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Fully Moved In / The Great Web3 Game

Originally posted on tolusnotes.

Think of a country with a developing economy that lowers taxes partly because they can't enforce higher ones yet. There aren't enough established institutions and policies; besides, citizens may not be too fond of their national identities just yet. To kickstart the economy, they lower taxes to entice local and foreign entrepreneurs into migrating their businesses and livelihoods. Some even provide fast-tracked citizenship if expats invest in local companies or real estate. The incentive structure is designed to benefit those that are willing to pack up their entire life, migrate to the new country, and fully move in.

Now think about the internet's early days with its vibrant but developing digital economy. Initially, it wasn't important enough for businesses to consider migrating, and people joked that internet companies were dead after the dot-com bubble. We know how that bet turned out, but how did we get here?

Free To Play #

The web's taxes are essentially zero --- it is effortless for anyone to move in. Entrepreneurs are incentivized to build on the internet because starting an online business is almost free. Businesses also benefit from high margins either due to low operating costs or scale, thanks to the network effects enabled by the internet.

But while hybrid businesses and digital services thrive, digital goods have suffered. Creators who moved in ended up getting priced out by companies who could benefit from scale. Companies aggregated content and gave it away, leading to concentration and an imbalance in value distribution.

Creators could no longer stand on their own on the free-to-play web. They succumbed to paying high big-tech taxes while big-tech continued to pay the low internet tax.

Web2

The low-tax internet policy was successful in that it brought everyone online. Because of that policy, the internet is now a serious place to do business. But it came at the cost of extreme concentration and inequality. Creators bring the most value but get the least in return.

At a glance, it may seem that consumers also benefit from this policy, but that's far from it. After giving away goods for free, companies make money by understanding consumers' behavior and serving more relevant ads. It becomes a volumes game: more users → more attention → more data → more ad revenue. You can delete the user from that equation and simply view them as units of attention. I've written about this in the past, but algorithmic feeds like we see on all social platforms exist to maximize attention which translates to revenue often at the user's expense.

The algorithm is also good at pitting creators against each other for scraps. Youtubers spend many hours trying to understand and predict the YT algorithm but the rules change as soon as they figure it out. Youtube works when a few creators make all the money, and most creators aspire to make some money.

It's all about concentration in and out, and the worst part is that creators are locked-in on these platforms. Web2 is free but you can't leave the game.

You could argue that "free" is the internet's culture; that people value content, not the creators behind them. But creator-focused platforms continue to thrive, and fans are increasingly open to paying for consumption [0]. Writers are leaving in droves to self-publish on low-tax platforms like SubStack, and creators realize that the most valuable part of their relationship with platforms is the content they create.

They are learning that loyal fans are willing to pay them directly regardless of where they decide to publish. They've learned just how much leverage they have over the status quo: whoever owns the content has the most leverage in the long run, and signing it over to a platform is a horrible deal [1].

Consumers are also learning that the best way to support creators is to skip the middleman (aggregators) and pay creators directly. These factors are changing the internet culture.

We're realizing that ads may not be the best way to monetize everything online. They took off because they were one of the earliest digital-native ways to monetize, and the low-tax internet policy made it the ideal business model.

The low-tax drove adoption and helped internet businesses compete on cost with physical counterparts. But now that most people have migrated and internet businesses are here to stay, is it time to consider changing the internet's policies?

~

Before continuing, it's crucial to understand how I think about cryptocurrencies. Crypto is spawning a wave of new technologies that are upgrading the possibilities of the internet by building the necessary infrastructure required to grow the digital economy.

Crypto is difficult to understand when isolated as new technology. It makes more sense to view the crypto movement as continuing the ongoing digital revolution [2]. The internet is not a finished product; the digital economy continues to evolve, and crypto is the next phase.

~

Level Up With Web3 #

Largely accelerated by the pandemic, the digital is now just as valuable as the physical. I remember when people belittled full-time YouTubers and Twitch streamers --- "that's not a REAL job!" Many kids now aspire to become full-time creators, and many parents no longer question it. We've never been more proud of our online identity as a digital society.

I love this line from Packy McCormick's Great Online Game [3].

