Since early childhood, we have been taught to be careful and even suspicious when encountering things that we do not understand. This explains why I have not invested in Bitcoin (or any other coin, to be fair) so far and do not even have a digital wallet. My initial skepticism that this was going to be another short-lived fad has been disproved already. Despite my history of struggling hard with technical concepts (some of that experience was described here), I felt that getting at least some rudimentary understanding of networks, blockchain, crypto, and web3 would be useful.
When browsing the internet and looking for a place where to start, I came across a video featuring Chris Dixon, who runs a crypto investment operation at a16z, aka Andreessen Horowitz, a venture capital fund. This suggests that he is used to putting his money where his mouth is. Chris’s book “Read Write Own: Building the Next Era of the Internet” (and no, I am not earning affiliate income from this link) was published earlier this year.
Here are my 3 takeaways (all highly non-technical) from watching his interview on YouTube:
Lesson #1
For any network, the size truly matters — the larger the network, the more network effects it generates. The effects are always there, but the key question is — to whom do these effects accrue?
In the case of the internet, those effects are now being captured by companies and not by the community. Chris argues that we are at a point where the whole internet is being controlled by 5 companies. The risk here is that when the network effects continuously accrue to one or a few companies, then the system gets stale.
In comparison, blockchain has been developing as an inherently libertarian and decentralised system. It is shifting the power (and the network effects) back to the participants, to the community.
Lesson #2
The so-called “take rate” is a percentage of revenue from transactions executed by third parties on the network that is charged by the network owner or operator. It works like a toll. For example, Apple charges 30% on all the transactions that take place on its platform.
The present system of take rates accruing to the platform owner creates a lot of pent-up energy that could be exploited by a challenger network ready to offer different revenue-sharing principles to content creators. As the saying goes, “Your take rate is my opportunity.”
Lesson #3
Historically, securities laws were put in place to protect the market participants from actors who have asymmetric information.
Interestingly, the securities laws do not apply to gold, which is declared a commodity. It has been assumed that the information on gold is sufficiently decentralised and available to all market participants. This helps to argue that Bitcoin is also sufficiently decentralised and could thus be considered a commodity. But there is no clear pathway defined yet by law from being centralised (which every project is at its inception) to becoming decentralised. This creates ambiguity.
Legal ambiguity is always good for bad actors, while entrepreneurs benefit from clearly defined frameworks. In the absence of laws, the responsibility for rule creation is being pushed towards the courts, which may require 3–5 years to pass the judgment. In the case of dynamically developing sectors, this is too long.
And, as a final note, one of Chris’s remarks on a different topic — that most business books don’t need to be books, they could do much better by being podcasts or blogs instead.
For those willing to try and pick top lessons of their own, here is the link.
* from anything that you are reading, watching, or hearing, you can realistically expect to remember a limited number of things only. My solution is to pick just 3 items or ideas from any material. This number is non-negotiable. Even the most extraordinary experience has to be compressed into 3 things to remember.
This note was first published on Medium.com on 3 October 2024.
