Read Write Own – Chris Dixon

Read Write Own: Building the Next Era of the Internet by Chris Dixon
Date read: 5/12/24. Recommendation: 9/10.

Regardless of your views on web3, blockchain, and crypto, this is worth reading. Dixon discusses how the internet evolved, the pitfalls of big tech, and the three types of networks—protocol networks, corporate networks, and blockchains. As he explains, just as internet startups undercut the high prices of traditional businesses, blockchain networks expose the soft underbelly of corporate networks: high take rates. While the future won’t unfold exactly as he details, the book is a useful exercise in challenging ourselves to consider if there’s a better way. One where builders and creators reap more of the rewards from our work and our content, rather than being exploited by large technology companies. Remember, “If it’s free, then you’re the product.”

Check out my notes below or Amazon for details and reviews.

My Notes:

Networks are the killer app of the internet:
Web, email, social apps, payment apps, marketplaces are all networks. 

Pitfalls of Big Tech:
How big tech architects networks: “To restrict and constrain startups, impose high rents on creators, and disenfranchise users. The negative effects of these design choices are threefold: (1) they stifle innovation; (2) they tax creativity; (3) they concentrate power and money in the hands of a few.” Chris Dixon

Facebook and Twitter cut off third-party companies that were building apps on their platforms in the early 2010s. No new startup activity takes place on top of social networks and no new startups have survived because the biggest platforms are anticompetitive.

Anticompetitive: “Amazon learns which products in its marketplaces are top sellers and then undercuts their makers with its own cheap basic versions…It would be as if Target controlled not just its store shelves but also the roads that all stores build on.” Chris Dixon

“If it’s free, then you’re the product.”

Network design:
Network design = the way nodes connect, interact, and form an overarching structure.

“Network design determines outcomes.” Chris Dixon

Three types of networks:
Protocol networks: open systems controlled by communities of software developers and other network stakeholders (email, web). Money and power flow to network edges, incentivizing systems to grow around them.

Corporate networks: owned and controlled by companies, instead of communities (Facebook, Uber, Venmo, etc). Similar to walled gardens that are controlled by a single groundskeeper or a cathedral. Money and power flow to the network center (companies who own the networks) and away from users and developers at network edges. 

Blockchains:  Software that governs a network of hardware devices and establishes inviolable rules, solving for problems where all power and money naturally flow to the middle (as with corporate networks), and better align incentives. Similar to a bazaar, rather than a cathedral or walled garden. “They can connect people in social networks while empowering users over corporate interests. They can underpin marketplaces and payment networks that facilitate commerce, but with persistently lower take rates. They can enable new forms of monetizable media, interoperable and immersive digital worlds, and artificial intelligence products that compensate—rather than cannibalize—creators.” Chris Dixon

“Asking ‘What problems do blockchains solve?’ Is like asking ‘What problems does steel solve over, say, wood?’ You can make a building our railway out of either. But steel gave us taller buildings, stronger railways, and more ambitious public works at the outset of the Industrial Revolution. With blockchains we can create networks that are fairer, more durable, and more resilient than the networks of today.” Chris Dixon

“Networks built on blockchains can combine the best features of prior networks, benefiting builders, creators, and consumers and ushering in a third era of the internet.” Chris Dixon

Blockchains:
“Whereas most technologies tend to automate workers on the periphery doing menial tasks, blockchains automate away the center. Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.” Vitalik Buterin 

“Blockchains are a software abstraction that overlay on top of physical devices. They’re state machines. Just as the meaning of “computers” once shifted from people to machines, so too has the term since encompassed not just hardware but software as well.” Chris Dixon

“Blockchains are by design resilient to manipulation. They are built on top of a network of physical computers that anyone can join, but that is extremely difficult for any one entity to control. These physical computers maintain the state of the virtual computer and control its transitions to new states. In Bitcoin these physical computers are called miners, but the more common term today is ‘validators’ since what they’re really doing is validating state transitions.” Chris Dixon

