Original Title: "a16z Partner Talks with AngelList Founder Naval: The Wonders of WEB3.0"

Author: Tim Ferriss
Translation: Overnight Porridge, 8btc

Recently, on "The Tim Ferriss Show," hosted by angel investor and popular podcaster Tim Ferriss, a16z partner Chris Dixon and Naval Ravikant, known as the "father of venture capital," were invited. This episode covers many hot topics, such as the wonders of Web3, Friends with Benefits (FWB), the untapped potential of NFTs, and more. The complete podcast lasts over two and a half hours, and for easier reading, we have divided it into four parts.

Here is the first part (content has been edited):

The Wonders of Web3

Tim Ferriss: Chris, I want to quote something you wrote in a blog post back in 2013: "The smartest people, what they do every weekend, is exactly what everyone else will be doing on every weekday for the next ten years."

I want to ask two questions. The first is, how do you determine that a mathematically-based currency like Bitcoin falls into the category of what smart people do on weekends, and what are you currently interested in focusing on?

Chris Dixon: This goes back to the legend in Silicon Valley about Steve Jobs and Steve Wozniak going to the Homebrew Computer Club. They were smart people, and if you talked to them, you would find that they really understood what personal computers were; they had very deep thoughts. By the way, much of this involves actually talking to people rather than believing secondhand sources. I really believe that one of the most important things you can do is talk to a lot of people. That's where I get all my information—from talking to entrepreneurs and people smarter than me.

… By the way, a lot of this is happening online now, on Discord, on Reddit. A lot of what I did in 2013 came from Reddit.

Naval Ravikant: This is the current definition of the frontier. There was a time when this word represented the Wild West, a time of conquerors and explorers. Today, the frontier feels like the cutting edge of the internet, and on the internet, the frontier is in Web3 and crypto because it is the least regulated, most decentralized, permissionless, 24/7 self-funding market, where hackers from all over the world can participate.

You can be anonymous or pseudonymous, or just use a CryptoPunk as your profile. No one has to know who you are; what matters is the output of the code. If it works, you can make a lot of money. Satoshi Nakamoto might end up being the richest person in history and could do so completely anonymously. This is not unique; there is enormous wealth being created and destroyed on this decentralized anonymous frontier. Now, I think we are seeing "Web3" starting to attract all the talent.

All the smartest people in Silicon Valley seem to want to switch from a 9-to-5 job to a 24/7 Web3 world and figure out how to get involved. Every non-Web3 company I work with calls me to ask about tokens or questions from a Web3 perspective. Clearly, some companies are just trying to make money, but part of the reason is the allure of open source, open platforms, portable data, user privacy, user control, keys, and community ownership and generated networks.

How to Define Web3 and Why It Is a Downward Attack on Web2

Tim Ferriss: Chris, can you provide a definition of "Web1," "Web2," and "Web3"?

Chris Dixon: Web1 is what we refer to as the internet era from 1990 to 2005, and the key to Web1 is that it was dominated by open protocols. So the web has a protocol called HTTP, email has a protocol called SMTP; these are the prototypes, the platforms you built on at the time.

So if you were Larry and Sergey and you were building Google, you were building it on top of HTTP, right on the web. The network is open, which means no one controls it. From Larry and Sergey’s perspective, this means they knew that if they built a successful product, a successful search engine, they would own and control it. You couldn’t have someone come along and say, "I want 50% or I’ll shut you down."

This is the network; it is open. Similar to, say, in economics, if you talk to entrepreneurs or investors, they will say they like to invest in countries with predictable rule of law. Startups and entrepreneurs feel the same way; they want to build on platforms they know they can trust.

So that’s what was great about the early internet; you could have so many incredible innovations and investments. I think most people today would agree that was a golden age of innovation. But these products were limited in some sense because they were often read-only. I tend to call it "skeuomorphic," meaning people took things from the offline world (like magazines) and put them online.

You can look back at the web of the 90s; it was like a magazine. You didn’t have social networks or user-generated content, and there was hardly any similar content. What everyone calls "Web2" started to emerge around 2005, when there were two competing models. Let’s take Twitter as an example; there was an open protocol called RSS, which clearly competed with Twitter.

I mean, it still exists, but it’s not as popular as Twitter and Facebook and everything else. In the 2000s, there were some open ways to build social networks, and then there were some closed ways to build them. For various reasons, I won’t go into all the details, but the closed ways had a lot to do with usability. I think that’s Web2, while open protocols just limited their functionality.

