"Companies that have the best products, most talented people, and fastest growth are precisely the ones for which moats are most important."

"Success accelerates the need for moats. As soon as success seems obvious, startups lose their training wheels moat – uncertainty – and should have at least the foundations of more permanent moats in place."

"In 7 Powers, Hamilton Helmer defines them as “those barriers that protect your business’ margins from the erosive forces of competition.” He lists seven types: Economies of Scale, Network Effects, Counter-Positioning, Switching Costs, Brand, Cornered Resource, Process Power. For definitions and examples of each, check out Flo Crivello’s Mind the Moat."

"Moats won’t get you Product-Market Fit (PMF). You need that first before worrying about anything else, as USV’s Fred Wilson wrote in a 2013 blog post Product > Strategy > Business Model."

"In Productive Uncertainty, Jerry Neumann wrote that “the only moat that can create excess value for a new startup is uncertainty” because “uncertainty keeps competition at bay long enough for a moat to be built.”"

"The more obvious your idea is and the easier it is to build, the faster you need to dig moats. Conversely, the less obvious your idea is and the harder it is to build, the longer you have to dig moats."

"Novelty Uncertainty (~technical risk) and Complexity Uncertainty (~market risk). Novelty Uncertainty is the kind faced by a lot of deeptech companies: uncertainty over whether you can actually build what you say you’re going to build. Complexity Uncertainty assumes that you can build it, but questions whether there will ever be a big and profitable market for it."

"Depth of Moat Needed = How Obviously Good Your Idea Is - How Hard it is to Build"

"the easier it is for you to raise money, the more immediately you need moats."

"Complexity Uncertainty gave Airbnb time to develop the Brand and Network Effects moats that have protected it all the way to that $91 billion market cap."

"This is why the VCs and commentariat are jumping up and down about the lack of moats in generative AI. There is practically no uncertainty."

"At its simplest, early stage startup strategy is about directing limited resources towards digging moats before you’ve removed enough uncertainty to attract serious competition."

"On average, a migrant is about twice as likely to be employed in academia as a mathematician as someone from the same county who got the same math score but did not migrate. (Agrawal et al (2023))"

"Leaving the USA due to Fulbright requirements is associated with about 65% fewer publications and fewer citations received, and nearly 80% fewer publications in high-impact journals. (Kahn and MacGarvie (2016))"

"America has been a hotbed of innovation and scientific research for over a century, not just because of historically high immigration rates, but because it’s established a strong foundation for immigrants to pursue such feats upon landing here."

"Opportunity + People = Innovation."

"Not Boring Capital is an $8 million venture fund that invests in companies with stories to tell, and helps tell them."

"We (I’m going to use the Royal We a lot here) will invest mainly in Seed through Series B companies, with the very occasional pre-seed and growth-stage investment."

"Packy is a better investor because of his writing, and he’s a better writer because of his investing. You can’t make up a better flywheel even if you tried"

"Fintech is our leading vertical. From a vertical perspective, the winner both by number of investments (6) and dollars invested ($525k) is fintech, with a focus on investing tech"

"Core: Each has the potential to return the fund in the bull case. This should be about 75% of the total dollars invested."

"Explore: Smaller investment in order to get a seat in the next round or increase deal flow. High upside, but investments too small to reasonably expect they’ll return the fund. This should be 5-10% of invested dollars."

"Growth: Later-stage or otherwise safer investments with lower ceiling and higher floor. This should be about 20% of invested dollars, and that 20% should be able to collectively return the fund once."

"In 2011, Exxon was the most valuable company in the world, with a market cap in the low-$400 billion range. Today’s most valuable company, Apple is worth $2.4 trillion, nearly 6x higher."

"Most venture firms have a handful of people. Some have a hundred or so. We have 60,000 people."

"There’s nothing better than Not Boring Capital portfolio companies helping Not Boring readers help Not Boring Capital portfolio companies."

"I’ve always told Puja that if I were somehow able to retire young, I’d want to do three things:  Meet and talk to smart people Read & Write Invest"

"Neither Bitcoin nor Twitter existed fifteen years ago. Both are dominant forces today. They bootstrapped from nothing to something by rewarding early adopters, incentivizing them to do work for the network, and making it increasingly challenging to mine new tokens."

"The fact that high follower counts are scarce makes them valuable, and the proof of work requirement enables scarcity."

"Lack of social graph portability is frustrating for users. This one is particularly germane, and highlights a main difference between traditional social networks and NFTs"

"The power of NFTs is that they make digital assets scarce. Scarcity makes digital assets valuable"

"NFTs are starting to feel a lot like a new kind of social network that sits above other social networks and communities"

"People are status-seeking monkeys People seek out the most efficient path to maximizing social capital"

"Social capital is, in many ways, a leading indicator of financial capital, and so its nature bears greater scrutiny. Not only is it good investment or business practice, but analyzing social capital dynamics can help to explain all sorts of online behavior that would otherwise seem irrational."

"NFTs blur the lines between social and financial capital, and as the media has been quick to point out, buying jpegs for thousands or millions of dollars seems irrational."

"Each new social network issues a new form of social capital, a token. You must show proof of work to earn the token. Over time it becomes harder and harder to mine new tokens on each social network, creating built-in scarcity. Many people, especially older folks, scoff at both social networks and cryptocurrencies."

"the most useful is the idea of proof of work in status games."

"First Utility, Then Social Capital. “Come for the tool, stay for the network.”"

"First Social Capital, Then Utility. Wei highlights Foursquare, Wikipedia, Quora, and Reddit as products that used the promise of social capital to get people to do free work that then becomes a utility for the masses."

"Wei points out that there are two forms of asymptotes that limit growth or lead to downright collapse."

"Social Asymptote 1 is Proof of Work itself. Not everyone in the world can do what it takes to gain social capital on any given social network, which creates an upper limit."

"Social Asymptote 2 is Social Capital Inflation and Deflation."

"the only scarce resource in an abundant digital world is users’ attention, so it’s necessary to deliver the things they’re most likely to engage with."

"On the deflation side, social networks can get less cool as more people join. The canonical example here is what happened to Facebook when parents started joining:"

"“At that point,” Wei cautions, “that product or service better have moved as far out as possible on the utility axis or the velocity of churn can cause a nose bleed.”"

"Social capital can be used as temporary energy. “You can think of social capital accumulation incentives like these as ways to transform the potential energy  of status into whatever form of kinetic energy your venture needs.”"

"New proof of work can lengthen the status game."

"Social capital turns into financial capital, and vice versa."

"Over the past thirty days, according to DappRadar, the top ten NFT marketplaces did $1.86 billion in volume."

"This is the power of valuable NFTs: they are high in social capital and utility, and moving higher in entertainment. They hit the social network trifecta."

"Social Capital. NFTs are social capital with skin in the game. It’s “Investment-as-a-Status.”"

"Utility. NFTs also have utility as investments, as tickets for access to Discord groups, and even as something that you can hang digitally on your wall. Over time, NFTs will give owners access to events and unique experiences as they evolve and infiltrate a wider audience."

"NFTs are entertaining as well: it’s fun to watch the sales, and some people are already building personas and online characters starring their Apes or Punks. Bidding on PartyBid is as much a social activity as it is an investment."

"NFTs more directly tie social and financial capital."

"NFTs bring status signaling and social capital online at global scale."

"It’s possible that a direct exchange of social capital for financial capital is enough to get people to duplicate work or move their work to a new platform, but it’s challenging."

"you need to reward an entirely new behavior. NFTs may be different enough to work, and they’re not asking people to leave their favorite existing social network."

"On new and existing platforms, members could bring the exogenous social capital that comes with owning valuable NFTs, and work as a group to build up the social capital of their NFT avatar."

"NFTs make it possible to come for the tool, bring the network wherever there’s the most social and financial value."

"NFTs have the ability to add infinite new proofs of work, which Wei said can lengthen the half-life of status games."