“Blockchains are useful for enabling coordination among people who don’t have preexisting relationships. They are most useful when they are not just multiplayer but massively multiplayer—in broad use across the internet.” Chris Dixon

Encourage bottom-up, emergent economies: “Token rewards are like land grants, incentives given to contributors for various activities. Tokens confer ownership, enshrining property rights. Take rates are like city taxes, fees the network charges for access and transactions. DAOs are like city governments, responsible for overseeing the development of infrastructure, resolving disputes, and allocating resources to maximize the network’s value.” Chris Dixon

“Blockchains provide a sensible organizational structure for networks. Tokens are the natural asset class.” Chris Dixon

Tokens:
“The read era of the internet was defined by the website which encapsulated information. The read-write era was defined by the post, which encapsulated publishing, making it easy for anyone, not just web developers to reach broad audiences. The internet’s latest phase—read-write-own era—is defined by a new simplifying concept: tokens, which encapsulate ownership.” Chris Dixon

“Blockchains represent a radical departure from the status quo. Through tokens, they flip the script on digital ownership—making users, rather than internet services, owners.” Chris Dixon

“In the physical world, people would be upset if they had to start over whenever they visited a new place. We take for granted that we have a persistent identity and can take objects from place to place. The concept of ownership is so deeply embedded in our lives that it’s difficult to imagine how the world would look if that were taken away. Imagine if the clothes you bought could be worn only in the venue you bought them in. What if you couldn’t resell or reinvest in your house or car? Or what if you had to change your name wherever you went? That is the digital world of corporate networks.” Chris Dixon

“The digital world would be a better place if ownership were as widespread there as it is in the physical world.” Chris Dixon

“Tokens have all earmarks of a disruptive technology. They are multiplayer, like websites and posts, the disruptive computing primitives of earlier internet eras. They become more useful as more people use them—a classic network effect that primes them to be much more than mere playthings. The blockchains that underpin them are also improving at a rapid rate, driven by platform-app feedback loops that generate compound growth. Tokens are programmable, so developers can extend and adapt them for myriad applications, such as social networks, financial systems, media properties, and virtual economies. They are also composable meaning people can reuse and recombine them in different contexts, amplifying their power.” Chris Dixon

Rewarding users for constructive contributions to the network: “Blockchain networks use token incentives to motivate developers.” Chris Dixon

“Tokens provide a new way to skip advertising and acquire customers through peer-to-peer evangelism. Tokens empower individuals to become stakeholders in networks, not just participants.” Chris Dixon

Authentic communities are the best way to go viral: “Bitcoin and Ethereal don’t have companies behind them, let alone marketing budgets, and yet tens of millions of people own their tokens.” Chris Dixon

“Blockchain networks bake community ownership into their core design.” Chris Dixon

Disruptive technologies:
“When disruptive technologies debut, they’re often dismissed as toys because they undershoot user needs.” Chris Dixon

This is the reason Western Union passed on acquiring the phone ; they couldn’t understand how rapidly it would improve and how it would serve its primary customers, businesses, and railroads. And the same thing happened with Dell and Microsoft with smartphones. 

Disruptive technologies are also misaligned with incumbent business models. No startup is going to beat Apple at making or selling better phones. “A more interesting startup idea would be something that makes phones less valuable. This is something Apple is far less likely to pursue.” Chris Dixon

Rise of corporate networks:
Early-mid 2000s everyone was building toward an open web with Web 2.0. Communicating through open APIs to improve the internet experience for users. Then the iPhone debuted, smartphones exploded, and power became concentrated with a select few. By 2013 Americans spent as much of their time on their phones looking at Facebook, as the entire rest of the web. Corporate networks shifted from “attract to extract” model, sacrificing interoperability and open ecosystems. It’s a natural progression, companies generally always do whatever it takes to maximize profits. Otherwise, they die.

Composability:
A property of software that allows smaller pieces to be assembled into larger compositions. “The power of composability is that once a piece of software is written, it never needs to be written again.” Chris Dixon

Composability hasn’t reached its full potential because the rules are constantly changing in corporate networks and developers need financial resources to host and run the software. Blockchain networks provide strong commitments that their prices and access rules won’t change. And the network itself covers its own costs by distributing token rewards to its validators. 