If you wanted to build a website in 2008, let’s say you wanted to replicate Twitter’s functionality, you had to go find a web hosting provider, buy a domain name, and do a bunch of other technical things. Whereas on Twitter, you click a few buttons, choose your name, and you’re in; your friends join too. Then the advent of mobile accelerated everything, and now we have about five companies controlling the internet.

So, Web3 is emerging, by my definition, it is an internet owned by users and builders, and tokens are its components; the new concept of tokens is a key concept of Web3. It has a bit of a historical origin from the movement that started with Bitcoin. Although, I think it’s another branch of genealogy or something else.

A lot of things are actually built on a crypto network called Ethereum, as well as other alternatives. The biggest innovation of Ethereum is that it is fully programmable; it’s a computer… it’s a very powerful computer with new features that previous computers didn’t have. One thing you can do on it is create something called smart contracts, which are pieces of code that will continue to run in some way. You can also create something called tokens, which can be fungible like cryptocurrencies or non-fungible like NFTs.

The reason tokens are so important is that they now provide a mechanism to give value and control to users and builders, rather than simply giving it to centralized companies. So now you can use open protocols and this new philosophy to build things that look and feel like Facebook or Twitter, where the value or control belongs to the network users, not the company, because there is no company, right? You will see more and more of these products; initially, there may be some R&D organization helping to create these protocols, but over time they will gradually disappear, just like Bitcoin has no company, and Ethereum has a nonprofit foundation supporting R&D, but there is no Ethereum company.

I believe the most important internet products of the future will be created in this new way. Why is that? One, it will be better. If drivers on the Uber network own the value of Uber and can participate more in value creation and governance of the system, isn’t that better? I think that’s obviously a good thing for society.

I also think it will be the winning product because people like this. If you look at the people in these Web3 communities, they don’t want to see Web3 companies and crypto companies spending money on marketing, including Coinbase. I’ve worked on boards for many years without marketing. Why? Because tokens are self-marketing. When someone owns something, they want to talk about it; they want to spread the word.

So I think Web3 is not only better for the world, but it will also defeat Web2 because it will be more popular, as people will be very excited when they are truly involved.

Tim Ferriss: If you agree, I’d like to try to explain this in layman’s terms, and then I hope you’ll correct me. First, I would say I’m relatively new to this field, but as you said, once it starts to land or sink in, I feel something. This might sound strange, but it feels like a physiological acceleration; I haven’t slept well for a week straight.

This happens to me every 5-7 years or 5-10 years because I start to see some possibilities, some beneficial social changes, etc., and other things that are not just possible but are, in a sense, already products of this paradigm shift. So tell me if this captures some essence, and either of you can correct me.

So people might think of Web1 as read-only (mostly read-only) and open. Then we had the read-write Web2, but as we’ve seen, it has become more centralized due to big companies. As you said, aside from the domain name, you can’t own anything, can’t control your destiny, have very few rights, and your reputation is non-transferable. If you’re on a platform like Twitter, you can choose not to use it, but it’s centralized. Many people use these platforms for convenience, ease of use, and so on.

And Web3 seems to introduce a lot of things, including ownership and decentralization. Based on what I’ve personally seen, I want to give a concrete example, just to point out a very niche group where I’ve clearly seen the benefits, and that’s artists.

I want to talk about this because I have photographer friends, graphic artist friends, musician friends who have been financially paralyzed due to the pandemic. When they couldn’t tour, when they couldn’t do anything (because on these music streaming services, each play only brings them $0.01), they created unique properties in the form of NFTs and launched projects, and their futures were completely changed because of it.

I want to emphasize something, for example, the models for writers and musicians have some royalty components, but you can pay a little upfront, and then you can get a small percentage of backend revenue. But with smart contracts, as you said, if we think of Ethereum as a world computer, with smart contracts, you can pre-set certain things to happen automatically without relying on intermediaries that take most of the profits.

In the traditional art world, if you’re an artist, your work gets resold, and then it gets resold again, and then it gets resold again… you will get paid once, and that’s the end of the story. But now, artists can earn a portion of the income from these secondary sales, or a large proportion of it, and all of this happens automatically. They don’t have to trust some agent, broker, or curator to pay them. They don’t have to audit accountants because all of this happens on the blockchain.

So I just want to give an example; can either of you elaborate on this or give another example that excites you?

Naval Ravikant: Yes, I just want to summarize what you’ve said because I think you’ve approached it correctly. But basically, what you’re saying is that digital private keys enable digital private property. So we finally have private property on the internet, and we don’t need intermediaries like Spotify, or even studios and record labels, to determine who owns what private property and share it with their database entries and their lawyers.

