The Tim Ferriss Show #542 - Chris Dixon and Naval Ravikant
The Wonders of Web3, How to Pick the Right Hill to Climb, Finding the Right Amount of Crypto Regulation, Friends with Benefits, and the Untapped Potential of NFTs
Primer: Join Chris Dixon and Naval Ravikant as they share on a variety of topics on the Tim Ferriss Show. Get their thoughts on the right hill to climb, the evolution from Web1 to Web3, complex systems, and a host of other equally interesting and compelling topics.
Background
Naval Ravikant
Co-Founder and Chairman of AngelList
Is an angel investor and has invested in more than 100 companies
Has his own podcast on wealth and happiness
Chris Dixon
General Partner at Andreessen Horowitz for the past 6 years
Previously, he co-founded and served as the CEO of 2 startups
A prolific seed investor
Started programming as a kid
Has a BA and MA in Philosophy
Chris' Interest In Philosophy
Read a book Gödel, Escher, Bach that connected computer science, music, and philosophy. Found it mind-blowing
When he went to college, he started going down the rabbit hole of philosophy
Very interested in analytic philosophy — language, mind, logic, foundations of mathematics, etc.
A couple of years ago, he wrote an article for The Atlantic on the history of logic and computer science
Logicians like Bertrand Russell and Kurt Gödel had direct lineage to Alan Turing and John von Neumann
Met Daniel Dennett, one of his philosophy heroes. Daniel said to him that if he's going to commit to becoming a great philosopher, he should do it. Otherwise, he should quit immediately and do something else
"I just knew, like, I was going to be a mediocre philosopher working on footnotes, basically, in these kinds of academic fields, there's like five people that matter every century. And then everyone else is sort of doing, you know, footnote cleanup." - Chris Dixon
Satoshi Nakamoto's White Paper
7 pages long
2/3 of it is implementation details
Core ideas are a couple of points
What The Smartest People Do On The Weekend
Chris
Chris wrote a blog post titled What the smartest people do on the weekend is what everyone else will do during the week in ten years in 2013. He cited Math-based currencies like Bitcoin. Are there any current hobbies that he is watching with interest?
Goes back to the lore of Silicon Valley of hackers in a garage and Steve Jobs and Wozniak going to the Homebrew Computer Club
Saw a pattern of this occurring in real life
He gets all his information from speaking directly to people who are smarter than him
"I've always found this to be a small group of very smart cultish people to be very, very interesting pattern." - Chris Dixon
Another common theme is that they look like toys — people would criticize it and say it's not a serious thing
Another example: every single computer graphics innovation today (e.g. Apple, Pixar, Atari) originated from the University of Utah. Some donor gave money to the university and all the innovation happened there
Today, the frontier is on the internet (e.g. Discord, Reddit, etc.)
Naval
Even on the internet, Web3 and crypto are the newest frontiers. They are the least regulated, most decentralized, most permissionless 24/7 365 markets in the world
Starting to see Web3 pulling in all the smartest people into it
From Math-Based Currencies To Web3
Chris
Have friends who were early into Bitcoin
Went to use Bitcoin. Particularly interested in the programming language around it
Hashcash, the algorithm used for Bitcoin mining, appealed to him
Started a security company in 2004. Was looking at the Hashcash algorithm as it has been talked about for a long time as a way to fight internet spam
Spam is a tragedy of the commons problem — cost nothing to send spam emails
In the 90s, the idea was to charge people a small amount for sending an email. However, there wasn't a native internet money at that point. So the idea was to force users to do a computation
Went down the rabbit hole and learned about Web3. Was a transformative experience
Naval
Read about the Byzantine Generals Problem and how it could be used to organize people without rulers
Byzantine Generals Problem: How do you get people to coordinate when no one knows or trust each other?
By using Proof-of-Work/Hashcash, you can say that you've done the work to have a credible vote
With this, we can replace centralized authorities with a credible vote of all the people participating in the network — which is what blockchains and Web3 do
The Evolution From Web1 to Web3
Web1
Internet existed before the 90s. The web is the killer app built on top of the internet
From 1990 to 2005
Web1 was dominated by open protocols (HTTP, SMTP)
A golden period of innovation
Products were skeuomorphic — people were taking things from the offline world and putting them on the internet
Web2
Started in 2005
Had 2 competing models. An open way to build vs a closed way to build
RSS vs Twitter
Closed protocols had ease of use
Opened protocols were limited in what they could do
Mobile phones came along and everything accelerated
Now we have 5+ companies that kind of control the internet
Web3
Chris' definition: An internet owned by users and builders, orchestrated with tokens
A lot of Web3 stuff is built on Ethereum
Ethereum has an almost-Turing complete programming language and can store information. It's a a virtual computer — a computer that runs on a network of physical computers
People can create smart contracts which are code that will continue to run in a certain way
People can also create tokens, both fungible and non-fungible
Tokens are important because they now provide a mechanism by which value and control can be given to users and builders as opposed to simply decentralized companies
Initially, there will be some R&D organization that helps create these protocols. Over time, they will go away
No Web3/crypto company has to spend on marketing. Tokens are self-marketing. When people own something, there is skin-in-the-game and they want to go evangelize it
What Excites You About Web3?
