Episode 77 of the Public Key podcast is here and we have a new look. With the crypto market far from its bull run peaks, the conversations about the metaverse, NFTs and cashing in on crypto have quieted down. In this episode, we bring in best selling author and co-founder of Blockchain Research Institute, Alex Tapscott to talk about his new book, WEB3 to discuss where the industry is now and where it is going.
Public Key Episode 77: Web3 could the economic and cultural unlock for generations to come
The evolution of the internet from the read only web1, to interactive web2 of social media platforms like Facebook and Google, all the way to web3 where the emergence of decentralization and the absence of intermediaries and the exploration of intelligent autonomy.
We have come a long way and in this episode, Ian Andrews (CMO, Chainalysis) talks with best selling author and co-founder of Blockchain Research Institute, Alex Tapscott to talk about his latest best selling book, WEB3 and the misconceptions about the internet’s next economic frontier.
Alex and Ian dive deep into the topic of creator ownership, the balance between privacy and transparency in Web3 and the untapped potential of the Metaverse.
Alex explains why he is optimistic about the future of Web3 adoption and the global impact it has in underbanked and underemployed regions and the need for every company to think about a Web3 strategy.
Quote of the episode
“Technology doesn’t have any moral agency. It’s not right or wrong or good or bad. It is a tool that is used by humans and it’s how we use it that determines whether and what kind of impact it’s going to have.” – Alex Tapscott (Author, Web3: Charting the Internet’s Next Economic and Cultural Frontier)
Minute-by-minute episode breakdown
- (2:18) – Alex’s inspiration behind writing the book and the need to demystify web3
- (5:08) – The evolution of the internet from web1 to web2 to web3
- (9:20) – Balancing commercialization and the focus on ownership in web3
- (14:06) – The potential market size for web3 and how big is the creator economy
- (21:25) – Implementation hurdles for privacy and transparency balance in web3
- (27:02) – The future of the Metaverse and its impact on the future of the web
- (33:12) – Acceleration of web3 implementation at the enterprise level
- (35:45) – Examples of web3 adoption in countries all over the world
- (38:18) – The relevance of Web2 companies in the future and who will capture value in the next cycle of innovation
Check out more resources provided by Chainalysis that perfectly complement this episode of the Public Key.
- Website: Alex Tapscott: Wall Street Journal Best Seller of book, WEB3
- Amazon Books: Web3: Charting the Internet’s Next Economic and Cultural Frontier
- Article: Harvard Business Review: Web3 Could Change the Business Model of Creative Work
- News: New York Post: Using the power of Web3 to create the Internet we always wanted
- Podcast: Bloomberg Businessweek: A Guide to Navigating the Next Internet Revolution
- Podcast: Breaking Banks with Brett King:Episode 510 – Future of Money and Web3
- Blog: Eastern Asia: Do Recent Hong Kong Developments Signal More to Come for China and Region at Large?
- Blog: OFAC Sanctions Network Involved in China-based Manufacturing of Fentanyl and Other Drugs, Highlights Related Cryptocurrency Addresses
- YouTube: Chainalysis YouTube page
- Twitter: Chainalysis Twitter: BuildCareers at Chainalysising trust in blockchain
- Tik Tok: Building trust in #blockchains among people, businesses, and governments.
- Telegram: Chainalysis on Telegram
Speakers on today’s episode
- Ian Andrews * Host * (Chief Marketing Officer, Chainalysis)
- Alex Tapscott (Author, Web3: Charting the Internet’s Next Economic and Cultural Frontier)
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Hey everyone. Welcome back to another episode of Public Key. This is your host, Ian Andrews. Today I’m joined by Alex Tapscott, who is author of a new book, Web3, Charting the Internet’s Next Economic and Cultural Frontier.
Alex, welcome to the program.
Happy to be here.
I got an advanced copy of the book. By the time this podcast publishes, it will be available for purchase and I’m going to make a recommendation just here at the top. Hopefully it doesn’t embarrass you. Everyone that’s in the space thinking about the space or wants to get into Web3 should go and buy and read this book. I really enjoyed it.
What a great way to start off the podcast. Thank you very much. I agree.
I don’t want to bury the lead. You cover a ton of ground. You also managed to do something that I think is really hard to do in print journalism and particularly in books, is you’re running through topics that are very timely, like things that happened even all the way up through this summer. Maybe we can start out with what inspired you to write this book? This is actually your second book in the space following 2016’s hit that you, I think co-wrote with your father, Don. Why this book? Why now?
Well, I started to think about writing a new book back in 2020-21 just as the DeFi Summer was kicking off, and there was this renewed interest in the industry as a whole. Now for people who don’t know, I’ve been at this for some time. I started in the business in 2015 when I started to learn about Bitcoin and started writing about Bitcoin. And that research and writing and stuff that I did at the time led to the book that you just described, Blockchain Revolution, which I co-authored with my dad. They say better lucky than smart. That book came out in 2016, right at that perfect time when probably a lot of people who were listening to this show first started to pay attention to this, and for a lot of people it was their first book and their first entree into this space.
