The Breakdown - Is Elon's 9.2% Stake in Twitter a Web 3 Play?

Starting point is 00:00:04 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.io, Arculus, and FtX, and produced and distributed by CoinDesk. What's going on, guys? It is Monday, April 4th, and today we are talking about Elon Musk, taking a 9.2% stake in Twitter. and why it is in some ways his version of a Web3 play. Before we get into that, however, if you were enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, and if you want to get deeper into the conversation,

Starting point is 00:00:48 come join us on the Breakers Discord. It's where we talk about things like Elon Musk buying a big share of Twitter. You can find a link in the show notes or go to bit.combe, slash breakdown pod. Also, a disclosure as always. In addition to them being a sponsor of the show, I also work with FTX. All right, so some pretty interesting news today. Elon Musk, the world's richest man, has purchased 9.2% of the bird app.

Starting point is 00:01:18 Now, I think this is a pretty impressive total number no matter what, but just for some reference, that's four times the amount that Jack Dorsey owns. Dorsey, the co-founder and former CEO, owns 2.25% of Twitter. This purchase was made on March 14th and was disclosed in a regulatory filing this morning. There are, as you might imagine, a lot of dimensions to this that are pretty interesting. One is the personal wealth dimension. This was focused on by publications like Bloomberg Wealth. Elon is actually one of the least diversified, ultra-wealthy people out there,

Starting point is 00:01:53 with the vast majority of his fortune being in Tesla and SpaceX and really mostly Tesla. Elon owns about $187 billion in Tesla shares, $60 billion worth of Tesla options, $40 billion worth of SpaceX, $3 billion in cash, Bitcoin, et cetera, and now another $3 billion in Twitter. Now, this Twitter investment has been a successful investment so far. The value of the stake is up more than $1 billion from the price at which it was purchased. Shares of Twitter jumped more than 20% on the news this morning. And of course, the primary discussion isn't around Twitter's stock performance, but around speculation of what Elon intends to do with this.

Starting point is 00:02:34 Bloomberg writes, quote, the type of SEC form Musk used often indicates the investor isn't seeking to acquire control of a company or to influence who controls it, end quote, but that certainly hasn't stopped speculation. And here's why. Elon has been chattering a lot about Twitter recently, and now it makes sense why.

Starting point is 00:02:54 On March 25th, he tweeted, free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle? He added, The consequences of this poll will be important. Please vote carefully. Remember, this is 11 days after he bought those shares. While more than 2 million people voted,

Starting point is 00:03:14 29.6% said yes, they believe Twitter rigorously adheres to the free speech principle, while 70.4% said no. Now, when it comes to this question, on the one hand, I cringe at the Associations, of a principle of the structure of society being lumped in with the functioning of a private company. He says free speech is essential for a functioning democracy, something I strongly agree with. But Twitter isn't a democracy. It's a private platform that can theoretically do whatever the hell it wants.

Starting point is 00:03:43 You can be annoyed about who they choose to ban or de-platform or whatever you want to call it, but ultimately it's a private company that gets to make those choices. By the way, the fact that Elon is able to buy almost 10% of this thing on a whim demonstrates plenty of mainly that this is the case. When it comes to buying politics, you at least have to work through back channels, right? But Twitter isn't a government. It isn't a public good. It is a corporation, with its stock for sale on the public market, and with a leadership structure that can be held accountable. As an aside, I've also found the historic discourse around de-platforming on Twitter to be largely driven by crocodile tears from people who are mad about who was banned and deplatformed

Starting point is 00:04:21 not based on the principle of de-platforming. All of that said, I do think there is a very very relevant conversation to be had here. I just don't think it's about whether Twitter should have to let people say what they want. I think it's a much bigger conversation about whether the big tech social platforms have a fundamentally different place in society than other types of companies, which means that they need to be governed differently than other types of corporations. The argument here would be something along the lines that these platforms have such dramatic, society-shaping influence that we can't just view them as private corporations. that in effect the conversation and discourse that happens on them

Starting point is 00:05:00 does itself become a type of public good or at least a type of public space, subject to rules that are closer, in fact, to the principles of a democracy versus the principles of a corporation. That conversation would not, by the way, just be about deplatforming and banning things. It would be an entire conversation around things like whether ranking algorithms were allowed, and if they were, would they need to be open source? What I mean is that, of course, a huge part of the world. of the power of these social networks is the rules by which they determine what things they're

Starting point is 00:05:30 going to show you, especially when those aren't things you explicitly opted into. Remember, your Twitter feed can be organized in one of two ways. It can either just be the latest tweets based on the people you follow in chronological order of when those tweets were sent, or it can be based on Twitter's algorithms, which surface the things that they think are the most interesting. Most people default to the algorithms because they're not spending 24 hours a day on Twitter, and when they log back in, they want to see the most relevant conversations that have happened in their absence. But, of course, that decision, whether active or passive, puts a huge amount of power in the hands of the company, and specifically in the algorithm itself. The problems of giving an algorithm too much power are pretty clear.