Naval
Digital private keys enabled digital private property
We can each own a piece of the internet
Enables the creation of digital scarcity
Web3 revolution is nonlinear. With open code, people can plug their applications into each other like Lego blocks
"So each of us has a safety deposit box now in the cloud, that we can give selective access to with our private keys to people who need them when they need them, and then close them off again. So they're not leaked in the next credit reporting hack, or the next big company hack." - Naval Ravikant
The Meaning Of The Term "Composable"
Naval
"Composable means that it's like Legos, or like digital Legos where I can just copy the Lego and then build on top of it. So the effect to a competitor is like a Voltron type thing where all of a sudden, all the apps and Web3 can sort of team up to create any app needed." - Naval Ravikant
Instead of having exchanges with market makers and firms ensuring liquidity, DeFi has this innovation called Automated Market Makers (AMMs) that provide a similar functionality
AMMs are just code. They can be copied and dropped into any new application
Web3-based games will have entire market economies and still be completely composable — any piece from their app can be plugged into another app permissionlessly
Composability is not limited to software; it even goes into media. Will blow away the idea of copyright and intellectual property
Power of an idea is determined by how many brains it is running on. If one has good ideas, they would want to spread it as far and wide as possible:
Akira the Don takes stuff that he says and remixes it into music
Smart Nonsense making videos and animations of his work
Jack Butcher doing illustrations
Eric Jorgenson creating the Almanack of Naval Ravikant
"If you want your content to get as much out there as possible, don't hold anything back. If you have good ideas, you want to spread them as widely as possible and you wish you should be so lucky that other people come and compose them with their own content and create new meanings and new ideas." - Naval Ravikant
His content is becoming more famous as media is composable
Chris
99.9% of all the code in the world is open source
Open source wins because you only have to solve the problem once:
Solve a problem —> go on Github —> fork and reuse the code
Web3 is taking that level of rapid innovation and applying it to web services and software
Reaching Escape Velocity In Web3
Chris
Lower barriers to entry with respect to cost. Easier to raise capital
Bored Apes raised ~$100 mil through the Mutant Apes drop. They did not have to raise venture capital
Holders get the commercial rights. Next stage involves the community creating narratives
Imagine the next Harry Potter where the community gets to write all sorts of interesting fiction and people voting to decide what becomes canon
Naval
There's a funny quote out there about every generation invents its own Ponzi scheme and rejects the previous generation's Ponzi scheme
Bitcoin showed up rejecting fiat, kings, rulers, and tyrants. They become the people's currency
Because of Bitcoin, people realized that they can create their own currency. This resulted in Altcoins
NFTs show up and say that digital assets are like fashion and culture. They are always emerging, always composing, and always going out of style
Crypto revolution gives everybody a chance to define what has value
Evolution Of NFTs
Chris
NFTs are a primitive — a foundational building block of the internet
A lot of problems come from advertising. We do not have native payments and tokens and the closed system of big tech takes almost all of the profits. Has been very bad for creative people
"Instagram, what do they pay out? Zero? Facebook? Zero. Twitter? Zero. YouTube? 50%. Apple, just for having the phone, they take 30%? Do you know how many businesses can't survive when you take 30%? It's kind of crazy that we put up with this." - Chris Dixon
Internet is not bad for creative people. Web2 is bad for creative people
NFTs enable creatives to experiment
NFTs can also be used as a means of patronage. Bought NFTs from a graphic designer from Foundation, a high-end art NFT platform. Became friends with him
Have a games group at their firm that does not do crypto. These founders are now involving NFTs in their games
People can take their piece of art or in-game sword, mix and match, and move it around and get composability
Blockchain Gaming
Chris
In video games, there have been new waves of technology, but the old wave still exists
Old way is to buy a video game like Madden. There's still businesses that are around that sells them
The business model for modern games is that they are completely free. The only thing gamers buy are cosmetics. Examples of such games include Fortnite, Clash Royale, and League of Legends
Virtual goods are a $40 billion a year industry
Purchase of virtual goods go to the company
In blockchain-based games like Axie Infinity, transactions are peer-to-peer
People in the Philippines are making a living playing Axie Infinity. They complete a bunch of tasks to improve their NFTs. People who have more money than time purchase these NFTs from them, with the company only taking a small percentage
This creates a vibrant economy
Yield Guild Games is a separate company that invests in Axie Infinity. They loan out Axies to players who cannot afford the upfront cost to earn from the game
Moving Past The "Right Click And Save" Criticism
Naval
A lot of people's first reaction to NFTs is that they can just right click and save the JPEG. They do not understand the value
Same concept applies to photocopying a piece of art. It does not mean that the person has the actual art
One has to consider provenance, linkage, and authenticity of the art itself
