Vices and Virtues in Web3

As the next phase of the internet is quickly being built, what are the core principles that set Web3 apart from previous eras, and how is it influenced by the fundamental elements of human nature? Moreover, how are the lessons learned from earlier eras guiding – or hindering – evolution?

On the latest episode of Greymatter, Greylock general partner Reid Hoffman and his Blitzscaling co-author Chris Yeh examine the current development of Web3. While the alluring concept of decentralized ownership is fueling waves of innovation across the internet, it is highly likely that the creation of Web3 will come with some unintended consequences.

This discussion was sparked in part by an article by Bloomberg reporter Joshua Brustein. Joshua interviewed Hoffman about his recent essay on his experience as a Web 2.0 entrepreneur and investor. In that essay, Hoffman described the ways the “wild idealism” of the era led to major advances that both positively and negatively impacted the world, and how the “seven deadly sins” of humanity form the basis of many technological pursuits. For example, while greed may arguably among the most recognizable “sins” in the business world, in practice, it’s much more complex and nuanced than a simple base desire.

“Just because you have something that we would describe as a sin or as a negative emotion, it doesn’t mean in itself you’re bad or anything else,” says Hoffman. “It’s a question of what you do with them.”

Building on this idea, Hoffman and Yeh discuss the ethical considerations entrepreneurs and investors can bring to Web3; the core similarities and differences between Web3 and previous eras; and how humankind’s vices and virtues continue to provide a framework for innovation and investing.

“We’re in the first inning of Web3,” says Hoffman. “So, having wild idealism is a good thing even though of course, you should always pay attention to what could go wrong and try to steer towards positive outcomes and away from negative ones.”

You can listen to the podcast here:

Episode Transcript

Chris Yeh:
Hello, I’m Chris Yeh, the coauthor of Blitzscaling. And I’m here once again with my coauthor and old friend, Reid Hoffman, the cofounder of LinkedIn and investor at Greylock Partners.

Now, Reid, back in October, you wrote an essay about your experience with Web 2.0. And in it, you extended on your famous heuristic about investing in the Seven Deadly Sins.

And I thought it was a great philosophical essay, thinking about how we should take on the challenge of applying Adam Smith’s other great book, The Theory of Moral Sentiments to harness deep-seated human appetites for the good of society.

Now, what happened was that reading your essay prompted Bloomberg journalist Joshua Brustein to reach out to you and ask about how some of the lessons from prior internet ages can be applied to what we’re seeing today, and the growth enthusiasm around what’s now being called Web3. I thought Joshua asked some pretty smart and provocative questions, and that we should dive deeper into your perspectives on the topic where we don’t have a constraining word limit.

So, let’s go ahead and get started with the first question. Joshua observed that much of what you describe as the founding principles of Web 2.0 resemble the way that people talk about the ethos of Web3. And I think he was thinking of the passage where you wrote, “Wild idealism was the lingua franca of Web 2.0. The general belief was that fewer gatekeepers, freer information flows, and peer-to-peer connectivity would inevitably create positive outcomes for individuals and society alike.”

I’m wondering whether you see those same similarities. What do you make of them?

Reid Hoffman:
Well, first to back up a bit on history, which I think even Web 1.0 (the internet), had that kind of wild idealism. And there’s a little bit of, consciously, today’s color to say all that was wrong as opposed to that was right, which I think it was right at that time.

I think that part of what was happening in the creation of the internet was the notion of redefining this kind of space by which people could communicate and find each other by which information could flow.

I mean, look at, for example, the fact that now anyone who has a cell phone with a data connection can essentially access Wikipedia and a wide variety of other kinds of information resources that didn’t exist before, that the questions were I think that a bunch of the kind of positive changes that we’ve seen in society, anything from the resurgence of the Black Lives Matter movement, which comes from being able to upload videos and other kinds of things and say, “Look, actually in fact, this was police brutality and police differentially creating challenges for underrepresented communities.”