“Blockchain networks turn ‘Don’t be evil’ into ‘Can’t be evil.’ Their architecture provides strong guarantees that their data and code will forever remain open and remixable.” Chris Dixon

Take rates:
“Just as internet startups undercut the high prices of traditional businesses, blockchain networks expose the soft underbelly of corporate networks: high take rates.” Chris Dixon

Facebook, Instagram, TikTok, and Twitter share almost nothing with network participants, extracting about 99 percent of their networks’ primary revenue source, advertising. Great for their profit margins, but terrible for creators who provide content without reciprocation. 

“Early network participants create significant value for corporate networks, yet they rarely receive fair compensation for their efforts.” Chris Dixon

Popular blockchain networks (Ethereum, Uniswap, OpenSea) have very low take rates (0.06%-2.5%), allowing money to pass directly to network participants (users, developers, creators). 

“Thick networks claim more profits for the center of the network and create thin complementary layers, with lower profits, for creators and software developers. Thin networks do the opposite, generating less profit for the network core and more profit for complements.” Chris Dixon

“Roads should perform basic functions, but you don’t need them to be hotbeds of innovation…On the other hand, you do want lots of creative entrepreneurs building around the roads: creating new shops and restaurants, constructing new buildings, expanding neighborhoods, and so forth. Roads should be thin, and their surrounding should be thick. Social networks should be thin utilities, like roads. They need to support basic features and be reliable, performant, and interoperable. That’s about it. The rest of the features can be built around the network.” Chris Dixon

“The web developed as a thin network—and look at the results. The network itself is a simple protocol (HTTP), and all the innovation happens on top, at the level of websites.” Chris Dixon

“The broader societal goal should be to build new tech stacks where users, creators, and entrepreneurs are not squeezed but rewarded.” Chris Dixon

Counter arguments:
“A reasonable skeptic might doubt the viability of a specific network or whether the world needs blockchain networks at all. Maybe the internet has enough networks. Maybe corporate networks are sufficient and will keep winning, either because users are too locked in already or because they’ll always outcompete blockchains in areas like user experience.” Chris Dixon

Future:
“In 2007, the big question for mobile was, what kinds of mobile apps would matter? Today the big question for blockchains is, what kinds of blockchain networks will matter? Blockchain infrastructure only recently matured enough to support internet-scale applications. The industry is likely now nearing the end of its incubation phase and entering its growth phase. It is a good time to be asking what a killer blockchain network might look like.” Chris Dixon

“For the internet to be an accelerator of deep creativity, it needs a better economic engine. Creating new jobs isn’t just nice; it’s necessary. As new technologies like AI automate work, social networks can be a counterweight that provides people with fulfilling career opportunities.” Chris Dixon

The Sovereign Individual – James Dale Davidson & Lord William Rees-Mogg

The Sovereign Individual – by James Dale Davidson & Lord William Rees-Mogg
Date read: 1/5/22. Recommendation: 8/10.

Over the past five years, few books have been recommended to me as often as The Sovereign Individual. Somehow I didn’t get around to reading it until now. It’s such a compelling, prescient book—despite having been written more than 20 years ago. The authors detail the transition to the next phase of civilization that’s well underway from the industrial age to the information age. The thesis of the book is that the massed power of the nation-state is destined to be privatized and commercialized. Their assessment of the parallels between the medieval church and the modern nation-state is such an interesting lens to examine history through. And their perspective on political and economic realignment is incredibly relevant to the world that’s unfolding before us today.

See my notes below or Amazon for details and reviews.

My Notes:

“The thesis of this book is that the massed power of the nation-state is destined to be privatized and commercialized.”

Information Revolution:
“The future is disorder. A door like this has cracked open five or six times since we got up on our hind legs. It is the best possible time to be alive, when almost everything you thought you knew is wrong.” Tom Stoppard

The Sovereign Individual explores social and financial consequences of the Information Revolution. These changes will happen within a lifetime, rather than a millennia as the Agricultural Revolution. “When information societies take shape they will be as different from industrial societies as the Greece of Aeschylus was from the world of the cave dwellers.” 

