The Breakdown - How Crypto Wealth Will Change the Impact Sector

Episode Date: June 5, 2022

This episode is sponsored by Nexo.io, NEAR and FTX US.    On this edition of “Long Reads Sunday,” NLW reads “How Web 3 Changes Philanthropy” by Rhys Lindmark.  - Nexo is an all-in-one platform where you can buy crypto with a bank card and earn up to 16% interest on your assets. On the platform you can also swap 300+ market pairs and borrow against your crypto from 0% APR. Sign up at nexo.io by June 30 and receive up to $150 in BTC. - NEAR is a blockchain for a world reimagined. Through simple, secure, and scalable technology, NEAR empowers millions to invent and explore new experiences. Business, creativity, and community are being reimagined for a more sustainable and inclusive future. Find out more at NEAR.org. - FTX US is the safe, regulated way to buy Bitcoin, ETH, SOL and other digital assets. Trade crypto with up to 85% lower fees than top competitors and trade ETH and SOL NFTs with no gas fees and subsidized gas on withdrawals. Sign up at FTX.US today. - Consensus 2022, the industry’s most influential event, is happening June 9–12 in Austin, Texas. If you’re looking to immerse yourself in the fast-moving world of crypto, Web 3 and NFTs, this is the festival experience for you. Use code BREAKDOWN to get 15% off your pass at www.coindesk.com/consensus2022. - “The Breakdown” is written, produced by and features Nathaniel Whittemore aka NLW, with editing by Rob Mitchell, research by Scott Hill and additional production support by Eleanor Pahl. Jared Schwartz is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsors is “Catnip” by Famous Cats and “I Don't Know How To Explain It” by Aaron Sprinkle. Image credit: Boris Zhitkov/Getty Images, modified by CoinDesk. Join the discussion at discord.gg/VrKRrfKCz8.

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexus.com, near NFTX, and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, June 5th, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dig deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Also, a disclosure as always, in addition to them being a sponsor of the show,

I also work with FTX. Now, it has been a little dreary, I will admit, on the breakdown, because crypto's in a weird spot. Markets are kind of circling around as we figure out what the hell's going on from a monetary policy perspective and whether all this hawkishness is actually going to translate into anything other than a recession. Critics are emboldened in that sort of environment where crypto is on the back foot. Enforcement actions that would have happened, by the way, I believe, whether it was a bull market or a bear or happened to be coming down at the same time. And so you are forgiven if you're like, man, there is not as much optimism as I would like to

see. So today we're going to try to bring a little bit of that optimism back into the show with our selection for LRS. I'm going to be reading a piece called How Web 3 Changes Philanthropy. It's from Reese Lindmark and is about how the crypto generation could rewrite the rules of charitable giving. Ten years ago, the rebels hadn't won. There was no Web 3, no non-fundable tokens, no decentralized finance, no decentralized autonomous organizations, no Coinbase, no Ethereum, no A16Z crypto. Now, in 2022, we have all of these things. Elon Musk pitches Dogecoin on Twitter, the Miami Heat shoot hoops in the FTX arena,

Matt Damon shills crypto to millions during the Super Bowl. Now our feeds are full of NFT profile pictures. There are tokens worth $100 billion staked across dozens of defy ecosystems, and Dow's almost by constitutions and Parisian art. Meanwhile, FTX chief Sam Bankman-Fried casually becomes President Joe Biden's second biggest donor. Web3 is the biggest wealth creation event in history, the crypto rebels have won. But we're only 10 years in.

What will happen in 2040? What does this mean for society? What does this mean for philanthropy? To understand what will happen in 2040, we will look at three angles. One, the past, Web 3 in the history of wealth creation events. Two, the present, how crypto whales are leveraging their wealth today. And three, future. Decentralized Solar Punk Society.

