The Web 3 playbook: using token incentives to bootstrap new networks. 🧵
The killer app of the internet is networks. The web and email are networks. Social apps like Instagram and Twitter are networks. Marketplaces like Uber and Airbnb are networks.
Networks get more valuable with more participants, which is great when they are at scale, but cuts the other way when starting out. This is the bootstrapping problem.
In the Web 2 era, overcoming the bootstrapping problem meant heroic entrepreneurial efforts, plus in many cases spending lots of money on sales and marketing.
Because bootstrapping networks is so hard, it’s likely that there are many networks that should exist—that would improve our collective well-being— but don’t because no one has figured out how to bootstrap them.
Web 3 introduces a powerful new tool for bootstrapping networks: token incentives.
The basic idea is: early on during the bootstrapping phase when network effects haven’t kicked in, provide users with financial utility via token rewards to make up for the lack of native utility.
(This chart comes from a longer blog post I wrote on the topic back in 2017: cdixon.org/2017/05/27/cry…)
Over time, as the network effect and native utility grows, the token incentives taper off and eventually go to zero, and the world is left with a new, scaled network.
There are lots of intricacies about how to design the token schedule and keep out spammers and scammers, which I won’t go into here but is a very interesting topic.
Let’s look at some examples. Helium is trying to create a grassroots competitor to big telecom companies by incentivizing individuals to install networking equipment in their home.
(Btw the idea of a grassroots, bottoms-up telecom to take on the entrenched incumbents is a perennial techie fantasy, and there have been many noble attempts to build it including early Fon and early Meraki/Roofnet. Web 3 might finally make it happen.)
The core problem is how do you get enough equipment installed to get broad coverage while also building out the demand side. It’s a classic chicken-and-egg problem.
Helium uses the power of token incentives to bootstrap the supply side. It’s worked well so far. The network has over 200,000 nodes worldwide. Here’s a coverage map of the US and another zoomed into the Bay Area. (Here’s the full network explorer explorer.helium.com/hotspots)
Another network that’s been bootstrapped with token incentives is Arweave, a decentralized storage network. The Arweave network has grown roughly 12x in the last year. Here’s the growth over the last 2 years. (Full network explorer here viewblock.io/arweave/)
Token incentives are effective, but also far fairer than the centralized Web 2 model. Shouldn’t the people who helped build a network get to own a meaningful piece of it?
I’ve worked in Web 3 and crypto since 2013 and have never worked with a project that spent meaningful money on sales and marketing. You don’t need to spend money on marketing when users are genuine owners, love what they do, and love telling other people about it.
Web 3 allows the users and builders who create networks to own a meaningful piece of them, while also unlocking powerful new tools for entrepreneurs.
**a16z is an investor in Helium and Arweave. None of the above should be taken as investment advice; see a16z.com/disclosures for more info.

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More from @cdixon

2 Oct
How open lost to closed in Web 2 — and how Web 3 can bring open back 🧵
As @alexismadrigal wrote in this excellent essay, back in 2007 it looked like open services would dominate the internet going forward:
theatlantic.com/technology/arc… Image
But with the launch of the iPhone and the rise of smartphones, proprietary networks quickly won out: Image
Read 21 tweets
26 Sep
Why Web 3 matters 🧵
Web 1 (roughly 1990-2005) was about open protocols that were decentralized and community-governed. Most of the value accrued to the edges of the network — users and builders.
Web 2 (roughly 2005-2020) was about siloed, centralized services run by corporations. Most of the value accrued to a handful of companies like Google, Apple, Amazon, and Facebook.
Read 25 tweets
21 Sep
Republished previous tweetstorms on Mirror.xyz (data on Mirror is decentralized - stored on arweave.org) 👇
Blockchains are the new app stores
cdixon.mirror.xyz/brEszs7HBGmEWo…
Going from Web 2 to Web 3 - “Your take rate is my opportunity” cdixon.mirror.xyz/RoizwoGS7sh_5x…
Read 5 tweets
20 Sep
6/ Popular skeuomorphic Web 3 ideas include offline ticketing, supply chain management, and record keeping for offline assets. These may be good ideas, just as read-only websites were a good idea, but they only scratch the surface of what Web 3 can be.
7/ A lot of today’s NFTs are adaptations from the offline world of art and collectibles. This leads people to think that NFTs are limited to those domains, in the same way people once thought the web was limited to brochures and magazines.
8/ Tokens—fungibles and NFTs— are better thought of as new digital primitives, similar in flexibility and generality to past digital primitives like the website.
Read 12 tweets
20 Sep
1/ Tokens are a new digital primitive, analogous to the website 🧵
2/ Major computing waves generally have two eras: the skeuomorphic era and the native era.
3/ In the skeuomorphic era, the design thinking is largely adapted from older domains. For example, the early web was mostly digital adaptations of pre-internet activities like letter writing and mail-order shopping. Websites back then were mostly read only.
Read 4 tweets
22 Aug
1/ Topic: Turning networks into economies 🧵
2/ We spent the last 20 years building networks on the internet. Social media platforms like Instagram, Twitter, YouTube, and Discord are networks, which can be divided into billions of smaller networks, consisting of followers, friends, subscribers, backers, etc.
3/ These platforms gave many people an audience who didn’t previously have one. But due to fundamental structural misalignments between the networks and the companies that own them, we’ve seen increasing tension around these networks’ rules and economics.
Read 18 tweets

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