Nonlinearity:
“Reality is nonlinear. But most people’s expectations are not. To understand the dynamics of change, you have to recognize that human society, like other complex systems in nature, is characterized by cycles and discontinuities. That means certain features of history have a tendency to repeat themselves, and the most important changes, when they occur, may be abrupt rather than gradual.” 

The Dark Ages:
“Feudalism in its various forms was not only a response to ever-present risks of predatory violence. It was also a reaction to appallingly low rates of productivity. The two have tended to go hand in hand in farming societies. Each frequently contributed to the other.”

“The ‘Dark Ages’ were so named for a reason. Literacy became so rare that anyone who possessed the ability to read and write could expect immunity from prosecution for almost any crime, including murder. Artistic, scientific, and engineering skills that had been highly developed in Roman times disappeared.”

During the early stages of feudalism, the church played an important role:

1. “In an environment where military power was decentralized, the Church was uniquely placed to maintain peace and develop rules of order than transcended fragmented, local sovereignties.”

2. “The Church was the main source for preserving and transmitting technical knowledge and information.”

3. “Partly because its farm managers were literate, the Church did a great deal to help improve the productivity of European farming.”

4. “The Church undertook many functions that are today absorbed by government, including the provision of public infrastructure.”

5. “The Church also helped incubate a more complex market…construction of churches and cathedrals helped create and deepen markets for many artisanal and engineering skills.”

Paradise lost in the transition from hunter-gatherer to farmer: “Farming was an incubator of disputes. Farming created stationary capital on an extensive scale, raising the payoff of violence and dramatically increasing the challenge of protecting assets. Farming made both crime and government paying propositions for the first time.” 

Parallels between the Church + Nation State:
“At the end of the Middle Ages, the monolithic Church as an institution had grown senile and counterproductive, a marked changed from its positive economic contributions five centuries earlier.” 

Like the Church then, the nation-state today has outlived the conditions that brought it into existence, imposing high costs and consuming tremendous amounts of society’s resources with minimal returns. “Technology is precipitating a revolution in the exercise of power that will destroy the nation-state just as assuredly as gunpowder weapons and the printing press destroyed the monopoly of the medieval Church.” 

“The nation-state will be replaced by new forms of sovereignty, some of them unique in history, some reminiscent of the city states and medieval merchant republics of the premodern world. What was old will be new after the year 2000. And what was unimaginable will be commonplace. As the scale of technology plunges, governments will find that they must compete like corporations for income, charging no more for their services than they are worth to the people who pay for them.”

“The capacity to mass-produce books was incredibly subversive to medieval institutions, just as microtechnology will prove subversive to the modern nation-state. Printing rapidly undermined the Church’s monopoly on the word of God…The Church found that censorship did not suppress the spread of subversive technology; it merely assured that it was put to its most subversive use.”

Protection of life and property:
Increasing the security of property: “Now the dagger of violence could soon be blunted. Information technology promises to alter dramatically the balance between protection and extortion, making protection of assets in many cases much easier, and extortion more difficult. The technology of the Information Age makes it possible to create assets that are outside the reach of many forms of coercion. This new asymmetry between protection and extortion rests upon a fundamental truth of mathematics. It is easier to multiply than to divide.”

History is moving towards the sovereign individual:
“Access creates globalism, and globalism disrupts political systems by making the concept of borders obsolete. As borders disappear, the concept of taxation, which supports governments, becomes increasingly fragile…As borders disappear, the concept of entitlement—the belief that because you were born in a particular place, you are entitled to the economic advantages associated with that place—falls apart, and as it falls apart, the perks of nationhood fall apart with it.” Jim Taylor and Watts Wacker

“Ambitious people understand, then, that a migratory way of life is the price of getting ahead.” Christopher Lasch

Humans don’t mind hardship: “For human beings it is the struggle rather than the achievement that matters; we are made for action, and the achievement can prove to be a great disappointment. The ambition, whatever it may be, sets the struggle in motion, but the struggle is more enjoyable than its own result, even when the objective is fully achieved.”