We can all do this ourselves. Chris has been mocked on Twitter for this; we can all own a piece of the internet, but that’s absolutely true. We can create digital scarcity, which is a very powerful thing. So we can have digital scarcity and digital private property. In the Web3 environment, there are three key things you’ve all mentioned, but I want to summarize them to help the audience really understand Web3.

In the normal model, we are used to thinking of computer programs as applications run by third parties who control the code, own the data, and have the platform and economic benefits, and what we get is just the scraps. We post a tweet, we publish a blog post, maybe we get a little shekel from Spotify, maybe we get some likes and retweets on Twitter, but it’s not much. The owners of Spotify are richer than the creators and musicians on Spotify.

This isn’t an attack on Spotify; they’re just a symbol of the whole thing. We’ve gone through this transition, like Web1, well, who won? Microsoft, maybe Netscape and Google were the big winners of Web1. Then Web2, who won? Apple, Google, maybe Facebook. Will Web3 also be controlled by big companies?

No, the beauty of Web3 is that for the first time, all the data is public. The data does exist on the blockchain or distributed systems, but it is secure. Its security is actually much better than the way these companies protect our data because each piece of data is protected by our own private keys. So each of us now has a vault in the cloud where we can selectively access these vaults with our private keys when needed and then close them again.

So they won’t leak in the next big company hack event. Then, who owns the platform of Web3? As Chris said, it’s the contributors who own the platform, not the companies. Finally, developers love this because the code is now open, not closed.

So this is a crazy concept, a revolutionary concept. We are shifting applications from closed code, company-owned platforms to contributor-owned platforms, open source, and users owning their own data. So now these things become completely composable. One of the reasons the Web3 revolution is so nonlinear, so unexpected, and so fast is that open source code means these applications can plug into each other like Lego blocks.

Connecting these Legos, you can build anything you want with them; that’s how code works in Web3, that’s how data works in Web3, that’s how ownership works in Web3. I can own a small piece of every platform I contribute to; this is absolutely revolutionary.

"Composability" in Software is Like "Compound Interest" in Finance

Tim Ferriss: Naval, you just mentioned the word composability; what does it mean, and how do people use it?

Naval Ravikant: The beauty of it all is that it’s all open source, right? So it’s not even limited to APIs. I don’t have to access through very limited APIs; I can connect to the code anywhere I want.

Then, in open source, each problem only needs to be solved once. So if someone has already built a good version that solves a problem, I will reuse it, and then reuse it again. Maybe I’ll fork it, I’ll improve it a bit, maybe I’ll put it into a slightly different system, but fundamentally, each problem only needs to be solved once.

So composability means it’s like Lego blocks, or actually digital Lego blocks; I can copy Lego blocks and build on top of them. So for competitors, it’s like a composable type of thing; suddenly all applications and Web3 can come together to create any application you want.

For example, in DeFi, there’s an innovation called Automated Market Makers (AMM), which doesn’t have to pay exchanges to market makers and companies on the other side to ensure liquidity in any market. In Web3, you can achieve this through code. Once you implement it in code (like Uniswap), anyone else can copy it, and then it can be inserted into any new application. For example, if you look at the upcoming Web3-based games, they will have entire market economies. They will have hosting solutions where NFTs can be built. This will be completely composable because any part from any other application can be inserted into any other application without permission.

So you’re building a building; it’s almost like building a civilization or a city made up of interconnected applications, rather than these data being non-portable, code being non-portable, and users being non-portable islands. So this might be a longer definition than you wanted, and Chris can give you a better explanation; I’m sure.

Chris Dixon: I like to say that "composability" in software is like "compound interest" in finance; it’s a magical thing. If you let it run, it will bring about growth similar to a hockey stick curve. Regarding what Naval said, one thing that people not in the tech industry might underestimate is the dominance of open source software.

Open source software originated from curiosity in the 90s. In the 1999 antitrust case, I happened to be looking at something about Microsoft, which was all about Java and not about Linux. Of course, what actually happened was that Linux was the winner. 99.9% of the code in the world runs on this open source software. So every server you talk to in data centers is almost all Linux, and your Android phone is Linux. And most of the software on the iPhone is open source.

How did open source win? That’s composability, as Naval said; you only need to solve each problem once. What Web3 is doing is taking this level of rapid innovation and applying it to web services beyond just software. Because one thing software can’t do is run itself, right? It relies on a company to operate.

