The Complete Beginners Guide To Autonomous Agents: Crypto & NFTs in Web3

The Complete Beginners Guide To Autonomous Agents: Crypto & NFTs in Web3

Autonomous agents have become a buzzword in recent years, promising to revolutionize the way we live and work. These agents are designed to bring our ideas to life simply by requesting their assistance. They can serve as friends, colleagues, and collaborators, freeing up an abundance of leisure time. The question then arises, how would you choose to spend this newfound freedom?

At the same time, the rise of cryptocurrencies and non-fungible tokens (NFTs) has brought about a new era of network effects in Web3. Unlike their Web 2.0 counterparts, the network effects in Web3 are natively layered. Each project combines multiple forms of network effects, creating a complex ecosystem.

However, these network effects in Web3 are weaker and less defensible compared to Web 2.0 variants, at least for now. The addition of more nodes increases capacity and value for buyers of the Ether token. As more token buyers enter the network, the value of the Ether token increases, making it more valuable for nodes to validate transactions. This creates cross-side network effects on a 2-sided interaction network, where token buyers can also be validators and vice versa.

But this network structure also presents challenges. Firstly, there is a unique form of negative network effect. Beyond a certain point, the addition of a token buyer decreases the value of the network for all other token buyers. This is because blockchains are identity agnostic, meaning the identity of each node does not matter to other nodes or token buyers. Each new node adds less incremental value to the network as it scales.

Secondly, there is the risk of commoditization. Unlike Web 2.0 platforms with their "matching" or "app store" components, Web3 lacks an underlying product other than the Ether token. This has led to a wave of new Layer 1 blockchain protocols, competing with each other to become "large enough" relative to their transaction volume or activity. From Cardano to Solana and more, the competition is fierce.

However, this competition also brings about another network effect. The more smart contracts there are for a protocol, the easier it is for developers to build new ones. This cross-chain composability adds another layer of interaction network, but it also dilutes defensibility.

The value and utility of these network effects in Web3 are still unclear. This is not unusual in the early stages of a technology cycle, where experimentation and evangelism precede utility. One example of a project combining multiple network effects is Axie Infinity. It combines the interaction network effects of the game itself with the marketplace network effect. The differentiated nature of its supply makes the Axie Marketplace highly defensible as the go-to destination for buying in-game items.

Another interesting aspect of Web3 is the concept of decentralized autonomous organizations (DAOs). These can be described as "group chats with a shared goal and money." DAOs create yet another form of interaction network, where user identity influences defensibility. The importance of user identity depends on the scale of the network.

To lower the entry barrier for users, scholarship programs have emerged in projects like Axie Infinity. These programs allow aspiring players to "rent" Axies, the in-game characters, instead of purchasing them outright. This opens up opportunities for more users to participate and contribute to the network.

When evaluating the potential of Web3 projects, several crucial questions need to be asked. How do users interact with others? Does the addition of a user increase value for all users? In what way does every new user affect value? Are there any limitations to scalability? How does defensibility change as adoption grows?

These questions will help determine the potential success of Web3 projects. Those that combine the capabilities of Web3 with stronger network effect layers could emerge as the biggest winners of this era. However, it is important to note that we are still in the early stages of Web3, and sustainable defensibility may only emerge after the experimentation phase.

In conclusion, autonomous agents and the network effects in Web3 are reshaping the way we live and interact. As we embrace this new era, it is crucial to understand the dynamics of these technologies and their potential impact. Here are three actionable pieces of advice:

1. Embrace experimentation: The early stages of Web3 are characterized by experimentation and exploration. Don't be afraid to try new projects and technologies to discover their potential.

2. Understand network effects: Study the different types of network effects in Web3 and how they interact with each other. This will give you insights into the defensibility and value of projects.

3. Evaluate scalability and limitations: Consider the scalability of Web3 projects and any limitations they may face as adoption grows. Look for projects that have strategies in place to overcome these challenges.

By staying informed and actively participating in this new era, you can make the most of the opportunities presented by autonomous agents and the network effects in Web3. The future is here, and it's up to us to shape it.