A sceptic’s guide to crypto: the ‘smart’ money

This is an audio transcript of the Tech Tonic podcast: A sceptic’s guide to crypto — the ‘smart’ money

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Jemima Kelly
So I’ll let you in on something that might disappoint some of you crypto pros out there. Throughout my years of writing about crypto, I’ve developed quite a thick skin. There have been some quite unpleasant messages. There’s been a whole lot of trolling on Twitter, and that’s not to mention the comments section under some of my FT columns, because that’s what happens to people who question the value of anything crypto-related. A sample: “The worst of the worst economists from the Financial Times. Yes. You know who you are Jemima Kelly and your bitcoin hating brethren.” That’s on Reddit. And here’s one from Twitter. “I like to keep up with news positive and negative, but Jemima Kelly is a moron. Unsubscribe.” There are actually much worse ones, but they’re too rude to read out loud. I’ve also been heckled during crypto panels at events. And then there was the time a prominent bitcoin bro wrote to my editor to complain that I was libelling him for calling him a bitcoin bro. These days he’s blocked me on Twitter so we don’t come across each other very much. But lately, what’s been upsetting my critics is not my views about cryptocurrencies or libertarian economics or even NFTs. What’s been getting them riled up recently is what I think about the crypto world’s latest big fixation something called Web3. Web3 is supposed to be the future of the internet, an internet supposedly built using the blockchain technology that underpins crypto. The stakes here are not just about whether or not some crypto token is going up or down in value. This is about who gets to have the power on the internet, who gets to decide how we interact online, and who gets to make all the money in this new world.

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This is Tech Tonic from the Financial Times, a podcast about how technology is changing the world for the better and for the worse. I’m Jemima Kelly. And in this series, I’m asking why people still believe in crypto and why people still believe blockchain technology can change the world. This is episode two: how the crypto community is shifting its focus away from the crypto markets — I’m sure their recent collapse is just a coincidence — and towards Web3 and how this blockchain-centred utopian vision of the internet has penetrated the very heart of Silicon Valley.

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Now being something of a pariah in crypto land can be a problem, particularly when you want to speak to one of the biggest Silicon Valley investors that’s putting money into the idea. The venture capital firm I’m alluding to is Andreessen Horowitz, one of the most powerful VC funds in the world. Lately, they’ve been putting billions of dollars into companies that are finding new fangled ways to apply crypto technology to the internet. What could possibly go wrong? But Andreessen Horowitz, I’m afraid, didn’t want to talk to me. Luckily, they would speak to my colleague, the FT’s John Thornhill.

So you spoke to Andreessen Horowitz, which is this huge VC fund in Silicon Valley, but they didn’t want to talk to me. Why? You’re not exactly a bitcoin believer, are you?

John Thornhill
Well, I’m certainly not quite as rude about them as you have been, Jemima. If I can put it this way, if I can describe you as a hard line crypto atheist, I would describe myself as more of a crypto agnostic, albeit with atheistic tendencies.

Jemima Kelly
Well, that does sound like a fair characterisation and I guess I have also criticised them in a couple of columns and their billionaire co-founder Marc Andreessen has blocked me on Twitter because I made fun of him. But anyway, you spoke to Chris Dixon, who heads up that crypto fund.

John Thornhill
Yeah. And he’s by far the most vocal investor on Web3.

Jemima Kelly
And so before we hear from Chris, can you remind us, John, how did Andreessen Horowitz, this firm that Chris Dixon works for, how did it become such a big deal in Silicon Valley?

John Thornhill
Well, you’ve really got to go back to the early 90s, I think, when the internet was in its infancy. Back then, it was mostly run by computer researchers and hobbyists. And you needed pretty much a computer science degree really to get online.

Voice clip
Internet is a growing grid of independent computer networks interlaced. It’s evolved from a US military bulletin . . .