So much of today’s tech industry is taking open source software, adding a little proprietary software on top, then instantiating it, running it, and charging for it. That’s software as a service; it’s great; they provide value, and they should make money from it. But the key driver behind it is the composability of open source software. And now we’re going to extend that to this new realm of Web3.

Naval Ravikant: Yes, composability even transcends software, even though that’s its common usage. It has even entered media. For example, today, if I want to build something on the Star Wars platform, I have to make a deal with Disney. But in the open source composable NFT world, artists have basically given up that concept. Yes, you can always right-click and save an image or code and modify it; you can build on top of it.

So people will build games; they will build cultural artworks, new memes, new music on top of NFTs, and the underlying NFTs will gain more value as they become more popular. Ultimately, the value of a piece of art or media is directly proportional to the community around it, who is using it, and who is promoting it.

So it somewhat strikes at the idea of copyright and intellectual property. Instead, it creates the most powerful memes in the world, broadly in music, film, and books, not just the small internet memes we are familiar with. The media itself also becomes composable. The greatest artists will have the largest distribution. So if you have good ideas, you should want to spread them as far as possible.

That’s why I will never charge for content; any normal-minded person with good ideas shouldn’t charge. You shouldn’t limit pathways; you should hope people reimagine your ideas. For example, Akira the Don remixed what I said into music, and Smart Nonsense can make videos and cool animations with it, and Jack Butcher does visualizations. This is all free; I don’t have to do anything. This is all the composability around media. Now, I don’t have a potential monetization mechanism. But if I want, I can issue NFTs against the original content, and there will be collectors who will pay for it. And my content is becoming more and more famous, so this is an example of composability that transcends software.

Composability is a very, very powerful concept. If you want, for example, I know many of your listeners create a lot of content; they are content creators and innovators. If you want to make your content as public as possible, don’t hide anything. If you have good ideas, you want to spread them as widely as possible; you want others to create with their own content, create new memes and new ideas.

Tim Ferriss: So I want to add something here, just like you just did, to spice up some examples and details. And further explain why these things keep me up at night.

Naval Ravikant: By the way, "The Tim Ferriss Show" will become a crypto podcast.

Tim Ferriss: No, it won’t. I assure everyone that even if I get pulled into deep water and spun into a whirlpool, I can tread water; I won’t drag everyone down with me. But these things are important, and I think they are worth exploring. It excites me because I see many great creators and musicians struggling because they are not good at marketing, but they have hardcore fans, maybe a small group of hardcore fans, but they have some hardcore fans.

Many listeners know the article "1,000 True Fans" written by Kevin Kelly. I know, Chris, you’ve written some things about this article, and people can find it on kk.org. I’ve been recommending this article. What Web3 allows you to do is align your interests with the collective interests of other true fans by allowing fans to own the digital assets you create, right? What excites me is that I see many experiments. So we are talking about some advantages of Web3; compared to the Web2 era, it is very easy for many companies and projects to achieve escape velocity.

For example, if they are raising funds, they might raise small amounts one or two times, and then they have a token, and they can control their destiny as a collective stakeholder, right? Beyond that, if we look at examples like Bored Ape Yacht Club, you can see composability, right? So someone will take their unique bored ape out and create a coffee company or a craft brewing company. I’ve never seen anything like that before.

Of course, if you are a young, tech-savvy intellectual property lawyer, your services will be needed. It’s great to catch up. But the fact is that all these experiments can be conducted simultaneously at such a low cost, which to me means the ecosystem will produce a lot of things through natural selection, evolution, and different types of reorganization, and that will be very, very exciting. Even if 98% or even 99% ultimately becomes garbage, it doesn’t matter because the winners, like finding Amazon or Google in 1999 or 2000, will ultimately become very influential. Maybe I’m just drunk; I don’t know, but that’s how I feel.

Chris Dixon: Yes, like Bored Apes, they recently also launched Mutant Apes, and they made $100 million this way. As far as I know, they didn’t raise venture capital; they just made $100 million by issuing an NFT. This is a different economic model, which has advanced further in obtaining commercial rights.

And the next stage, which very few people are playing with right now, is letting the community create narratives. For example, communities like Wattpad. Imagine the next Harry Potter; the future Harry Potter belongs to NFT holders, and they can write all sorts of interesting novels, and then they can vote on what becomes a classic and what doesn’t, right? Imagine the enthusiasm people have for Star Wars and all other types of communities. Now imagine they own a part of it and control a part of it. This is about to get very, very interesting. I don’t think there has been this much creative energy since the 90s. I don’t think the mobile internet can compare.