Welcome to NotCryptoBro’s Memo.
Where in-the-trenches digital assets and Web3 experiences meet honest analysis and point of views.
This is your author, Rohan Handa, aka NotCryptoBro.
Thank you for subscribing to the NotCryptoBro’s Memo, your go-to weekly source for unbiased insights into the workings of digital assets and Web3.
Raison d'être.
I jumped head-on into the world of digital assets and Web3 in 2014 when one of my colleagues (now my friend) introduced me to the Ethereum Whitepaper. I read it and thought,
"This is mind-bendingly amazing!" —not exactly those words, but close enough.
At the time, I was fresh out of grad school and working as a management consultant. Since then, life has taken me on some beautiful journeys working as an advisor, venture builder, and investor across the US, Europe, Southeast Asia, the Middle East, and more. All that while working with some amazing builders, startups, and large institutions looking to make a dent in the world of digital assets.
As an engineer by training, my goal has been simple — learn, gather experiences, and apply those to solve problems. And be proud of the role I play.
After working with the best-in-class globally known Web3 (and non-Web3) ventures, like Yuga Labs, Consensys, ApeCoin, Animoca Brands, Disney, NEAR Protocol/OWC, Jam City, Xsolla, PayPal, JP Morgan, and many more, I learned something interesting.
Although everyone admits to the potential of Web3 technology, not many people know how to build viable businesses using the underlying technology.
The Problem.
I believe the enthusiasm of many builders, investors, and "influencers" is straight-up misdirected.
The focus is often on the hype and mania that primarily revolve around the price of crypto. Such groups, projects, and individuals are what I often refer to as #CryptoBros and/or #CryptoChads. And their calling cards are #WAGMI (We’re All Gonna Make It!) and #HODL (Hold On for Dear Life!).
This results in undercooked products and ideas as these enthusiasts fail to grasp the basics of building viable businesses around the tech’s foundations. All of this leads to the absence of sound business models, as they rely primarily on creating noise (on CT/Crypto Twitter, now X) and tooting their own horns of empty belief as if something magical will happen and that their garbage projects will turn into unicorns overnight.
This, in turn, forces serious operators and everyone else in general to question the sustainability and authenticity of this space.
There is magnitude but no direction; there is too much enthusiasm and opinion but little knowledge about the working fundamentals, problem identification, and thinking from first principles.
To build a better Web3 ecosystem, the current mindset needs to change.
Separating the Signal From the Noise.
I have a very strong conviction in the Web3 space not because the price of BTC/ETH will go up tomorrow. But because we have a real opportunity to experiment (in the open) and build things that up until now were simply not possible using our technology tool-sets.
Through the memos, I will share my thoughts and in-the-trench experiences on digital assets and Web3, token economics, DAO, market landscape, and ecosystem development with an emphasis on building viable businesses and business models.
NotCryptoBro
[aka Rohan Handa]
Web 3.0: From There To Where?
Internet: web3 is not web3.0
Introduction
The Internet is the world’s most popular computer network that began as an academic research project in 1969 and became a global commercial network in the 1990s. It was rooted in the idea of decentralization, where no one owns the internet or controls who can connect to it. Instead, thousands of different organizations operate their own networks and negotiate voluntary interconnection agreements.
Today it is used by more than 5.8 billion people around the world and has intertwined ever more deeply with our daily lives. Most people access internet content using a (worldwide) web browser like Chrome and Safari. Indeed, the web has become so popular that many people incorrectly treat the internet and the web as synonymous. But in reality, the web is just one of the many internet applications built on the internet. Other popular internet applications include email, BitTorrent, video games, chat, and voice communication.
One can think of the internet as the roads that connect villages, towns, and cities together. The web contains the things you see on the roads like houses, buildings, and shops. And the vehicles are the data moving around — some go-between websites and others will be transferring your emails or files (audio/video/plain text) across the internet, separately from the web.
Today the vast majority of internet traffic is controlled by a handful of companies, akin to tollbooths on the roads. Currently, there are only a few web hosting and server companies tasked with the responsibility of providing internet connection, a development that has significantly eroded the decentralization aspect of internet connection as was the case in the early years. And your movement around the web is constantly monitored and directed to and from by a handful of tech giants.