And that we need to improve how we constitute our communities. What’s the way that we provide justice and fairness and healthiness to all of society? And I think all of this comes from this wild idealism around a broadly open internet communication system.

And I think part of where it moved from Web1 to Web 2 – and I was part of this kind of move from Web 1 to Web 2 – was Web 1 was you kind of went off to the pioneering cyberspace, and you maybe had a pseudonym, because it was unknown place where you’re going. So, I might be an anime fan and you might be a pop culture boy, and da-da-da-da and this is how we were interfacing with each other.

And then, Web 2 brought your real identity and your real relationships. Obviously, LinkedIn was being part of this by saying what your name was and who the real people that you have knowledge and alliances with, and how you help each other – not just navigate the world of the internet, the world of the web – but also the world of real life.

And the fact that you weren’t intermediated (like for example, you go out and find your own expert, not necessarily have to hire a recruiter), that you could have experts publish information in different ways, and not have to go through a magazine or a newspaper led to a huge explosion of lots of specialists and good information.

And so, all of that I think was true. Now, it doesn’t mean that in a little bit of like you and I, Chris, and Blitzscaling about some of the issues that when you get to a really big scale, you begin to have responsibility to society as a customer and you have to evolve what you’re doing, because now it’s no longer just those early pioneers, that early discovery of all the raw stuff that you have criminals and miscreants and bad incentive systems that create problems that you now need to the further up your game.

And so, we can go into like one of the changes that need to happen as you begin to evolve. But that wild idealism was actually, in fact, a great way to start.

So, that as a baseline for saying kind of the principles of what’s going on Web3, I think the answer is it’s good. Which is to say, “Hey, there’s a lot of really interesting potential here. There’s a bunch of things that could be made that are spectacular. You have a whole lot of engineers and developers around the world working on this.”

You said, “Well, what kinds of things? I haven’t seen anything yet.” And it’s like, well, there have been a few things so far. There’s been what is called think of it as gold 2.0, or digital gold. It’s kind of an asset diversification, which is a good thing. Because actually, in fact, part of how we have stability in the modern financial system is I have a whole bunch of different correlated asset diversifications and other kinds of things to keep the financial system healthy and thriving as you’re kind of balancing between assets.

I think you have seen some identification of protection of banking systems. So, we of course, in the west who are with really good banking systems, or at least robust banking systems go, “Well, we don’t need those.” But Venezuela, Argentina, and other places do [need those], as a function of the fact that this gives you a place where a corrupt government can’t kill your banking system, and where that same asset diversification can be a really good thing.

Ultimately, you could see your way to a much cheaper banking system that could then bring in the billions of people who are currently unbanked into the modern value of it. And then obviously today, if you’re saying, I want a cross-border cash solution, it’s actually, in fact, already one of the best cross border cash solutions. And I think there’s all kinds of things you see happening from what might happen with smart contracts.

And the theory by which Web3 folks are talking about this, which I think is very interesting, you say, “Look, what happened with the baseline internet technologies is we learned how to ship bits around that didn’t really carry a lot of intrinsic value.” They might have a lot of value as an essay or piece of information, or communication, or a video or a song. But they’re not like themselves carrying the value that money or contracts bring.

Web 2 brought an identity system into this kind of communication and collaboration through primarily real identities through LinkedIn, social networks, and other things. And then Web 3 now brings in this open ecosystem by which you can create a platform or development on value systems on assets, like digital gold or currencies, for paying things or contracts, for doing things or platforms for building new systems.

And I think what you’re seeing is a Cambrian explosion of lots and lots of efforts. Oh, by the way, of course, a bunch of them, just like Web 1.0 will be shuttered craters. And maybe we have to be a little bit more careful about this because of the financial system. But some of those will persist in really interesting ways.

And this is part of the reason why in 2015, I gave a talk at Davos and wrote an article for Wired UK on the fact that the world will want to have, as I call them, “crypto capital systems” –which capitalize upon on currency, asset platform cap, capital systems – that will actually facilitate commerce and trade within the world. And I think this wild idealism is the right place to start.