Starting point is 00:06:10 If those algorithms weigh extreme views too heavily because those extreme views lead to more engagement, and the AI only cares about getting more engagement, it could have a significant impact on people's view of the world. If you have enough people whose views on the world are impacted based on the way the algorithm prioritizes a particular extremeness of views, then of course this could have a shape on the aggregate of society as a whole as well. These conversations would, however, lead to some uncomfortable places. For example, what should the role of governments in these type of corporations be? Are we willing to concede that if these platforms and the spaces they create are, in essence, a public good than they have to be regulated in a totally different type of way, with the government exerting more control than we're used to when it comes to private corporations?

Starting point is 00:06:57 It does seem like this is a conversation Elon is at least a little bit interested in having. The day after his poll, he quote tweeted that poll and said, given that Twitter serves as the de facto public town square, failing to adhere to free speech principles fundamentally undermines democracy. What should be done? Is a new platform needed? Indeed, even before that, a day before that poll that I mentioned before, he had also discussed the algorithm as well. He tweeted a poll, Twitter algorithms should be open source. Of the more than 1.1 million people who voted on this one, 82.7% said yes with just 17.3% saying no.

Starting point is 00:07:33 This came in response to a Tim Urban post that he had replied to saying, I'm worried about de facto bias in the Twitter algorithm having a major effect on public discourse. How do we know what's really happening? In that same thread, he straight up said the algorithm needs to be open source. Now, what would this accomplish? Well, at least people would be able to understand how the algorithm was pushing discourse in certain directions. It could also create more opportunity for gaming it, but at least then we could have the discussion and the debate. By the way, this question of open algorithms isn't just one that's relevant for Twitter. It's for every social network.

Starting point is 00:08:08 YouTube is another one that has been accused in the past of having a dramatic and potentially radicalizing impact. But frankly, this strikes me as even more globally significant now in the context of the rise of TikTok. TikTok is not a U.S. company, and more than any other platform focuses on an algorithm-mediated experience that serves videos over and over to people from people that they aren't following. The default experience in TikTok actually isn't the people you follow. It's the set of videos that are served to you algorithmically on the 4U page. There are some very cool things about this for small creators, as every video gets a chance to outperform what the Algo thinks the average engagement is. TikTok has made some very cool creators very prominent, and it's extremely good at bringing together niches like Lord of the Rings TikTok, for example. But it is also a black box that is consuming engagement data and serving things on the basis of that, and has a ton of power to nudge people

Starting point is 00:09:00 in one direction or another. Plus, there is the inherent fact that in a medium where you're flipping, flipping, flipping, flipping, even without the aid of an algorithm, more extreme takes are going to be rewarded with more attention. That's just human nature. The point of all of this is that these are important discussions to be having right now, and they are also a part of the Web3 discourse. Turner Novak tweeted Elon is Twitter's top creator and owns 9.2% of the company, living the Web3 dream in Web 2. Looking for ways to step up your crypto game? Then go with Nexo.

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Starting point is 00:10:36 The breakdown is sponsored by FTXUS. FtXUS 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. FDX U.S. 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 FTCS app today and use referral code breakdown to support the show. If you listen to my episode with Jill Gunter from last week, we discussed an old distinction, this idea of money crypto versus tech crypto.

Starting point is 00:11:17 This came in 2018. Eric Torrenberg from On Deck and a bunch of other platforms wrote a piece on it. And it was basically about why Silicon Valley had such a different take on crypto than the rest of the crypto space and in particular, Bitcoiners. So if money crypto was cryptocurrencies like Bitcoin that were focused on disrupting financial systems, tech crypto was a type of crypto that used tokens as incentives in different types of social ecosystems. Specifically, the idea of tech crypto was one, that you could use tokens as an incentive that would balance out the bootstrap problem of young networks. So what I mean by that is that networks are as valuable as the number of nodes in them. Younger, less mature networks tend to be

Starting point is 00:11:58 less valuable than older, more mature networks because there are simply fewer people there. Networks grow more slowly at the beginning because there are fewer people who find value in it when there are fewer others to connect with. If the network is driven by content, for example, less content overall means net net a worse user experience. So maybe tokens would balance that out. Maybe the fact that you were rewarded in different ways for your participation, for your energy, for your content would make more people willing to create that content at the beginning when they weren't getting the social benefit of more people being there, and thus the network could overcome that early bootstrap problem more quickly.