Using the web now means being forced to trust centralized mediators with our digital lives, exposing ourselves to data manipulation, censorship, fraud, and surveillance — and a very siloed “walled garden’ experience. An internet where we’re forced to place blind trust in middlemen, gatekeepers, rent-seeking platform monopolies, and data silos is a fundamentally broken system. The digital systems we depend on should not require us to trust others to protect our most sensitive data from theft and abuse, or at least connect it across the entire value chain. Web 3.0 is a bold vision to break this cycle of centralized and fragmented systems.
Building Blocks of the Internet
It is important to note that there is a centralized point in an otherwise decentralized Internet network, which can be a server through which all data in a network must pass through, before distribution to various computers or devices.
In the early days, the Internet operated as a standalone network that connected different groups of people and organizations. The fact that such networks’ control was limited to certain groups of people allowed for internet decentralization. That is no longer the case as demand for internet connection has ballooned to levels that earlier decentralized networks would struggle to offer support.
The infrastructure for the Internet as we know it is built on three critical blocks:
Long-distance networks: This is mostly on fiber-optic cables — that carry data between data centers and consumers. The backbone market is highly competitive. Backbone providers frequently connect their networks together at internet exchange points, usually located in major cities. Establishing a presence at IEPs makes it much easier for backbone providers to improve their connections to others.
Data centers: These are rooms full of servers that store user data and host online apps and content. Some are owned by large companies such as Google and Facebook. Others are commercial facilities that provide service to many smaller websites. Data centers have very fast internet connections, allowing them to serve many users simultaneously. Data centers can be located anywhere in the world, but they are often located in remote areas where land and electricity are cheap. For example, Google, Facebook, and Microsoft have all constructed vast data centers in Iowa.
Telecomm Service Providers: This is part of the internet that connects homes and small businesses to the internet. Currently, about 70% of residential internet connections in the United States are provided by cable TV companies such as Comcast and Time Warner. Of the remaining 30%, a growing fraction uses new fiber optic cables, most of which are part of Verizon’s FiOS program, AT&T’s U-Verse, or Frontier. Finally, a shrinking number use outdated DSL service provided over telephone cables. The last mile also includes the towers that allow people to access the internet with their cell phones. And wireless internet service accounts for a large and growing share of all internet usage.
Web 1.0 to Web 2.0
It shouldn’t be surprising that just like cities evolving, it’s the buildings, houses, and shops that are torn down, reimagined, re-engineered, and re-built. But the roads cutting through them may require routine upkeep and maintenance, but we don’t typically tear it all down, and rebuild it.
Similarly, since the British scientist by the name of Tim Berners-Lee, working at CERN introduced the world to the world wide web - simply known as, the web, it has had two phases of evolution.
Web 1.0 (Read-only): The first iteration of the web was mainly populated with static HTML web pages displaying non-interactive, centrally sourced data. As a result, the vast majority of web users were simple consumers of web content, and digital communications were largely limited to emails and basic one-way messaging applications. Despite these limitations, after launching in the 1990s, Web 1.0 rapidly revolutionized the way people connect and exchange information and introduced a new digital world with which humanity has been captivated ever since.
Web 2.0 (Read and Write-only): Coined by Tim O’Reilly and others between 1999 and 2004, the original internet gradually evolved into the more interactive, digital landscape we frequent today. This stage of the internet’s development, Web 2.0, enabled the facilitation of more engaging and social online experiences and gave rise to new business models enabled by network effects, crowdsourced content, and multidirectional data flows. In short, while Web 1.0 enabled data to be more effectively presented and consumed by users, Web 2.0 opened the floodgates to a more personalized internet via multi-channel user interactions and more dynamic, responsive algorithms. And the scalability of Web 2.0 was accelerated by three catalysts:
Mobile: With the launch of the iPhone in 2007, we moved from dialing up to the internet a few hours a day at home at our desktops to an “always connected” state — the web browser, mobile apps, and personal notifications were now in everyone’s pocket.
Social networks: Coaxed users into good behavior and content generation including recommendations and referrals. From Instagram, persuading us to share photos online for anyone to see; to entrusting unknown travelers with our homes on AirBnB; and even getting into a stranger’s car with Uber.
Cloud: Helped commoditize the production and maintenance of internet pages and applications. Millions of entrepreneurial experiments could benefit from low-cost resources that scaled as their businesses grew.