"NFTs have the advantage of being decentralized. While certain platforms may present NFTs in an algorithmic feed, NFTs themselves are portable and can be used and displayed wherever the owner chooses."

"New NFT projects can harness a potent combination of social and financial capital to get off the ground. Ownership brings social capital, utility, and entertainment. There are ever-evolving proofs of work, from figuring out the next big thing to creating brand extensions"

"Powerful things happen when you combine money, status, and community."

"Social networks reward early adopters, and a social network with money baked in gives early believers a double-whammy."

"Twitter thinks it’s an ad product, but it’s a subscription product. It thinks it’s an Aggregator, but it’s a Platform. It thinks it’s a social network, but it’s a professional network: one built for the Passion Economy, based on the strength of ideas instead of past experience."

"Twitter is terrible at being an ad-based social network, and isn’t giving Creators a pro subscription product they would happily pay for."

"Incentives shape behavior, both on the company and individual level"

"Professional networks aim to deliver measurable value to as many of the best companies and top people as possible, and get them to pay directly for that value. Bots and outrage are harmful to professional networks, because they make it less likely that users achieve the things they are willing to pay for to achieve - hiring, partnering, and selling."

"Twitter is not for everyone. It’s for knowledge workers who rely on Twitter to exchange ideas, promote their work, and take place in the global, real-time conversation."

"Twitter’s audience is more targeted and professional; it should be able to generate more revenue per user than Facebook does. Arguably, Twitter actually does create more value than Facebook. Its lack of self-awareness, though, prevents it from capturing that value."

"I surveyed a group of newsletter writers about how they grow their audiences, and 95% of them use Twitter."

"In-app podcast discovery is notoriously awful. You know where people discover podcasts? Twitter. Countless media and tech companies and personalities amplify themselves on Twitter, for free, and then bring users off of Twitter and into their product."

"Every time I search on Google, for example, if I find what I want, I leave Google. But Google collects money from the company to whom I divert my attention."

"On professional networks, like LinkedIn, most users are the product, but power users are the customers."

"On social networks, users are the product, and advertisers are the customers."

"Twitter should adopt LinkedIn’s model - keeping the current Twitter product free, open, and ad-supported for casual users, and charging its customers - the Creators who rely on Twitter to build and grow their businesses - for advanced tools."

"What is Twitter’s JTBD for Creators? “I need to get my ideas in front of people.”"

"Bookmarking → Note-taking and Networked Thought."

"“Want to see who viewed your profile?” is LinkedIn’s 1 reactivation tactic, and it almost gets me every time."

"“Amazon is building an empire, and Shopify is trying to arm the rebels. So maybe some of our customers might compete with Amazon, at some point, but that would be like super cool, and we’re not there yet.”"

"By making Direct-to-Consumer (“DTC”) easier, software like Shopify increases entropy and lowers the probability that any specific company will generate sustained profits."

"When every rebel is armed, none really is."

"When everyone has the same plug-and-play tools, the profit flows away from the rebels, and towards the arms dealers, forcing rebels to devise new guerilla tactics to take back profits."

"Shopify -- and Stripe, Big Commerce, Google, Facebook, FedEx, UPS, Flexport, Anvyl, Boxc, Kustomer, Returnly, Alibaba, and hundreds more ecommerce infrastructure companies -- is arming everyone. Using off-the-shelf software and services, anyone with an internet connection and a credit card can set up an online store and sell things to people."

"This has major drawbacks for ecommerce companies that want to achieve scale and profitability, though:"

"First, low barriers to entry mean more competition, and everyone running around with arms means chaos."

"Second, now that nearly every piece of the value chain has become modularized, the battle has concentrated in one place: marketing, via paid acquisition and brand, the only moat for the vast majority of brands."

"Shopify crushed earnings. 97% YoY revenue growth, led by 148% growth in Merchant Services Revenue (payment processing and transaction fees that go up when overall spend to Shopify customers goes up)."

"DTC as we know it was born when Andy Dunn founded Bonobos in 2007. Then came Warby Parker in 2010, Harry’s in 2012, and Casper in 2014."

"“The direct-to-consumer startups’ rise was enabled by an environment of abundant venture capital, low competition, and above all, the advertising arbitrage that could be exploited on under-priced social media platforms.”"

"By cutting out the middleman and selling directly to end consumers on their own websites, DTC startups could lower costs, build relationships, and increase lifetime value through repeat purchases."

"Casper and Blue Apron were too easy to copy. According to CNBC, there were over 175 mattress-in-a-box companies as of last summer."

"Increased competition led to more expensive customer acquisition. Well-funded and thirsty for growth, Casper and Blue Apron turned to paid spend and discounts to acquire customers."

"Razors have really been the only ecommerce category that has had multiple meaningful exits. First came Unilever’s $1 billion acquisition of Dollar Shave Club. Then P&G bought women’s grooming company Billie for an undisclosed amount."

"There’s a reason razors are the exception that proves the rule: you can count with your fingers the number of factories in the world that make high-quality razor blades -- P&G owns one, Edgewell owns one, Harry’s owns Feintechnik, and there are like two or three more in the world."

"despite massive secular shifts and a lot of noise about rising ecommerce penetration, the DTC products themselves have produced only one billion dollar outcome: Dollar Shave Club (two if you count Harry’s). How can you harmonize those two seemingly contradictory ideas?"

"Porter’s Five Forces describes an industry’s competitive dynamics by looking at … five forces: Competitive Rivalry, Supplier Power, Buyer Power, Threat of Substitution, and Threat of New Entry. Oversimplified: the weaker each of the five forces is, the better your competitive position."

"“Competitive advantage cannot be understood by looking at a firm as a whole. It stems from the many discrete activities a firm performs in designing, producing, marketing, delivering, and supporting its product."""

"First, let’s look at the DTC value chain, the set of discrete but linked activities companies perform to deliver products direct to consumers."

"Back in 2013, Harry’s integrated R&D, Manufacturing, Retail, and Marketing by designing its own products, buying its own razor factory, selling directly to consumers from its own website, and building a referral engine from day 1 to drive tens of thousands of signups."

"Think about the value chain for a DTC company today, though. Over the past decade, companies have sprung up to build software that allows anyone to do each of the unique things that Harry’s did in-house."

"There are so many high-quality, modularized inputs, that one person with a computer can spin up a company and start shipping product in under a week."

"By giving all of the rebels and incumbents access to the same weapons, Shopify and the rest of the DTC-enabling software and services make the environment more competitive, and weaken the ability of any individual to become profitable, particularly at meaningful scale and over a long enough time frame to exit."

"Attracted by my success, More Rebellious Sunglasses launched using the same tools and supply chain that I did, and then MOST REBEL SHADES followed them with the same playbook"

"All of a sudden, my current and potential customers have four choices: three sunglass companies and a visor company."

"For companies that don’t want to rely on Amazon, there’s only one place left to compete: paid acquisition."

"This is why 40% of venture dollars go to Google and Facebook - when every piece of the value chain is modularized and easily copied, companies are forced to compete by outspending each other to acquire customers."

"Shopifywins - there are now four paying customers instead of one, and we’re all spending money to grow the market. Shopify takes a subscription fee and a cut of revenue."

"Google and Facebook win - we’re all spending a ton of money on ads."

"All of the tools and services in the DTC value chain win - more competition means that each of the rebels needs more powerful weapons."

"Unlike governments, who need to use their own taxpayers’ dollars to support foreign rebels, Shopify gets paid by every side. Shopify has good intentions, but it’s more akin to a war profiteer than a rebel-armer."

"Unlike tech companies, which spend a lot of money upfront and then make a lot of money by selling a differentiated product with low marginal costs, DTC brands’ upfront spend proves out what works and then sends out pheromones to new entrants."

"Monos just needed to look at everything Away did, copy it, and buy some ads."

"Away is built on Spree Commerce and has a big team building and maintaining its website; Monos is built on Shopify and I can’t find any engineers on their LinkedIn."

"After tens of millions of dollars and the hard work of 481 employees, the only unique weapons that Away has against Monos are brand and bank account."

