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I was listening to a good podcast by my friend Nick Moran. USV partner Brad Burnham was on. You might call him “The Silent Beatle” because he is not out front and loud on social media compared to some of his partners.
One of the things USV has done is invest heavily into what’s called Web 3.0. It is essentially cryptocurrency-backed companies. Here are some quotes I pulled. This one tells the difference between Web 2.0 and Web 3.0 so you get a clear picture of what people mean. I bolded the very salient and interesting points.
it probably implies a different market architecture, it probably means that no single vendor is going to be able to exploit control over that asset to build an enormous business, it probably means that there will be a larger number of smaller companies competing to provide services to consumers in a way that will further innovation, and further the interests of consumers. It also presents a bunch of really interesting opportunities to, you know, if you go back to the earlier conversation about the fact that in web two, most of the value in many of these networks is created by the end users. So whether it’s Facebook, or even Google, all of the data that’s created as people interact with that service is what drives the advertising business. So a lot of the value is created by the end users. The architecture of web two, essentially sets up a system where the value is extracted on behalf of a company and its shareholders, not on behalf of the users that create it, the opportunity and the promise of web three is that we can create systems networks, where the value creators, the people that participate in these networks participate in the value they create. And so if you end up using a token to mediate the behavior on a network, and more and more people choose to participate in that network. And as a result, the value of that token increases, then it’s the participants in the network that benefit from that because they’re using the token. And they’re accumulating the token as a part of their interaction with the network. And so I think that the reason we should be paying attention to web three has nothing to do with financial speculation has everything to do with the ability for the value creators to participate in the value that they’ve created.
That last statement drove me to think about the Hackman-Oldham theory of motivation. I had Professor Oldham in a small class back in 1983 fully eight years after he published this theory. I got into a huge argument with him in class because I opined that it was money that drove motivation. He disagreed and relied on his theory. I am sure it was a pain to correct a 20-year-old, but he took the time to do so.
He is correct. He is still correct today and I think he is especially correct when it comes to cryptocurrency. If you want to read the original abstract, here is a link.
For me, the theory hit home trading on the floor. I traded my own money and competed. Nothing is more competitive or capitalistic than that. What was my motivation? Turns out, it wasn’t just the money. It was the ability to determine for myself what I would do each and every day. Basically, I have been self-employed since 1986. For what it’s worth, I did send a note to the professor kindly reminding him of our repartee and asking for forgiveness.
Ponder their theory and then relate it to blockchain/cryptocurrency with Burnham’s last thought, “has everything to do with the ability for the value creators to participate in the value that they’ve created.”
What’s more, the theory they produced was universal and could be applied to any role. They identified the following job characteristics that must be in place to achieve employee satisfaction:
Skills variety: Do tasks vary, and are they challenging? Or are they monotonous and too easy?
Task identity: Do tasks have a defined beginning, middle and end? Without this, it’s hard to achieve the satisfaction of an attained goal.
Task significance: Does the employee feel that their role has meaning?
Task autonomy: Can individuals have a say in how they carry out their work?
Job feedback: Are employees receiving feedback on their performance?
If a job is consciously created to be varied and meaningful, with plenty of two-way communication, the employee will naturally be more engaged with their role. According to Hackman & Oldham, they will also have an increased sense of responsibility for their work outcomes.
They proved their theory with beaver trappers initially which is a horrible job. One group got more money, one group got more say, feedback, and input on how to do their awful job. The second group was more satisfied and successful.
I think Hackman Oldham shows why Web 3.0 can be much more powerful compared to Web 2.0.
What’s my motivation to use the current Facebook, Twitter, LinkedIN, Reddit, or any other Web 2.0 social media platform?
What would be my motivation to use a Web 3.0-enabled Facebook?
For sure there is a financial reason. In Web 2.0, I give them my data and they make money. I get enjoyment by hooking up with old friends and making new friends online virtually.