Foundations of Web 3.0
And now we are ready for its third iteration. And yes, that includes building net new roads or protocols, not just the applications on top of it. Often when a revolutionary new technology is introduced, it takes time for its effects on society to unfold and for us to fully understand them. The early days of the information revolution were all about individual empowerment, open access to information, content creation, and peer-to-peer (p2p) collaboration. While some of the principles of Web 2.0’s catalysts will carry forward — a lot will need to be reimagined.
Clearly, the web and more specifically Web 2.0 has brought us undeniable benefits, but looking back we can also see a disturbing trend — the underlying infrastructure of the internet has led to a concentration of power that benefits the few at the expense of the many (and funny still, some may argue that’s capitalism at work). While the internet still is decentralized, the web as we know it has become highly centralized with just a handful of companies collecting rent from anyone trying to search, build, connect, move, or sell.
With concerns over internet privacy, data portability, and self-sovereign identity rapidly becoming mainstream issues, there has never been a more concerted effort to accelerate the next paradigm shift in internet applications. While the entirety of Web 3.0’s underlying architecture has yet to be established, there is a broad consensus on some of the general characteristics this new version of the Internet will feature:
Semantic Web: As part of its underlying operational model, Web 3.0 is expected to be able to analyze and act on a broad ecosystem of digital content by forming complex associations between web services, user behavior, and other contextual data. This breakthrough will enable an unprecedented level of data connectivity and mark a significant departure from the current model, which focuses on keywords and structured numerical values. The goal of the Semantic Web in many ways is to make Internet data machine-readable, increasing its overall efficiency and effectiveness on a far-reaching scale.
Secure Data Ubiquity via Decentralized Networks: While Web 3.0 will harken a new era of interconnected Internet of Things (IoT) devices and multi-platform interoperability, the data stored and shared on this new web will also be more secure and flexibly applied than current web data. This will be made possible through Web 3.0’s decentralized network infrastructure (or blockchain technology) or Web3, which helps eliminate non-value-adding middlemen, eliminate the risk of centralized server failures, and enable users to fully own their own data. Web 3.0 may also enable applications to be more device-agnostic, allowing different types of hardware and software platforms to interact with one another without any operational friction or added development costs.
Artificial Intelligence: Web 3.0’s semantic web will be enabled by advanced artificial intelligence (AI) software capable of decrypting natural language and understanding user intention. As a result, the new internet is expected to provide more intuitive, user-centric interactions relative to the current internet, which is still largely reliant on direct user inputs. Today, we go search for our restaurant or music, or flight tickets — but Web 3.0 will take a proactive approach to our needs and returns recommendations through our browsing patterns across the entire web, not hindered by ‘tollbooths’. These AI processes will also play a central role in maintaining the integrity of Web 3.0’s content ecosystem by separating reliable information from low-quality or fraudulent or fake posts.
VIX (Visual Immersion Experience): Present-day technology already offers an impressive array of virtual reality/augmented reality (VR/AR)-enabled experiences. However, Web 3.0 is expected to expand the use of 3D graphics and VR technologies in a way that blurs the boundaries between the physical and digital worlds. With Web 3.0 enabling the rendering of physical objects in the digital realm and vice versa, this immersive technology will enable new ways to interact with products and services and display or retrieve information.
As such, Web 3.0 marks a new online paradigm that encapsulates a vast array of cutting-edge decentralized web applications, built around cutting-edge technologies such as AI, IoT devices, and VR/AR. These key innovations will be connected and enabled through Web 3.0, which provides the decentralized yet secure network infrastructure necessary to bring Web 3.0 to fruition.
Final thoughts
The new web is not going to be something out of the blue. It will be the result of the constant push and testing of the boundaries by sheer human persistence. With a more personal and customized browsing experience, a smarter and more human-like search assistant, and other decentralized benefits that are hoped will help to establish a more equitable web.
The word equitable is of critical importance since that will empower each individual user to become sovereign over their data and help create a richer overall experience as a result of converging technology innovations and pushing the rent-seekers to the curb.
Web 3.0 is inevitable. It may seem hard to fathom considering how human behavior has been fundamentally shifted via smart devices, smart nudges, and data-hungry platforms that will ingest your data, spit back ads, and make a profit at the expense of your attention. The new age of the internet will become exponentially more integrated into our daily lives, without the side effect. Well, at least that’s the hope.
