The Token Economy: Web 3.0



Introduction

My number 1 bet on the future is the Token Economy.


In 2008, Satoshi Nakamoto released the Bitcoin Whitepaper. This was our introduction to Bitcoin, peer to peer electronic cash that allows online payments to be sent directly from one person to another without the use of financial institutions. Bitcoin is so revolutionary because instead of trusting banks, financial institutions, and platforms to control our payments, we can now use the blockchain to trust anyone on the internet to faithfully validate our transactions.


A couple years later Ethereum was introduced to the public by a man named Vitalik Buterin. Ethereum is the "world's programmable blockchain" that allows anyone to build revolutionary decentralized apps and businesses using smart contracts. Now, people all over the world can create their own tokens and dApps that can change the world forever.


Tokens are an entry in the ledger that belongs to a blockchain address and there are two main types of tokens: Non-fungible Tokens (NFT's) and Fungible Tokens. Non-fungible tokens are simply tokens that represent ownership of unique items. Non-fungible means that you can't directly exchange it for something like it somewhere else. With NFT's anything from artwork to houses to shares in a company can now be represented as an digital asset that is worth market value. Fungible tokens are tokens that can be exchanged because their value defines them. US Dollars, Eth, Bitcoin, Sol, are all fungible tokens which simply means that 5Eth = 5Eth no matter what.


History of The Web

The internet as we know it is entering Web 3.0.


From 1989-2005, Web 1.0 introduced the Information Economy. People can surf the internet, read through webpages, and access more information than ever. The biggest innovation in Web 1.0 was search engines like Google that now allowed us to discover anything we'd like at will.


The start of Facebook took us into Web 2.0, the Platform Economy. With Web 2.0 people can now read and write simultaneously. This created new social and economic interactions between people using the internet. Social Media platforms, Wikipedia, and E-commerce were the main innovations that we saw during this time period. Facebook and Instagram showed us the modern day advertising business model. Amazon, Uber, and Airbnb revolutionized showed us the power of the marketplace business model. In Web 2.0 we gave all of our content, power, and data to large platforms that in return allow us use of an amazing suite of products. However, because of this we do not own anything and are held in a chokehold by the platforms that we use.


Web 3.0 is a backend revolution that replaces a platform's servers with blockchain technology. Web 3.0 gives us the power to execute transactions on the fly in a P2P way using smart contracts. This gives us data sovereignty (P2P networks) over data monopoly (a company's servers) and allows us to create decentralized organizations and products that have completely different incentives than ever before.


Web 2.0 vs Web 3.0

We are not officially announcing our transition into Web 3.0 today but I will give you the backstory.


Our current business model is a marketplace business model that revolves around either seller or buyer side commissions. On the Runway, we take 5% commissions from sellers and on Create we take 5% commissions from sellers and 10% commission from buyers. The pros of this model are that we are directly incentivized to help people make money because if they do not make money, we do not make money. This also allows us to have no upfront costs as people are only charged after a sale. Once liquidity is reached this can be an amazing place for people to find what they are looking for and receive more work. The cons are that higher prices create higher commissions which can make people less likely to transact on high price payments. For example, I wanted Create to hold a suite of development and production partners but this isn't logistical since they would be giving up 5% of $3,000 instead of a creator giving up 5% of $100 which is much less substantial. Another con is the way companies operate now a days. A company is designed to earn profits and as the company grows and reaches an IPO one day, the founding team and the investors get rich. However, the community that is providing value to these people do not get to experience those same benefits. Web 3.0 changes the game and creates new incentives that can benefit everybody.


The token economy can be taught by thinking about Uber for example. In 2010, Uber started their ride sharing initiative in San Francisco. Let's say that instead of paying an uber driver in dollars, we pay them in an Uber token instead. The token supply is deflationary (the opposite of Dollars) meaning that there is a fixed supply of tokens that are confined to the network. Instead of chasing profits, the founding team and investors already own a certain amount of tokens and are therefore incentivized to help grow the network.


Let's think about simple tokenomics. If Miles and I are transacting a token between each other: 1 token could be worth 10 cents. Now, Miles, Rob, Louis, and I are all transacting this same token between each other: 1 token now can be worth 15 cents. Now, all of NYU is transacting this token: 1 token is now worth 50 cents and so on. The concept is that the more value and network effects that the token drives, the more valuable the token becomes.


Let's go back to the Uber example. Back in San Francisco in 2010, Cole wants to take an uber to school and pays the driver in the Uber token. As time goes on, these drivers will be earning more and more tokens. Not only do they benefit from their own work but now they also benefit from more drivers and riders transacting through this token. Now, Uber has taken over San Francisco and is now moving to New York. The more drivers that uber has creates more riders which in turn creates more drivers and so on. Uber grew to 111 million users in 2019. Think about how little the value of the tokens were back in San Francisco in 2010 and how much valuable those same tokens would be today. In Web 3.0 the founding team, investors, and community all can get rich together.


Key Takeaways

Web 3.0 gives ownership directly back to the community. There is no need to chase profits, therefore the commission is reduced to 0%. The more that the community grows, the higher the value of the token. Decentralization creates community ownership freeing us from the chokehold that these big platforms have on us. Finally, this creates all new incentives and business models that can change the world forever.