A16Z Partner Talks to Coinlist Founder: The Core of the Metaverse is Ownership, Meta Will Eventually Become Obsolete

Written by: Tim Ferriss
Compiled by: Overnight Porridge, 8btc

The only people who can own items in the metaverse are giant companies. This is a strange idea; it basically says that only Zuckerberg is allowed to own the metaverse, only he can own the entire metaverse. Why can't each of us have our own room and property in the metaverse? Therefore, those who deny and oppose NFTs and crypto are essentially saying, "We will not own a collectively owned future; we will own a corporate-owned future."

I used to think that what we needed to do was replace Uber, Facebook, and Twitter with primitives that support Web3 and the networks that arise from them. But now I don't necessarily think that way. I think we just need to create something entirely new that we can't even predict or recognize. But eventually, we will shift our attention to these things. So, Twitter and Facebook will still be fine and will continue to exist. But we will focus on these new applications uniquely enabled by primitives like NFTs and tokens.

------ Naval Ravikant, Founder of Coinlist

This content is compiled by 8btc from "The Tim Ferriss Show," hosted by angel investor and popular podcaster Tim Ferriss.

The Evolution and Development Direction of NFTs

Naval Ravikant: We are now entering the core of Web3, which is NFTs (non-fungible tokens). This is something Chris has been working on since day one. Among all the investors I know, Chris was the first to make a significant move into the NFT space and has remained consistent. In fact, I remember when I met him in February of this year; he wanted to discuss nothing but NFTs. At that time, I still didn't understand it, and I thought, "Yeah, whatever, Chris, that sounds cool, a nice toy."

Now I think, "What did you just say?" So I missed the boat on NFTs, but NFTs answered a lot of questions I didn't know before. One question is that a group of people emerged who bought Bitcoin early on and became wealthy in this massive wealth transfer movement.

When we transitioned from fiat currency to some kind of mathematically supported scarce currency, Chris mentioned them as well. So does that mean that those who entered the space from 2009 to 2015 or 2016 would become rich, while everyone else would be poor? No, there is a very interesting saying that has been popular: "Every generation invents its own new Ponzi scheme and rejects the previous generation's Ponzi scheme."

Now we are moving at a faster pace, so the previous generation's Ponzi scheme could be Bitcoin or Ethereum. If you think about what Bitcoin is, it stands up and says, "We reject fiat currency, we reject printing money, we reject kings, rulers, and tyrants; we want a currency of the people." We understood that, and then someone said, "Wait a minute, can you create your own currency? Well, I want to create my own currency."

So everyone stands up and says, "Okay, I have my own currency; don't use your ledger, use my ledger instead."

Just like in the real world, anything popular can hold value; it could be real estate, it could be oil, or it could be gold. It can be every house, it can be every business, or it can be a pair of shoes.

Of course, the vast majority of objects' values will tend toward zero; this may be fleeting, but at least it provides an opportunity for everyone who is "late" to say, "Okay, we can define any object as having value (that we think is valuable)," like the cultural memes we create around bored apes and other NFTs. HODLing is a meme in the Bitcoin community, right? You have to hold your Bitcoin; this term comes from a misspelling of HOLD, and in the NFT world, you hold for emotional value.

If you own Punk 6529 and someone comes to buy your Punk, you won't sell it. This most famous Punk has been used by its owner as a Twitter ID; his CryptoPunk received a bid of about $10 million, but he refused to sell it because it represents his identity. This actually makes it a cultural meme, and now his CryptoPunk might be worth even more. So NFTs are an absolutely fascinating rabbit hole, and I think Chris might be the first investor to deeply recognize them, which can be traced back to his investment in Dapper Labs. These people built CryptoKitties and evolved from there. So, I would love to hear Chris talk about NFTs, like their evolution and their development direction.

Chris Dixon: Yes, obviously I am very excited about NFTs. I think they are very broad, a bit like what I call primitives. As you understand, it's like the key building blocks of the internet. The internet went through a process—most of the problems I mentioned earlier are that you can only build in an open way, and many problems, frankly, I think come from advertising. In fact, we didn't have native payments and tokens, which forced people to do what Google wanted; they wanted a digital closed loop before crypto, and you could only achieve that through advertising.