So fast-forward a few years and all of a sudden the industry is much, much larger than it was. When we wrote Blockchain Revolution the value of all crypto assets was 8 or $9 billion. If it was a publicly traded company, it would’ve barely cracked the S&P 500. It was kind of a rounding error. And now after many years, the industry had grown really significantly in many different ways, both in terms of the technology and the functionality, but also the value of the asset class, but also the way in which it was being thought about and used by big enterprises and other kinds of organizations. And I felt that there was a need to explain what the heck was going on. And then 2022 happened and we saw the collapse of several big companies that are in the space, and that actually really hastened my sense of urgency to write a book about this.
I find that there are a lot of common misconceptions about Web3 that have been hard to demystify, and I felt there was an opportunity to try and just really wipe the mud off the windshield and provide a very clear picture of what this is and what it isn’t and why people should care. They should care because this is the next era of the web, but it’s also a new era of the internet. This is something that I think a lot of people should care about.
I couldn’t agree more. My experience is shorter lived than yours. I joined chain analysis in January of 21 and my first year in the space was kind of up only. And it felt very much like, wow, I’ve joined at this incredibly fortuitous time where this emerging technology is going to disrupt and kind of rewire the global financial system in a way that could be incredibly beneficial to people. Now obviously 2022 played out quite a bit different than that. I think you do a really nice job in the book of not avoiding the missteps of companies like FTX, but actually embracing that and talking about why the ecosystem still matters. Why is Web3 important despite all those challenges?
Yeah, absolutely. I mean you have to kind of address the elephant in the room right off the top. I think that there are a lot of people oftentimes like leaders of the old paradigm or old media power brokers who look at the collapse of FDX as kind of proof that all their concerns about Web3 and crypto were valid. They’ve always said that this is a technology that makes it easier for people to gamble and speculate and makes it easier for criminals to avoid law enforcement. In actuality, you can blame the collapse of any specific company, not on the underlying technology, but on the missteps or even the hubris of the people who are wielding it. I mean, technology doesn’t have any moral agency. It’s not right or wrong or good or bad. It is a tool that is used by humans and it’s how we use it that determines whether and what kind of impact it’s going to have.
I agree. I think back and you do a nice job of kind of charting how we got to Web3 from the early days of the internet and the book. One of the things that’s always struck me is the internet was really a government project to start, and there was very clear prohibition around commercialization in the early days. And in Web3, it feels like everything is commercialized. Even some of the words like tokenomics being at the core of a new project launch, “Oh, we’ve got to get the tokenomics right.” It’s sort of this distribution of future profits in some way.
I’m curious your perspective on are we getting the balance of this wrong? Is it too much about the money and therefore it invites in the type of individual that leads to creation and then ultimate collapse of some of the companies we saw fail in ’22?
Yeah. Well, I mean you have to chart the course of the web all the way back to its very beginnings as you said, which is actually as a project that was funded by the US government to build a communication network that could stay up and running in the event of a Soviet nuclear attack. See, at the time, all telecommunications were running through one central hub. So if that hub got knocked out, then we wouldn’t have been able to send launch codes to all the different places.
But it wasn’t until the 1990s that the web actually became this commercial tool. And Web1 one was the early web where information was kind of presented on static websites and it was pretty limited in its functionality. Think dot coms for people who are old enough to remember. I am barely, I’m a geriatric millennial, so I do remember a time before the web, the early 90s, it was a simpler time, but barely.
And then we got Web2 which introduced all these new capabilities; interactive elements, collaborative apps, social media, and we also saw the rise of some huge tech companies. Web2 got a lot of things right itself. It brought immense economic gain to companies and shareholders and people benefited from that. It definitely improved global connectivity. We’ve got billions of people connected to the web now. And in many cases helped to lift marginalized voices, but it also had some very, very big downsides. Advertising became the Web’s big business model. Recommendation engines were programmed to keep people hooked, which led to extremism and misinformation. These things got so big, they became kind of choke points for government surveillance, which has occurred in the states to a lesser extent. But in China, the big tech giants have become an arm of the communist party.
The other thing to your earlier point about disrupting finance is that in many ways they kind of enriched financial intermediaries with actually relatively little innovation. Because we didn’t have a way to move value peer to peer in a digital medium, we still had to rely on traditional banks and other middlemen. The other thing too is that they sort of lent themselves to these natural monopolies where certain companies became dominant in individual fields. And in the case of say, the operating system world, that means a 30% levy on users, developers, companies who are trying to launch businesses, which is actually harmful to entrepreneurship.
