The Breakdown - Why Time Is the Ultimate Scarce Asset

Episode Date: August 22, 2021

This week, “Long Reads Sunday” returns to its Twitter roots with a reading of two threads from crypto VCs. The first comes from Andreessen Horowitz’ Chris Dixon and the second from Kyle Samani of Multicoin. Together, they paint a picture of the emerging landscape of experiments around non-fungible tokens, creator coins, the metaverse and discuss the idea of time scarcity as a key determinant of value.  Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW “The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Tidal Wave” by BRASKO. Image credit: PM Images/DigitalVision/Getty Images, modified by CoinDesk.

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 Nidig and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, August 22nd, and that means it's time for Longreed Sunday. And today I'm going to do something that's a little bit of a throwback. So for those of you who don't know, the idea of Long Read Sunday came from something that I used to do on Twitter. Around early May 2018, I started curating a weekly tweet thread that was effectively a newsletter but in Twitter thread form. And a lot of what I was trying to do was tell the story of what

people were talking about on Twitter in a narrative arc using their tweets, their threads, which were new at that time on Twitter, as a part of it. It was super fun. It's how I got to know a lot of people in crypto. It led to lots of different opportunities. But ultimately, as I started to get more into podcast production, it had to change. What's more, Twitter also started changing the algorithms and I was finding it getting in the hands of a lot less people. Either way, I think that there's so much interesting content that happens in the form of Twitter threads. And the reason is that it doesn't have to be as articulate, as well thought out, as a full essay. And so what you get is more in development thoughts, in medias race thoughts, things that are still percolating. So today I'm going to

read a couple of Twitter threads instead of an essay like I normally do for Long Read Sunday and give just a little bit of context. Now, this one is definitely not for the Bitcoin-only folks in the audience out there. It's about VCs, and VCs historically have kind of not gotten Bitcoin particularly well. There are a lot of reasons for that, but I think it fundamentally comes down to the idea of whether Bitcoin is a financial innovation or a technological innovation. There is undeniably technology innovation underpinning Bitcoin, but really what it is is it's a system's design innovation. Its context and what it is trying to disrupt has to do with a monetary system, not a technology system. Because of that, VCs have been very prone to look for the next thing, right?

If you're in a technology paradigm, you assume that something will always disrupt the thing that came before. In a case of Bitcoin's attempt to be a global sound money, and a censorship-resistant global sound money outside of the purview of traditional state actors, there's a lot to be said for network effects over just flashy new technology. Anyways, there's a lot more to discuss there, but I just kind of want to give that Bitcoin context and why I think many VCs have tended not to focus there. What VCs are interested in, however, is human behavior shifts

and how technology both enables and takes advantage of that. One of the things that makes this bull market different than 2017 is that a lot of the things that are happening outside of Bitcoin, the other things happening in the space, are about what happens when you unleash financial primitives that allow communities to interact and exchange value in new ways. I think that that's pretty fundamentally different than trying to reimagine money, but I think it's interesting in its own right. I always say that this show is about power, and these are new forms of financial power that flow through communities. and potentially shape the way that industries develop and evolve. So with that said, I'm going to read two threads. The first is from Chris Dixon at A16Z, and the second is from Kyle Samani at Multicoin.

Chris Dixon writes, topic, blockchains are the new app stores. If you were an ambitious risk-seeking founder in the mobile golden age circa 2009 to 2012, you built a new mobile app. That was when Uber, WhatsApp, Instagram, Venmo, Snapchat, and many other top apps were built. mobile has since moved up the technology adoption S-curve. Great mobile apps will still be built,

but the low-hanging fruit has been picked. The computing frontier of this decade is building apps on programmable blockchains like Ethereum. Blockchains are virtual computers that run on top of networks of physical computers. They have new properties and new capabilities that prior kinds of computers don't have. We say blockchains are programmable when they have highly expressive near-Turring-complete programming languages. The most popular programmable blockchain is Ethereum. programmable blockchains are interesting for the same reason mobile phones became interesting when they opened up developments to third parties via app stores. The best ideas tend to come from the fringes. We saw the start to play out last year during DFI's summer as the first wave of crypto and

blockchain killer apps broke out. Uniswap, Avey, compound, maker, etc. DeFi shows it's possible to build financial services that are inclusive, fair, transparent, and composable. On Wall Street, value flows inward to institutions at the center. In DFI, value flows outward to people at at the edges. Quote, whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly. This year, NFTs in gaming were the next wave of blockchain apps to break out. NBA Topshot, Cryptopunks, Axi Infinity, etc. You can see this reflected in the rapid growth of gross sales at