So we built this huge infrastructure, and the internet is now driven by banner ads and search ads and similar things. This is great for some companies, but it is often terrible for creative people. Yesterday someone tweeted a great line: "Web2 companies convince you to give up your creations for little hearts (likes). But yes, please tell me how NFTs are a real scam."

Surprisingly, they convinced all these people, "Oh, Instagram, what did they pay? Zero! Facebook, zero! YouTube, 50%, right? Apple, just because users own the phone, they take 30%."

Do you know how many businesses can't survive when you take 30%? It's a bit crazy that we endure all this. So now, as you said, put NFTs aside and look at what's happening in something like Substack? This is a newsletter platform where you can access it as a writer and have people subscribe to it. It's a relatively simple, very elegant idea, but the interesting thing you see now is that writers who might have made $100,000 or something before can now make $1 million a year. You see a lot of people saying, "Hey, this shouldn't happen. We were told the internet was bad for creatives."

The internet is not bad for creative people, but Web2 is bad for creative people. I just saw some statistics promoted by Spotify the other day; they have 8 million artists, of which 14,000 earn $50,000 a year, and the rest earn less. Basically, with such income, life is very difficult. By the way, I'm not blaming Spotify. A lot of money goes to record companies, and I think Spotify is a good company; it's just a logical issue with the model. Then there was an artist named 3lau, who I think is only moderately known on Spotify, and he made $11 million by releasing an NFT.

You might say that this $11 million is just a bubble; if he only made $100,000, that would be transformative. It's the same with Substack. So now you have this very powerful new way where these creatives could previously monetize very poorly through banner ads, and now they can create all sorts of interesting things. We have art, we have utility, we have… NFTs are also a broad concept, so I think you'll see all sorts of interesting experiments, and I really encourage people to get involved in these communities to understand them. For example, I would buy NFTs on Foundation, which is one of our investment projects; it's a high-end NFT art platform, a curation platform.

I think in the future, we will see more and more utility use cases. The current games are really interesting; I don't think the world has seen this yet, but I will tell you that our company has a gaming team, and these people come from Riot and Blizzard, and I think they are almost 100% going to be involved with NFTs. They are at the forefront, especially the next generation of young people, and there will be a lot of interesting things; these will be real utilities.

I believe NFTs are a concept as universal as web pages. Think about websites; when they first appeared, people would say, "Oh, this is a website!" They tried to map it to the offline world; it was like a brochure. But as we've seen over the past 30 years, all the smart people came in, and they innovated. A website? It's not just a website; it's a social network, it's a SaaS tool, and NFTs will be just as broad.

This is a core new concept: the idea of owning something on the internet. Another way I like to think about it is, imagine every time you go to a hotel or restaurant, they say, "Oh, you have to change your clothes and buy a new outfit." This is how the internet operates today, and then when you leave, they say, "Hey, you have to give that back to me." Then one day, someone walks by and says, "No, you can take it with you."

Imagine the number of innovations this would spark; this is what is happening on the internet. We used to have this design of rented territory, and now we are just breaking it down, so people will say, "Oh, this is a bubble."

But I don't think so; I think this is the beginning of an incredible creative journey over the next 20 years, and I believe that deeply.

Tim Ferriss: Chris, I would love for you to talk more about games because I think NFTs in the gaming environment are easily understood by many people, even if they don't play games. But many applications make sense to me. So I mean, you can talk about anything you want, right? For example, what does something like YGG mean? Because it's so interesting to me—and "interesting" is a lazy adjective—it’s eye-opening and exciting.

Chris Dixon: So what is the model for today's video games? It is the dominant model, and although new technologies have emerged, the old ways still exist. So buying a video game like Madden, you pay $60 or something; this business model still exists, and companies like EA do this. But now there are new, more modern companies, perhaps the best being companies like Fortnite and Supercell, Clash Royale, and League of Legends.

The model these companies use is that the games are completely free; you can play forever, and the only thing you have to buy is skins or something like that, so you can't buy items that let you win because people think that would ruin the integrity of the game. So everything is just to look cool, but this is a $40 billion industry, just for virtual goods. By the way, NFTs are the same.