CY:
And if I’m hearing you correctly, I think that in addition to believing that there is a real positive to this wild idealism, part of it is – I’m loathe to put words in your mouth – but it’s almost like there’s revisionist history about the past, where because we’ve just become so accustomed to the things that the wild idealism of web 1.0 or the dot com era and while the ideas of Web 2.0 brought us that we’re just like, “Oh, it just brought us YouTube and Amazon, no big deal.”

And we’re like, “No, hold on for a second, look back to what the world was like before these things existed. These are actually a very big deal. It’s just that it’s human nature to become used to everything good and still focus on whatever irritates me.”

RH:
Exactly. But human nature is also why we have made progress. And I do think that some negative features that weren’t there before (before it got to scale and a bunch of other things, just like, by the way, crime goes up in cities because you get to the scale around people and that doesn’t mean we shouldn’t have a city. No, no, we should have a city and we should fix the crime. We should improve the crime. There’s reasons why we aggregate in cities).

And it’s the same kind of thing.

And part of the thing, of course, is like obviously, there’s frustrations with flows of misinformation like the whole anti-vax craziness. And the fact that actually, in fact, any rational kind of set of thoughts put on the vaccine is A, you should get the vaccine for your own health, B, you should get the vaccine for your society’s health and your family’s health and your grandparents’ health, and your kids’ health, and all the rest of this stuff.

And that the fact that’s been politicized and the fact that people are ignorant when it comes to science – even when sometimes educated people are ignorant when it comes to science cause all these problems, and obviously, it gets amplified by social networks. Now, it also gets amplified by cable news and cable news anchors saying, “That vaccine is a Democratic plot to put something in your arm.” And you’re like, “Yes, it’s called life saving health. So, please do this not just if you are Democratic, if you happened to be Republican in this case, just because it is actually in fact a good thing to do.”

And all of that is part of the cost that comes out. And I think we need to actually just use technology as a basis to always cause us to refactor how we express our values, not necessarily our values.

For example, a value and freedom of speech is a great and fundamental value. But also, how do we morph it? What are the things that we say we get the majority of the goods of freedom of speech without the problems?

And like people say, “Well, we don’t regulate any speech.” And the answer is, of course, we regulate a whole bunch of speech. We regulate child porn and terrorism and truth in advertising and a bunch of other things. Those are all speech regulations. We regulate speech already. It’s just the question of where you draw the lines, that we try to draw the lines with a maximum orbit against major harms. And we just have to understand other major harms, and then redraw with maximum orbit on major harms and how you do it and how you use technology in order to do that. And so, I think that those are the questions of how you address some of the Web 2.0 stuff.

Now, that being said, to what you were saying, not putting words in my mouth, obviously, we’ve worked together for a long time. And you know this as we’re ignoring all the benefits we’re still getting from the Web 2.0 stuff. The fact that Black Lives Matter movement can go through, the fact that these existed, and part of the reason why I think we got an evolution on gay marriage, and everything else was understanding and sympathy and voices coming out, within, “Oh, these are just people, too. We’re all just people together as a function of cultural change.” And all of those things come with it.

And so, people go, “Oh, because of this bad thing, you should roll back the clock.” And the answer is “No, no, we should always roll forward the clock, and we should fix the things that are the bad things.”

And that’s part of the reason why revisionism [commentary] tends to go, “Well, that’s wild idealism,” as opposed to, “Look, that was wild idealism, but we didn’t realize that we’re going to run into some problems later.”

But by the way, you still had to have that idealism. And now the thing is to not look back and go, “Well, that shouldn’t have been wild idealism.” The answer is no, no, we should have idealism about how we fix the future. And that’s the key thing to look forward to doing. And I think that’s the key thing.

CY:
And if you have an idealistic point of view that says that things are only going to be good, that everything that comes down the pipe is going to be 100% good, you’re going to be disappointed. But if you recognize that there are going to be issues that we can’t foresee, but that we can ameliorate once we discover them, then all of a sudden, the future doesn’t seem quite so bright.