Part 1. Past. Web 3, in the history of wealth creation events. A decade ago, crypto billionaires didn't exist. Now, there are dozens of them with Twitter-optimized acronyms, such as SBF for Sam Bankman-Fried and C-Z for Binance CEO Chang Peng Xiao. We've seen this before. The old rich give way to the new rich. Emperors like Genghis Khan and Caesar used to control all the wealth. Then the Industrial Revolution birthed billionaire oil magnates like John D. Rockefeller and steel magnets like Andrew Carnegie. Computers in Web 1 birthed billionaires like Bill Gates and Michael Dell. Web 2 created the elite of today, Jeff

Bezos, Steve Jobs, Mark Zuckerberg, Sergey Brin, and Larry Page. And now Web 3 has created SBF and CZ. But are these crypto billionaires like SBF and CZ just to flash in the pan? Or are they forerunners of an impending wave of wealth creation? One, How People Get Rich Now. In April 2021, Paul Graham wrote an essay How People Get Rich Now. By looking at the Forbes top 100 richest people, Graham shows how wealth creation has shifted over the past century, from industrial tech to inheritance and now to digital tech. First, Graham shows how wealth shifted from industrial tech in 1992 to inheritance in 1982. In 1892, the New York Herald Tribune compiled a list of all the millionaires in America. How many had inherited their wealth then? Only about 20%. Instead, economist Hugh Rockoff found that

many of the richest gained their initial edge from the new technology of mass production. But by 1982, the most common source of wealth was inheritance. Of the 100 richest people, 60 inherited it from an ancestor. There were 10 DuPont heirs alone. This led to the rise of investing in digital tech. Paul Graham again. By 2020, the number of heirs had been cut in half, accounting for only 27 of the biggest 100 fortunes.

Of the 73 new fortunes in 2020, 30 derived from digital technology, 26 from industrial technology, and 17 from investing. What about crypto, the intersection of digital technology and investing? Graham didn't look at crypto in 2021, but by 2022, we now have two crypto billionaires in the top 100, SBF and CZ. It may not seem like much, but rarely do we find an entirely new category for how the wealthiest people create their wealth. More importantly, is this a trend.

Two, how many crypto billionaires will there be? Serial entrepreneur, investor, and influential essayist Bologi Shrinivasin, and Polychain Capital founder and CEO Olaf Karsten Wee estimate that if the price of Bitcoin were to reach $200,000, half of the world's billionaires would be crypto billionaires. That is a massive shift in who controls wealth. Does it hold up? We can do some napkin math to find out. How many billionaires are there?

There were only 15 billionaires in 1982, but there are now 2,668. And we'd expect that number to rise to around 3,300 by 2025. But how many crypto billionaires are there? Given crypto's volatility and suit anonymous nature, this is a difficult question to pin down. For simplicity, let's use Forbes' estimate of 19 crypto billionaires. Again, this new crypto blip is pretty small. Right now, only 1% of billionaires are crypto billionaires, 19 out of 2668. However, this is something categorically different. The real question is, what's the trend line? More napkin math. As I write this, Bitcoin is at $30,000. What happens if by 2025, Bitcoin goes to $200,000 and the rest of crypto rises with it?

That would give you roughly 400 Bitcoin billionaires, 200 ether billionaires, and 200 other billionaires. This would make the 800 crypto billionaires around 20% of the total. With this rough napkin math, I disagree with Shrinivasa and Carson Wee, that 200,000 Bitcoin makes 50% of billionaires crypto billionaires. I think it's more like 20%. Still, 20% is a huge increase, and $200,000 Bitcoin is not. unlikely. All of the math above doesn't even include the long tale of wealth creation. Bitcoin

mining created thousands of millionaires. The ETH initial coin offering created thousands more. Defi created thousands of Dgen millionaires, too. No matter how you do the math, Web 3 is a huge wealth creation event. How will the Nouveau-Reche leverage it? Nexo lets you easily buy crypto with your bank card and earn industry-leading interest rates. Earn up to 16% on crypto and up to 12% on stable coins. Nexo makes passive income easy with interest paid automatically and daily. With Nexo, you can also borrow against your crypto at 0% APR and exchange over 300 pairs. Receive a welcome bonus of up to $150 in Bitcoin until June 30th at nexo.io. That's nexo.io. This episode is brought to you by Mir, a climate neutral, high speed, and low transaction fee,

layer one blockchain platform. NIR is a blockchain for a world reimagined. Through simple, secure, and scalable technology, NIR empowers millions to invent and explore new experiences. Business, creativity, and community are being reimagined for a more sustainable and inclusive future. Reimagined your world today at NIR.org. The breakdown is sponsored by FTXUS.

FTCS is the safe, regulated way to buy and sell Bitcoin. and other digital assets with up to 85% lower fees than competitors. There are no fixed minimum fees, no ACH transaction fees, and no withdrawal fees. One of the largest exchanges in the U.S. FDXUS is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTCS, you pay no gas fees. Download the FTX app today and use referral code Breakdown to support the show. 2. Present.