But those virtual goods are locked in the game, right? And when you buy virtual goods, all the money goes to the company. But in games like Axie Infinity, you are not buying goods from the company; you are buying them from some investor, it's more like peer-to-peer, right? It's more like eBay and Craigslist, you're buying from another person. In the case of Axie, there are hundreds of thousands of people playing this game, many of whom live in the Philippines and rely on this game for their livelihood. So they do a lot of different things; people call it grinding.

You play a bunch of stuff, and then they might improve the NFTs, and then other wealthier people buy these NFTs from these people, and the company only takes about a 3% transaction fee instead of all the money. That is, the protocol takes a lower fee, but in exchange, you get a very cool, vibrant economy. So this game really exploded; it has about 2 million active users. By the way, this game is not in any app store because it was banned by Google and Apple, yet it still has such a large user base.

I think Axie may have truly inspired a lot of things. And the YGG you mentioned is an independent company; we are actually investors in it. Its full name is Yield Guild Games, and it is essentially what we call a DAO, but fundamentally, it is an online software organization where people can essentially get Axie loans so they can play it without having to pay upfront costs and then earn money. It's like a guild model in gaming; people come together, join the same team, but suddenly, you can have some real money, and people can rely on this for a living. So I think this is the future of the gaming industry, and many next-generation talents see this and are excited about it.

Tim Ferriss: Thank you, Chris. Naval, do you have anything to add?

Naval Ravikant: I mean, both of you mentioned a very interesting and subtle point that might be worth clarifying, which is that many people, when they first see NFTs, their reaction is, "Well, I can just right-click and save this JPG; how can this thing have value?" Then you both gave examples of how these things have value. The simplest answer is, "Yes, I can copy any piece of art, right? That doesn't mean I own the real art; it still has provenance, and the art itself still has authenticity."

For example, the Bored Ape Yacht Club project, suppose we are building a metaverse, and we are building a 3D virtual space. Of course, we don't want it to be Zuckerberg's 3D virtual space; we want it to be an open metaverse. Well, if I walk into two rooms, one room has authentic Bored Ape Yacht Club art with real photos of Apes or CryptoPunks on the wall, and my software tells me that. Then I walk into another room filled with fakes and replicas, and my software immediately tells me these are all fake. Where do you think the cool kids will want to hang out? Where will the rich kids want to play? Where will the lines be?

Thus, NFTs provide actual value in authentication; they allow you to create a metaverse and distinguish between space A and space B, but that's just the simplest level.

You also gave examples that in games, NFTs are a smart contract, something that can be used in the game. If I have a special loot or a special item I picked up in a game, and then the developers or the same group of users go to a second game, I can transfer my NFTs, and they will have some value, while a right-click saved JPG has no value. Finally, Tim, the example you gave of NFTs can also be a social contract between the NFT creator and NFT fans, so it gets a ticket for future rights, while the fake ones don't have this functionality, or it can give holders priority access to the artist's future works, and so on.

I love Chris's web page example. Because web pages are programmable; web pages can do anything; they are complete; they can run any piece of code. Therefore, we have these essentially complete programmable objects that suddenly become scarce; you can own them, transfer them, link them to the real world, and link them to the digital world through smart contracts.

Essentially, the role of the blockchain is to allow open combinability and programmability among all these objects in the digital domain. If Bitcoin can have value, if Ethereum can have value, then theoretically, as long as the social contract's smart contract and the community executing it have value, NFTs can have value. Of course, most of them won't have value, but some of them will.

Tim Ferriss: Chris, I want to ask you a question. You previously mentioned a word, skeuomorphic, and you have written before that one of the most common mistakes people make when evaluating new technologies is focusing too much on doing old things better, so as we see, many people are trying to copy and paste Web1 or Web2 into Web3. I hope you can spell this word and then give some examples of skeuomorphic design, and if possible, give some examples of Web3 native applications or just illustrate possible cases.

Chris Dixon: I remember this is a term Steve Jobs used; he used it to refer to visual design. Do you remember the original iPhone had an app that looked like a book? So the concept in design is to take something from the real world and use that design to make it look more familiar in the online world. I don't know; for some reason, my colleagues and I started using this term internally about three or four years ago. I'm not sure if we invented it or enabled it; I mean, it was transplanted from the design world.