RH:
Yeah. And also, look, there are challenges in the future. But the question is, if you don’t play forward to make it better, you’re almost guaranteed to have more pessimistic outcomes. It’s a point of naivete and the extreme to think that we can just enshrine the past. And it doesn’t mean that the regulation can’t have a positive impact. I think it can have a very negative impact, or very limiting of the future impact. And the question is essentially How do we shape the future?

CY:
Now, I’m thinking back over the dot com era, the Web 2.0 era and now this nascent Web3 era, one of the summations I’ve heard people use is to say that the dot com era was about reading, the Web 2.0 era is about writing, and the Web3 era is about ownership. I think it’s very reductive to say that, but that’s a clever way of describing it.

And when I think about that, I’m like, “If I take that concept of Web3 and ownership, and compare it to Web 2.0 and the creativity that it unleashed, it’s something where we had a lot of new user-generated content in the Web 2.0, well, it’s almost like we have user-generated assets or user-generated value in the web 3.0 world.”

RH:
Well, I think – and obviously, gesturing at NFTs and a bunch of other things, which I think are interesting – most of Web3 stuff comes out of what happens when you have a cryptographically secure distributed ledger. What are all the various applications that can be built on top of it?

This obviously includes assets, obviously includes currency, obviously includes banking, and obviously includes unique items like NFTs, which can really watch power more of the kind of creator or maker economy of which are seeing all kinds of efforts and companies doing – everything from subscription platforms, like Patreon, to new kinds of productivity software like Coda to various places to do NFTs like Piñata, you see all of these things play into this.

And I don’t think I would say writing and reading as Web 1 and Web 2. I’d say writing and reading, like, as it were, digital bits content as Web 1. Web 2 is real identities and relationships, and we meld and navigate to that. And then I think, at least bringing in a notion of digital ownership into it in Web3. Because obviously, once you have a cryptographically secure ledger, it isn’t just digital assets that could be there.

Because [for example] what is our car ownership? So, well, I have this title. Well, that’s a digital asset. So, it’s an entry into a ledger. That ledger could be a digital one. So, there’s all kinds of ownership that actually can play into this as well.

And part of what I think is very interesting is, is the various ways in which ownership, like we all tend to say ownership is I have this complete ownership. And actually, in fact, I think as technology evolves, we realize that ownership is a sophisticated relationship. And you already see it in digital goods. Like well, do you own that recording of a song? Do you own the written nature of the song? Do you own anyone who records the song, anyone who samples from the song? All of this stuff are questions around ownership that begin to enter once you have more sophisticated technology. And I think that more sophisticated technology always enters it.

Like, for example, it’s like, “Well, I own the land, the stream goes through, am I allowed to like poop in the stream?” And you say, “Well, it’s my stream.” It’s like, “Well, but the stream is owned upstream of you and the stream is owned downstream of you. So, your ownership of the stream may not be that you can poop in the stream. You may still be able to take some water and other kinds of things as a way of doing it.”

But this is again, in the details of ownership.

There is the digital space, but everything that goes into our lives as part of it. And I think that part of the ownership part of it makes that arc of the three, of that of the tale of three words that you sketched of the vector and kind of what’s interesting about doing this.

And I do think ownership is one of the key things. Although, frankly, I think part of what defines human society and progress is how we stand in regards to relationship to each other: How do we find each other, our identities? How do we ally? How do we form groups in societies and corporations and teams? And how do we work together and collaborate together and live together? All of these kinds of things.

And so, one might kind of go to ownership of I own X versus How do we relate to each other?

If you look at what I was saying as ownership as a sophisticated [concept], it’s because I think that ownership plays into how we relate to each other. So, it’s individuals together as per this first book sort of view, I to the We or I am the We as a way of looking at this. And that’s the nuances around the ownership of Web3 and the kind of innovation and experimentation and efforts that I think will be … We’re just in the first inning of it being super interesting.

