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Aquanow Digital Dives: Web3 Is Not Going To Miss Its… Shot 🎯- Vol. 20

June 10, 2022

I had the good fortune of attending the Broadway show, Hamilton, live in Vancouver last week. Personally, I enjoyed the music and historical backdrop. It was also cool to see diverse ethnicities and body shapes on stage. That the show has been a huge success with a cast of mostly non-Caucasian performers and a score rooted in hip-hop/R&B is particularly neat to think about; especially in the context of the times during which the events on stage are set. 

While the West was making strides towards equity in the late 1700s, the racial divide remained expansive. Sadly, we’re still dealing with those issues over 200 years later. It is undeniable that progress has been made, but that doesn’t mean the status quo shouldn’t be challenged. The theme of pushing back against established regimes is also prevalent throughout the musical and is best portrayed in the three interludes sang by King George, who simply can’t fathom the idea that the American colony would think itself capable of existing without his oversight. He believed the idea was doomed to fail and that the defectors would come crawling back for his assistance in time and that, maybe a little tough love would make this all clear.

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You can’t blame King George for this blindness. In fact, humans tend to underestimate how much things will change in the future. As Steven Levitt and Dan Gilbert discuss in this podcast, the “end of days fallacy” is a phenomenon that has been demonstrated to exist throughout our lives. 

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As the first interlude came to pass, I was probably the only attendee who started thinking about how this sequence of events seems to be echoing in digital asset markets right now. A few years ago, most figureheads in finance dismissed bitcoin, calling it a scam. Like an adult who understands that they’ve changed considerably in the ten years prior but anticipates having the same friends and tastes a decade down the line, those who assumed the status quo were biased. Many naysayers remain, but the tides are clearly turning, and the present-day U.S. Treasury Secretary has cryptocurrency on the mind as she works with lawmakers to establish a regulatory framework for stablecoins. 

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As George Washington’s Treasury Secretary, Hamilton’s efforts were understandably focused on financial matters, and he’s credited with establishing the foundation for the U.S. Federal Reserve in 1791. However, there are significant social themes that pervade the performance's plot as well. The divide between rich and poor, women’s rights and taking action are some notable examples. Elements of Hamilton’s legacy remain in place today, but society has transformed remarkably. I wonder if we might see something similar play out as web3 continues to grow its reach. It seems the community’s initial inclination was to financialize and innovations in DeFi have been rampant. However, many early adopters are growing tired of the incessant focus on token prices, obsession about where to find the highest yields and experiments in “ponzinomics”. To be clear, those issues still permeate across the ecosystem, but there seems to be a wind of change sweeping in.

If patterns repeat, then the hip-hop musical might provide us with an indication of how oversight, legislation, and mass adoption might come about in web3. When rap first burst onto the scene in the late 1980s, the new genre of music was generally disliked outside the communities it spoke to and broadly dismissed as unimportant. Then, as it began to mesh with the anti-establishment “gangsta” culture and gain popularity there were widespread calls (and attempts) to have the content outright banned.

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Fast-forward a few decades and the controversial musical genre is not only mainstream, but underlies the score of a Grammy, Tony, and Pulitzer prize-winning Broadway sensation. Importantly, there were (and still are) some terrible pockets of rap that can’t be defended outside freedom of speech. An active dialogue about how this expression violates society’s values and education regarding why certain mindsets and words are undesirable should be encouraged. 

Web3 is trying to build an internet that compensates creators and contributors for the value they provide in a trust-less and decentralized manner. Unfortunately, the proof-of-work consensus mechanism consumes a lot of electricity and (until the ETH merge) underpins the two most popular blockchains. There are plenty of scammers in crypto, greed is everywhere, and DAO governance is kind of a mess. The list goes on… Channeling Dan Gilbert, we know the human mind is biased to extrapolate the status quo and believe none of this is going to change, but looking back in history, we know it almost certainly will.

In the centuries leading up to America’s independence from Britain, most of the world operated under some form of feudalism. In Europe, the church was a cornerstone of society and royalty reigned because of its “divine right.” Only the noble class was permitted to own land and such families had their powers bestowed upon them by the monarchs. The printing press catalyzed an intellectual revolution as people outside the clergy learned to read and texts other than the Bible circulated. As new ideas started to flow, an animosity towards the social hierarchies started to fester. Naturally, those in power tried to tamp out such initiatives, but a passionate few continued to spread their philosophies. Across the ocean and farther away from the scrutinous eye of the establishment, the notion of a less centralized society was able to gain momentum and the rest, as they say, is history.