How Crypto whales are leveraging their wealth today. We all know the famous quote misattributed to Gandhi. First, they ignore you, then they laugh at you, then they fight you, then you win. There is a version of this but for digital technology in Web 2 and Web 3. First, they ignore your protocols, from TCPIP to ERC 20 and ERC 721. Then they laugh at your Super Bowl ads, from pets.com to crypto.com. Then they fight your influence, from the U.S. banning file sharing to China banning Bitcoin mining, and then you win, and get a crappy guise.

government implementation of from healthcare.gov to Govcoin coming soon. Another framework of technology adoption is Carlo de Perez's S-curve. Alltech goes from the installation period to the deployment period. Web3 is still in the installation period. How is it impacting society today? We can break this up into three categories. Value creation, the direct impacts of Web 3. Excess capital, philanthropy, and Web 3.

Hashtag squad wealth. Collaborative ecosystems in Web 3. 1. Value creation, the direct impacts of Web 3. We can understand Web 2 impacts by looking at tech company mission statements. Microsoft, a computer on every desk and in every home. Google, to organize the world's information and make it universally accessible and useful. Facebook, to make the world more open and connected. Amazon, where customers can find and discover anything they might want to buy online.

But in Web 3, mission statements are focused on money instead of information. Coinbase to increase economic freedom in the world. OpenC. Building an Open Digital Economy. FTX. A cryptocurrency exchange built by traders for traders. The direct impacts of Web3 will be a digital economy open to the entire world. Two, excess capital. Philanthropy and Web3. Web 2 birthed the set of traditional foundations like Bill and Melinda Gates Foundation, Schmidt Futures, Chan Zuckerberg Initiative, McKenzie Scott Foundation, Open Philanthropy. Web 3 is going to be be a bit weirder. Brian Armstrong is funding $100 million for longevity research. SBF kickstarted the FTX Future Fund, which doubled the amount of money focused on long-termism. He's also given

10 million to Carrick Flynn, an effective altruous political candidate from Oregon. This is three-x the donations of any other House candidate. Number three, hashtag squad wealth, collaborative ecosystems in Web 3. Finally, we can look at the long tail of wealth creation. In Web 2, this manifested as angelist syndicates and angel investor networks. Groups of early employees who exit with tens of millions of dollars invest that money back into tech. In Web3, this goes even further. Every round is a community round, with NFT DGens and CryptoVCss and cryptoVCs aping in together. This will be supercharged with the Web3 native version of syndicates, syndicate Dow. Crypto fundraising is community fundraising. But we also have a fully new form

of community fundraising that is built on abundance, impact DAOs. These are collaborative networks that have positive externalities built in. Gitcoin grants give back to the open source community, Klima Dow gives back to the environment. D-Sai gives back to fund new science research. I like to think of these as DAOs that succeed in the presence of other DAWS, that also succeed in the presence of them. People give back to fund crypto infrastructure through Gipkoin grants, and then those granters are rewarded later with retroactive public goods funding. Dylan Field tweeted, Some of the best economic returns over the next 20 years will accrue retroactively to those who fund

philanthropic, scientific, and public goods efforts. We are on the precipice of figuring out systems to incentivize this behavior in a scalable way. In Web3, we're seeing the huge impacts of crypto wealth through direct company impacts, philanthropic initiatives, and new forms of squad wealth. So what will happen in 2040? 3. Future. Decentralized Solar Punk Society. We can project these three trends into the future to understand a decentralized solar punk society. Again, that's the value creation, the direct impacts of Web 3, excess capital philanthropy in Web 3, and hashtag squad wealth, collaborative ecosystems in Web 3. The ideas that follow are speculative, but should give us a rough sketch of

where we are headed. One, value creation, the direct impacts of Web3. Software is eating the world. Web 2 started by eating bits, then move to atoms. Web 3 will finish eating bits, then move to atoms too. Meat space in the Metaverse will be fully intertwined with internet and blockchain protocols. Just as the Enlightenment separated church and state, crypto will separate money in state. Every community will have a currency, every person will have a soul, a far-reaching identity token idea, and every soul will work in trusted networks. The network state will form in the cloud, then will push down to every acre of land. Number two, access capital philanthropy in Web3.