Thoughts On Competing in web3
Competing in web2 vs. web3
Competition
Competition in web2 operates very differently as compared to web3. In established web2 platforms data and assets are locked within “walled gardens,” and thus require significant cost and effort to move. It’s difficult to extract even the content you yourself have created on platforms like Twitter and Facebook, and once you’ve done so, it arrives in a file format that isn’t easily transferred onto some other platform. And meanwhile, people perceive significant switching costs in search, banking, healthcare, etc., and as a result, very few seek out better products.
By contrast, crypto and web3 make it easy and intuitive to move a user’s assets from one place to another, because those assets are stored and managed on public, interoperable blockchains. This makes the cost of switching platforms incredibly low — users have control over their assets and often do not even need to notify a platform when they leave for a competitor. As a result, platforms have to compete fiercely not just to win users but also to keep users. This in effect is a win for the users/consumers, as this virtuous platform competition drives down the prices. But there is a catch (and there always is).
Cost of competition: web2 vs. web3
Extreme competition driven by the low cost of switching has its own unique costs and side effects.
Users/Consumers: Via increased competition they face what I’d call, “option fatigue”. This fatigue leads users to turn on the auto-pilot mode, and pick options that look deceptively simple, but end up costing a lot more.
Product/Companies: Given the low barrier to entry, finding an edge over the competition becomes hard, and it typically leads to a price war (mostly, to the bottom). And as competition intensifies, companies may tend more and more to offer attractive product features while hiding increasing underlying costs and risks.
And as such, it’s neither the users nor the products that win over a sustained period of time. We have seen this play-out throughout history. For example, deregulation in the banking sector in the 1970s and 1980s increased competition lowered profit margins, and magnified banks’ risk-taking activities and bank failures. 2008 was a classic example of companies increasing the headline interest rate all the while lowering the quality of the product by increasing the product’s complexity, opaqueness, and risk.
One could argue that competitive markets can and should drive unproductive companies out of the market. But the lack of transparency often allows unproductive companies to compete by offering products that appear attractive in the short run but are unsustainable in the long run. Unfortunately, as we’ve seen, companies like Celsius, 3AC, and FTX, can amass significant assets before their business models eventually unravel. But to be clear, these are not web3 plays, but centralized (web2) financial firms caught committing fraud.
And that’s where web3 differs, providing transparency and aligned incentives.
Ultimately, what any business/product/project is vying for is its’ users’ attention/loyalty and $$$.
If you are not top of mind, you are not top of wallet. As such, firms find it valuable to lock in repeat (and/or high-spend) consumers, and they often do so via loyalty/rewards programs such as frequent-flyer miles or discounts for returning consumers. Amazon’s $35Bn (approx. 7% of Amazon’s total revenue) loyalty program aka Prime Membership for instance is based on repeat consumers and yes, a mind-bogglingly streamlined experience.
However, competitors may also find it valuable to identify repeat consumers (often the higher paying) of other firms and convince them to switch; such efforts are called “vampire attacks” — and are particularly easy to execute in the context of web3 platforms (vs. web2) that record their transactions on a public blockchain ledger. As such, web3 platforms face higher competitive pressures where more traditional firms with loyalty programs may not, and as a result, can create attractive scenarios for price-sensitive consumers. Take a look at Sushiswap attacking Uniswap.
And a user/consumer in web3 will provide loyalty and $$$, assuming you solve their problem through your product, if the business provides transparency and aligned incentives.
In heavily competitive markets like DeFi for instance, radical transparency may be a difficult strategy in the short run precisely because it prevents platforms from offering seemingly attractive but unsustainable deals. But in the long run, transparency is advantageous, and there’s a real sense in which DeFi (and other decentralized platforms) platforms could be more value accruing for everyone, including their creators. Indeed, especially to the extent that these platforms share some degree of ownership with their users, the value proposition for consumers can be higher, which has the potential to lead to added growth down the line.
Conclusion
The past year has been a tumultuous journey for crypto businesses and users alike, as they have encountered numerous challenges and learned valuable lessons along the way. However, amid these struggles, one positive outcome has emerged: repeated stress tests that have highlighted what truly works within the cryptocurrency sphere.
These trials and tribulations have played an instrumental role in showcasing the immense potential of the web3 ecosystem's maturation process. As this technological landscape evolves further, everyday users will find themselves presented with increasingly abundant opportunities to leverage its extreme transparency and aligned incentives. This development is particularly exciting because it equips individuals with the enhanced knowledge and tools necessary to extract maximal benefits from blockchain architecture-driven intense platform competition.