The Great Online Game is free to play, and it starts simply: by realizing that you're playing a game. Every tweet is a free lottery ticket. That's a big unlock.

Take Richerd Chen (@richerd), for example. He famously turned down $9.5 million (2500 ETH) for his CryptoPunk. His followers know him as that specific punk, and the relationship changes if he lets go of that identity because he is one with the punk.

We're all playing a game on the internet. Richerd has a leveled-up character with specific skills tied to his punk. Selling it is similar to creating a new character or letting go of one of your most powerful items. That identity & pride extends beyond the profile picture; it's about what's in your inventory, what clans you're part of, and your story.

Sticking with the video game analogy, people make the mistake of thinking that crypto wallets only contain gold. Maybe when we only had bitcoin, but we've come a long way.

Every crypto wallet is a save game file containing characters, items, the story, and branching narratives triggered by the players' decisions.

When wallets get compromised, victims lose their entire save game, not just the gold. You can always accumulate more gold but can never replay history. Not in this game.

Like the great online game, the great web3 game is also free to play, but the rules are different. More importantly, they are fair. In web2, the game was controlled and influenced by a handful of tech platforms using algorithms that decide how players get rewarded.

With web3, the game is open source! Don't like the in-game gold? Create your own. Don't like the rules of the barkeep? Create your own bar. Think the town's taxes are too high? Create...you get it. Players can now recreate the entire game without permission if they don't like it.

Web3 doesn't fix web2 by increasing taxes; the low-tax policy remains. It probably always will because the internet is good at scale and driving costs to zero. And because web3 & crypto cannot be isolated from the ongoing digital revolution, they have to play by the same rules.

Instead, web3 allows everyone to create their own rules & policies and leaves decisions up to market participants. Meaning that Facebook can build Meta and charge whatever they want. But creators are no longer forced to play by their rules. They can move in and out of networks because they own their data and get to decide who uses it & when. The critical shift here is that web3 allows all individuals to create their own networks, their own game.

Web3

If you're a gamer, then you should know about mods. For non-gamers, mods are community-developed improvements or addons that change the vanilla experience of video games. They are difficult to appreciate unless you've experienced them first hand, but modders have done everything from fixing broken games to creating successful spinoffs.

XCOM's Long War is one of my favorite mods of all time. It introduced new enemies, mechanics, and new game modes and options. I love this story because the original developers, Firaxis, hired the Long War devs to create official mods for the sequel because they were so popular.

Once you finish an XCOM game, you play Long War on Ironman mode. I don't make the rules. The mod even allows players to edit configurations to exactly what fits them. It's like having a game tailormade. This idea of mods on top of mods is the essential feature NFTs introduce to the internet. Owning and playing the game is cool, but modifying it in multiplayer mode is why we're here.

They aren't present in every game, **but mods decouple the longevity of games from the original creators **and allow communities to live on beyond the initial idea.

For web3, it means that people can now fully move in. With mod support and the infrastructure to enforce policies, internet users are incentivized to play longer-term games over shorter ones.

The current froth in the NFT markets with low-effort 10k pfp projects will die out as people realize that the game is designed for long-term players. I have no idea if this grand experiment will be successful, but I'm optimistic and can no longer sit on the sidelines waiting to find out. I'm packing my things and moving in, fully!

Summary #

You may have seen the following floating around online. Some credit Chris Dixon, but I read it on Eshita's post first:

web1: read
web2: read / write
web3: read / write / own

Here's my take, from a gaming lens:

web1: simple singleplayer
web2: simple multiplayer
web3: MMORPG with mods

Most web users were consumers at first. Then everyone became creators with social media. We'll continue to create but also start to modify the game itself.

The following sources are must-reads!

[0] 1,000 True Fans? Try 100 - https://future.a16z.com/1000-true-fans-try-100/

[1] Power to writers - https://medialyte.xyz/power-to-the-writers/

[2] How crypto is shaping the digital revolution - https://society.mirror.xyz/4jGQznFpgO1QvTg9VVtb7U7MYTHITuxkazUyDtnhwkI

[3] The great online - https://www.notboring.co/p/the-great-online-game