But we always use it to signify an idea. So when you look back at early films, early films looked like plays, and then over time, films developed their own new grammar, right? This happens with every new technology. For example, early websites, right? They looked like brochures and magazines, and then people said, "Wait a minute, you can do new…" which is what we call native things, like having a social network that can be a two-way medium. So I think it wasn't until the mid-2000s that people really started exploring "native" web experiences; I believe the best investment approach is to develop native things. So this is a concept we often use internally. People like to use blockchain for supply chain management or offline tickets; I'm glad to see entrepreneurs in various fields doing this, and I respect all entrepreneurs, but I think these are all skeuomorphic ideas. They may work, but in ten years, people won't be talking about them anymore, right? It will be something new, NFTs. So let me give you a very cool project example called Loot, which we had never heard of before; Loot is a game like that.

Tim Ferriss: Yes, the creator of Loot seems to be the creator of Vine as well.

Naval Ravikant: Yes.

Chris Dixon: Yes, Don Hoffman, he is a genius developer and product designer who created this thing called Loot. So what is Loot? Basically, it’s some cards with elements like Dungeons & Dragons on them, with some words, and those themselves are NFTs. But the cool part is that it inspired a whole community of people to build around it; it's like Ernest Hemingway didn't write a book but just wrote the first page of the book and then let the community add the next page, right? That's what Don did; he wrote, "This is its beginning; now let your imagination run wild." By the way, Loot won't have a standardized game; there will be a hundred different things built on top of it, all within the Lootverse.

This is a tapestry made up of creative people who are adding different building blocks to this new structure. This is just a very profound new way of thinking about building games; these are very simple new building blocks, and it is this simplicity that makes them so powerful. This is just an early experiment, and there will be more cool experiments like this. Loot doesn't have millions of users, but the people who love it are the best product designers in the world, so I think this will be a moment. Naval, do you remember del.icio.us and Flickr? During that time from 2003 to 2005, all the core Web2 primitives emerged.

Naval Ravikant: Yes, the emergence of Flickr sparked Pinterest.

Naval Ravikant: Yes, your skeuomorphic idea goes even deeper. Like when you look at a basic computer, we use a desktop computing model; it has a desktop, files, folders; this is skeuomorphism from the physical world that helps people reason about how to use something through analogy. In fact, I made a big mistake early in the history of blockchain; I used to think that what we needed to do was replace Uber, Facebook, and Twitter with primitives that support Web3 and the networks that arise from them. But now I don't necessarily think that way. I think we just need to create something entirely new that we can't even predict or recognize. But eventually, we will shift our attention to these things. So Twitter and Facebook will still be fine and will continue to exist. But we will focus on these new applications uniquely enabled by primitives like NFTs and tokens.

Chris Dixon: I think this line of thinking is correct. I mean, people are still using Microsoft Office; it still exists, and the internet hasn't gotten rid of it, right? I think these are just layers upon layers. I also agree that value is created in cool things and will be created in native cutting-edge things.

Naval Ravikant: At the boundaries.

Challenges Facing Web3

Tim Ferriss: I would recommend a book and a movie; you might laugh at me for this. First, I recommend the book "Snow Crash," which is an incredible book, and then you can watch or rewatch the movie "Ready Player One." Of course, I don't think some aspects of it are imminent, but I think many things are happening faster than people expect. Over the past few months, I have been deep in the rabbit hole, yet I still want to ask, what are some weaknesses or challenges related to Web3?

For example, I remember buying some NFTs, and then someone suggested I share them online, so I asked, "Wait a minute, if I share them online, then people can effectively see my bank account filled with a certain amount of assets, all of which are stored on the blockchain."

Then their answer was, "That's your own bank."

But I asked again, "I'm not sure I want to be 100% my own bank; in some sense, there are many good reasons people use external banks, right? They don't want to stuff gold bars and cash into their mattress at home and deal with security issues."

Naval Ravikant: I've been to your house, Tim; I think your home security is pretty good.

Tim Ferriss: Yes, my security work is indeed well done, but the question is, what challenges are there? Sometimes I think, "Well, do I want Amazon to see my entire purchase history, or do I want the entire internet to see my entire purchase history? For me personally, the answer might be Amazon."