So now we’re on the brink of this new web, the Read Write Own web, and own is the operative word here. This new web puts users in control with ownership of assets, data, content and creative works, art and collectibles, things that they might create that are valuable. In the book I talk about these four principles of Web3, and I’m getting back to the point you made, which is that ownership, so we get that, governance, if you own something, you might have a say in how it’s run. Identity, the idea that you can have control over your data and decide how it’s used. And commerce.
The thing about Web3 is that it’s a commercial medium. The web liberated information, the first era of the web, this Web3 sort of liberates value, liberates assets. Because it’s a medium for value above all else, of course, all of the things that we launch are sort of an inherently kind of transactional or commercial in nature. I actually wrestle with this exact issue in the book quite a lot, which is that all things being equal if you’re an internet user and you have the opportunity to use an application, but also to earn a share in it, because as a user, maybe as a power user, regular user, whatever, you are contributing to that thing becoming valuable. If you’re a user of Uniswap or Liquidity provider, you are helping to improve the functionality of that service, so you get to own a piece as a result. So all things being equal, shouldn’t ownership be good?
But the flip side is that what we seem to have happening in a lot of early iterations of Web3 is a preoccupation with ownership or this idea of putting ownership above all else so that what ends up happening is when something new launches early users come in more like mercenaries then as users to try and capture as many token rewards as they can. And when those token rewards become less interesting, they move on to the next thing. They’re not interested in owning something that they happen to be using, they want to just own it and then sell it or move on. So I do think that that is an interesting challenge, but to me that’s sort of the way to think about it. It’s an implementation challenge. It’s not a problem with ownership being bad.
How could owning something be bad? How could earning something from contributing to it be a bad thing? It’s a matter of how those systems are designed. I think that this last cycle has probably taught a lot of hard lessons, which is that the things that are still working really well in defi and to a lesser extent, gaming and Web3 are things that provide some underlying service that’s very useful, whether it’s a decentralized exchange or a game that people actually want to play. Having those components are necessary, I think, to making ownership work. So it’s almost like ownership is a necessary but not a sufficient part of anything becoming really, really valuable. And I think that’s something that we kind of already know from the real world. So I agree with this as an important question, but I think that there is an answer to it.
Maybe it’s simply a sequencing where make money shouldn’t be step one. There actually has to be a product or a service that someone enjoys or render some utility or value before the economics of the system are necessarily decided and the future profits are doled out via locked up preissuec tokens. But maybe not shifting gears a little bit, one of the topics that I think traces through the book is this idea that Web3 is distinct from web one and two in that it really enables creator ownership. And you know what? I’m not very artistic, couldn’t draw to save my life. I’m kind of like a mediocre writer, really just corporate writing, so can’t play music. So I hear that and conceptually it makes sense. I want the people who are creators to be successful, earn value for whatever they make. But I wonder the balance of creators to consumers. I see myself personally as being a consumer almost exclusively maybe barring this podcast.
Well, you’re creating right now. Don’t sell yourself short.
I realize that I was like, well, maybe the podcast is an exception here, but it’s always struck me that of the 8 billion people on the planet, it’s a relatively small percentage of people that are creators. And so when I hear the Web3 is for the creators to then own the created works or participate in that creator economy, I wonder, are we catering to a small audience or am I thinking about this wrong?
I love that question. I thought about the question of what’s the total adjustable market for Web3 before? And I think that we’ve seen it grow, so we should be humble in any predictions that we make, but maybe this is something that appeals to a really big part of the population, like say 400 million people or 800 million people. And that number is not just something I pulled out of a hat. It’s like in the book I talk about console gaming. So before free to play gaming came along and people started gaming on their phones, like playing video games. There was sort of like a ceiling on how many people were willing to go out and spend $500 on an Xbox and buy a bunch of discs and play with controllers with buttons they had to learn, right? It’s a huge market, bigger than Hollywood, but not every human being on the planet.
And sometimes I think about how important is ownership really to people? It could be huge. It’s 10, 15, 20 times bigger than it is today just in the short term. That’s my view. But does it in five years or seven years, are we capped that at half a billion people? By the way, if you’re a Web3 entrepreneur, you should be licking your chops. That’s a huge market, but maybe it’s not everybody. My personal view is that eventually everyone will interact in some way with this technology, and in some ways it might be more active. And then other ways it might be more passive. You might be sending money to your kid and studying abroad and you’re using a stable coin and you don’t even know it or something like that. But for the active Web3 participation, maybe it’s a smaller number. When it comes to creators specifically, I think it’s also a really interesting question, which is that you’ve got to get creative people to also embrace this toolkit as a way to earn more money for their creative works.