Consider two different rooms in the Metaverse. One having authentic CryptoPunks/Bored Apes on display while another has fakes of the same thing. A software is able to detect the originals and people would flock to the room with the originals
"Where do you think the cool kids are going to hang out, where the rich kids going to hang out, where the party is going to take place? So all of a sudden, having NFTs in this authentication gives spaces actual value." - Naval Ravikant
Game NFTs can be ported over to another game. A right click and save version is not going to have any value
For NFTs that serve as a social contract between the creator and fans, a fake NFT would not grant the holder access to the creator and his/her future works
There's a social element to crypto as well. The community needs to recognize and enforce value to the asset (e.g. Bitcoiners need to to accept the Bitcoin ledger as the canonical ledger, CryptoPunks/Bored Apes community need to accept that their avatars as the canonical avatars.)
People will own their own rooms in the metaverse. They will be able to shuffle objects within it and control who comes in or out
On Complex Systems
Naval
Gall's law: A complex system that is designed from scratch never works. A complex system that works is invariably found to have evolved from a simple system that worked
NFTs are primitives. People are going to recombine and assemble those primitives to create a complex system
Centralized solutions are creating systems from a topdown perspective. They will not be able to compete with the emergent complex system that will grow from the ground up
Apple and Google do not like NFTs. Valve, which runs the Steam game distribution service, is not going to have NFT-based games on its platform. They will end up missing the largest boom in internet gaming
Skeuomorphic Design
Chris
A word used by Steve Jobs to refer to visual design
It was this concept of taking a design from the offline world and applying it to the online world to make it more familiar to people
Examples of skeuomorphic design:
Early films look like plays
People think of the first cars as mimicking horses
Early web looks like brochures and magazines
The native version tends to win out against the skeuomorphic version
Is negative on skeuomorphic ideas (e.g. applying blockchain to supply chain, offline ticketing, etc.)
Loot is an example of a very cool project:
Little cards that have an inventory like a Dungeons & Dragons style game
They are just words on a page and each of them are NFTs
Inspired their whole community to build around it
Creating a tag on a website seemed hilarious back then, but it was a revolutionary concept that allowed the public to engage with the site
Naval
Early on, he made the mistake of thinking of blockchains skeuomorphically (e.g. blockchains will replace Uber, Facebook, and Twitter with Web3-enabled primitives)
We will end up creating brand new things that we can't even predict or identify yet
Weaknesses/Challenges Associated With Web3
Naval
Security is a big issue. Have been outspoken about crypto so he had to move his investments into custodians and funds and not hold anything directly for security reasons
Could put NFTs into multisig wallets with a time lock for security
Multiple ways to maintain anonymity:
Creating new wallets and doing purchases from different wallets
Using zero-knowledge proofs
Chris
Improving usability
Hill Climbing In Computer Science
Chris
A classic algorithm. Metaphor is to think of a landscape with a bunch of hills
Goal is to get to the highest point
Assume that it is foggy and you can only see a little bit of what's in front or behind you
One obvious problem is following an incline up a small hill, thinking it's the largest hill
Have to introduce some form of randomness to avoid going up the first hill you encounter
Can see the hill climbing analogy in people's career choices. People are unwilling to join a startup, which appears to be taking a step backwards, that is in fact a bigger hill
People are unhappy in their 30s and 40s because they climbed the wrong hill
"I think people in their 20s for example, should add, not literally, randomness, but exploration, they should go try a bunch of different things. See what's the right hill. And also be willing to take a step back." - Chris Dixon
Naval
Keep an open schedule as much as possible so that you can follow your own intellectual curiosity
Best career in 2021 was to be a JPEG collector
Best career in 2020 was to be a DeFi yield farmer
The frontiers are in crypto. If you have a natural intellectual curiosity in those things, your moment will eventually come
The Final Boss Of Crypto
Naval
Web3 is still in its infancy
Decentralizing money threatens the nation state
Regulators are trying to apply laws that are almost a 100 years old. They are just not going to get it
End up driving innovation underground and overseas
"Any regulator that stops the next generation of artists and musicians and gamers and game developers, from owning their platforms and their work is going to go into the wastebasket of history as a villain." - Naval Ravikant
United States is home to creativity and tech. If they lose this tech leadership, they will not be able to pay for social programs
Is concerned because he has been speaking to a lot of entrepreneurs. They are no longer considering moving to the United States
There is a limit to cutting interest rates and printing money. The solution is to innovate and improve productivity
Chris
A lot of it is self-inflicted by the Maxis (e.g. Bitcoin Maximalists, Ethereum Maximalists, etc.). They are loud and somewhat aggressive, presenting a negative view to the Mainstream/regulators
The democratic side thinks of crypto as the enemy when Web3 is actually aligned with the left agenda (e.g. better distribution of wealth, reining in big tech, etc.)