OpenC, the largest NFT marketplace. To some people, NFTs seem frivolous and toy-like. But NFTs are important because they offer radically better economics to creators and developers versus existing Web2 platforms. What will be the next wave of blockchain killer apps? Computing waves are hard to predict, but there are some interesting emerging categories. Dow's, decentralized autonomous organizations, are internet-native, global collectives that share resources, build products, and work together towards common goals. Social tokens are new ways for creators to make money online.

They remove rent-seeking intermediaries and enable the development of many economies that grow along with the fan base. blockchain-based social networks make strong commitments to users and developers so they can build on solid ground without worrying about changing APIs and economics. Crypto-enabled 3D worlds and metaverse experiences let people socialize, earn money, and build mini-worlds, while guaranteeing interoperability and genuine ownership. These are some ideas, but entrepreneurs are better at building the future than people like me are at predicting it. It's very likely the best ideas either haven't yet been conceived or seem strange to us today. If you work in crypto, you are used to outsiders looking at you funny or thinking what you are doing is silly or a scam.

We don't often have names for what people are working on. It's too new. This is what working at the start of the S-curve feels like. Programmable blockchains are the computing frontier, as PCs were in the 80s, internet in the 90s, and mobile in the last decade. We look back today on classic moments in computing and wonder what it was like to be there. But you are there. The Homebrew Computer Club of 2021 is a Dow or a Discord server, but the pattern is the same. Enthusiast sharing ideas, tinker is hacking away on nights and weekends. These are the good old days. Life on the the frontier. So I think if I was to sum up part of what might be a good takeaway from Dixon's thread, this is less prescriptive and less predictive about what's going to actually work. And that's

why if you asked five people, they might have 10 different opinions about the types of applications that he's talking about in here. Some might think that DOWs are an inevitable type of human organization in an internet native world, something that exists between a Facebook group and a formal legal organization. Social tokens might seem stupid to some, but at the other hand, so many people, so many platforms, so many companies are trying to give creators the tools to experiment with it, that it could become normalized really quickly. What's more, as we'll discuss in a minute, NFTs potentially connect that in interesting ways. Blockchain-based social networks might be super interesting to some who see all of the problems of the centralization of social media. But then you could

have people like me who are completely convinced that it will take something other than decentralization and blockchain connections and anything like that to get people to move to a new social network. That to win in the face of network effects, you have to have a killer experience that is fundamentally different, desired, and durable as compared to other social networks. The takeaway, though, I think, is that this is the type of time when a lot of things happen and a lot of it just fails entirely. But the few things that stick, could. be pretty transformative. One of the most important developments in this space is that community banks,

regional banks, and credit unions can now start offering Bitcoin to their customers. That's right. Checking, saving, and now Bitcoin. It's all happening seamlessly thanks to a platform by NIDIG that offers institutional-grade custody and compliance. They're also the sponsor of The Breakdown. And if you want to find out more, go to nidig.com slash NLW. That's N-Y-D-I-G-com.

forward slash NLW. With that, let's shift over to Kyle's thread. And this one more directly gets at the questions of power as it relates to NFTs that I'm so interested in. He writes, The single most important question in NFT land is, how do you enable the long tail of creators, think 25 million of them around the world, to generate, say, 50K to 100K a year in income so they can self-sustain?

Today, I would argue we don't really have product market fit for creator monetization. Sure, Beeple and Blow and Pack have sold stuff for millions per piece, and the stuff on super rare clears for six figures regularly. But this is by definition not Long Tail. It's awesome to see OpenCe trading mega volumes of punks and axes, but again, this is not monetization for Longtail creators. When a new business model emerges, in this case selling an NFT or a social token, it usually also changes the core product as well. What this theory would imply is that selling art JPEGs is not enough. It's a fine form of monetization for people who are already well-known, but unlikely to work for someone with 50,000 Instagram followers.

As I think through more nuanced questions of creator monetization, the thing I keep coming back to is scarcity per unit of time. Sure, all NFTs are, in some sense, one out of one, even if they're part of a set. But I think there's an upper bound on how many sets and or one-to-ones a given creator can sell per unit of time. Scarcity can exist across many dimensions, but I think time is probably under-discussed. Some examples to consider. There are millions of moments on NBA Top Shot.