Taxation:
“This habit of charging far more than government’s services are actually worth developed through centuries of monopoly.”

“This new economic dynamic contradicts the desire of the government left over from the industrial era to impose monopoly pricing for its protection services. But like it or not, the old system will be nonviable in the new competitive environment of the Information Age. Any government that insists upon lumbering its citizens with heavy taxes that competitors do not pay will merely assure that profits and wealth gravitate someplace else.”

“Because information technology transcends the tyranny of place, it will automatically expose jurisdictions everywhere to de facto global competition on the basis of quality and price…Leading nation-states with their predatory, redistributive tax regimes and heavy-handed regulations, will no longer be jurisdictions of choice. Seen dispassionately, they offer poor-quality protection and diminished economic opportunity at monopoly prices….The leading welfare states will lose their most talented citizens through desertion.” 

“Governments in the industrial era priced their services on the basis of the success of the taxpayer, rather than in relation to the costs or value of any services provided. The movement to commercial pricing of government service will lead to more satisfactory protection at a far lower price than that imposed by conventional nation-states.”

Local jurisdictions competing to attract talent:
“In the new world of commercialized sovereignty, people will choose their jurisdictions, much as many now choose their insurance carriers or their religions…Competition will therefore mobilize the efforts of local jurisdictions to improve their capacity to provide services economically and effectively.”

The Bitcoin Standard – Saifedean Ammous

The Bitcoin Standard – by Saifedean Ammous
Date read: 12/11/21. Recommendation: 8/10.

If you’re new to Bitcoin or cryptocurrency and you’re seeking a deeper understanding of this space and why it matters, this is the book to start with. Ammous provides a helpful overview of the history of money which serves to anchor your understanding. His perspective is particularly relevant in current market conditions, as he explains how hyperinflation is a form of economic disaster unique to government money. And money supply management is the problem masquerading as its solution. Even if you’re skeptical of digital currencies, I’d highly suggest reading this so you consider another perspective as you further develop your own opinion.

See my notes below or Amazon for details and reviews.

My Notes:

Bitcoin fundamentals:
Definition: “Bitcoin can be best understood as distributed software that allows for transfer of value using a currency protected from unexpected inflation without relying on trusted third parties.” SA

“Bitcoin automates the functions of a modern central bank and makes them predictable and virtually immutable by programming them into code decentralized among thousands of network members, none of whom can alter the code without the consent of the rest.” SA

Bubbles:
Anatomy of a market bubble: “Increased demand causes a sharp rise in prices, which drives further demand, raising prices further, incentivizing increased productions and increased supply, which inevitably brings prices down, punishing everyone who bought at a price higher than the usual market price.” SA

“For anything to function as a good store of value, it has to beat this trap: it has to appreciate when people demand it as a store of value, but its producers have to be constrained from inflating the supply significantly enough to bring the price down.” SA

Gold standard:
A single, sound monetary unit encourages progress: “With the majority of the world on one sound monetary unit, there was never a period that witnessed as much capital accumulation, global trade, restraint on government, and transformation of living standards worldwide.” SA

Outbreak of WWI in 1914 led major economies off the gold standard which governments replaced with unsound government money. Centralization allowed governments to expand money supply beyond their gold reserves (reducing the value of their currency). 

Prior to WWI, governments were limited by the amount of money they had in their own treasuries. But WWI and shift away from gold standard led to disaster. “The ease with which a government could issue more paper currency was too tempting in the heat of the conflict, and far easier than demanding taxation from citizens.” SA

Relationship between unsound money and war:
Three fundamental reasons that drive this relationship: “First, unsound money is itself a barrier to trade between countries, because it distorts value between countries and makes trade flows a political issue…Second, government having access to a printing press allows it to continue fighting until it completely destroys the value of its currency, and not just until it runs out of money….Third, individuals dealing with sound money develop a lower time preference, allowing them to think more of cooperation rather than conflict.” SA

Inflating money supply:
Average annual percent increase in money supply for US between 1990-2015 was 5.45%. But growth at that rate will double money supply in only 15 years. 