CY:
Now, obviously, one side of the concept of ownership is the kind of innovation that you’re talking about. The other side is the phrase “Greed is good.” And obviously, greed is one of the seven deadly sins that you use as your seven deadly sins investing framework, which made you one of the most successful Web 2.0 investors, certainly. And Joshua Brustein again asked about these seven deadly sins, saying, “Using this framework, it seems pretty likely that if we look back at the mature Web3 a decade or so from now, the original sin would be greed.”

Given the amount of financial speculation in and around this movement so far, do you see that as a problem? (So, I guess the question is, is the original sin greed? And if so, do you see that as a problem?)

RH:
So, there are three kinds of detailed points to that. So, one of the reasons why I started kind of giving this talk to MBA students and i-bankers and everyone else is because so much of the investing discussion was like, What’s your customer acquisition cost. What’s your operating margin? What’s your kind of predictable revenue? And a bunch of other things. All of which, of course, are deeply relevant and important in business.

But when you’re doing the invention of these new ecosystems, these new networks, these new marketplaces, all of that is important. Obviously, you get to incur mature value, but that’s not actually where you start. And when you start is what resonates with a large number of people and how they interact with each other. And so, I use this to kind of wake people up to make them think about it. It wasn’t kind of saying, “These sins are awesome. Hurray, sins. I wish we had 10, not just seven.”

But this question is the reason why they’re identified as original sins is because they’re things we all grapple with. They’re deep in human nature. They’re our appetites or our reactions. And the things that get to breadth have that tie, that reflex.

Now, the second part of it, and this is, of course, part of the reason I wrote the Knight Foundation essay, was to say that actually, in fact, always the goal, I think, in more humanist entrepreneurship was how do you transform them? How do you take that initial hook and then get it into something that’s better for society, better for the individual? That’s part of the Theory of Moral Sentiments is like, “Look, by being greedy, we are being of service to each other.”

Even though I’m trying to make a whole bunch of money – maybe even more money than you and competing with you – I do that by offering products and services to you that you can voluntarily purchase and that by doing so, create an evolution, both of society and the creation of value, but also, my interaction is how do I better serve, provide service to you, in order to interact.

And so, then the third point. Of course, when I was giving these talks about the seven deadly sins to various students I would say, “What’s LinkedIn?” And I would say, “Greed, because it’s the economics.” It’s the question of, How do I double my salary? How do I make more money? And what are the ways that I can do that? And it wasn’t, of course, that I actually think that only a minority of people approached LinkedIn going “Greed”, with dollar signs stamped on their brains, but they are looking for economic fulfillment, and so forth.

And actually, in fact, that drive is part of what makes a whole bunch of economic progress in society. Like, how do you get to pay for education? How do you get to pay for medicine? By creating productivity that allows us to invest in having unique specialists who can be paid for and other things.

This is part of the reason why back when humanity was mostly working on the fields, you didn’t have this. The only people who can afford doctors were those of nobility or the really expensive kind of merchant kings and so forth. Whereas once you get a whole bunch of activity, we can now have doctors for more people. And that’s part of progress in society. And so, greed starts that, but it transforms to a how do we make essentially a nobler society.

So, now, to answer the question. You say, “Well, I do think, of course, with all speculation, I mean, of course, one of the deep original sins in the hook is how do you make a bunch of money?”

Now, I think one of the things that’s interesting when you look at Web3 is you can almost categorize projects. I’m always supportive of entrepreneurship, but the ones that are missionary, the ones that are like, “The world’s better off this way, you may agree or disagree with our particular mission, but this is trying to change them and still maybe make them much money?” and the ones that are purely like, “How do I make a bunch of money?”

Now, that doesn’t mean that one’s good and one’s bad. There’s different kinds of tempos and goals and other kinds of things and shapes and who works on the project and what’s coming out of it. But I think that all of that creates new infrastructure.