"It’s forced to compete with a copycat on the level playing field of keyword bidding and trade margin for growth."

"The Arming of Everyone means that massive scale is likely out of reach for any one DTC company."

"Nine times out of ten, the answer should be bootstrapped - don’t raise VC, grow slowly, get profitable before all of your credit cards are maxed out. If you’re targeting small niches that you know how to reach without giving all of your margin to Google or Facebook, you can build a really nice business."

"Most bootstrapped DTC entrepreneurs should build an audience before they build their first product."

"You need to spend that money developing differentiated tech or IP, or a brand that captures a very particular audience that you can sell to an incumbent."

"The other venture-backable approach is building up a specific audience in hopes of selling it to an incumbent that struggles to reach that audience."

"If they need to decide between profitability and acquiring a target customer, these companies should choose acquisition, as long as they are able to retain and grow with those customers."

"It’s happening in newsletters, where Substack gives writers an easy way to try to become the next Ben Thompson."

"It’s happening in video games, where Epic Games is building the tools and literally giving them away for free to expand the Total Addressable Market."

"They benefit from their customers spending their own time and money to bring audience to their platform. They sit back and happily take a cut."

"It also happened in video, when YouTube made it easy for anyone to become a creator. Then TikTok came along, and became the curator, and is capturing the massive value that comes with wrangling all of that entropy."

"Stripe Treasury is “a banking-as-a-service API that lets you embed financial services in your marketplace or platform.”"

"Simply, by writing a few lines of code, platforms can let their customers set up bank accounts at partner banks like Goldman Sachs and Evolve Bank & Trust."

"In the press release, Stripe highlighted its partnership with Shopify, which is using Treasury to build Shopify Balance."

"by one estimate, even before the pandemic, Stripe was generating $350 million in revenue from Shopify alone -- and that Shopify would inevitably get sick of paying Stripe and build their own payments solutions."

"Instead of pulling its business, Shopify is integrating more deeply with Stripe. Many of its clients will keep their money in accounts managed by banks with which Stripe, not Shopify or the merchant, owns the relationship."

"it made a deliberate, strategic choice to focus on the things that it does best, and to plug in Stripe for all of the things that it does best. That’s what third-party APIs enable their customers to do."

"That’s one way to think about an API. APIs let companies leverage years of other companies’ work in seconds."

"Applications are just a bunch of functions that get things done: APIs wrap those functions in easy to use interfaces so you can work with them without being an expert."

"Internal APIs: Used to do complex things more simply within a company."

"Public APIs: Typically used to open up datasets so the public can build on top of them."

"Vendor APIs: Give customers the full superpowers of an entire company in a few lines of code."

"The companies who sell third-party APIs are called “API-first companies”"

"An API-first company essentially abstracts away the complexity of a whole best-in-class company, giving clients the full output of a highly-focused org by typing a few things, like this:"

"When a company chooses to plug in a third-party API, it’s essentially deciding to hire that entire company to handle a whole function within its business."

"API-first companies are a subset of Software-as-a-Service (SaaS) companies, with a few key distinguishing features:"

"Users. Many people in a company interact with a typical SaaS product (like Slack, Salesforce, Airtable, Asana), whereas only the engineers typically work with API-first companies."

"Business Model. The most common SaaS business model is to charge per seat, while most API-first companies charge customers by usage of the product, either based on Pay Per Call (each time the API is pinged, say if you’re sending an SMS via Twilio) or as a percentage of transaction size (Stripe charges 2.9% plus $0.30 for each transaction)."

"In The Third-Party API Economy, Canvas Ventures’ Grace Isford maps dozens of players in the space across nineteen separate verticals."

"There are two main reasons for that: focus and scale."

"Focus. API-first companies focus on solving a very specific problem. Stripe started with payments, and put all of their efforts into building the best payments solution."

"Importantly, it means that everyone who works for those companies went there to solve those problems."

"Scale. API-first companies serve thousands or millions of customers, so they’re able to justify small improvements that build up to an incredible product over time."

"They’re also fascinating strategically in two ways: the competitive advantages of the API-first companies themselves and the impact they have on their customers’ competitive advantages."

"Instead, a talented leader identifies the one or two critical issues in the situation — and then focuses and concentrates action and resources on them."

"Just as AWS and the cloud let entrepreneurs launch more cheaply, API-first businesses allow them to scale and professionalize with low upfront costs and managerial effort."

"“It’s actually becoming crazy to build your business in any way other than using all APIs except your point of differentiation.”"

"Both point at the same idea, that what people call “strategy” is often a bunch of fancy words and falsely precise goals that obfuscate the core purpose of the business: serving customers in a differentiated way."

"A guiding policy “outlines an overall approach for overcoming the obstacles highlighted by the diagnosis and tackles the obstacles identified in the diagnosis by creating or drawing upon sources of advantage.”"

"Coherent actions are the set of interconnected things that a company does to carry out the guiding policy, each reinforcing the other to build a chain-link system that is nearly impossible to replicate."

"It’s the leading retailer because all of those pieces work together in such a way that no one could copy Walmart without copying the whole system."

"But in a world in which APIs infiltrate ever more functions of a business, the linear value chain no longer perfectly describes a company’s activities."

"if everyone can do something, there’s no advantage to doing it, but you still have to do it anyway just to keep up."

"If your competitor is using Twilio to send SMS to clients, you should, too, or else they’re free to build differentiated products while you spin your wheels reinventing the wheel."

"In the Request/Response Model, though, there is also a competitive advantage to be gained from how you leverage APIs to build your company and product."

"Using a bunch of APIs that are really flexible, and figuring out good ways to connect them, leads to a combinatorial explosion of potential workflows."

"API-first companies turn software into like customizable building blocks, and companies like Zapier and Tray.io function as “APIs for all APIs,” making connections between nearly any app with an API fast and easy."

"Not only can you put the building blocks together in unique ways (the “Infrastructure” column in the Request/Response model), but you can also build new experiences on top of them"

"If the number of potential connections between APIs increases exponentially as more are added, companies have a near-infinite ability to create unique chain-link systems of coherent actions out of the existing primitives."

"Instead of a linear value chain in which using commoditized components in each step limits the number of places left to differentiate and create value, the Request/Response Model lets companies differentiate on two main fronts:"

"Direct. The core focus area, for which they build their own solutions."

"Meta. The way that they organize all of the components in their ecosystem."

"That creates a dynamic system in place of a static chain, one that constantly improves and evolves as the companies behind each one of the components work on building the best possible input for their customers."

"Shopify focuses on its key differentiators and building a coherent whole that is differentiated even while many of the components are modularized."

"Shopify is able to build products in months that would otherwise take years, and even then, wouldn’t match what Stripe is able to do given its unique focus and all of the hard, non-technical, regulator-and-bank-related work it does behind the scenes."

"In that sense, the Stripe x Shopify partnership is like an API in itself. Shopify plugs in Stripe, and Stripe continues to add new money-related products that Shopify can use itself and give to its customers."

"The better each Stripe product gets, and the more great products it offers, the less likely Shopify is to ever leave."

"Stripe can build robust money-related solutions for Shopify at a lower cost than Shopify could build for itself, because Stripe is able to amortize the costs of everything that it builds over millions of customers, some large and many small."

"Shopify as just one of many potential Stripe customers, Stripe is also just one of many third-party APIs that Shopify uses."

"As I was talking to my friend Ben Rollert, who’s building a company on top of APIs, he said that the value system in an API-first world actually looks more like the game Factorio than a traditional Porter Value chain."

"Giving Shopify merchants access to more inventory at better terms all in one place is core to what Shopify does, and it takes advantage of the scale benefits that Shopify itself has, bringing demand from millions of retailers to bear on wholesale negotiations."

"Strong API-first businesses sit in this sweet spot: they provide mission critical but non-core functionality to their customers, like accepting payments, providing cloud security, or sending communications to customers."

