5 Mental Models for Web3 | Chris Dixon on the Bankless Podcast with Ryan Sean Adams and David Hoffman

Check out Bankless Podcast Episode Page & Show Notes

Key Takeaways

  • A mental model is just a framework you “carry” to help explain something
  • There are 5 mental models to understand the importance of Web3:
    • “It’s just a toy” (why are new technologies dismissed?)
    • Web 3 (is the crypto community creating a whole new era of the Internet)
    • Tokens as the new websites
    • “Your take rate is my opportunity” (the transition from Web2 to Web3)
    • Networks becoming economies
  • Chris thinks crypto and Web3 are even more interesting than the early days of the Internet
  • New technology does not need to immediately solve problems
    • Innovation is a multi-step process, not a direct simple thing
  • Web3 is the internet that is owned by builders and users, orchestrated with tokens
    • “It is a participatory process and the key thing now is getting more talented people into the space”Chris Dixon
  • Tokens are the first thing on the Internet where a user can truly own something
    • They allow the concept of digital ownership
    • It can be a thing, a piece of media, a game utility, an avatar, code, etc.
  • Companies like Substack and Patreon are the early precursors of the new economic potential of online
    • More and more creators will realize that they can opt-out of the Web 2 monetization scheme

Intro

  • Chris Dixon (@cdixon) is an internet entrepreneur and investor, general partner at a16z. He is interested in programming, philosophy, history, the internet, startups, and investing
    • Check out Chris’ website
    • For additional information on Web3, check out these Podcast Notes from Chris’ appearance on the Tim Ferriss Show
  • In this episode, Chris Dixon joins the Bankless Podcast to talk about the importance of the Web3 Metaverse
  • Hosts:

5 Mental Models for Web3

  • A mental model is just a framework you “carry” to help explain something
    • This is the fastest way to get familiar with the crypto subject
    • Chris built mental models to help people understand crypto
  • There are 5 mental models for understanding the importance of Web3:
    • “It’s just a toy” (why are new technologies dismissed?)
    • Web 3 (is the crypto community creating a whole new era of the Internet)
    • Tokens as the new websites
    • “Your take rate is my opportunity” (the transition from Web2 to Web3)
    • Networks becoming economies

What is the Value of Mental Models?

  • People try to predict the future (this is what scientists, investors, and entrepreneurs do)
    • We need ways to extract from complex ideas and discover patterns
    • Chris develops mental models to help his thinking, investing
    • They are fundamentally about understanding and predicting the world
  • Chris thinks crypto and Web3 are even more interesting than the early days of the Internet
    • A blockchain is not just a “computer” that runs code and stores information
    • There is also a human aspect; community and network, economics and game theory
    • NFTs are all that + culture + media + gaming
  • For Chris, this is the most fascinating thing ever because it combines everything that he is passionate about
    • This is programming, economics, game theory, culture, etc.
    • A lot of his time is spent processing all this information and trying to understand it
    • That’s where all the mental models come from

This Could be the Golden Age of Crypto

  • The last time Chris was excited about the Internet was the 2009-2011 period
    • This was the golden age of mobile technology
    • Facebook’s mobile pivot in 2012 was a key moment
    • People realized that mobile technology is the primary computing platform
  • The idea of people paying a thousand dollars for a phone sounded crazy
    • Check out the Steve Balmer video and his reaction on iPhone prices
    • He underestimated the fact that iPhone was not a phone, it was a supercomputer
    • People ignored the exponential improvement curve of software (an endless source of entertainment)
  • In the same fashion, this could be the golden period of crypto (blockchain, crypto, web3)
    • It’s hard to know if the growth is linear or exponential because we are IN the process
    • In venture, too early is the same as being wrong. Chris was investing too early in machine learning and AI
    • VR is another example of something that is not going to explode until a few more years

“It’s just a toy” (1st Model)