So, for example, you say, “Well, is financial infrastructure good for the working mind of a modern society?” And the answer is absolutely, “Yes.” Then you say, “Well, do people go into banking? Are they like, ‘Hey, I’m doing a 501(c)(3), this is my thing.” It’s like, no, no, a lot of people go into banking because they’re like, ‘Oh, I like being close to money. Money is the thing I like to do.'” That’s obviously greed.

But obviously, when you sublimate it, when you transform it, and [think about] the theory of moral sentiments into other things, that becomes what’s good.

Now, obviously, the challenge of where we are here, is this is the very early thing and there is a whole bunch of wild speculation. And some of it will be even probably fraudulent or misleading or bad in some direction. And we’ll want to prune away from that and get to the good things. But we also want to make sure that we’re always targeting what’s the good outcome here.

Like a little bit of when people say, “Stop that,” okay, that you may be right stopping that. But by the way, if all you do is go around and say, “Stop that, you’re not shaping a good future,” that should always be part of, “More of this less, of that. This is the future we should be building towards.”

And so, I think that it’s a moral imperative upon all of us who are builders, shapers, critiquers, commentators to say not only, “Okay, not that, sure, fine, that’s the only thing you have,” dialogue, but also “This is the positive. This is the thing we should be heading towards.”

And so, yes, a bunch of speculation, yes, some of that speculation is really bad. But yes, let’s build some new kind of instruments of value and a banking system that helps bring the financial part of our society to a new level.

CY:
I think one of the things you wrote in your Knight Foundation essay that really struck me is the fact that it is not easy to do what you just described; to convert these base human sentiments into something of value. And I think one of the things you wrote, which is really important, is that it takes hard work.

You said, in retrospect though, “What I didn’t sufficiently factor into my seven deadly sins heuristic is that the seven deadly sins are an enduring index of human behavior. Precisely because there’s so much gravity in the behaviors to encapsulate, effectively converting grassroots engagement and advocacy or envy and empathy isn’t a quick or easy task. It takes persistent hard work.”

Because the work is hard, that means there’s risk. The work also has costs that you as a platform developer could conveniently sidestep if you’re catering to or even just passively benefiting from people’s negative emotions and appetites. Your economic term returns will likely be lower.

And so, I think that again, it comes back to the Theory of Moral Sentiments. This is a moral choice that people need to make. It is not purely an economic choice. We are going to choose something that may be even slightly negative economically but will be more beneficial to society.

RH:
Yeah, and I thought the Knight Foundation, which is kind of focusing on all of these internet communities and much of other things in the design, the basic design of the internet had a bunch of luminaries, like Tim Berners-Lee, would say, “What now might you have learned or known that you would have liked to have done early in the internet?” And the reason this is my offering to that aghast group was that, “Look, I was right about the sins. I was right about the transformation. But I underplayed how hard it was.”

And so, starting earlier and identifying what the tool sets are for that transformation is the thing to do. And then, I offered some of the ones that we learned from LinkedIn. Because at LinkedIn, we were doing this effort from the very beginning.

So, it was kind of like, “Okay, how do we at LinkedIn say, ‘Well, you’re making some money from advertising and you can try to get people to spend time on site.’” No, no. At LinkedIn, our tempo was always time saving, not time wasting. Because time saving is better for your economic things. So, the whole thing is for every individual and groups to better control their economic destiny.

And of course, this got us for years [the idea that] LinkedIn is the boring one. LinkedIn is the one that I don’t know what to do. And the answer is because actually, in fact, we’re just trying to be helpful when you’re actually, in fact, trying to solve real work and real work problems. And one work problem is looking for a job. One work problem is looking to recruit. But other work problems are finding sales or finding advisors or finding people to collaborate with or finding co founders, and all the rest or someone to give you advice. And we wanted to make all of that much more easy and direct.