In Web 3.0, instead of Facebook monetizing, I myself would monetize. I could do it as much or as little as I wanted. But, because it is me creating the value, I get to realize it. That subscribes to the tenets of the theory where tasks have a beginning, middle, and end. In Web 3.0, participants often have a vote in the direction of the blockchain, and a say in governance.
Now, layer in the fact that cryptocurrency uses market-based concepts to underpin the blockchain. There are bids/asks for crypto, so a market can determine how valuable they might be at any given time sending signals to participants.
I think that crypto actually enables, magnifies, and enforces traditional classical economic concepts rather than creating new ones that didn’t exist before.
Here is a chart of Helium ($HNT.X) relative to the US Dollar. You can see it has declined precipitously in value, being down 61% this year. I am long Helium and have been mining it since it first was available to mine in 2019. I don’t particularly care about the current value because I am interested in what Helium has promised to do long term. This chart is interesting for a lot of reasons.
First, it shows the absolute meltdown in cryptocurrency valuations. Big deal. Lots of things meltdown and you have to let that go. Remember, this is about value creators participating in the value they created, not speculation and making money buying and selling.
The former high price of Helium shows a few things. Some of the price action shows pure price speculation. Second, contained in that price action is the belief by the market that Helium could fulfill its promise of becoming a competitor to Big Telecom. If it succeeds, what is the price of Helium? What’s it worth? To whom?
With a miner at home, I have some difficulty with the task. I have to keep my miner up and running. There is a small challenge to it. The task of running a miner has a clear beginning, middle, and end. The rules Helium set down say how you earn tokens through witnessing. Being a part of creating a network that can provide competition to Big Telecom has some meaning to me. I don’t like monopolies or oligopolies and Big Telecom certainly has that. I love competition! I do have some say in how I work. I can choose to be online, or not. I can choose to make sure I have my miner updated, or not. I get feedback from receiving tokens from mining. So, Helium ticks through all the points of the Hackman/Oldham model.
If you are a market participant, what is the market telling you today? Well, Helium is cheap. Participants aren’t adding a lot of value to the marketplace but there are other things going on too. There are certainly reasons for that and it starts with the people at the top of the pyramid setting the direction of Helium. You can scroll through this Reddit thread to see.
Startup companies go through lots of growing pains and Helium is going through that now. The market is telling participants that for sure.
This is one use case.
The true promise of crypto is to change the way consumer surplus and producer surplus are divvied up so the consumer gets more value than they are getting today. Because crypto is software, and the marginal cost of printing “one more” is next to nothing, there is a chance that crypto can solve problems for people in industries and places where it was too expensive for traditionally structured companies to enter and solve.
I certainly see downsides to crypto outside of the pump and dump schemes and the fraud that is taking place now. I think Professor Craig Pirrong made a strong case that a dominant blockchain could create its own unique monopoly with its own opportunity costs and consequences. He has blogged about crypto through the lens of classical economics.
There is no doubt in my mind that if the government regulates heavily, or even lightly, it’s not good for crypto. Even with the fraud and schemes, we are better off letting the industry evolve, innovate, and grow without the long arm of the government involved. My aforementioned people at USV probably would disagree with that sentiment.
I think the best days for crypto are far in front of it. It’s not gonna happen tomorrow and there is a lot of work to be done. The nice thing about meltdowns is that it takes the chaff away from the wheat. The posers all move on to something else. Now the real work begins.
Someone has to create something of value that average people use all the time. It probably can’t just be a mimic of something they currently use because the marginal utility of that and the switching costs are too high.
You will use crypto in some areas of your life and you won’t even know it. In other areas, the motivation to use it will be clear.
I often thought that we would see some innovation in supply chains with crypto giving us a transparent price from raw materials to finished goods instead of a group of accountants determining that price. I am seeing some venture funding into companies in this space. We will see what happens.
As someone fully immersed in #Web3, I endorse this blog entry.