John Thornhill
And the internet was mainly at that time text based. And you had lots of files and folders. And then in 1993, an engineer called Marc Andreessen helped change all that. He helped develop the first widely used web browser, and suddenly the internet became accessible.

Voice clip
When we installed Internet access on our computer, I got the whole family involved.

Voice clip
It’s true. Everybody had their own tasks to do.

Voice clip
It was a lot of work, but . . .

John Thornhill
You could look at pictures as well as text. You could see the internet in pages travelling from one to the other, and it made the internet a lot more accessible to people in their homes. And Andreessen made a fortune out of this when he sold his company, Netscape, in the late 1990s.

Voice clip
www.netscape.com. OK. So tell us what does download mean?

John Thornhill
And then by the mid-2000s he had turned to investing. And at that time new internet companies with a focus on social networking and user-generated content were emerging, and Andreessen and his fellow partner and entrepreneur Ben Horowitz, started putting their money into a lot of these promising start-ups. Two of them were Twitter and Facebook.

Voice clip
 . . . campuses it’s called the Facebook trance. To everyone else it’s spending too much time in front of your computer glued to a website called the Facebook.com.

John Thornhill
That turned out to be another web revolution, what would later become known as Web 2.0.

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Most people would agree that Andreessen Horowitz is now among the very top firms . . . 

John Thornhill
And that helped turn Andreessen and Horowitz’s venture capital firm called Andreessen Horowitz or a16z for short into one of the most influential players in Silicon Valley.

Jemima Kelly
Right. And if you’re a VC fund that’s made a lot of money from your investments in the past, I guess people do just pay attention to what you think is coming next, which gets us to Web3.

John Thornhill
Yeah, and that’s what I started asking Chris Dixon, Andreessen Horowitz, about. Chris as a partner at the firm and heads up their crypto fund. And that fund invests in some of the big players like the crypto exchange, Coinbase, the largest NFT platform, OpenSea and the plate and blockchain gaming company called Sky Mavis and I spoke to Chris at the end of July, while crypto assets were still falling in value after the crash earlier this year. And according to him, regardless of the crash, crypto definitely still has a future and it’s gonna transform the whole way the internet works. Have a listen.

Chris Dixon
I think of Web3 as a new era of the internet with new architectures, new ways to build internet services that are either built using some of these concepts from crypto like blockchains and tokens. The key feature that I think is relevant to your audience is that you can now build new social networks, ways for creators to monetise and all sorts of other games. Just, you know, any kind of application that you see today on the internet. You can now build in a new way using Web3, where the economics and the control of the services are mostly given to the users and not simply to a company.

John Thornhill
So Andreessen Horowitz is so confident about the future of Web3 that they’ve set up a fund worth about $7.6bn to invest in this technology. And part of that fund was announced even as crypto markets were collapsing this year. In particular, Chris Dixon says it’s going to help solve the big problems of the internet today. The tech giants like Google and Facebook, the same tech giants VCs like Andreessen Horowitz helped build — they simply have too much power and keep all the money.

Chris Dixon
In the era of Web2, which roughly I think of as 2005 to 2020, you had the rise of these giant centralised corporations, namely Facebook, Google, Apple, Amazon, who essentially took over the internet. This had a lot of advantages. These are great services and most, many of them are free. They provide, I think, a lot of utility and just everyone who uses Google knows that it’s an amazing product . . . 

John Thornhill
And it has to be said of it. Andreessen Horowitz made a huge amount of money out of those Web2 companies, didn’t it?