Now, a lot of that is just again, an implementation challenge of creating a user interfaces and experiences that people can use very seamlessly, but you also have to get them onto that kind of a platform. For most of human history, technology has been a huge tailwind for creators. Before the industrial age, the way that any decent creator got paid was through patronage. You had to have some wealthy patron who’s willing to support your work. Technology made it so that you could sell your stuff to a mass market, whether it was a record or a CD or a song on the radio or a lithograph or a novel printed by printing press, you needed these tools in order to reach a mass market. And so the 20th century was almost like kind of a golden age for creators. And now technology seems to have a bit more of a spotty sort of track record.
So the internet, for example, the first era of the internet, which encompasses Web one and Web2, kind of took this thing that was an asset, whether it was a record or CD or a piece of a whatever and turned it into this free commodity. It was run through the printing press of the web. And so then we got a whole new set of intermediaries, platforms that sat in the center and basically acted as the distribution channels for all art and creative work, TV, film, music, and so forth. Now, the upshot of all that is that creators get paid less than they ever have before on sort of a per unit basis. And there’s very little transparency into how their work is being monetized. So it’s clear to me at this point that culture needs a new business model. And the way that we get there is with the Web3 toolkit, we need a way for artists to be able to monetize their work, to track how it’s used, especially with the rise of large language models and other AI tools, like how is IP and other content being accredited?
We need new ways to fund creative ventures. And I think NFTs and token launches are a really fascinating way of doing that, especially for underrepresented communities where maybe there isn’t a big capital market to fund those kinds of ventures. And we need new kinds of digital artifacts to be able to sell to fans as a way to broaden the audience or the addressable market for creators. And I think if you want art to thrive and if you want culture to remain relevant and for creators to get paid, then you need to figure out a way to allow them to grow with technology or to allow technology to be part of the solution and not the problem.
Yeah, it’s a good point. It kind of reminds me of Kevin Kelly’s essay A Thousand True Fans where you don’t need to have a billion people follow your artwork or read your book of poetry. You just need a thousand true fans. And that likely supports supports your endeavors, which is…
If a thousand true fans pay you a hundred dollars a year, you’re there.
As a creator, if that’s what you really want to do.
And the internet has made reaching those thousand people easier than it’s ever been before. And I think Web3 probably gives you a venue for connecting to audiences that maybe otherwise you wouldn’t have. We actually, the last week’s episode of Public Key, we had a charity who’s trying to tackle some of the challenges of ocean plastic pollution, and they’re launching an NFT collection in order to try and connect with a new generation of concerned supporters of their program, but kind of an alternative fundraising mechanism, which I think is a pretty interesting thing/
Well, I mean there are lots of great examples of this, and what’s interesting about Web3 is that these things seem to work better when people are feeling more optimistic about the value of assets, which is again, another thing that’s just so fascinating about Web3, but if you look at the Ukrainian War in the early days of the war, the Web3 community raised millions and millions of dollars in aid that went directly to the Ukrainian military. So Volodymyr Zelenskyy said, in the early days of the war, I don’t need your tweets or your posts, what I need is ammunition. Well, in the case of Web2, the way to be an activist was to post something inspirational or to show your support or to change your avatar to a Ukrainian flag, which is all maybe useful, but it’s not answering the call to arms.
And what’s interesting about Web3 and this asset class is that literally those people were putting guns into the hands of the Ukrainian people. And what was also really interesting about that particular example was that the army itself was actually asking for crypto because look, you’re being invaded. What are you going to do? Send it to the bank? What happens when the Russian army rolls into town? So this was a way to have the money and resources you needed while also the benefit of self custody and the ability to take it with you. So just kind of a fascinating example of how the strange and unintended and kind of amazing consequences of technology, that just being one of many examples.
I am curious how you think about privacy and anonymity in Web3. One of the beautiful things I think about what’s been built in the context of public blockchains is transparency. We can suddenly see where all the money’s going. We don’t need to take the Ukrainian’s word for it. We can actually see the funds being transferred to them and have some sense maybe even of where they’re then using those funds to support humanitarian relief or military operations. But it seems like we also struggle with the concept of privacy a little bit in Web3. And maybe this falls in the category of one of your implementation details where we haven’t quite figured out the right model. What do you think?
The solution is privacy for the individual, transparency for the system, and that’s the balance that we need to strike. So transparency for the system is we have this open public forum platform where we can see who sent what to whom and for how much and for what purpose. But we don’t know who the whom is in this context. And I think that if we can create greater transparency at the network and market and system level, then we’re going to be able to have an economy that runs better and is more, because it’s more transparent, is going to be more trusted. But that doesn’t mean trading away privacy for the individual. And so I think that in many respects, blockchains kind of do this roughly speaking, but there are some limitations.