I want to hear your thoughts.

Naval Ravikant: For me, security is a big issue. I have been supportive of crypto for a while, and I have to be very careful to move all my investments into custodians and funds so that I don't have to hold anything directly. You can hand it over to a custodian, and then there will be a multi-signature that requires multiple people to agree to move certain things. Or set time delays where you can't transfer for six months or a year, etc. So there are some measures that can help us mitigate these security issues.

The industry has been slow to make progress in this area, which makes me uncomfortable, but it is happening. But I think you can also maintain anonymity in various ways. We mentioned Punk 6529; it is a purely Twitter identity, and people do not know who the holder is in real life, but he has been seen as an excellent NFT collector and curator. You can also create new wallets instantly, and the software is getting better and better. So you can actually make each purchase from different wallets, which may be hard to trace because there are enough ways to anonymize it, at least to the public. Or if you can use something like zero-knowledge proofs.

So, these issues will be resolved, but they are problems that exist today. When anyone can mint, hold, and easily move NFTs, it will be a happy moment, but many of the so-called alpha opportunities in the field will also disappear.

Tim Ferriss: Yes, Chris, do you have anything to add?

Chris Dixon: Yes, I agree with that. I think one point closely related to security is usability and how to make everything easy to use and secure. I think everything will be solved, but I agree with Naval that these are not done yet. For me, the biggest challenge in this field may be the messaging around it; I think there are many misunderstandings surrounding it, some of which we have caused ourselves, by the community, which makes many people react negatively to crypto and Web3, and I think this may also lead to excessive regulatory actions. What we are trying to do here is just explain these ideas, and to ultimately persuade people, they need to decide for themselves whether to delve into it. I have been working in this field for 8 years, and I have never encountered someone who is very knowledgeable about the field and also skeptical of it, never.

Naval Ravikant: Yes, if you are deeply skeptical about the idea of owning digital assets, then you—

Chris Dixon: You haven't understood it, yes.

Naval Ravikant: This means you are a denier of the metaverse because if you look at "Snow Crash" written by Neal Stephenson and almost anywhere the metaverse is described, you will find the concept of "property" in the metaverse. Clearly, some people own property and have jurisdiction over that property. For example, this is my room; these are the items in my room; I can move them around as I wish; I can control who comes in and out of this room. When someone tries to sit on my metaverse sofa, I can control that. So all this programmability comes from ownership.

"The only people who can own items in the metaverse are giant companies" is a strange idea. It basically says that only Zuckerberg is allowed to own the metaverse; only he can own the entire metaverse. Why can't each of us have our own room and property in the metaverse? Therefore, those who deny and oppose NFTs and crypto are essentially saying, "We will not own a collectively owned future; we will own a corporate-owned future."

Ironically, the best profession in 2021 was to be a JPG collector, and I thought too late. The best profession in 2020 might have been to be a DeFi farmer; it's crazy, but the world is evolving so fast, adapting so quickly, and the frontier is in the crypto space; it is digital. If you have an innate curiosity about these things, your moment will come. In fact, ACE participants and YGG participants may find that the best profession in the future, the best profession currently, may have to revolve around gaming, just playing games in a specific way at a specific time, which is good news for all gamers.

Tim Ferriss: Yes, I want to read two paragraphs from the blog post "Climbing the wrong hill":

"The current mountain is very tempting; humans have a natural tendency to want to move upward with each step. He ultimately falls into a common trap emphasized by behavioral economists: people tend to systematically overestimate short-term returns rather than long-term returns. This effect seems to be stronger in more ambitious people, whose ambitions seem to make it difficult for them to give up nearby upward steps. People early in their careers should learn from computer science: when you find the highest hill, don't waste time on the current mountain, no matter how good the next step may be."

I read this article because after focusing on Web3 in recent months, I found myself a bit late; it's like the national anthem before the race starts. And I've never seen so many high-IQ, ambitious, capable people abandon anything they are doing, in many cases very attractive things, and then spend all their time on Web3. I've never seen anything close to it; this is not a trickle; it is certain that in all my time working in technology, I have never seen anything like this. At least this means it is worth a close look.