Two ways that regulators regulate:
Stating policies
Enforcement
Big myth in crypto is that it's unregulated. Millions have been spent by crypto companies on lawyers to be as compliant as possible
So far, regulators have chosen enforcement through actions instead of guidance
Laws have to be modernized
Policymakers Worth Commending For Taking Positive Actions
Patrick McHenry from the House Financial Services Committee
Kyrsten Sinema from Arizona
Andrew Yang
Donating To Causes
Tim
People want to support causes, but some institutions do not handle small donations
Planning a Tim Ferriss NFT drop within the next 6 months where 100% of the proceeds goes to a researcher project
Chris
Could have multiple collections (e.g. season 1, season 2, etc.)
Turn it into a DAO where NFTs grant access to a private Discord server
The community can vote on which projects to fund
Naval
Makes sense for workers and users to own the means of production in proportion to how much value they are creating
Everyone should be shareholders with no corporate nor state overlord
"There's this huge opportunity now, to make every person a worker, an investor, a shareholder, an evangelist, an owner, a creator, a designer, we can fold it all into one." - Naval Ravikant
If users do not like the current distribution, they could create their own
With internet native money, we can now create internet native corporations
Recommended Books
Chris
Like history, particularly the era of the Victorian industrial age of 1850 to 1920
Was the period with Westinghouse, Edison, Ford, and Wright brothers. That period had a number of incredible inventions
Liked a book called The Company: A Short History of a Revolutionary Idea, which traces the history of the limited liability corporation. Back then, towns needed to be linked up by a railroad, but they lacked capital. Innovation came in the form of LLCs which allowed them to raise external capital
On DAOs
Naval
DAOs are how communities can participate in Web3 and crypto
Can have different types of communities
In a few years, we will see a lot of thriving communities on the internet
"They're [DAOs] not quite corporations, they're not quite communities, they're not quite networks, or platforms. They're like their own new thing, that are a mixture of all of the above." - Naval Ravikant
Managing FOMO
People feel the impulse to be on Discord/Twitter 24 hours a day because they feel like they would miss out on something if they were offline.
Chris
Analogy of going to a museum and seeing a Roman statue
Two ways to interpret the statue:
View the statue as a piece of stone/JPEG
View it as a community artifact that has meaning and value in ancient Rome
If you take it out of the community, it becomes just a JPEG right click and save thing
A lot of people mistake it as something transactional/cash grab
If you buy something, buy it because you want to be part of the community. Expect it to be illiquid for a very long time
Naval
Had a quote about not falling into the trap of short-term relationships
"But like if I wouldn't hold this for five years, don't hold it for five days, don't buy it in the first place." - Tim Ferriss
This place is not for the faint of heart — you can make 10x or it can all go to zero
Further Thoughts On Art and NFTs
Chris
Web3 allows for the creation of a better business model for art and music
Incentivizes a whole new generation to try out these things
Thinks that creative people are underpaid
Thinks that generative art is in the skeuomorphic period right now
In 1983, the best idea that Steve Jobs had for the computer was to organize cooking recipes
A random guy came up with the idea of a spreadsheet, desktop publishing, and video games
Instead of Web2 companies surveilling you and trying to figure out your interests, users can just declare their interests through NFTs in an opt-in way
Naval
In the future, people could buy a unique sneaker and it comes with a NFT. If somebody wants to use that sneaker in a marketing campaign, you may get royalties for it
In this case, a NFT is not really a digital object, but a pointer/channel link between the holder, the creator, and the community
Friends With Benefits
Chris
Invested heavily into the DAO space 6 months ago
Friends with Benefits is a DAO. Consists of high quality product developers, designers, etc.
The cultural aspects got them excited
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