I mean, there’s a lot of sleuthing going on where you can kind of figure out who’s sending what to whom. And then there are other instances where maybe you can’t and that’s a problem because the person sending it might be a criminal or something like that. So the latter one is harder to figure out, but I think that if we can manage to capture that balance, then we’re building a system that’s going to work a lot better for sure.
Yeah, it’s a topic we cover a lot on this show and obviously we’re doing some of that sleuthing after the criminals here at Chainalysis, but-
Well, you guys are amazing. We haven’t even talked about Chainalysis. I will, because it’s one of, it’s a tab on my Chrome browser right now.
Well, thank you. I saw a couple mentions in the book, which was exciting to see us called out in print. The thing that struck me is that initial implementation of blockchains completely transparent, but that’s obviously not ideal for a lot of transactions. And so in lieu of privacy, the feature was described as anonymity. Well, hey, everyone can see transactions in and out of a given wallet, but they don’t know that’s Alex’s wallet or Ian’s wallet, so it doesn’t really matter. You’ve got transparency and anonymity as a replacement for privacy has kind of been the state of implementation, but it turns out that anonymity is not really as solid as it was maybe advertised to be or thought at one time to be. And so now you’ve got this gap, which seems like it’s an implementation hurdle.
I’ve talked to a number of people in your old world of traditional finance who are like, yeah, we love the benefits of instantaneous settlement and removing some of the kind of legacy intermediaries that exist in the financial system. Replacing that with modern technology is great, but we can’t be in a position where everybody can watch our activities because it eliminates our opportunity to profit. And so we need privacy to be layered on this. And it feels like there’s a lot of people working on this. You have a whole section on zero knowledge proofs is one area, but I feel like that’s the next wave of innovation that maybe brings on another tranche of adoption.
I agree. There are lots of use cases where it doesn’t matter whether there’s some record and there’s others where not only anonymity, but privacy is essential. I mean, I think privacy in general, the bias should always be towards privacy, maximum privacy. I mean that’s a right that’s enshrined in many different constitutional democracies including Canada and the United States, like a right to privacy, a right to unlawful search and seizure, a reasonable right to privacy I think is how it’s actually defined in the US. So that doesn’t mean an absolutist view, but it means in general we should try and figure that out. And then to your point, from a business perspective, as a practical matter, yes, you need to be able to obscure who’s sending what to whom for all sorts of very valid reasons. So again, I think that you look at the key building blocks of Web3, and what I find really interesting is that there’s a bunch of different technologies kind of converging at once that together are helping to shape the Web3 era and blockchains are the foundational technology of that.
But there are others, and in the book I talk about AI and IOT and extended reality, and there’s a whole chapter on the metaverse, but even within the blockchain sort of ecosystem, things like zero knowledge proofs are I think this key building block that are currently being implemented, but once fully deployed are going to completely expand the opportunity set of ways in which this technology can be used. And I think that it’s not a reason why, the fact that today, the transparency is a concept that has flaws is not a reason that blockchains and Web3 are a bad idea. It’s just an implementation challenge to be overcome, as you said.
Yeah, I’m glad you brought up the Metaverse. I was going there next. Anyway, I was a little bit surprised you actually had a chapter on the Metaverse in the book because it feels like we went from peak metaverse to no one wants to associate with it. The concept is in the deepest trough of disillusionment that I’ve ever seen, in Gartner Hype cycle terminology. But you actually seem pretty optimistic on the future here, and you interviewed a number of people who I got that takeaway from as well.
Yeah, well, so I think from the outside looking in, a lot of successful technologies look like overnight hits. I think a lot of people are like, whoa, isn’t AI great? Chat GPT, this is amazing. I think what they fail to realize is that we’ve gone through multiple AI cycles dating back to the 1960s. So these are all overnight success stories that are decades in the making. When it comes to the Metaverse, it’s true, the Metaverse is kind of an amorphous term that I think encompasses lots of different component technologies. But to me, the big one is basically is the way we’re going to interact with the web going to change fundamentally from two dimensional to three dimensional. So if Web one was the two D web, literally like a desktop, you’ve got a website, Web2 is sort of like the 2.5D web, you’re still looking on a flat screen on your smartphone, but it is integrated into your natural world.
Like Uber, your calling is a satellite, it’s getting a car, it’s coming to meet you. So there is a spatial component. And so the question is will Web3, will the next era of the web be a fully spatial web? Will the hardware interface for the internet change and hardware interfaces change regularly. We went from mainframes to mini computers to PCs to smartphones. So what’s next? I think there is a really important question here about what is next. The question is if Apple’s New Vision Pro and the next era of headsets really do bring this to the mass market, what is that going to mean from a practical perspective for an internet user? The fact that we wear a headset and we can go visit a Metaverse environment that’s curated and controlled by a company like Facebook to me, doesn’t feel like a great leap forward.