“Hyperinflation is a form of economic disaster unique to government money. There was never an example of hyperinflation with economies that operated a gold or silver standard.” SA

“The problem with government-provided money is that its hardness depends entirely on the ability of those in charge to not inflate its supply. Only political constraints provide hardness, and there are no physical, economic, or natural constraints on how much money government can produce….History has shown that governments will inevitably succumb to the temptation of inflating the money supply.” SA

“Central bank planning of the money supply is neither desirable nor possible. It is rule by the most conceited, making the most important ignorant enough of the realities of market economies to believe they can centrally plan a market as large, abstract, and emergent as the capital market. Imagining that central banks can “prevent,” “combat,” or “manage” recessions is as fanciful and misguided as placing pyromaniacs and arsonists in charge of the fire brigade.” SA

No escaping the negative consequences: “If the central bank stops the inflation, interest rates rise, and a recession follows as many of the projects that were started are exposed as unprofitable and have to be abandoned, exposing the misallocation of resources and capital that took place. If the central bank were to continue its inflationary process indefinitely, it would just increase the scale of misallocations in the economy, wasting even more capital and making the inevitable recession even more painful.” SA

Sound money:
Holds value across time (salability), transfers value effectively across space, can be divided and grouped into small and large scales, cannot be manipulated by coercive authorities. 

Attributes of sound money: durability, portability, fungibility, verifiability, divisibility, scarcity, established history, censorship resistance.

Move from money that holds its value to money that loses its value has significant consequences: “society saves less, accumulates less capital, and possibly begins to consume its capital; worker productivity stays constant or declines…civilizations prosper under a sound monetary system, but disintegrate when their monetary system is debased, as was the case with the Romans, the Byzantines, and modern European societies.” SA

Socialism:
“The fatal flaw of socialism that Ludwig von Mises exposed was that without a price mechanism emerging on a free market, socialism would fail at economic calculation, most crucially in the allocation of capital goods.” SA

Owning and controlling the means of production (acting as buyer and seller) stifles the market, making pricing impossible. “Without a market for capital where independent actors can bid for capital, there can be no price for capital overall or individual capital goods. Without prices of capital goods reflecting their relative supply and demand there is no rational way of determining the most productive uses of capital, nor is there a rational way of determining how much to produce of each capital good.” SA

Employment:
“The normal workings of a free market will witness many people lose or quit their jobs, and many businesses will go bankrupt or shut down for a wide variety of reasons, but these job losses will roughly cancel out with newly created jobs and businesses…Only when a central bank manipulates the money supply and interest rate does it become possible for large-scale failures across entire sectors of the economy to happen at the same time, causing waves of mass layoffs in entire industries, leaving a large number of workers jobless at the same time, with skills that are not easily transferrable to other fields.” SA

Money supply management:
“The fundamental scam of modernity is the idea that government needs to manage the money supply.” SA

“Money supply management is the problem masquerading as its solution.” SA

Digital money:
“As bitcoin’s value rises, more effort to product bitcoins does not lead to the production of more bitcoins. Instead, it just leads to an increase in the processing power necessary to commit valid transactions to the bitcoin network, which only serves to make the network more secure and difficult to compromise.” SA

“Bitcoin, and cryptography in general, are defensive technologies that make the cost of defending property and information far lower than the cost of attacking them.” SA

Severely reduces time + costs of sending money: no issues of trading currencies or settlement challenges between institutions or layers of intermediation. Bitcoin eliminates counterparty risk and “makes global processing of payments and final clearance available for anyone to perform at a small cost, and it replaces human-directed monetary policy with superior and perfectly predictable algorithms.” SA

Bitcoin is also neutral, doesn’t give any country privilege of issuing global reserve currency (and along with that the power to manipulate or inflate).