Chris Dixon
And yeah, look. And yeah, I mean, look. And the firm did well. And I worked in Web2, my partners, you know, obviously, you know, Marc Andreessen, others at our firm worked in it. And sometimes, you know, people used a criticism against us on the Web3 site. I think my view of it is, yes, we were involved. Yes. You know, our job is to invest in kind of the frontier technologies. And that was the frontier technology at the time. I don’t think any of us, though, including my partners, expected the outcome of today, which, you know, to me looks a lot like a very centralised internet where you have four plus companies that essentially run it. I don’t think that’s good for anyone. I think specifically, for example, I think it’s bad for creative people who try to make money using these services. So, you know, one of the remarkable things about these services is that they, they basically share very, very little of their revenue with the people that create all the content on these services. You know, Instagram. it’s like Instagram. They, lots of people, you know, photographers, writers, podcasters build audiences on services like Instagram. Instagram makes their money on advertising. Instagram shares zero of that money back with the creators. Facebook shares nothing. Twitter shares nothing. Instagram shares nothing. It’s very good for these companies. They figured out a way to have other people create their content and take basically all of the money.

John Thornhill
Now, Web3 is supposed to be the solution to these monopolies. The idea is to create an Internet where blockchain ledgers are like the plumbing and crypto tokens and NFTs will be powering the various use cases.

Chris Dixon
Let’s take music as an example. If you just look at most musicians today, they’ll tell you they make very little money on the internet. You basically make your money offline through merchandising and touring and things like this because the digital economics are so bad. One of the things I’m really excited about, for example, in Web3 and crypto are NFTs where we’ve invested in a number of services, Sound.xyz, Royal and a few others where essentially musicians can sell directly to their fans without being intermediated by a company like Facebook or Twitter. Digital collectibles and other kinds of digital items using, using NFTs that let them, I think, do a couple of things. They let them give their fan base new kinds of interesting experiences, but more importantly, they can make money directly from their fans without 99 per cent of the money going to Spotify and other centralised intermediaries.

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Jemima Kelly
OK. So listening to that conversation between John Thornhill and Chris Dixon really winds me up because while Chris Dixon is slamming Facebook and Instagram, it’s worth remembering that his business partner, Marc Andreessen, is still on the board of Meta, which owns both of those social media platforms. And the idea that the firm is getting involved in Web3 so as to help content creators get their juice, rather than to make money from it, strikes me as completely disingenuous. And if, like me, you’re deeply sceptical or at least confused about Web3, bear with me because help is at hand.

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Molly White
So Web3 above anything else is a marketing term. It’s this sort of shiny new rebranding of what most people would just refer to as blockchains.

Jemima Kelly
Molly White is a software engineer and she runs a brilliant blog called “Web3 is going just great”. Spoiler alert the title is a touch sarcastic. She doesn’t actually think Web3 is going very well at all. You might think of Molly and I as somewhat kindred spirits when it comes to all this. Molly says the problem is that there aren’t really very many Web3 products out there that people actually use.

Molly White
Unlike previous versions of the web you know, you hear people refer to Web2 or Web1. There was a substantial transition in the Web that we now refer to as Web2, and that was named largely after it happened. And so it was sort of able, you know, is something we could sort of nail down. But with Web3, it’s sort of the term for what people are predicting might be the future of the web.

Jemima Kelly
Molly started getting interested in Web3 when she was working voluntarily as a Wikipedia editor. She discovered that there was no entry for Web3, so she started writing it. And the more she started documenting Web3, the more concerned she got. So eventually she started her blog.

Molly White
I started it in December of last year, and it was a few months after I had started paying more attention to cryptocurrency and some of the projects that were being marketed as Web3. I had been seeing a lot of hype and marketing and really utopian visions of what the web could become with blockchains. But on the other hand, I was seeing all these examples of projects going really poorly or getting hacked or people getting scammed out of a lot of money. And it felt like those two things were very different stories, and one of them was getting all of the airtime.

Jemima Kelly
Molly’s big gripe is with the claim that Web3 will disperse power on the internet, that it will take power out of the hands of the big tech firms like Google and Meta and the investors who backed them. Not mentioning any names. She says it deliberately misrepresents what Web3’s supposed decentralisation is actually all about.