"Massive Markets. API-first companies each provide a small slice of the things every business needs to do. Almost every company needs to collect money, remain secure, and communicate with customers."

"Moats. They’re in a position in which companies can’t just rip them out -- imagine not accepting payments for even a day! -- but where it’s probably not worth the resources or defocusing to build a different solution in-house."

"It’s that once they’re integrated into a customer’s product, API-first companies have incredibly deep moats. Specifically, they benefit from network effects, economies of scale, and high switching costs."

"The best API-first businesses have data network effects: the more customers that use the product, the better the product gets for each customer, because the API-first business can use data from one customer to improve the product for all of them."

"API-first companies that negotiate with third-parties on their customers’ behalf -- Stripe with credit card companies on fees, Shippo with FedEx and UPS on shipping rates, Twilio with carriers on messaging fees -- can bring the heft of their collective bargaining power to the table for their customers in a way that none of them could on their own."

"API-first companies have scale economies advantages not just over new entrants, but more importantly, over their own customers who might consider just building the functionality in-house."

"Remember, one of the main reasons that companies use API-first products is that doing so gives them peace of mind that that slice of their business is in good hands so that they can focus on their own points of differentiation."

"Since most API products are building blocks that customers can use to create their own custom solutions and workflows, moreover, switching costs increase as customers build on top of APIs."

"Additionally, as an API-first company adds more functionality and products, as Stripe has done with both the Payments product and new products like Treasury, customers become more locked in."

"This indirect relationship with the end user points to another advantage of the API-first business model: customer-led growth."

"In Slack: The Bulls Are Typing…, we talked about the fact that Slack sold into companies and then grew as they grew headcount."

"Once they convince a customer to embed their code, the onus is on the customer to grow their own customer base. That means that all of the Facebook and Google dollars fall on the customer, and that as they spend money to grow, the API-first company goes along for the ride."

"Margins may be lower than traditional SaaS businesses."

"Many traditional SaaS products benefit from the “high upfront costs, low marginal costs” nature of software. APIs, on the other hand, often put a nice wrapper on top of existing products that come with their own costs."

"API-first companies are typically lower-margin, higher-volume products."

"Other API-first companies are coming after your place in the stack. The most valuable place in the API stack is to be right between your customer and all of their other vendors, abstracting away the complexity created by the other companies abstracting away complexity below them"

"It controls the customer relationship and modularizes the other APIs below it."

"That leads to one of the most important things to realize about API-first companies: they’re a lot more than just software."

"The magic of companies like Stripe and Twilio is that in addition to elegant software, they do the schlep work in the real world that other people don’t want to do."

"Twilio has a large and growing customer base and is able to cross-sell new products like Flex and SendGrid in a Stripe-like “Company-as-an-API” model."

"Twilio can become the leading acquirer in the API-first ecosystem and expand the building blocks it gives companies to build on top of."

"The API-first market map will become competitive M&A territory, and Twilio has shown that its unique combination of size and developer love, rivaled only by Stripe, is attractive to potential targets."

"Through a series of seeming accidents, great product, and user pull, OpenAI has attracted attention, turned that attention into the must-use API, and with the release of plugins, is turning that attention into a platform unlike any platform that exists, one that ingests the capabilities of the apps built on it."

"As Chroma co-founder Anton Troynikov explained it to me in our first episode of Anton Teaches Packy AI, Transformers can do a lot just by paying attention to the right parts of the input."

"They don't need other types of neural network layers, like the ones used for convolutions or recurrent connections, to perform well. Attention is all they need."

"Since the launch on Thursday, a bunch of people have compared plugins to Apple’s App Store, which paid developers $60 billion in 2022 (and likely took $15 billion for itself)."

"I think it has the potential to be much bigger than that, and I really don’t want to be yet another person who overhypes OpenAI, so I’ll spend this entire piece walking you through why I think so."

"In under a year, OpenAI has gone from under-the-radar and unsure-how-to-monetize to one of the most potentially dominant strategic positions and business models in the history of tech."

"As it stands today, if OpenAI chooses to, it can build the Apex Aggregator by building an Action Engine."

"The Action Engine subsumes search and any number of products that let users do things, and it does them for users with nothing more than a simple prompt."

"If Aggregators controlled demand and commoditized supply, the Apex Aggregator can control demand on multiple fronts, turn attention into actions, disaggregate any supplier that feeds it, and even aggregate the aggregators."

"OpenAI hits its partners from all angles:"

"Attention Grabber. ChatGPT is the front-end for OpenAI, the “aggregator” to which over 100 million users flocked within the first two months."

"ChatGPT will let OpenAI control demand for abundant resources, which are themselves tailored to OpenAI."

"Intelligence API. A number of new products are being built around OpenAI’s API and a bunch of incumbent products are re-architecting themselves around OpenAI’s API."

"Plugin Play. Products, whether built on OpenAI’s APIs or not, can now be plugged into ChatGPT itself (and potentially into OpenAI’s Intelligence API over time), turning the product into both platform and aggregator, and bringing more attention to ChatGPT."

"Unlike an App Store, which just lists apps but doesn’t ingest its capabilities, this essentially turns any plugin into an API that gives ChatGPT its company’s full capabilities."

"Developers building on the Intelligence API are relying on OpenAI for their core functionality, and plugin developers are handing their core functionality to OpenAI. In both cases, OpenAI gains more attention, reach, and power."

"In Defining Aggregators, Thompson wrote, “The key characteristic of Aggregators is that they own the user relationship.”"

"Owning the customer relationship lets aggregators commoditize their suppliers and capture more value from each transaction."

"ChatGPT (and GPT more broadly) takes this a step further and completely disintermediates its “suppliers.”"

"Google can show you any website its algorithm wants, and it can summarize the website in a prominent box up top, but its job is still to send people to websites."

"ChatGPT, on the other hand, reads most of the available content on the internet and spits out complete answers to any prompt right in the chat. It’s not just a starting point, but a destination for an increasing percentage of the things a user might want to do online."

"These companies are derisively called “GPT wrappers,” and many have wondered about their viability as venture-scale businesses."

"Plugging in an API makes a ton of sense when APIs deliver cloud hosting or payments or text messages or any number of things that every company needs to do but that don’t provide a competitive advantage."

"but for most of these products, it really feels like they’re breaking the Cardinal Rule of APIs: don’t outsource the thing that makes your beer taste better."

"Where this really becomes an Ouroboros is when products built using OpenAI’s APIs plug in to ChatGPT itself."

"Any product, entire big and small companies’ products, essentially become APIs that OpenAI’s users can automatically hook into their personal Action Engine."

"Namely, it provides access to up-to-date information, making it an even more viable alternative to search for a number of queries, and the Wolfram integration gives ChatGPT “computational superpowers.”"

"Second, as a bunch of people have pointed out, it’s OpenAI’s move into becoming a platform and building its own App Store."

"Most importantly, plugins will turn ChatGPT into one destination for nearly everything: search, discovery, travel planning, restaurant booking, gift shopping, first drafts, research, you name it."

"Importantly, unlike a traditional platform, through which users can find and download apps, ChatGPT consumes plugins and absorbs their capabilities into the main product. It’s a product as a platform, or a platform as one product."

"With third-party plugins, it becomes a platform on which all of the suppliers add more functionality to the platform itself, and in the process, send their demand to OpenAI’s attention grabber."

"But in the near future, booking could be as easy as sending a message if you trust ChatGPT enough."

"Plugins turn manual actions that take a bunch of searches and clicks to complete into something as simple as having a conversation with a smart person who understands what you’re going for, even if you’re not entirely clear yourself."

"If Google built a world historically amazing business by handing companies high-intent users, OpenAI could build something at least as good by turning that intent into action."

"It should be able to capture a fee on the transactions it drives, and in many cases, capture higher API fees on the other side as its Intelligence-API-using partners see more volume."

"You could even imagine that OpenAI could expose plugin capabilities in the Intelligence API, bringing plugins to all of the apps that build on top of it, turning it into a smart platform of platforms."