And so, we were always working on the transformation. And we just got around later to figuring out one of the key things that I put in the essay, which was that societies and groups are put together by leadership, by role models, by people leading groups. And it took us a while to build the LinkedIn influencers program and to really start focusing on how you make leadership work.

Because I think one of the things that’s in that wild idealism is to say, “Hey, look, should leaders all just be emerging from that Darwinian pack of who gets the most Twitter followers?” And the answer is actually, in fact, who gets the most Twitter followers is not necessarily the best leadership. Following on Twitter is the game, not necessarily on who you should be listening to and what the leadership should be.

And so, putting some effort into defining the institution and structure of leadership, so that leaders direct society in a better way through the structure of the institutions is one of the things that I think is pretty fundamental in terms of how you play this. And that was one of the things that we were slower about. Now, it would be one of the things I would call my younger self and say, “Work on this earlier and get this going earlier.”

And then the other question is more broadly as, “How do you make the terms of this transformation? How do you hook from these the original things into much more valuable things for individuals and society? And how do you build them?”

CY:
And it sounds like, again, if you think about the transformation that’s occurring, you have these technologists, entrepreneurs, and investors Web3, they may be using greed as this hook. But if they are thinking carefully about how they’re actually structuring the things that they’re building and building towards outcomes that are not just purely based on greed, then you can actually use that ostensibly negative emotion or negative desire to power positive results.

RH:
Yeah, exactly that. And it’s kind of a question of, just because you have an appetite or just because you have something that we would describe as a sin or as a negative emotion, it doesn’t mean in itself you’re bad or anything else. It’s a question of what you do with them.

So, example: if you get angry with society and you go out and you serve in a soup kitchen because you’re angry with what’s going on in society, you’re channeling it to a goodwill. If you get angry and you go out and break windows and attack people, then you’re channeling it to a bad result.

So, the fact that you might have wrath, the fact that you may have that impulse isn’t itself [bad]. Buddhist monks will tell you, “No, no, no, you should try to get rid of the wrath itself,” which is not unwise meditation. But if you have it, that is not in itself bad. It’s a question of what you do with it or how you act. And that’s part of the reason why the transformation is so important.

CY:
Now, leaving behind the seven deadly sins for a second, I think one of the other elements of Web3 that Joshua really focused on is the notion of decentralization. We hear it from decentralized ledgers to decentralized finance, or defi.

As Joshua points out, decentralization and democratization ethos has been an element of each of these new generations of digital technology, dot com, Web 2, and today, Web3. So, how achievable is this kind of decentralization? At times, it seems like we’ve back slid towards a new kind of centralization. We have these dominant projects. We have these dominant companies. Is centralization inevitable?

RH:
Well, I think what happens throughout all the history of human society, I think there’s another grand history like Jared Diamond’s or Yuval Harris’ that’s in the stance of centralization and decentralization. And I think part of how we make progress is we got centralization in the cities, and we have farming and so forth. And that allows us to have more human beings and allows us to get what Marxists refer to as surplus labor and other kinds of things to make progress. And we’re not just sustenance as we progress.

And I think some of that comes from various forms of centralization. Technology, by the way, is – and this is the thing that’s fictional here – it’s mostly a centralizing force, not a decentralizing force. But a technology emerges out of centralizing because we’d like, “Well, if we have together a town and we have someone who can now be a tool smith and can be tinkering with tools and making better tools, you can make better plows and you can domesticate cows and dogs and chickens and you can have chicken coops. And that tool cycle is a really important part of this. And that’s part of that centralization loop.”

Now, that being said, part of that earlier thing is you’re balancing between centralization and decentralization because part of it is to say, “Well, shouldn’t we just all then be a command economy and everything stems from one autocratic leader on down?” And the answer is, “Well, we found that that’s a very inefficient system because people don’t feel co-ownership. They don’t feel innovative driving on the thing that they own or want.”

And so, we should be enabling that decentralization and that decentralization is part of what creates an effort meritocracy and an effort at making more talent, and being able to have more amazing results. And obviously, I think our talent aside is to say every person can deploy their talents to their best available abilities in general, and then get some benefit from it. That is, generally speaking, where we want to strive towards, where we want to be towards.

