networking to

social media we went from deterministic feeds to probabilistic feeds this is the era when people started to think of themselves as media figures because essentially you started battling the algorithm if you were going to post something Instagram and get through that algorithm you had to post like your best photo um if you were to write a tweet you had to make sure that it was pretty uh engaging or funny or witty in some way

and uh I I think this is under underrated you know the fact that we started to think of ourselves as media figures and even you know you started to hear people uh talk about their personal Brands I think it's is a natural consequence of all of us suddenly feeling like all right you know if I'm going to get through this uh algorithm I have to behave like a media figure um and I think you know it goes hand inand with this advertising

business model and that's why for me personally I feel like we're at the end of this era of web 2 social uh with this ad business model there just aren't too many other ways that you can have people interact um and you know the incumbents are very very strong uh in web 2 social and that's why a lot of people I think are thinking about web 3 social and crypto and things as uh maybe a way to go back to something different um by

changing the business model of social I really really appreciated that story arc Eugene it kind of just took me down memory lane starting with of course uh my space being able to customize my profile then moving into to Facebook the pref feed version of Facebook uh and of of course reminded that anytime Facebook made any change the whole entire platform just got angry and then and then we accepted it and it became better and we realized that no Zuckerberg does have like this particular vision for it uh and then I the way that I interpret

this uh this Arc that that you gave us uh is a little bit trying to is trying to scale right like I have my 50 150 friends I can only keep track of so many of them and so what does Facebook book do they present this new technology called a feed that allows that to scale a little bit better and then I can keep track of more friends uh have more friends make more connections look at more content because of the feed and then introducing a second technology the algorithm allows that to also scale so

these social networks are also scaling and I think you know bankless listeners can kind of just use their imaginations and understanding as these were the lessons that we learned in web 2 the lessons that we learn in web 3 social are going to um p from some of these lessons throughout history uh and all of all of this was motivated like you said just by the ad model because scaling social networks scales Impressions which scales ad Revenue which is how we get to this logical conclusion I want to just double tap on the whole logical conclusion part of this whole thing

because you sound you sound like this is where web 2 ends and there's no re like we only are at marginal improvements here like I can see Tik Tok starting to converge with Twitter starting to confer with Instagram a lot of there's a lot of shared um platforms shared uh shared components of these of these web two apps and I just want to uh just double down on the conversation as to why you actually think that we are kind of walking towards the end of the road in in web 2 uh and and why you believe that yeah I mean partially it's the

strength of the incumbents um you know we have an advertising duopoly in the US it makes it very hard to build a new Social Network you have a very small window to scale to become even like partially relevant in the advertising space um and that makes it difficult but I think the business model itself kind of constrains other options for social you do have some other networks now trying more paid options you have Snapchat Plus you have Discord you have slack which um you know try to monetize

in different ways uh none of them have achieved um the revenue scale scale of like a Facebook um or or things like YouTube so um I think that's part of it but the other part of it is that I think uh the graphs themselves were built out in a very particular way um and I don't think it was always thought out from the very beginning what social graphs they wanted but the graph of people you're connected to tends

to kind of determine how you'll use a network and the fact is that most people don't really prune their graph or redo their graph that often typically that happens when you join a new Social Network you're like okay this time I'm going to follow different people or I'm not going to follow all the same people but you don't see people on Facebook or Twitter or Instagram you know unfriend or unfollow people at scale only you know some people will do it and make make a big announcement like I'm

unfollowing everybody on Twitter I'm going to I'm going to redo this and uh but typically you don't so we have a form of graph lock in that also kind of constrains how we interact with each other and the fact of um ads being the primary business Auto model also constrains just the number of UI um variants you can build within your product uh you would I would probably say that messaging apps have been the other area where we've seen a lot of new

social things get built out um you have Telegram and signal and WhatsApp app and and those things but um they don't monetize that well and that's partially because the UI isn't feed based where you can just Jam ads into in between posts um it would be a little weird if you were in a messaging app and then an ad showed up in between your messages to people so it'd be creepy hly it's uh it's been very difficult to uh monetize

alternative social networks um so that's why I feel like you know we're we're at a stasis and one of the ways you can tell this is that um Instagram is copying Tik Tok Twitter is trying to copy Tik Tok Tik Tok is trying to copy Facebook you know I feel like we're in this circular uh Spider-Man meme where everybody's just trying to copy everybody else and I don't see that many new um ideas out there even even the photo apps that um these small social

photo apps that have um popped up recently all of these are hearkening back to a previous era of social they're like uh you know let's go back to photo tagging from the early days of Facebook or let's build an early version of Instagram again uh when it was just photos from our friends um so that's why I say you know it feels like we're we're kind of at an end point or you know uh um you know we went down a culde saac Lee you look like you want

to reflect on on The Story So Far of of web to yeah I think like I definitely Echo a lot of what Eugene has mentioned about the history of Social and and where we are today um I think like it's also useful to think about the stage of social that we have today per the lens of like traditional Network effects Theory so Network effects theory is the idea that like um the utility of a network grows as the number of users