I think they're just from one season. In three more years, there are going to be 10 million plus more moments. Players play 82 games per year before playoffs. That's a lot of blocks, dunks, fast breaks, and threes per year. Now, if it's a dunk in game seven of the finals with three seconds left, that's pretty scarce. The max frequency in which that can occur is once per year, and in practice, much lower than that, since few finals make it to game seven. sports cards work reasonably well in this framework, since the cards are done per player per year, I think.

Pretty scarce per unit of time compared to a player who has 250 awesome moments over the course of a season. Let's consider another example. Ticktokers who make videos every day. Every single day, sometimes multiple. There is a massive design space for creator monetization here and fan engagement. I think this is going to be the most fascinating area for experimentation over the next 24 months. For example, a creator could auction off an NFT. Whoever has the NFT gets to be in a video in an instrumental way with the creator. Turn that video into an NFT and repeat. Create a nice chain of NFTs. It's pretty easy to see this being done for some thematic purpose with, say, five videos.

But can the creator really do 100 plus of these per year, ignoring logistics? Will the audience feel, quote, I like this guy, but he just creates so many? I think these questions are solvable, but it's going to take a fair bit of iteration. and the interplay between social tokens and NFTs will be just awesome. It really opens the design space significantly. We've made a few investments along the ideas in this thread, some of which are public and some of which are not yet public.

One question I've recently asked those founders is, can you go full stack with your own creators? The most important variable to optimize for is iterations. It's impossible to know the answer to these questions. You just have to run a lot of experiments with a lot of creators and normalize learnings across things like vertical, medium, etc. Many creators are going to be unable or unwilling to engage in a hypertight feedback loop as you try to explore the design space for creator monetization.

So why not bring a few in house? It feels pretty weird at first, and in some instances may not be possible, e.g., how can Audius get a DJ to do this? But I think if teams who are building for creator monetization can do this, it's a massive strategic advantage. Last thing I'll say is, NFTs are really confusing. They are a super general purpose technology being applied to all kinds of different problems. creator monetization, fan engagement, online avatars, gaming and play to earn, and many more.

As you think about investing, it's important to be very clear which problems you are trying to solve and not think in terms of NFTs as a general concept. There's a reason why no one talks about fungible tokens. So let's go back briefly to what I said about why I am interested in music NFTs. The current business model if you're a musician is one of two things. One gets some of your revenue from the actual consumption of your music, but for the vast majority of people, that's not viable. And so then you have to supplement that by touring, live shows. That's the default business model of a professional musician. Now, there are other things, too, that have come up. You have the patrons of the world. You have fan clubs. All those things exist. But think about what a fan club does,

or a Patreon more specifically. Patreon really kind of sets a cap at what you can make from anyone fan, but that doesn't necessarily reflect the full market of opportunities for fandom and for interest in your art. What NFTs do is they unleash and open up the market so that your superfans can express with their money how much their superfandum is worth to them. All of a sudden, you could plausibly see musicians who, instead of needing to make $100,000 from touring in a year, need to find the 10 fans who are so obsessed with them that their original creations, their extra creations, whatever NFTs they offer, whatever experiences they offer, are worth $10,000-ish dollars to each of those 10 people. It strikes me that many musicians may actually have a group of

10 to 50 people who have excess income and who are really obsessed with them in a way that could supplement in a pretty serious way the traditional business model of music. That's where I think the disruption could come from. I think Kyle's point is that we don't know anything about in the long term which of these types of interactions, engagements, fan experiences, original content will be the things that people put value on. But the fundamental laws of scarcity, that I can only make so many of these things because they're bound by my time are likely to matter more than we recognize right now. I think one of the best critiques, one of the best skepticism of the NFT space is that overall we're going to have such a glut

of things called NFTs from so many different creators, many of which will be so low value, so easy to produce, that it will diminish the value of the whole. This focus on time, how much time it actually takes to either produce the NFT or the work represented by the NFT in the first place, or how much time it takes for the experience connected to the NFT to be redeemed, or how many of those experiences or original creations the market can bear per unit of time feels really, really relevant. So anyway, something very different than our normal discussion, but hell, it's a Sunday in the middle of August, so why not? Hope you guys are having a great weekend and appreciate you listening. And until tomorrow, be safe and take care of each other.

Peace.