Decades ago, the advent of the internet, like the printing press, unlocked a new paradigm in human communication. What started out as chatrooms, AOL messenger, and email has flourished into a vibrant and diverse ecosystem where information flows (generally) freely, data is stored on a massive scale, and algorithms are trained to develop smart software/machines. As costs dropped precipitously, even the less fortunate have obtained connected devices to participate in the conversation, albeit less frequently. With a screen never too far away, people across the globe regularly consult this knowledge repository to find directions, stay informed, be entertained and so on. Because everyone has a voice and probably due to a separation between identities in its analog counterpart, there’s been an explosion of creativity in this digital world. 

If everyone in a room speaks all at once, it’s difficult for anyone to be heard, so platforms have emerged to organize the conversation and content. Unlike the aristocracy of the past, the operators of these aggregation machines have earned their position through ingenuity. However, much of their behaviour resembles that of yesteryear’s landowners. Should a contributor to the conversation say or show something that the authorities don’t like, then they risk having their voice taken away. The creatives and geniuses who provide the world with endless streams of entertainment and education can also be silenced. What’s more, they only earn what the platform proprietors decide is acceptable, which might be nothing at all. 

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In the Early Modern Era, kings and queens had networks of informants who would be compensated for revealing information about the activities and attitudes of their subjects. Dissidence was not tolerated. Because people didn’t think anything could change and most feared the consequences of not conforming, the aristocracy continued to enrich itself from the efforts of the townspeople. 

In today’s digital world, citizens are monitored constantly. The information emitted by their behavior is used to keep platform users engaged and sold to advertisers, which like the creative works of content providers, goes to line the pockets of the tech giants. As an algorithm consumes data, its predictions get more accurate, which makes an aggregator difficult to leave because alternatives can’t offer the same tailored feel. The result is that billions of people will continue to congregate in these digital spaces and hundreds of millions of creators will go there to be seen/heard – for little or no compensation. Even the few who attain stardom must comply with the rules. Otherwise, they risk having the algorithm promote them less frequently or being removed from the platform altogether. 

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Europeans who wanted a new life were lucky that intrepid explorers continued to thirst for adventure and new horizons. The land masses they discovered allowed new beliefs and values to be discussed more freely. Novel ways of thinking on both sides of the Atlantic could be recorded in books, consumed, debated, and iterated upon. Blockchain technology is analogous to the Americas in that it provides a new frontier upon which those who see faults in the current system can build. Like the founding fathers who drafted the constitution to reorganise society, Web3 developers are trying to improve upon the walled gardens of today’s internet by programming different rules and incentives. Code repositories preserve their efforts which can also be analyzed, contested, and composed into other novel solutions. 

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Comparing today’s politicians, financial executives, and tech giants to the clergies, monarchs and nobles of the past reveals some important similarities, but there are significant differences as well. Most importantly, no one is having their friends and families killed as King George croons in Hamilton. Further, it seems that many lessons have been learned from the past. While the incumbents are (naturally) doing their best to maintain the moats they’ve carefully engineered, many see the promise of incorporating the technologies that create scarcity and embed digital property rights. However, the prospect of truly opening their platforms and decentralizing remains unpalatable. Adding NFT functionality or token trading is a big step in the right direction, but web3 is an exercise in decentralization at the core. 

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While Alexander Hamilton favoured an America free of the British monarchy, he was still a believer in strong central authority. His duality is a recurring theme in the play. While he sought to create a democracy, Hamilton wasn’t opposed to handshakes behind closed doors to advance his cause. The famous dinner table bargain between he, Thomas Jefferson and James Madison is clear evidence of this, when he architected a deal that would see the federal government purchase the outstanding debts of the states in exchange for regular taxation. The effect would be to create a central source of national influence and “bind the small group of wealthy businessmen who held most of the debt to the national government; as it prospered, so would they.” One of the concessions Hamilton provided to get his plan approved was to locate the U.S. capitol in D.C. All of this is captured in The Room Where It Happens a song about revolutionaries that shaped America during a closed-door meeting that also saw the first national bank chartered. Centralization is a decent way of getting things accomplished, but taken too far, it fuels inequity and distrust.

The internet provides an excellent laboratory for trying new things and that’s what’s being carried out today in web3. DeFi, GameFi, etc. have real world implications, but their relatively small scale allows for experimentation in environments where old assumptions or rules don’t necessarily have to hold. Decentralized Social (DeSoc) has been garnering more attention lately and this is what we’ll dig into next week. The phenomenon is growing virally and could have profound implications for how society is organized in the decades that come. Maybe the evangelists for this movement are crazy, but if you follow Sahil Bloom’s advice for how to predict the future, you might just see why. He’s an entrepreneur and web3 advocate who runs a collective called The Room Where It Happens, which is (perhaps ironically) an open-door society that fosters diversity of perspective and collaboration. Sahil’s “Weekend Test” follows the framework that, if three friends mention that they’re into a new idea, which he thinks sounds ridiculous, then he’ll put a little money into a related project. Once he’s got some skin in the game, he’s more focused on the developments in the nascent space. Often, he doubles down. What are some wild-sounding investments your cohort has been discussing?

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