Molly White
Usually when people talk about decentralisation in the context of crypto and Web3, they’re referring to the technical decentralisation. By definition, a blockchain is computing across hundreds or thousands of different computers that are all spread across the world. But that’s not the same as having power decentralised. The people who control those machines controlling these Web3 projects are not by definition decentralised just because they’re in Web3. And a lot of the times, they are actually in fact very centralised. A lot of the same venture capitalists and gigantic tech firms are beginning to try to cement their footholds in this Web3 space and ensure that they are the ones who hold the power there as well. And it’s decentralisation of power that I think is the most important. And I don’t think Web3 holds much promise in actually achieving that.

Jemima Kelly
But even if Web3 does somehow deliver power to the masses and rolls back the tech monopolies, Molly’s other big problem with Web3 is perhaps more fundamental. It’s impossible, she says, to separate the technology of Web3 from the casino of the crypto markets.

Is there a case to be made that there are, there’s the casino on one side and the people who are just trying to get rich quick? And on the other side, the builders who are really building these applications that are, in their eyes, gonna become the new building blocks, the new infrastructure of the new Internet?

Molly White
I think it’s been a sort of new trend to try to separate, you know, oh, there’s the bad Web3 projects, and we think they’re bad, too, you know, but we’re working on the good stuff. There’s really, in reality, no separation between the two in a lot of ways. When there is a token involved, there is a speculative financial component to it.

Jemima Kelly
Imagine if you can, a blockchain-powered version of something like Twitter.

Molly White
So, for example, there are Web3 social networks where in order to post, you need to own some amount of the token. And then any time you want to go say like someone’s tweet, you know, on the Web3 equivalent, you basically boost them with your token. And so you are paying to incentivise people to post and then your posts might get rewarded if they’re good enough by people who like what you’re saying.

Jemima Kelly
In other words, anything you want to do on this Web3 social network, you’re gonna need a token to do it. And once you have crypto tokens, well, you effectively have a speculative market.

Molly White
There is always a secondary aspect of it, which is the people who gamble that this is gonna be the next big Twitter. And so they pump up the price of the token that is potentially used also for these other purposes. So, you know, I think that’s why I pushed back so hard on arguments from the a16z’s and the folks like that because there is no way to separate the casino from the projects that are supposedly providing utility when all of it is based around these tokens that have these very volatile speculative markets associated with them.

Jemima Kelly
This is how I see it too. Web3 isn’t really about making the internet any fairer or less easy to exploit by fat cat Silicon Valley investors — it’s actually the opposite of this. It’s about introducing yet another layer of financialisation to the web.

So, John, did you put any of those sorts of criticisms that we’ve been hearing from Molly to Chris Dixon, Andreessen Horowitz?

John Thornhill
Yes, I sure did, because those are exactly the kinds of things that people in the tech world themselves are urging regulators to have a look at. There’s been very little regulation of crypto to date, at least in the US. But there are concerns about what economists call externalities, things like when a factory that pollutes the environment creates a cost to society. But those costs are not priced into the final goods. There’s concern about these sorts of externalities that are also being created by blockchain and crypto, or the bad stuff like exploitation and the scams and the Ponzi schemes and that sort of thing. Here’s how I put it to Chris Dixon.

I mean, there are a lot of other people who are very sceptical of this world who are also kind of calling for kind of more interventionist regulation. And I think in June, 1500 computer scientists and technologists who wrote to Congress are calling for a more responsible regulation of crypto assets. And they, to quote the letter that they wrote. They said, the catastrophes and externalities related to blockchain technologies and crypto asset investments are neither isolated, nor are they growing pains of a nascent technology. They are the inevitable outcomes of a technology that is not built for purpose and will remain forever unsuitable as a foundation for large scale economic activity.

Chris Dixon
I mean, this is the Stephen Diehl. This is, these are, these there’s a set of these kind of the same critics that come of as Stephen Diehl. And there’s a bunch of these, that they’re like ten people that keep orchestrating these kind of I would call them astroturfing fake campaigns to criticise this space. Like I don’t I mean, like I . . .

John Thornhill
Tell me, why are they wrong?