"If OpenAI optimizes for its ChatGPT users, though, it’s going to disintermediate a ton of businesses and force them into changing how they operate."

"It’s not hard to imagine, though, that once there’s been enough RLHF (Reinforcement Learning from Human Feedback), ChatGPT will cut out a bunch of those clicks in order to optimize the user experience."

"Once users don’t have to specify plugins, once they all come out of the box and ChatGPT searches among all of them for the product that best suits its users’ needs, Kayak will be crunched, in the same way that Kayak has crunched intermediaries in its own value chain."

"One of the reasons that aggregators work is that humans can’t parse a thousand different options themselves across all of the features that matter to them."

"Since those hotels and airlines and restaurants won’t have to pay fees to the aggregators when they go direct to ChatGPT, maybe they’ll be able to offer lower prices or better perks to people who book through ChatGPT."

"Maybe, when they have more confidence that they’ll be matched based on what they offer instead of simply the lowest price, they’ll focus on making their offering more differentiated so that they can appeal to the people looking for exactly a certain thing that they can offer."

"Taken to its logical conclusion, ChatGPT plugins will provide infinite choice without the Paradox of Choice."

"He pointed out that “Today, marketing is often *all* that distinguishes a product,” and I agree with him. It’s one of the main conclusions I came to in that Shopify & the Hard Thing About Easy Things piece."

"The differences among so many products come down to a little feature here and there, which are often drowned out by marketing and brand, because humans are more drawn to brands than we are to caring about little feature differences."

"Buyers can be rational, or can let ChatGPT be rational on their behalf"

"There’s more incentive than ever for suppliers to document and measure every attribute that matters and plug them into ChatGPT"

"Modular providers will have the incentive to be “good enough” on the attributes that matter to particular buyers, knowing that they can be matched to those buyers."

"In this world, I think I actually come to the opposite conclusion from Rex and Ben: Brand matters less than before. Actual differentiation matters more."

"ChatGPT both makes it easier for people to build Small Apps – it can create a barebones website from a sketch, or walk users through how to code up sites – and makes it easier for those Small Apps to find customers as long as they differentiate hard enough on certain attributes."

"Developers can build products that are really excellent at one particular thing people want, plugin to ChatGPT, and not worry about marketing the product or building a brand."

"There’s this famous phenomenon where a lot of restaurants started looking the same – neon signs, green walls, attractive dishes – because of Instagram."

"If I’m right, ChatGPT plugins might have an even bigger impact in the opposite direction."

"If enough people prompt, “Make me a reservation for whichever restaurant in New York has the best French Onion Soup,” there’s incentive for a restaurant to focus on making really fucking great French Onion Soup."

"The takeaway as I see it is that, again if OpenAI chooses to go this route, a lot of industries and value chains are going to be shaken up, and the winners will be the companies that focus on differentiation, on doing a specific thing really, really well, as opposed to those who do a lot of things pretty well and pump money into brand."

"Software products that organize complex workflows for companies will still retain a lot of customers and may find a lot of new ones through ChatGPT."

"The way websites have had to contort themselves to please Google’s SEO, brands won’t have a choice but to shoehorn their products to fit ChatGPT’s recommendations."

"It seems practically guaranteed, though, that this will be a boon for consumers: lower prices for commodity products and more differentiated offerings, easily discovered. It will likely be deflationary, too, as companies compete to deliver the best product for the lowest price even more extremely than capitalism has forced them to up to this point."

"OpenAI has stumbled into the best business model on the internet, if it chooses to pursue it."

"As the Apex Aggregator, it can capture massive amounts of attention, turn that attention directly into transactions for whichever plugins best suit its users’ needs, and capture a fee on every one of those transactions."

"If it chooses to, it can disintermediate any number of suppliers, push prices lower, and push differentiation and quality up."

"The best experience for users is the one that gets them exactly what they want with as little friction as possible."

"If it comes down to a choice between plugin suppliers and users, I think OpenAI will side with the users."

"How will users set up accounts and pay for everything without clicking through and purchasing at each plugins’ main site? (Sam Altman did start another company that’s building “the world’s largest identity and financial network as a public utility”... )"

"Which companies won’t be ripe for ChatGPT’s disintermediation? Certainly, there will be many companies that will thrive independently, unbothered, moisturized, in their lanes. What characteristics make up those companies?"

"Can ChatGPT become the default Action Engine before its bigger competitors can adapt?"

"Atomic AI is a perfect example of the kind of company we want to invest in at Not Boring Capital. It’s built on cutting edge science at the intersection of Bits and Atoms, has a path to becoming a $10B+ company, and as importantly, will bend the world’s trajectory upwards if it succeeds."

"Specifically, by unlocking the structure of RNA, Atomic AI could unlock the potential of RNA-targeting and RNA-based medicines, help cure previously incurable diseases, and save millions of lives."

"This binary battle between Bits and Atoms is not how we view the world at Not Boring."

"Atomic AI is building the foundation for AI-driven RNA drug discovery. It uses deep learning to predict the structure of RNA molecules in order to identify druggable targets."

"If Atomic AI is successful, it will unlock the potential of RNA-targeting and RNA-based medicine. That might mean cures for cancer, more efficient, effective, and safer vaccines, and the opportunity to save and improve millions of lives. Many of the diseases Atomic AI is going after are currently undruggable."

"The fact that DNA is a double helix with two separable strands gave direct clues into how information was replicated between cells in the body, and ultimately between parents and their offspring."

"The entire biotechnology sector—which now produces north of $500 billion in annual revenue in the U.S. alone—is a result of this paradigm shift."

"The broad success of structural biology as a discipline extends beyond the double helix and the advent of rational drug design. Over the years, many technologies rapidly improved. It became easier to produce proteins, crystallize them, and solve their structures."

"X-ray based techniques became much easier and more accurate, and computers got much faster. Entirely new technologies like electron cryogenic electron microscopy came on the scene. As researchers solved more and more structures, they poured them into the Worldwide Protein Data Bank (PBD)."

"Even with improvements to measurement tools, experimentally solving protein structures is more of an art than a science."

"One of the major inflection points for the adoption of the technology was when a deep learning model dominated the ImageNet computer vision challenge in 2012, blowing other approaches out of the water."

"This challenge was a perfect opportunity because there was a massive amount of labeled training images, and incredibly clear metrics for success."

"After searching for problems with similar characteristics, Hassabis and DeepMind found the CASP protein challenge. It met all the criteria. There was a large amount of annotated protein data for training, and a clearly defined and challenging prediction problem."

"Being able to predict the structure of proteins is a  big deal for biotechnology. As we’ve seen, there is a deep connection between structure and function in biology. With these models, it’s now possible to explore the total space of protein structures on a scale that was previously unimaginable."

"Structure leads to function, and new understanding of structures leads to new bursts of productive activity."

"With protein structure prediction effectively solved, we are now seeing an explosion of academic and commercial efforts to design new protein-based drugs, vaccines, and biomaterials."

"At its most fundamental level, I think biology can be thought of as an information processing system, albeit an extraordinarily complex and dynamic one. Taking this perspective implies there may be a common underlying structure between biology and information science - an isomorphic mapping between the two - hence the name of the company."

"Despite this enthusiasm, there were still important open questions to be addressed."

"The quality, centralized organization, and scale of data for protein structures is an anomaly in the life sciences."

"There, he experienced first-hand how a team of AI experts with little training in biology were able to solve the protein structure prediction problem that had taunted scientists for half a century."

"The magic, he recognized, was in how the organization was set up, or, to make it more coherent with our narrative, in DeepMind’s structure."

"Most people didn’t think that the problem was a good fit for AI. Other groups had steered away from the problem because of the lack of RNA structure data. Biologists have historically spent little time deeply thinking about RNA structure, assuming RNA was mainly a floppy string of bases carrying a message from DNA for the production of proteins."

"As he watched the RNA revolution unfold, it was clear that this type of technology had profound commercial promise—should he start a company instead? The model represented a potential solution to one of the major bottlenecks for targeting and designing RNA."