Starting point is 00:12:33 The other idea of tech crypto was that later on, because the network was owned by users in the form of these tokens, it destroyed the designation between owners and users that created problems the more mature networks had gotten. What I mean by that is that in the early days, of a network, users and owners of the platform have the exact same incentive, which is to get more people on the network. At some point, though, the total amount of new user growth starts to be capped, and so the owners of the network then have more of an incentive to extract more from the people who are already there. At that point, the incentives of users and owners

Starting point is 00:13:08 starts to diverge. One idea of tech crypto was that obliterating the distinction of owners and users would solve that problem. Now, at this point, Web3 is not just this vision of tech crypto, but has become sort of a catch-all term, and in part a rebranding of the crypto industry as a whole. But there's still an idea of that transition from users just being users to users being owners. I think it's a fair question and debate to ask how this would impact these questions of algorithms and free speech questions. Would algorithms in a Web3 paradigm be open source by default? Would de-platforming be up to user governance?

Starting point is 00:13:44 Are those systems really better equipped to handle these really tricky questions? There are some pretty significant skeptics, Elon himself for one. At the beginning of December last year, Sam Altman of Y Combinator and OpenAI and World Coin fame, tweeted, let me simp for just a second and suggest that Web3 might still have 2010s like returns, but most VCs will miss it. Elon responded, Web 3 sounds like BS. On December 19th, Elon tweeted a video of Bill Gates on David Letterman from 1995, where Letterman was disbelieving about the internet.

Starting point is 00:14:14 Elon tweeted, given the almost unimaginable nature of the present, what will the future be? I'm not suggesting Web3 is real. Seems more marketing buzzword than reality right now. Just wondering what the future will be like in 10, 20, or 30 years. On December 21st, Elon tweeted, Has anyone seen Web 3? I can't find it. He is, of course, not the only skeptic. Jack Dorsey recently tweeted the days of Usenet, IRC, the web, even email with PGP. Or amazing. Centralizing discovery and identity into corporations really damaged the internet. I realize I'm partially to blame and regret it. Alexis O'Hanian, one of the co-founders of Reddit, says Web3 fixes this, my guy. Jack says, nah, same problems, different words.

Starting point is 00:14:55 Alexis added, the days of Usenet and IRC were idyllic for us, but they were also strikingly homogenous. We have a path to building new pipes that provide ownership to an audience as big as the internet is ubiquitous. I'm excited for what's to come with Block. Daniel at CSU Wildcat, who has been working on decentralized identity forever and who is now doing so at Block, wrote, I wouldn't say you're to blame. early technical choices put us all on the path to the current state of capture by centralized entities. The lack of self-owned identity is the original sin of the web, and most other issues stem from the lack of a person-centered data control model.

Starting point is 00:15:27 When someone asked Daniel what percentage of people actually want to control their data, he responded, consider this. With corporations and governments digitally unpersoning people they dislike more and more, it'll actively drive people to systems that ensure the root of their digital self and personal data can't be Thanos snapped out of existence, at the whim of mobs, companies, or authorities. So we have taken a relatively small thing, a megabillionaire buying a billion dollar stake in another company, and turned it into a much larger discussion, but I kind of think that's the point. One of the greatest risks for this Web 3 vision of a different type of internet is that not enough people care to overcome the network effects problem. In other words, that you have the dominant networks where everyone lives and deals with whatever the rules of those networks are,

Starting point is 00:16:10 and these crappy little archipelagos of principled people that huffily hang out with just the people who think like them because their friends aren't willing to leave the dominant networks. I think that's a cynical but fairly realistic take. Given that, the idea that there is pressure building from the inside on Web2 platforms that already have power is something interesting. Certainly, my free market side would prefer voluntary action of these platforms to, for example, the U.S. government deciding that the Algo is a public good and regulating it as such. Although I think that's probably the type of debate that we should be having. Whatever the case, when it comes to the discourse so far after the Elon announcement, it's largely what I would expect,

Starting point is 00:16:48 which is to say the thirsty anti-de platforming crowd is salivating for him to unban everyone, while the lefty crowd is crowing that this is the end of the world, and when are we going to learn to not let rich people buy power? And then, of course, there is the Doge coin crowd. Doge spiked 10% after the announcement, because of course it did. Elon has frequently said he thinks the funniest outcome wins, which is part of why he supports Doge, so there you go. I will just say that the world got a lot more interested, today. And I don't think this will be the last time we talk about Elon, his ownership stake in Twitter, and what it means for Web3. For now, though, I want to say thanks again to my sponsors, nexo.com.

Starting point is 00:17:22 Arculus and FTX. And thanks 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, Web3, and the Metaverse, and is designed for crypto-newbies, investors, entrepreneurs, developers, and creators. Don't miss speakers like Kathy Wood, SBF, CZ, Punk 6529, and Joe Lubin to name just a few.

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The Breakdown - Is Elon's 9.2% Stake in Twitter a Web 3 Play?

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