Chris Dixon
Because they’re, they cherry pick bad things. They ignore all the good things. I’ve spoken to a lot of critics who’ve been in the space for ten years. I’ve yet to meet one who actually was very deep in the space and spent time on the kind of positive side. We have 90 portfolio companies in the crypto Web3 space. I spend all day every day with them. These are the smartest, you know, most earnest and creative entrepreneurs I work with. I never see, you know, any of those, those folks discussed by these critics. You saw this during the you know, the the post-dot com era, Pets.com. You can, if you want to focus on only Webvan and Pets.com and ignore Amazon and Google, you know, you can do this within a year of technology. You can cherry pick the bad things and ignore all the good things. And you know I think there’s a real risk with that as a country that we end up, we’ve done a very good job, the US has done very good job being at the centre of the last two years of the internet. And I think it’s important to get into the nuance and the detail. And yes, there are bad things and we should we should come up with smart regulation to reduce or eliminate that. But I think it’s throwing the baby out with the bathwater to start to try to ban, you know, new types of computing architecture.

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Jemima Kelly
So Chris Dixon is telling us that lumping all Web3 ventures together and imagining they’re all just crypto grifters is a bit like only focusing on the bad start-ups of the dotcom era and not focusing on the good ones like Amazon and Google. Which is a bit confusing because didn’t he say earlier that they’re the bad guys? You also heard him say that crypto critics like Stephen Diehl, who we heard from in the last episode, don’t have enough experience in this area to criticise it. But that’s not true. Stephen used to sell blockchain software for a living until he realised it was basically useless. So Chris Dixon’s argument simply don’t stack up as far as I’m concerned, and I would have told him that myself. But as I might have already mentioned, he wouldn’t talk to me. But back to Molly White, I put to her his argument that critics are short-sighted.

What about my favourite argument, which is it’s just the internet in the early 1990s. No one knew how successful the internet was gonna be. How can we know how successful the new Internet is gonna be?

Molly White
I think that that is a very revisionist telling of the origins of the internet. In the early days of the internet, people could understand the technology and what it promised to do. And although there were questions around how accessible it might be to the average person or how scalable it might be, people understood the promise. And from the, you know, from very, very early stages, it was providing value. You know, people were sending emails early on and that was a clear value. Whereas today, you know we’re looking at these blockchain-based technologies which have been around again for over a decade and they’re not doing much that’s new or that could not be accomplished better with more traditional technologies. As far as actual societal value, on the scale of what we saw with the internet, that does not exist. And broadly, technologists understand that the promises that are being made by the venture capitalists, by the people who are trying to hype these tokens, don’t have much basis in reality, and that the technology really does not do what people are advertising it could do.

Jemima Kelly
Now, but maybe people listening to this and thinking, but hang on Web3, the blockchain — it has changed my life and it’s made me money and I can see where they’re coming from. NFTs, a product of blockchain technology, have made some artists money. NFT rapper Spottie WiFi.

Spottie WiFi voice clip
With this JPEG, I have a built-in audience, so I just said to myself, I want to do something nobody’s done before. And I think if I do it, it’ll actually appreciate the value of my asset.

Jemima Kelly
But NFTs have also been at the centre of numerous scams. I mean, what actually are they anyway? Does anyone know? So coming up in episode three, the NFT boom: how non-fungible tokens became the latest crypto bubble.

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You’ve been listening to Tech Tonic from the Financial Times with me Jemima Kelly. Special thanks this week to the FT’s innovation editor and founder of Tech Tonic, John Thornhill. If you wanna know more about Web3, we’ve put links in the show notes and you can listen to John’s full, unedited interview with Chris Dixon in this week’s bonus episode.

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Our senior producer is Edwin Lane. Josh Gabert-Doyon is our producer. And Manuela Saragosa is executive producer. Our sound engineer is Breen Turner, with original scoring by Metaphor Music. Cheryl Brumley is the FT’s head of audio.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.