"It could potentially be a new superpower for drug designers targeting RNA, and for engineers developing the next generation of advanced therapeutics."

"As Pfizer / BioNTech and Moderna deployed their vaccines that used messenger RNA molecules to program the cellular production of COVID antigens, molecular biology became a topic of dinner table conversation around the world."

"mRNA is Programmable. It’s possible to encode any desired protein product in a messenger RNA sequence."

"mRNA Production is a Platform. The infrastructure built to synthesize and manufacture one mRNA vaccine can immediately be reused for another."

"Two paragraphs later, Raphael’s model is highlighted as the state-of-the-art AI approach to RNA structure prediction. Through a combination of careful problem selection, extremely hard work, and a nose for high impact, Raphael found himself again at the intersection of two intertwining threads—the AI revolution and the RNA revolution."

"Sequencing. With a rapid decline in DNA sequencing costs (faster than Moore’s Law), there is an abundance of information about potential genetic targets."

"Synthesis. DNA synthesis costs have also declined exponentially, large numbers of DNA and RNA molecules can be rapidly produced in the lab for testing."

"Scale. Blending Sequencing and Synthesis enables the generation of datasets at an entirely new Scale."

"Software. The Scale of data requires a totally new software stack, especially AI models capable of capturing complex biological relationships."

"The entire company is structured around this deep integration, and works across every layer of the measurement and modeling stack."

"What if we could rapidly design therapies for undruggable diseases with Atomic precision?"

"Internalize the Portfolio. Instead of developing one therapeutic and becoming a piece of a portfolio (or a big pharma acquisition target), Atomic AI plans to develop its own internal portfolio of hundreds of druggable RNA structures and therapeutic designs in the next few years."

"Increased Precision, Lower Cost. By better understanding the structure of RNA molecules, Atomic AI should see a higher success rate among its targets, and by using AI in place of teams of scientists working through trial and error, it should be able to identify those targets and design RNA-based therapeutics more quickly and cheaply."

"While they might be less familiar to the biotech uninitiated, platform companies are nothing new—The Column Group generated a 397% IRR from 2007-2015 investing in “drug discovery companies with unique scientific platforms.”"

"“We’re convinced that the smoother we can make the tight integration cycle of wet lab to computation, the faster we can move.”"

"It can take 10-15 years and an average of $985 million to bring a drug to market."

"Instead, the company plans to partner with pharma companies for the clinical development of its early assets in the near-term. These partnerships generate revenue in three ways:"

"Upfront Payments. Typically $5-10 million per target, with multi-target licensing agreements reaching as high as $190 million (Arrakis x Roche)."

"Milestone Payments. Pharma companies pay licensees as drugs reach certain development, regulatory, and milestones."

"Royalties. If a drug makes it to market, licensees can earn royalties on sales, typically in the ~5-10% range (although sometimes royalties can be much higher)."

"Over time, the Atomic AI vision is to expand ownership of the drug discovery pipeline as the platform matures."

"The AI model was able to do something similar to what DeepMind did for proteins with a lot less data."

"Of course, hard means risks. For Atomic AI specifically, the biggest open risk is that they’ve yet to actually license any assets to pharma companies. The first such agreement will be a big milestone."

"Once licensed, there’s the risk that its designs don’t yield results, which would limit revenue to upfront payments instead of more lucrative milestone and royalty payments, and significantly hamper the company’s ability to sign future licensing agreements."

"Finally, there’s the existential risk facing any AI company, and maybe any company at all, that AGI obviates the need for vertical-specific applications of the technology. What if we get one model to rule them all?"

"If Atomic AI is successful, it might help cure cancer by enabling drugs that target the MYC and KRAS genes involved in over 75% of cancers."

"Wifi on airplanes is simultaneously absolutely mind-blowing and incredibly frustrating."

"On one hand, the fact that we can get wifi aboard a metal bird flying 500 mph 36,000 feet in the air seems like one of the great technological feats of our lifetime."

"At ~$200K per year with a 1-time installation fee of $150K, it seems like a no-brainer for private jets that are often ferrying folks with hourly-rates higher than the annual subscription fee."

"If you want to keep up, we highly recommend Ben Tossell’s Ben’s Bites: “Your daily dose of what’s going on in AI. 5 minutes or less.”"

"Science experiment products face a lot of technical risk early on, and getting a product to market can take a lot of time and capital."

"Social experiment products face less technical risk and can get to market in months instead of years, but once launched, face the very real risks associated with relying on people as key components of the product."

"For AI, a science experiment, there’s nothing, nothing, nothing… then BOOM. A fully formed butterfly emerges from the chrysalis."

"For web3, a social experiment, little flints spark adoption, and adoption shapes the products."

"Social experiment products are forged in the public eye, with the inevitable ups and downs on display for the world to see. Science experiment products are forged in private, and enter public consciousness with most of the kinks worked out."

"It’s worth noting that many science experiments can fail once they hit the markets, either because they don’t actually work yet (see: Theranos), because they were too early (see: many, many failed science experiments), or because scaling experiments to commercial levels is difficult (see: hardware is hard)."

"People building social experiments have no such luxury. While technology plays an important role – blockchains, token standards, zero-knowledge proofs, and the like are all major technical innovations – people are a necessary component of the product itself."

"That means that while people building social experiments can tinker with their tech in private, they can’t simulate the full product experience in a lab and release a perfect product with all of the kinks worked out."

"It’s really hard to get the right people to use the right product in the earliest stages, and most network businesses fail because of this Cold Start Problem."

"That’s why hype is often a necessary ingredient to a social experiment product, and why progress in social experiment categories looks like a bunch of Hype Cycles strung together."

"One of the coolest things happening in the world right now is that a lot of science experiment categories are blooming simultaneously, often in concert with each other."

"In addition to AI, techbio, robotics, and renewable energy all seem to be jumping out of the lab and into the real world with products better than people would have expected and cost structures better than experts would have predicted."

"Social experiments live and die by Network Effects, the prize for dealing with all of the human messiness upfront for the few social experiments that make it to the other side. Network effects can become so strong that it doesn’t matter how bad the bits a company produces are, people will stick around (ahem, Facebook)."

"Start with a small niche, grow the density and connections among participants, and only then start adding on adjacent networks."

"limiting who can use the product to a tight core of like-minded people."

"That gives the product the chance to be as much like a science experiment as it’s possible for a social experiment to be, making and fixing mistakes in private with the collective input of people who care about the product."

"“In such a sluggish market, a genesis airdrop project is needed to stimulate the start of the next bull market.”"

"I hope that breaking frontier technologies into science experiments and social experiments, and looking at their respective curves, adds the right level of granularity to evaluate products and trends against the right criterion."

"I also have a thesis that AI will be web3’s ultimate best use case. People will need a way to own, permission, and benefit from their data as it feeds increasingly powerful models, and if open AI wins, decentralized ownership and governance of those models will be critically important."

"When someone figures out how to do something with one of these technologies for the first time, but before practitioners have dealt with the hard work of actually implementing them, the field of possibilities is wide open."

"People fucking love potential."

"When nothing’s been done, all possibilities are wide open."

"Take DAOs, which are going through their own mini-Hype Cycle."

"ZKPs essentially let someone prove that they know or have something without giving up any information about what they know or have."

"Because of all of the potential use cases, and because ZKPs are so hard to grasp, they are ripe for the Hype Cycle."

"What’s ultimately so promising about ZKPs is that they have the potential to eliminate a major trade-off inherent in living, working, and transacting online: the convenience, speed, reach, and scale of the internet in exchange for our privacy."

"The issues with this state of affairs are self-evident. Identity theft, email compromise, data breaches, and other forms of fraud cost individuals and businesses tens of billions of dollars per year and orders of magnitude more than that in spending on defense and prevention."

"The proliferation of data and its associated vulnerability has come to be an accepted cost of doing business as a participant in the modern, interconnected world."