People can create their own business. They can own their own business, can own their own house. They can direct the sum of their own labor. And by the way, then we get to the internet, people can express their own voice. They can build their own new businesses. They can chart different kinds of jobs than the jobs that existed before. You can enable more entrepreneurship.

And all of that is part of what I think is good as you’re getting the decentralization. And obviously, the Web3, when they’re getting to it is to say, “Well, look, part of the reason why there’s been a lack of innovation is because the banks hold on to their kind of oligopoly.” And banks say, “No, no, we do lots of innovation.” And it’s like, “Well, okay, so let’s see what kind of innovation has happened within the payments industry on Visa, MasterCard, and AmEx?” And the answer is almost nothing from within that system. It takes outside parties.

Obviously, it was one of the things we really worked really hard with PayPal back in the day, but everything else in a way to create those new possibilities and new kinds of innovation. And part of that decentralization allows it to be kind of these questions where it allows this decentralized innovation as a way of paying for it, and the question of whether decentralization to allow entrepreneurial innovators is one of the things that’s created a huge amount of value. And so, that’s part of what is always staying.

And part of the reason it’s so hard, and part of the reason there isn’t a lobby for entrepreneurship is because they need to know well, “What are they going to create?” We don’t know. But we hope it’s going to be great. And obviously, you have to navigate that because sometimes it’s not so great. But that new thing – for example, people didn’t necessarily think about Netflix when the DARPA net was created. They didn’t think of eBay when DARPA net was created. They didn’t think about Wikipedia and search. But as it all played out, these all now become part of our everyday lives and how we navigate things.

CY:
I think there’s a certain poetic justice in beginning with Adam Smith’s Theory of Moral Sentiments, and now coming around to really Adam Smith’s Wealth of Nations as we’ve been discussing the importance of these kinds of things.

And one final question, and it’s an opportunity for you to put on your oracle’s hat, if you will. Joshua asks, “How much do you see the current moment in tech with the spike in enthusiasm for the metaverse and blockchain (they’re separate, though obviously, there’s some overlap) as an opportunity to rethink the basic assumptions and architectures of the current digital architecture?

Or in other words, how can we, as you put it in your Knight Foundation essay, both empower individuals and transform the madness of the masses into the prosperity and well-being of the crowd?

RH:
So, a couple of points. One, we’re already in the metaverse. You and I are doing this through Zoom. The internet’s already a version of metaverse. Now, what most people mean by metaverse is things like Neal Stephenson’s Snow Crash or Ready Player One. So, you get to the avatars and the fully simulacrum of the world. And look, I think we will get those. I think we will get those probably first through entertainment versus anything else. And I think that there’s a bunch of interesting things that can come out through the metaverse.

Matter of fact, my very first product management job was for Fujitsu Software Corporation, doing I, which was a two and a half virtual world, so kind of metaverse from the early days. And of course, I was drawn to that in part because of having read Snow Crash and going, “Wow, this is kind of interesting.” Now, Snow Crash itself has kind of a, call it a “mixtopia”, both utopia and dystopia in combination. But it was wildly creative, even today, kind of super interesting.

And, obviously, when you begin to put together items of value where you can create NFTs and create a maker economy and have services of all courts, including digital services, you can begin to interrelate those things. And so, as an opportunity to rethink basic assumptions to build new architectures, that is precisely one of the major opportunities. And so, we should be focused on that as consumers, as investors, as entrepreneurs, as technologists.

And LinkedIn is obviously my own personal hands-on effort on this, although I have also, of course, been delighted to be a part of the founding team of PayPal and one of the earliest investors in Airbnb and everything else. But how you get the individuals in the society both massively better off is one of the reasons why both of Adam Smith’s books are in my highly recommended list.

CY:
Well, I can’t think of many better ways to kick off 2022 than with a look at the future and what we can do to shape it.