It just feels like a spatial version of Web2 where you’re still beholden to all the rules of some company and all of the economic value, more or less accrues to them. So I interviewed Yat Siu, the founder of Animoca Brands for the book, and I think is probably the smartest person in the world on this subject.
Basically, so I’ll use his quote instead of my quote. He said basically that vision, Facebook, is interesting and it could be really fun, but fundamentally it’s just a virtual Disney world. It is not a new plane of human existence. It’s not a new immersive shared reality. It’s a virtual reality. It’s a closed system. And so if we think that if we want to the web to reflect the values of Web3 and for that to extend into the spatial realm, then we need to ensure that the metaverse abides by the same kinds of rules or the same kinds of rights. And those rights are, simply put, the right to ownership of digital goods, the right to commerce, the ability to transact freely and the right to a reasonable sense of privacy or control over your data. So if we can apply those things to the spatial web, then we will have created a Web3 Metaverse that I think is going to be a really fun and interesting and dynamic environment rather than just some three-dimensional Web2 experience.
I am definitely putting my name down to buy one of those Apple Vision Pro devices, by the way.
Yeah, me too.
They look cool.
They look sick. There’s a cord to a battery pack because of the weight, the next version, but it’s like the next version we’ll get rid of that, I’m sure.
I didn’t buy iPhone one, but I think ever since the 3G version of the iPhone, I’ve had every version of an Apple device since then, but the Vision Pro seemed remarkably different to me. And I own an Oculus, and I kind of agree with your assessment there. The hardware’s not quite there. The experience is very much a walled garden. It’s not different than what you get on an Xbox or a PlayStation in terms of what you can really do with the platform, but I’m optimistic on the Vision Pro for sure.
Yeah, absolutely. And I think that it’s, again, there’s nothing so powerful as an idea whose time has come. I mean, I remember when Nintendo had a virtual reality headset in the mid nineties, I can’t remember what it was called, not the Game Boy, it was like The Game Pal or something, and it was awful. I mean, how many times have we gone through the virtual reality hype cycle, the augmented reality hype cycle, or the AI hype cycle, or the Web3? We’re in a trough of disillusionment, I think a little bit now though I would argue that it’s a trough that’s not being experienced equally by everyone. I think that what’s interesting is that people become fixated on the price of tokens and for good reason. Because if ownership is part of the user experience, then what the thing you own is worth is part of your user experience, so you should care about that.
But at the same time, what we’re seeing right now, in my opinion, is almost like an acceleration of Web3 implementation at the enterprise level in a way that I think is very different than what we saw before. And what we saw before with blockchain implementations, and I know this firsthand because we interact with dozens of enterprises on a regular basis, was this sort of blockchains can solve everything. And we got to just, we’re going to do some proof of concept about changing the way we do things. And usually those things didn’t get beyond a pilot stage because it’s very difficult to reinvent your business from the ground up. But what’s a lot easier is that if someone says, here’s a new toolkit, and if you can open up this toolkit, inside you’re going to find a bunch of really interesting useful tools, and you can use these in your existing business today to reach new customers or create new products and services or open new markets.
And you can start small, but it’s meaningful. It’s not paying lip service to innovation. You’re actually trying this stuff out. And we’ve seen that, and I actually think NFTs have gone through different cycles, but the fact that they created a way, a marketing tool for a lot of traditional kinds of businesses to experiment with Web3 in a way that I think is going to have long lasting impacts. That could be Nike, for example, with Artifact or DOT Swoosh or LVMH with its Tiffany’s by Crypto Punks collaboration or whatever it is. And then the other thing is that some of these technology tools have gotten to a critical mass where they’re now starting to be meaningful for big companies. I think Stable Coins is a really good example of that where people look at PayPal entering the stablecoin world and think, oh, the big payments Giant has come into the market.
And in a way they’re correct in the sense that there are 25 million merchants using PayPal and hundreds of millions of users, but the actual business of PayPal is not much bigger than Tethers Business. Tether actually makes about the same amount of money if you believe their attestation reports and so forth, just from the nature of their business model, which I won’t get into here. But what’s interesting to me is everyone’s like, oh, the institutions are coming. PayPal is coming. It’s like, yeah, but does PayPal stand a chance against the biggest player Circle and Tether? What’s it going to do exactly, that’s going to make it bigger and better than Tether, right? So I don’t believe that, but I’m saying we’re in this sort of interesting period where the stablecoin market is so big that Visa is announcing that it’s going to do stablecoin settlements on Salon or PayPal is doing its own on the Ethereum network, whatever it is. So we’re seeing this stuff happen in real time, and we’re also seeing it happen in public blockchain ecosystems on that infrastructure, which is another thing that I think is really important.
Yeah, we talk a lot about the stablecoin adoption trend. I think people talk about tokenization of real world assets, and you can’t get much more real world than dollars via stable coins. We just actually published, and I don’t know if you’ve had a chance to review it yet or not, but the start of our annual global crypto adoption index.