"But what if there was a way to conduct these interactions and transactions with the same levels of trust and certainty without sharing all of this data?"

"Enter: the zero-knowledge proof."

"To quote the original paper defining zero-knowledge proofs, they “convey no additional knowledge other than the correctness of the proposition in question.”"

"Zero-knowledge proofs are not new: they were first designed and devised in the 1980’s by MIT researchers Shafi Goldwasser, Silvio Micali, and Charles Rackoff."

"The trio were working on a problem related to a concept called an interactive proof system. In such a system, there are two parties: a prover of some information and a verifier of that information. Generally in these systems, it is assumed that the prover cannot be trusted while the verifier can be."

"The verifier can be convinced of a true statement by an untrusted prover, and"

"That it is impossible for the prover to convince the verifier of an untrue statement."

"One of the first such applications, in the mid-2000’s, was the use of zero-knowledge proofs in password security."

"However, there is still an issue here: you are still disclosing your password to the server in the first place! Protocols for using zero-knowledge proofs to solve this vulnerability were uncovered over the course of the 2000s: some of the first examples of applying ZKPs to a real-world problem."

"In 2013 and 2014, zero-knowledge proofs found commercial application in another system that spent many years incubating in academia before being introduced to the world: cryptocurrency."

"Zcash, introduced in 2014 and launched in 2016, uses a specific type of zero-knowledge system to create a cryptocurrency that maintains the decentralized properties of something like bitcoin while introducing privacy-preserving properties much closer to those of physical cash -- which is to say near total lack of traceability."

"A new generation of efficient zero-knowledge proofs have been developed that solve many of the issues that previously surrounded the clunky, burdensome, expensive, and controversial setups of these systems."

"But ZKPs remained a niche interest for quirky mathematicians and cryptographers until there was a way to marry the technical and the commercial."

"Hype and speculation attract resources which help solve hard problems, fulfill the hype, and reward some speculators."

"Instead of dismissing hype and speculation, it’s worth understanding the purpose they serve. They make innovation possible."

"Satoshi’s real innovation with Bitcoin was solving the double-spending problem. When money is basically a digital file, how do you prevent someone from just making copies to pay a bunch of different people?"

"Bitcoin, both the technical innovation and the speculation it set off, unlocked enormous sums of financial and human capital and unleashed a financial renaissance."

"All the way back in the 1970s, Dr. Katalin Karikó saw the promise of mRNA, which passes messages from DNA to ribosomes about which proteins to make."

"Then, in 2020, Karikó’s work led to the development of Pfizer’s mRNA-based COVID vaccine, which will save millions of lives and generate billions of dollars in profit."

"Most of us fall into that first camp. Sure, we’ll update our passwords every once in a while, and we certainly prefer that hackers don’t steal our data, but maintaining real privacy when so much of our information lives online is more work than we’re willing to undertake."

"In other words, most of us are willing to trade privacy for convenience."

"Zero-knowledge proofs have the potential to eliminate the need for the trade-off and bring about a paradigm shift in the way we think about privacy."

"“Exactly who needs exactly how much information, and under what circumstances?”"

"They ask, “What if that data is never exchanged in the first place?”"

"There are projects today working on using ZKPs for proving credit scores among traders."

"The cool thing about ZKPs as they are being developed today is that they facilitate not only privacy functionality, but also selective disclosure of knowledge!"

"One major issue of blockchain scaling is that, after a while, blockchains become enormous in the amount of data they store."

"Novel designs of blockchains leverage ZKPs to do away with this problem. The entire history of transactions can be compressed down to a single proof."

"Rather than verify the whole ledger, now you can just verify the proof."

"A construction called zk-Rollups promises to reduce fees spent by users on Ethereum transactions and increase the throughput and scalability of the Ethereum blockchain."

"zk-Rollups lighten the burden of what must exist directly on the blockchain ledger, replacing all of the data that was previously required to be “on-chain” with a much cheaper and lighter-weight proof of that data."

"Cloud infrastructure, for example, could become a whole lot more secure using these ZKPs (no cryptocurrency required). Users could leverage cloud computing, for example, without ever exposing sensitive consumer data to the cloud providers."

"The most exciting part about catching something so early in the Hype Cycle is the new design spaces and opportunities for experimentation brought about by the Technology Trigger. It’s a time of imagination, when all of the things that could possibly happen still might happen."

"Anyone could remain pseudonymous and still prove that they have certain skills and qualifications, can pass a background check, and provide any number of other non-identifying pieces of information a hiring company or Liquid Super Team might need to know."

"Ethereum has strong network effects and will remain at the center of the web3 ecosystem as it continues to grow, creating more transactions and more fees"

"Ethereum is so much more than a cryptocurrency. It’s a “world computer,” and the “value layer” of the internet. It lets people build apps and products with money baked into the code."

"Right now, Ethereum is at a narrative inflection point, and narrative reflexivity is more important for blockchains than for almost any other company or asset."

"Owning ETH is like owning shares in the internet. Demand for ETH will go up with increased web3 adoption, while upcoming changes will decrease the supply of ETH and let more value accrue to holders. It’s like a tech stock, a bond, a ticket to web3, and money, rolled into one."

"Bitcoin is like a database. That’s what a blockchain is -- a distributed ledger of transactions. The Bitcoin blockchain lets people send each other bitcoin (BTC) and tracks who owns which bitcoin at any given time. It can also reward people for securing the database by giving them BTC for turning electricity into solutions to math problems (Proof of Work or PoW). It does one thing really well: track ownership of bitcoin."

"Ethereum is a Turing complete, programmable blockchain that lets anyone build full-blown applications using smart contracts. People can build all sorts of decentralized apps (dApps) on top of Ethereum, plugging into the blockchain and the surrounding ecosystem to provide everything from security to identity to payments."

"Decentralized Finance (DeFi) apps, NFT marketplaces, Decentralized Autonomous Organizations (DAOs), and games and virtual worlds can all be built on top of Ethereum, all fueled by the native currency, ETH."

"Ethereum’s early usability challenges are a function of its flexibility. Ethereum is something of a choose-a-phone, and clearly millions of people do want to compose for it."

"Beyond the product philosophy, there are some specific similarities between the two:"

"Turing Completeness."

"Composability."

"If something is Turing complete, it means that it can solve any reasonable computational problem."

"In Excel, “You can chain functions, passing the output of one function as the input to another, allowing for an enormous number of potential computational pipelines. Each time Excel adds a function, the power and flexibility of Excel is multiplied, since that new function can be chained to a large number of existing functions.”"

"Together, Turing completeness and composability mean that you can build smart contracts to compute anything, and then chain them together to build increasingly complex things, more quickly."

"Today, when you want to transact on Ethereum, you need to use ETH. There are currently around 116 million ETH, and the price is loosely governed by supply and demand."

"To keep Ethereum running, it uses a Proof of Work consensus mechanism to trustlessly agree on the state of the blockchain. Bitcoin also uses Proof of Work, that’s where Ethereum got it from, although Bitcoin mining is able to be run on cheaper hardware and has 20x more miners than Ethereum, and is therefore more decentralized."

"Challenges"

"It’s Slow."

"It’s Expensive."

"It’s Volatile."

"It’s Inflationary."

"It’s Environmentally Unfriendly."

"It’s Inefficient."

"Proof of Stake is a shift in how the network is secured, and who earns rewards. It means that instead of anyone in the world solving math problems to mine blocks, ETH holders can validate block transactions according to how many ETH they hold."

"Validators secure the network in exchange for yield in the form of tips and newly minted ETH. Ethereum claims that PoS will be more secure because validators will have ETH at stake, which can be destroyed if they try to cheat."

"Critics claim that staking puts more power into the hands of the people who hold the most ETH, making it less decentralized and therefore less secure."

"The Future: Triple-Point, Ultra Sound Money"

"Capital Assets are productive and generate value or cash-flow."

"Transformable/Consumable Assets can be consumed one time, transformed into another asset, and their consumption produces economic yield."