scale so the konal example of this is like the telephone Network where as the number of people that are connected to the the network grows the more utility that the network actually has like the telephone network has no utility when it's literally yourself with a telephone but when there's 10 users then it grows exponentially and so a rational user who is using a product would naturally be inclined to join the larger Network um that has more utility more content more

potential connections than a smaller one and so I feel like after you know a decade and a half of the existing social networking Paradigm where at this point where now the incumbents have scaled to such a point where it's really really difficult to compete against them um because any Innovation that you introduce in terms of new products new features can easily be grafted on to an incumbent and offered to its mass distribution of users that it already has um to illustrate this like Facebook

has three billion with a B monthly active users that's literally half of the world that's a monthly active user of Facebook and so if you're a startup that's trying to compete on the basis of let's say a new content format or a new feature or a new way of interacting with your friends it's so easy for an incumbent with all of those resources to just take that feature Innovation and add it to their existing product and then offer it to everyone who's already using that product and thereby like shortcut cutting um the utility of that

new feature by by offering it to all of these connections and so we're kind of like stuck right now because all of these startups feel like they're unable to compete all of the scaled social networks already scaled and they're just sort of co-opting all of the innovation in the space um and it's been like this for a while by the way when I first started investing in consumer startups in 2016 back when I was still at a16z on the consumer team there I remember other BCS from other peer firms asking me like what is there

even left to invest in in consumer isn't it all just like incremental Innovations from here on out because we have all of these scaled networks and I feel like if you reflect on what's happened between 2016 and now they were kind of right like we haven't really gotten major new scaled social platforms there's been a lot of feature Innovation there's been a lot of innovation in terms of content format we we had like live audio um and things like that but nothing has really broken out and and become a

standalone business um and I think it's because of this like kind of powerful Network effects thing um and I want to posit three possible paths out of here like how do we get out of this situation and and three possible paths that we can actually like break the dominant structure of of the current social Paradigm um so one of them is a new generation of users that arises and wants to use something different than their previous generation

of parents or whatever I think um the way that the network effects Theory breaks is you can actually have negative Network effects where the greater the number of users on a network the less utility it actually has for you we see this all the time where we we're hesitant to post something maybe on Twitter but we're more likely to post it in a small friend group or we don't want to post something um on on Instagram feed but we're okay with posting it on our stories to our close friends so more users can actually be bad sometimes and

so perhaps a new generation that arises of young people doesn't want to use the same social network as the previous generation and that actually inran is like a new social player that comes up so that's path one I think path two is um we get a new Computing platform and with a new Computing platform it enables a new startup to be able to innovate faster and win on a new basis of differentiation than the old winners um and so you could sort of map like the chronology of social that Eugene painted

to like different Computing platforms where in the web one era we had a different set of social platforms probably like the blogging platforms than we did in the mobile era and then you can chop up the mobile era into different levels of bandwidth that we had where um with less bandwidth we had like photob based social networks like Facebook and that moved towards video based social networks like Tik Tok with growing bandwidth and so perhaps the next Computing platform is I mean I think there's a question mark as to what

this is but maybe it's VR maybe it's AR but I would also say like I think crypto is a really powerful new Computing platform it's it's literally a world computer that we're building where any you know function API could call another API um and so perhaps that is the substrate of a new social application and then lastly um the third path uh towards building a new Social Network um my hypothesis is perhaps there comes along a new business

model for monetizing a social platform that then um would Advantage a new player and this is where um I kind of want to bring in like the idea of ownership crypto ownership as a potential new basis of a new business model um that goes beyond advertising so as we mentioned advertising is basically the monetization of attention um but monetizing it in a way that treats all attention as fungible and it's a zero

some game you're all competing for attention and the more attention you have the more money that you earn but at the end of the day you know all attention is fungible it's all interchangeable um whereas ownership I think the the potential of ownership as a new business model lies in the fact that with ownership you can actually sort of discriminate between different Flav flavors of attention you can distinguish between super fandom versus casual fandom you can distinguish

between patronage versus speculation and use ownership to monetize it in a very fine grained way I don't know if that makes any sense um and so with that new business model you can actually um make it possible for small smaller social networks to succeed you can make it possible for smaller creators to be successful um you can make it possible for like Standalone communities to be able to be able to monetize without a

platform for the first time ever we're seeing crypto social networks that are platform um meaning they are they have a token they have a native token but they exist outside of the confin of Any Given social platform or application um and so I think ownership as a new business model is really powerful because it creates all these new possibilities for what can viably exist I think uh that last piece the new business model is really the the key to unlocking uh web 3

and what you've called the the the ownership economy and I I want to before we get there which is what you know I I think we want to spend some time on just thinking through you know how web 3 can actually you know change the future I I want to talk maybe a bit about um the stakes or at least where the last decade or 15 years or so has kind of left us on the web two front so it's really interesting I think all of us everyone listening has their own unique experience with with social media and I love Eugene's model of hey we somewhere