Have you released the results?
We just published last week, the first blog on it, which covered the index.
Oh, okay. So I must have missed that because last year’s is in the book.
Exactly. So it’s updated.
In the introduction of the book. We say data changes so quickly, so consult the latest sources, in the footnotes, and of course, Chainalysis is a source. So just a little plug through there. So what is the latest ranking state?
Well, so India is number one.
Not surprising. Now can you talk about the methodology? So it’s not just total number of people, it’s got to be like a heat map of sorts of adoption.
We try and control for per capita income in order to pull out some signal from the noise and really look at grassroots adoption. And so if you just look strictly at dollars in cryptocurrencies, you’d end up with the US as number one in all the permutations, which is not incorrect, but probably not as interesting. In this report India is at the top of the list, but the top 10 was really dominated by countries across the greater Asian, Southeast Asia, south and Central Asia region. And I was curious in your research, what do you think is driving that? You touched on the global south crypto adoption phenomenon a little bit in the book. What is that coming from in your opinion?
Well, partly I do that to dispel rumors, because there is a prevailing rumor that this is a play thing that tech bros in the States and Canada and elsewhere used to gamble and stuff, which is not actually true, and chainalysis has done the best work in the world on this to actually say, let’s just take a pause and actually look at the data. So that’s number one, which is like bust the myth. Number two is there’s a much more interesting thing that’s happening right now. Silicon Valley, I say this in the book, Silicon Valley used to be called a technical Galapagos because of the unique kind of blend of capital and talent and universities and government RD and big companies and VC investors and so forth, that led to the unique breed of species that went on to found the big internet companies. And even though the web was invented in Switzerland by Tim Burners Lee, it was really dominated by the states, commercialized in America.
And this time, to your point, they’re still a leader obviously, but it is a little bit different. Technology tools and capability are more distributed than ever, but there’s still big parts of the world where people are underutilized, underemployed, underbanked, where they lack access to some of the tools that we all take for granted. And so if the web of Web one and Web2 made it easier for people to access information and to share content and to collaborate online, then I think that Web3 empowers people with a much more powerful toolkit. A way to earn money, to store value, to build wealth, maybe even potentially in a way that is accessible to anybody with an internet connection and a smartphone, which still isn’t everybody, but it is about 75% of the population. And in certain countries, like in Southeast Asia, it’s almost all of the population.
So there’s sort of this sweet spot, and I’ve looked at your rankings and I’ve thought about them a lot, where it’s like Mali and Djibouti and Chad and Sudan are not the top of the rankings because they’ve got bigger fish to fry. There’s bigger problems than doing Web3. But if you’re in Venezuela, Ukraine, India, Thailand, the Philippines, Vietnam, you’re probably fed with a shelter and a smartphone, but you maybe don’t have access to financial services in the same way you’d like to, or you have a way to store value in US dollars, or maybe you’re someone who’s underemployed and sees the world of Web3 as a way to earn extra income. And I think all of those are really interesting examples of why I think that this time is different. I think that Web3 is happening everywhere to everything all at once to paraphrase the film.
And that’s something that’s really exciting to me because it means that in my travels, I get to see how this is happening all over the world. I mean, I have so many examples of this, but I was in Istanbul and giving a briefing for the Association of Banks in Istanbul. So all the biggest financial institutions in Turkey and the executives of these banks are way more sophisticated and way more knowledgeable about stable coins and crypto and stores of value. And they all own these assets and everything because they live in a country where the currency is hyperinflationary, where there’s capital controls, where people are used to coming up with creative ways to protect their wealth, and where they’re maybe more willing to explore new tools to do that. I don’t think like that and necessarily, or I do, but people where I live don’t necessarily think like that, and it’s always just a good reminder that there’s a big, big world out there.
Yeah, yeah. We’ve had guests on the program previously like Ray Yusef who’s doing a tremendous amount of work in Africa and has created a foundation called Built with Bitcoin, which I think is driving some of the adoption. We’ve had the founders of Busha, which is the largest exchange in Nigeria, and they touch on a lot of the things you just mentioned, like access to capital, strict capital controls, difficulty accessing foreign finance. All of those challenges seem to be pushing people into greater usage of cryptocurrency as a means to level up and not be subject to either corrupt or financially unstable insolvent local governments.
The other thing too is that that’s an argument that we’ve heard before and it’s now actually a reality. And I think what’s so interesting to me is that, look, there are lots of people who live in parts of the world where the local currencies are unreliable or where the government is corrupt. And so to them, Bitcoin is this thing that really resonates with them like Gold does. And I think Venezuela is a great example. I have a podcast, and my most recent guest was a co-founder of a company called Leadin, which is basically a company that provides financial services to people who are holders of Bitcoin and Ether, and he’s Venezuelan. And he said, my mom was mining Bitcoin before I was because this was a way to convert energy, which was abundant, into dollars, which were scarce, right? But I think for a lot of people, they don’t want a volatile thing, and that’s okay.