"Store-of-Value Assets are scarce, cannot be consumed, just transferred, and their value persists over time and space."

"How they occur simultaneously with Ether is beyond the scope here, what’s important to understand is the three phases in which Ether can exist:"

"Store of Value."

"ETH is locked up as collateral for DeFi transactions."

"Consumable Asset."

"Capital Asset."

"Legitimacy and Lindy"

"Since Ethereum kind of behaves like a business, with the added benefit of its own currency, we can analyze its strategic position like we would a business. It benefits from brand and network effects."

"Legitimacy is a pattern of higher-order acceptance. An outcome in some social context is legitimate if the people in that social context broadly accept and play their part in enacting that outcome, and each individual person does so because they expect everyone else to do the same."

"Legitimacy by performance: if the outputs of a process lead to results that satisfy people, then that process can gain legitimacy"

"Legitimacy by continuity: if something was legitimate at time T, it is by default legitimate at time T+1."

"Performance and continuity create the Lindy Effect, which says that the longer something lasts, the longer it can be expected to last."

"Legitimacy helps explain the Lindy Effect."

"Quality. Some things are just better than others, and the quality that allowed them to survive until now will allow them to continue to survive in the future."

"Network Effects. As people recognize the quality of a thing and as it lasts longer, more people use it, so more people build on top of it."

"iOS is an example of Two-Sided Platform Network Effects."

"While they’ve been doing it for years, that model is starting to show cracks."

"Twitter was atwitter over the fact that Apple will make more from ticketed Twitter Spaces than Twitter itself will."

"What makes Ethereum’s network effect potentially stronger, and potentially more long-lasting, is that it aligns incentives in a way that traditional software doesn’t."

"In Ether: A New Model for Money, Hoffman said that fees paid to Ethereum validators act as a wall that protects Ethereum: “The height of the wall is highly correlated with the total fees produced by the network. The height of the wall is the cost of attacking Ethereum.”"

"The implication is pretty wild: projects that build on top of certain blockchains are actually financially incentivized to support the value of the underlying blockchain in order to secure their project."

"That’s a Platform Network Effect unlike any other. It’s hard to imagine an app voluntarily paying to pump up Apple’s stock price."

"A platform is when the economic value of everybody that uses it, exceeds the value of the company that creates it. Then it’s a platform."

"On Invest Like the Best, a16z partner Chris Dixon explained how Flow and Ethereum might interoperate:"

"Imagine a world where you're playing a game, it has virtual goods, and those virtual goods are interacting with Flow. But then some of your virtual goods get really valuable. You say, ""You know what? I want to put these in the bank."" So you move them over to Ethereum, using a trustless bridge, which is a way for NFTs and cryptocurrencies to move across blockchains. And maybe I pay a little bit higher fee on Ethereum, because Ethereum makes a different set of trade offs. It's trading off performance for higher security."

"what Solana is trying to optimize for is instantaneous censorship-resistance over very short periods of time to create fair and open market access to data."

"He wants to build the execution layer for finance, not necessarily competitive with Ethereum, but with the New York Stock Exchange. Where those transactions settle, and where people hold their coins, doesn’t matter as much to him."

"Audius, the web3 music streaming platform, builds on both Ethereum and Solana. It issues and manages the $AUDIO token on Ethereum, but it runs upvotes and likes, things that need high speed and low-cost to work as well as a Web2 counterpart, on Solana, powered by the same engine used by some of the most sophisticated finance professionals in the world."

"something that I first thought was competitive with Ethereum is actually a complement. By optimizing for a high-speed trading use case not currently possible on Ethereum, Solana is bringing more financial activity on-chain."

"By enabling microtransactions like votes and likes, on-chain, and improving the user experience for products that also run on Ethereum, Solana is improving the web3 experience and onboarding more users."

"the supply of ETH will actually begin decreasing after EIP 1559 and the Eth2 merge."

"It will be easier and cheaper to transact. Lower transaction fees and faster transaction times should lead to more transactions."

"ETH will become a deflationary asset as demand for it increases"

"ETH will become a capital asset that earns holders high APR"

"Somewhere in between the micro and the macro, there’s a question: what if people outside of the early adopter set just don’t really care about decentralization?"

"What if more centralized solutions like Binance Smart Chain, which comes with a built-in user base of millions of people who trade on Binance, are decentralized enough and more performant?"

"On the micro side, Ethereum faces some real challenges. What if EIP 1559 doesn’t go through as planned? What if the Eth2 merge is delayed? What if sharding doesn’t work as planned, and creates more issues than improvements?"

"While L2 solutions hold the potential to dramatically improve performance, they present two main challenges, one to Ethereum, and one to ETH:"

"Ethereum: Adoption of fragmented L2 solutions may make composability more difficult, as execution happens in L2, settles on L1, and then goes back to another L2 for another part of the transaction. Ideally, one or two L2 solutions emerge victorious, but a world in which there are a number of L2s may strengthen Ethereum’s network effect while weakening the product experience."

"ETH. Layer 2 solutions are called rollups because they roll up a bunch of transactions into one transaction that settles on Layer 1."

"The Great Online Game is free to play, and it starts simply: by realizing that you’re playing a game. Every tweet is a free lottery ticket. That’s a big unlock."

"Getting good at the Great Online Game makes seemingly absurd things happen. Your business icon? In your DMs. That person whose videos you don’t miss? Just reached out for a collab. Your dream job? Reaching out to you to tell you why Company X might be a fit."

"You’re no longer playing as an avatar in Fortnite or Roblox; you’re playing as yourself across Twitter, YouTube, Discords, work, projects, and investments."

"There’s nothing I’ve done that anybody else can’t do. It’s about learning—learning the code, learning how the game works, & creating. All you have to do is start."

"The cost of failure is as close to zero as it’s ever been, and it will continue to fall. That’s true for entrepreneurship, and it’s even more true for the Great Online Game"

"when you start to play the Great Online Game, you’re just building optionality."

"Ask yourself: “What am I nerdiest about?” and then go find your fellow nerds."

"I think that Web3, a decentralized evolution of the internet. might hold the key, and that NFTs are a bridge between Web3 and the virtual economy of the Metaverse."

"It’s not about taking money out of the system, it’s about moving the money around to the people who create and the people who consume, and to the people who maintain and improve the network itself."

"And it’s about attaching each user’s data and money directly to them (Self-Sovereign Identity), creating a public record that they own what they own (blockchain), and letting them take it with them, and profit from it, wherever they go on the web (Interoperability)."

"Once they’ve built those network effects, though, and they know that users, developers, and businesses are locked in, they switch from “attract” to “extract.”"

"According to Dixon, “Cryptonetworks combine the best features of the first two internet eras: community-governed, decentralized networks with capabilities that will eventually exceed those of the most advanced centralized services.”"

"There are roughly 200 projects listed on DeFi Prime alone, each with their own unique features and infrastructure. This means that if you picked any 3 out of the roughly 200 listed tools, you’d have 1,313,400 different combinations to choose from to build a new financial product."

"NFTs solve that problem by leveraging the blockchain to prove ownership and authenticity of rare digital items."

"In another, more famous post, The next big thing will start out looking like a toy, Chris Dixon wrote:"

"The reason big new things sneak by incumbents is that the next big thing always starts out being dismissed as a “toy.” Disruptive technologies are dismissed as toys because when they are first launched they “undershoot” user needs."

"The Open Versus Closed Metaverse"

"By dematerializing the supply chain and selling directly to the end user, as represented by the Avatar, the D2A value chain removes entire steps - manufacturing, logistics, and support - and integrates R&D, Retail, and Marketing:"

"Retail. In the place of Shopify stores, designers might host their own fashion shows or auctions in virtual worlds built with the Unreal Engine."

"Marketing. Limited edition drops, the word of which spreads through Discord servers, might replace marketing through traditional digital channels like Facebook and Google."

"DAOs sit a level above NFTs -- DAOs can own NFTs and create NFTs, plus do a whole lot of other non-NFT things -- and have more transformative potential than NFTs."