This newsletter is going to explore the intersection of physics and web3. The easiest way to visualize an intersection is to think of the subjects at a very early stage, and with far enough advancements in both of them, there is an intersection but I just don’t know what it is yet. With this newsletter, every time my thought process matures enough and I realize that I am coming closer to this intersection, I’ll zoom out, acknowledge and dive back in. 

The approach I am going to take in writing this will require the reader to have an interesting imagination. In other words, the reader will think like a particle physicist working on the unification of the two grand theories (quantum theory and gravity). This physicist has to, as part of the process, take a step back and just think about what is on the table. Zooming out and thinking about these complex theories with very little mathematical wisdom and looking at the ideas with an open imagination. 

Physics and web3 are headed towards becoming more chaotic; both are headed towards increased entropy states, just like everything else in the universe. Packy at Not Boring laid the foundations of entropy theory, helping understand the web using a thermodynamic framework, and I want to explore it further. How is the entropy of a web3 as a system increasing?

In this example, the energy in a system can be analogically equivalent to capital in web3. As more capital is put into a system, the system tends towards disorder, given that the right environment is provided. When Mark Zuckerberg secured money from Peter Theil, The Facebook transitioned from a college social media portal to a worldwide social media company with hundreds of millions of users, making the internet a more chaotic place than it started off with. 

Constant influx of capital in the form of revenue being generated by the system accelerates chaos production because every time we take some of the capital and add it back to the system, there is more capital that needs to organize itself in the system. From acquiring Instagram and Snapchat and now building Reality labs, Meta is headed towards a much more disordered system than it started off to be. Primarily because there was constant capital being poured into the system, or in other words, there was a constant energy input.

An MIT physicist developed a mathematical formulation, based on established physics, that if an external source of energy constantly drives a group of atoms surrounded by a heat bath, this group of atoms will gradually restructure itself to dissipate more energy. Again, a business getting a constant source of capital, will gradually organize itself to become more efficient at generating capital. 

The formulation of the theory does not end there, though. He continues to describe this gradual restructuring which leads to matter acquiring key properties attributed to life. The theory perfectly extends to the internet except for this part. There is no way the internet gets so advanced that it becomes artificially intelligent :) 

This newsletter is full of radical ideas, just like every other newsletter in this series is going to be, but hear me out. The biggest, constantly discussed idea surrounding web3 is individuals being able to own a piece of the internet. Or make profits by being early users of a platform. These profits come in the form of airdrops. Very common in NFT/crypto projects, and this means money gets more dispersed throughout the web3 ecosystem. By definition, the increasing entropy of a system means that energy is more dispersed in the system and this checks out with our earlier analogy of energy corresponding to money. As the web3 system gets more complex with time, the money is increasingly more distributed in a system. This works out in an ideal world with no external disturbances, but in the real world, we find entropy wranglers.

Why is there constant money being runoff into turning the internet into a more chaotic place? What do VCs get out of having more disorders? I think the simplest way to think about it (in terms of entropy theory) is that VCs are not pouring money into the system to create more entropy, they provide the means for founders to turn into entropy wranglers. Founders find an opportunity in the chaos that they believe they can wrangle in and VC’s help them wrangle.  VC’s simply look at high entropic areas as opportunities for capitalization and provide the energy to carry out a reaction.

Entropy Wranglers

A fail-proof framework to evaluate any business model is a deep dive on how well the business wrangles entropy for their customers. My local store provides me with 1 hour delivery compared to Amazon’s 1-day delivery, but I still buy on Amazon because I know my Amazon shopping experience will be far more seamless (low-entropy) than my local store experience. 

Pipedream Labs is a startup promising hyperfast(30-second) delivery. Five years from now, when I am using pipedream to order my daily dinner, my life (and my kitchen) will be significantly less chaotic because of these wranglers. 

Think about crypto wallets. The volume of crypto transactions increased fast, and everyone was buying and selling on the blockchain. People had several public keys for different coins, and converting fiat to and from crypto was a process. Wallets solved this. A simple app where all your negative concerns about using cryptocurrencies seem less important: the entropy is contained (for you, and this is what you pay for)

An entropy wrangler found a chaotic opportunity and wrangled it. There is slightly less overall chaos because this wrangler has successfully contained some entropy in the crypto space using a new tool.

But there is a catch to using the entropy framework during startup evaluation. Is the entropy wrangling proposal realistic or are we oversimplifying? On Deck promised to wrangle massive chaos where they created a self-sustaining ecosystem of startup operations and development. This included everything from incubation, funding, employment, community, engineering. In an ideal world, On Deck was the funnel that everything startup-related would flow through and they would’ve wrangled the entropy. But they failed because their vision to wrangle was too ambitious. 

Their goal to become a complex funnel and help everything startup related flow-through was exciting but evaluating the goal using entropy theory helps piece together why they may have failed at this attempt. 

Incubation is complex, incubators like Y combinator are among the best incubators and this is their primary focus. Investing is also complex, a16z and Tiger global are leaders in investing but this is all their primary business model. Angel list focuses on angel investing and as a startup job board. Lenny provides a newsletter and a community. Buildspace provides education in specialized fields of study and helps students land jobs in those fields. Each one of these companies is wrangling some entropy in the startup ecosystem. On Deck had a grand vision to wrangle all of it at once. 

What happens to entropy when startups lay off?

Startups are just concentrated pockets of entropy and scientifically speaking, if this pocket pops, there is increased overall chaos. This is exactly what happened when the On Deck bubble exploded. They had entropy contained within their startup ecosystem but when they shed a part of their team, there was increased entropy in the tech world. More startups on the market, more engineers, PMs, investors ready to cut deals or get hired. 

Causality

In the last iterations of the web, every user now could read and write on the web. Users went from being able to instantly read information published on web pages to being able to edit these web pages and broadcast information. Before the web, the main sources of information were a few tv channels, newspapers and the radio. 

As time goes on, the internet will become increasingly disordered, only to be accelerated by the emergence of web3. Is web3 coming into existence because of this increased entropy and this iteration of the web was inevitable or did we stumble upon this new way of doing things and labeled it a new version of the web that is increasing entropy even further. I am researching causality in web 3 so expect a deep dive soon.

Keeping up with the increasing entropy

I think entropy theory is becoming more relevant with this new web iteration. The companies that keep up with this increasing entropy are the ones that will thrive during this new wave. Established TradFi companies like JP Morgan released the JP Coin because of the growth in demand and also the ease of use that comes with it. 

I get excited thinking about an increasingly entropic future because keeping up with this increasing entropy opens up opportunities for wranglers, both within and outside the tech world. Using entropy theory gives me a deeper understanding of the direction the web is headed in and helps me make better investing, working and research decisions. This is the first of several parts on entropy theory that I will write. And with the next edition, I hope to back this theory up with some math and graphs. With every edition, I hope to learn and teach more.

Have a good weekend, 

Rahim