  • People dismiss crypto way too early:
    • “It’s just a toy!”
    • “It’s too expensive!”
    • “It doesn’t solve any real problems!”
  • When PC first came out it was incredibly expensive, with very few apps and games
    • But all the hardware got exponentially better, and so did the applications
    • Buying the Apple II in 1987 had a very different value proposition than buying one in 1983
    • The same thing happened with Skype when it first came out
    • There were no built-in microphones on PCs, the connection was bad, etc.
  • New technology does not need to immediately solve problems
    • What problem did Facebook solve when it first arrived?
    • What problems did PC solve? No computer by itself solves any problem
    • PC enables a design canvas upon which developers can create applications that can potentially solve problems
    • Innovation is a multi-step process, not a direct simple thing
  • “Dig deeper, ask the right questions, and don’t write things off too soon”Chris Dixon
    • If it’s just a toy, what’s the improvement curve?
    • If it’s too expensive, what’s the price curve and when will the price go down?
    • If it doesn’t solve real problems, does it inspire people to build upon it?

Why Web3 Matters (2nd Model)

  • Is the crypto community creating a whole new era of the Internet?
    • Web3 is an internet that is owned by builders and users, orchestrated with tokens
    • If people don’t want to spend their life on advertisement targeting, this is the alternative
    • “It is a participatory process and the key thing now is getting more talented people into the space”Chris Dixon
  • Has Web2 peaked?
    • “Is there a product that Google has launched in the last 10 years that you find exciting?”Chris Dixon
    • Companies are not doing much innovation according to Dixon
    • He uses their products but feels the innovation progress is very incremental
    • It’s just a better camera, better battery, and a faster chip
  • Where are the bold bets?

Tokens as the New Websites (3rd model)

  • What the simple static website was to Web1, tokens are to Web3
    • “Tokens push ownership and control to the margins”Chris Dixon
  • There are two basic types of tokens:
    • Fungible (money-like things like bitcoin, ethereum)
    • Non-fungible (everything else)
  • They are the first thing on the Internet where a user can truly own something
    • They allow the concept of digital ownership
    • “Tokens give users property rights: the ability to own a piece of the internet”Chris Dixon
    • It can be a thing, a piece of media, game utility, an avatar, code, etc.
    • It’s a user-centric way to think about the Internet

“Your take rate is my opportunity” (4th model)

  • When a game like Fortnite earns $3 Million, it means people spent $3 Million and sent it to Epic Games
  • When Axie Infinity does it, they take a low percentage take rate (4.25%) but the other 95% goes from one player to another player
    • Instead of having a command economy, they made it peer-to-peer
    • Because it is a low take rate, they encourage the growth of the economy
    • The players feel like true owners
    • Smooth Love Potion (SLP) tokens that can be earned as rewards in Axie Infinity are becoming extremely popular in Philipines
  • Does this mean that Web3 will disrupt Web2 companies, as well as the gaming and music industry?
    • The higher the take rate, the more vulnerable Web2 incumbents will be
    • The most vulnerable will be the ones that monetize the most (e.g. music industry)
  • Chris thinks that all music will be free, they will adopt the game industry model (like Fornite and League of Legends)
    • The music industry is currently a seventh of the size of the gaming industry
    • This doesn’t make sense considering the popularity of music
    • The reason is lack of innovation

Network Becoming Economies (5th Model)

  • The world spent the last 20 years building millions of networks
    • We are nodes (basic unit of a data structure) in those networks, like our Twitter and Instagram profiles
    • The only business model that is on top of that is advertising
    • “A truly digital economy is like a real-world bazaar”Chris Dixon
    • Anyone can create and trade goods and services
  • Prime examples of new economies built on top of existing networks are NFT communities on Discord and Twitter
    • A band who spent years building a following now gets next to nothing via streaming services
    • By using NFTs and tokens, they can upgrade their networks into an economy
    • Companies like Substack and Patreon are the early precursors of the new economic potential online
    • They are the bridge companies between the economic models of Web2 and Web3
    • They are the key to understanding the effects of what’s happening right now
  • More and more creators will realize that they can opt-out of the Web 2 monetization scheme
    • Maybe the creators don’t need Youtube’s advertising banner ads
    • Get your audience on Youtube and Twitter, tell them about supporting via Substack
    • This never worked in ad-based models because you needed to get the entire audience to move over
    • With NFTs and Substack, all it takes is a thousand supporters to sign up for your newsletter
    • This is going to happen more and more with NFTs, according to Chris
  • Ideally, we will end up in a world where the user has more power than today
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