In addition to Coinbase Giving and FTX Future Fund, there will be dozens of massive Web3 foundations that give in a bottom-up way. These foundations will take the form of what Nadia Asperova calls idea machines, funded organisms that turn ideologies into outcomes. Number 3. Squad Wealth, Collaborative Ecosystems in Web3. In 1976, Vanguard gave retail investors access to the Stock Market Index. Now we have new indices on crypto like the Coinbase 10, Defy Pulse, Defy Innovation, and NFT Index. Through indices like these, the public will collaboratively own and benefit from Web3 and AI wealth creation. There will be a clear,

risk-adjusted investment ladder for public goods projects, like VC is an investment ladder for startups. We will have Seed, Series A, Series B, but for non-profit, public wealth. goods. Donors will be repaid through retroactive public goods funding. Company mergers and acquisitions will phase out in favor of Dow token swaps and shared liquidity pools. The ecosystem of Dow's will rise and fall together as a complex adaptive system. Software is eating the world. Crypto accelerates that process. By 2040, Web 3 will be the water we swim in, full of crypto whales, millionaire minnows, and the rest of a small krill. Let's make the water and the land nourishing and balanced. All right, back to NLW here.

And obviously there is a huge amount to unpack in here. It is a big thing piece. Perfect for a Sunday, by the way. Long-ranging, far-looking. And I think the cool thing about this piece is that it really gets at different dimensions of change. When we think about societal change, economic change, global change, that is not monolithic.

It doesn't come from just one area. Throughout the piece, Rees is talking about direct impacts in the sense of how structures are changed based on this text. that's being built. One of the reasons that you hear crypto advocates talking about a quality of access so much, reduction of fees, limitations of middlemen, is that those are artifacts of an old system that structurally this new technology could change to the benefit of people. That doesn't involve giving back by being rich. That's just inherent and endemic of this new system that's being built if it's built the way that we all hope. The second part, though, is that philanthropy.

It is utopian to think you can design a system that is so perfect that it doesn't come with negative externalities. As a society, one of the ways that we clean up those negative externalities is civil society, philanthropy, charity, non-profit funding, public goods funding, research funding, things where the market incentive isn't perfectly aligned with what's important for the world. We can use excess capital generated by markets to make sure those things happen. If you look historically, and Reese got into this a little bit, but it's really true, the shape of philanthropy always follows in some way, shape, or form the way in which the wealth was made. I agree wholeheartedly, especially with the notion that DAWS and giving collectives will be a human

experience that will become much more normalized over the coming years. One of the barriers for people giving is a sense that their money isn't going to actually make a difference. When you're part of a collective that can contribute to an entire goal, that psychology shifts. Fun backstory, before Groupon was Groupon, it was actually called The Point, and it was a philanthropy startup. Its tagline was roughly along the lines of sometimes every dollar doesn't count. And so to take a very crude example, if you were trying to build a well in Africa, and it cost $10,000 to build that well, then raising $9,000 doesn't actually do anything.

So the idea of the point was to have fundraisers that would only trigger and withdraw the funds from your account if the certain threshold was meant. You may recognize how that dynamic went on to become Groupon. The whole idea of a Groupon was it's a deal that only happens if enough people sign up for it. It has a built-in viral mechanism because you get people to share it because they want all to get access to the benefit. The point was a venture-backed business and so ultimately had intense pressure to take advantage of the unique mechanics for a more commercial setting. but it reflects this idea of how powerful collective giving that actually can achieve a specific aim might be. Finally, the last aspect of change is just around human behavior and unintended consequences.

Even using that same example that I just did of giving collectives, giving collectives are interesting to me not just as a mechanism for funding specific important initiatives, but as a new type of human experience that leads to fulfillment, excitement, engagement among family and friend networks. And this is just one of a million types of structures that are going to be experimented with in the context of Web 3 over the coming years. Anyway, we could talk about this forever, but I hope, like I said, this is a little bit more of a dose of optimism or at least longer outlooking than we've had for the last few days. For now, I want to say thanks again to Reese for writing this great piece, to my sponsors,

nexus.com. Near NFTX for supporting the show, and to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey, breakdown listeners. Come join CoinDesk's Consensus 2020. The Festival for the Decentralized World this June 9th through the 12th in Austin, Texas. This is the only festival showcasing and celebrating all sides of blockchain, crypto ecosystems, Web 3, and the Metaverse, and is designed for crypto-newbies, investors, entrepreneurs, developers, and creators. Use code breakdown to get 15% off your pass at coindex.com

slash consensus 22.