By embracing this progressive shift towards decentralized systems powered by blockchain technology, users become empowered participants who can actively navigate through various platforms while making informed decisions based on their personal goals or preferences. Moreover, such exposure encourages sustainable growth within the industry as both developers strive to create innovative solutions that cater directly to user needs.
As we look ahead into the future of cryptocurrencies unfolding before us like an intricate tapestry woven together by collaboration between different stakeholders — users included — I remain optimistic about paving new paths toward economic empowerment driven by cutting-edge technologies built upon principles of trustworthiness and fairness inherent in distributed ledger systems.
Crypto Networks: The Voting Systems
Voting Systems
Introduction
Voting systems are an essential part of any democratic society, and they play a vital role in ensuring that the ‘governing entity’ is accountable to the people/community. In crypto networks and protocols, DAOs (Decentralized Autonomous Organizations) are used to make decisions about the network or protocol itself. This could include things like:
Changes to the protocol: Voting systems can be used to decide whether to make changes to the protocol, such as adding new features or fixing bugs.
Funding of projects: Voting systems can be used to decide how to allocate funding for different projects, such as the development of new features or marketing campaigns.
Election of leaders: Voting systems can be used to elect leaders of the network or protocol, such as the members of the governing council.
Changes to the rules: Voting systems can be used to decide whether to make changes to the rules of the network or protocol, such as the fees charged for transactions or the way that blocks are mined.
While the benefits of voting systems often outweigh the drawbacks, what often goes unnoticed, are the types of voting systems that are available to implement.
Voting Systems
One person one vote (1P1V).
This is the democratic ideal (and self-explanatory). It’s also how some executive teams function, including at foundations, DAOs, and major corporations.
Challenge 1: People who are less informed have the same influence as those who are more knowledgeable and informed. This can happen in practice when there are many issues to vote on, and busy people don’t have the bandwidth to get sufficiently educated.
Challenge 2: People with little skin in the game may have undue influence.
One person one vote (1P1V), with delegation.
Someone with a vote can delegate their vote to others. This is a representative democracy, like the US. This retains the democratic ideal while letting busy people defer to better-informed people. The action of delegation may be rare and wide-spanning, like we see in nations (one choice every four years, for many topics at once).
Challenge 1: Delegation could be fine-grained in time and issues, where for example a person has delegated to someone else for most issues but retains the right to withdraw that delegation for any given issue. This is the realm of liquid democracy.
One token one vote (1T1V).
This accounts for skin in the game akin to ApeCoin DAO. It’s the “shareholder” ideal. The more skin in the game, the more influence a person has.
Challenge 1: This has the opposite problem of democracy i.e. a handful of token whales can unduly influence the whole system.
Quadratic voting (QV) and Quadratic Funding (QF).
This is an approach trying to balance “1P1V” with “1T1V”. QV gives people a “votes” budget that they then can apply across several polls. For instance, a person can spend 0, 1, or more votes on a given poll, where the person’s influence on that issue is the square root of the votes they spent. This allows the person to emphasize the polls (issues) that they care most about, without getting unreasonable influence anywhere.
Quadratic Voting (QV)
Note, Quadratic Funding (QF) is a variant of QV explicitly for payments scenarios like funding. A person contributes tokens to fund a proposed project or team. Then, there is “matching funding” that takes the square root of each person’s spend and adds the spend. Gitcoin is been using QF, with promising results.
Quadtratic Funding in Math speak
So, for example, if both Project X and Project Y get $100K in contributions, but Project X has way more individual donors, then Project X will get way more matching funding.
Signal on “Utility”.
People (or bots) voting on code-based projects need the information to identify what projects might add value. Traditionally this is subjective, or a using measurement not designed for this purpose. Colony also uses an algorithm (Google’s page-rank equivalent) but has more emphasis on DAOs.
Rough consensus.
Here, one or more leaders conduct an informal survey among the broader community, then make the final judgment call on what to implement. For example, this is how new Ethereum functionality gets chosen by core developers.
Challenge 1: It’s a slow process, and often has a single point of failure from a decision-making standpoint.
Conclusion
Of course, voting systems have some potential drawbacks, especially in DAOs. For example, voting systems can be complex, challenging to understand and implement. Additionally, voting systems can be vulnerable to fraud or manipulation. However, Voting systems are an essential part of any governance structure, centralized or decentralized, and they play a vital role in ensuring that the DAO is run transparent, accountable, and efficient.