We have the technology that allows us to back tokens with real world assets, and to me it’s like the number one thing, the number one financial utility every single human being in the world wants is a way to store US dollars. The number two thing they want is a way to invest US dollars. And I think that’s a whole other sort of frontier. The stablecoin enabled financial services in Defi that give you a way to earn a reasonable rate of return or invest in new projects or what have you. It’s incredibly exciting and it’s also one of those things that’s going to play out in these parts of the world as much there as here and maybe even more so.
Amazing. Well, maybe to wrap our conversation, which has been fascinating, where do you see all this going? We’ve touched on, there’s a lot of implementation details that are still getting ironed out. The adoption is still really in its infancy in some ways. What should we expect on the five to 10 year horizon, which I know is hard to project in crypto, but I feel like if anyone can do it might be you.
Well, they say the future is not something to be predicted. It’s something to be achieved, which is a great line that allows me to weasel my way out of this question every single time it’s asked of me. It’s hard to make those kinds of predictions, and it is early, and it really depends on what metric you’re using. How many people use Defi? Well, it’s probably less than 10 million. How many people are active users of Meta Mask? Well, that number’s 30 million. Okay, so that’s a bit bigger number. How many people own crypto assets? Well, at least 45 million just in the United States. And the number I think according to you guys is closer to three or 400 million people around the world. But does owning a stable coin or Bitcoin as a store of value or an investment asset really make you a user of Web3? Or is it just your sort of entree into that world? So I just think we’re either extremely early or we’re medium early, but either way, we’re early.
And so I think that probably as with other areas of the web, this is going to be a technology that becomes foundational for business, that every company is going to need to have a Web3 strategy. According to a recent ranking, half of all Fortune 100 companies already have a strategy that may have also been a Chainalysis report. I can’t remember. I’m just going to give you credit for every data point that I can pull out of my head.
That’s right. Any fact you heard on this podcast
You better be right about these things. That’s all I can say. But I think as with other technologies, and it’ll take time, and I think there are some areas where there are clearly early adopters. I think a lot of financial payments companies who are on ramps into this ecosystem are way ahead of the curve. Obviously companies like Block and PayPal and Stripe and others, and it’ll take a lot longer for other companies, but eventually you’re going to need to have a Web3 strategy. So I think that, this is kind of a cliche, but I think in the future, a lot of people will be interacting with this in a way that they don’t really necessarily know that they’re using blockchains or Web3 tools. There is a billion people who use console games. The market cap of Roblox is based entirely on robux, a virtual asset. People are spending, according to one estimate, a hundred billion a year on virtual goods. They don’t even own.
People are already comfortable buying virtual assets. They just don’t want to own them apparently, or they don’t know that they can. So I think there’s actually all these really kind of easy low hanging fruit on-ramps to get people to embrace these technology tools. And I think that if anything, that’ll be sort of the way in which we interact with it. It’s not going to be a new web where we forget about the old web. It’s just going to be an added layer that gets put on top. I mean, it’s so interesting. People are like, does this mean this is not to change the subject, but what does this mean for Web2 companies? It’s like, I don’t know, but I’m sure they’ll be around, and I’m sure they’ll still be making lots of money, and I’m sure they’ll have lots of customers, but I think that they’ll be less relevant just in the grand scheme of things.
In the same way that Dell and Compaq and HP and IBM and companies that have dominated previous areas of computing and technology, they’re still there. They’re not going anywhere, I don’t think, but they’re just, that’s not where the value capture happened. The value capture of Web2 happened on platforms. So where’s the value capture going to happen the next cycle? Web2 platforms are still going to be around, still going to be, people will still connect on Facebook and they’ll still search on Google, and they’ll still consume content on Netflix, obviously. But those companies are not going to be where the next 5, 10 trillion of economic value gets created. I think they’re going to become mature legacy players that have missed or will probably miss the next wave of innovation.
I agree with all of that. I can’t wait to see it play out. Alex, what’s the best way for folks to follow along on this journey? Where can we find you online?
Yeah. Well, Twitter’s probably the most active at Alex Tapscott, but I do post a lot on LinkedIn, and you can learn more about the book and everything I do at alextapscott.com. But the best way to find out about the book, of course, is to go on Amazon.
That’s right, and everybody should go, out by the time this podcast publishes. The book will be available for sale. You can get it on Amazon or your favorite bookseller. It’s called Web3, Charting the Internet’s Next Economic and Cultural Frontier. Alex, thanks so much for joining us on the podcast.
Yeah, It’s been a pleasure. Thanks you.